Holding

The invoice prices shown in the importers' invoices shall be treated as the value for the purpose of assessment of customs duty under Section 14 of the Customs Act.

Summary

Mirah Exports Pvt. Ltd. and other importers brought ball bearings from SKF at discounts of 50‑70% to the published price list. The Customs authorities issued show‑cause notices alleging undervaluation and relied on the 1981‑82 price list, contending that discounts above 20% were not admissible under Section 14 of the Customs Act. The Additional Collector, after hearing the importers, accepted the invoice prices as the true value and directed assessment on that basis. The Customs Department appealed, and the Tribunal reversed the Collector’s order, fixing value as the list price less a 20% discount. On appeal, the Supreme Court held that the invoice prices reflected the ordinary sale price in international trade and therefore must be treated as the assessable value under Section 14, setting aside the Tribunal’s decision.

Issues considered

The appropriate basis for valuation of imported ball bearings under Section 14 of the Customs Act – invoice price versus price‑list price with a 20% discount limit.
Whether discounts exceeding 20% indicate undervaluation or are permissible under international trade practices.
Whether the revenue bears the burden of proving undervaluation when the importer provides evidence of market‑accepted discount policies.
Whether any special relationship between the importer and the foreign supplier affects the valuation.

Legislation cited

Customs Act, 1962s. 111(d), s. 111(m), s. 112, s. 14
Imports & Exports (Control) Act, 1947s. 3(2)

Subjects

customs valuationundervaluationSection 14price listdiscount policyball bearingsimport dutyinternational tradeburden of proof

Judgment

A MIRAH EXPORTS PVT. LTD.
v.
COLLECTOR OF CUSTOMS !

FEBRUARY 4, 1998

B [S.C. AGRAWAL AND G.T. NANAVATI, JJ.]
-..J, .....

Customs Act 1962, Ss. 14, lll(d), (m) 112 r!w Imports & Exports
(Control) Act 1947, S. 3(2)-Appellants importing ball bearings in bulk
quantities at discounts averaging 50% of those mentioned in price list of
c manufacturer-Authorities issuing show cause notices to appellants for
undervaluation of imports cleared on the basis of invoice value-Appellants
producing evidence to show that discount price was the normal invoice price
for a number of unconnected importers-Additional Collector in 1985
accepting explanation and holding charges not proved-Department
D appealing to Tribunal-Meanwhile in another set of show cause notices
Collector passing orders in 1986 and I 987 rejecting invoice value and
holding discount in excess of 20% of price list inadmissible-Appellants >-
appealing to Tribunal against later orders-All appeals disposed of by
Tribunal directing authorities to fix value as mentioned in price list less
20%-Held, on facts, prices mentioned in the invoices for imports of ball
E bearings shall be treated as value for purpose of assessment of customs duty
under s. 14.

The appellant in one appeal, ME, imported 15 lakh pieces of ball
bearings from SKF, Italy/Germany, after negotiating with PBT who were the
F canvassers for S, the other appellant. Pursuant to raids carried out in the
offices of S, the authorities served show cause notice in May, 1984 on the
appellants for misdeclaration of the value of the imported consignments and
consequently becoming liable to action under s. 111 (m), (d) and 112: of the
Customs Act, 1962 (Act) read withs. 3(2) of the Imports & Exports (Control)
Ad, 1947. The said show cause notice was based primarily on the price list
G for the year 1981-82 that was furnished by the Central Office of the Overseas
Suppliers to S, and recovered during the search, since the invoice value of
the goods imported by ME was 48.7% of the prices mentioned in tllle said
~-
price list.

The Additional Collector of Customs by an order in April, 1985
H discharged the notice and directed that the consignments in question be
580
MIRAH EXPORTS v. COLLEC. OF CUSTOMS 581
assessed on their invoice value. The department then appealed to the Tribunal. A
T Meanwhile, in regard to subsequent imports of ball bearings by S,
'
separate show cause notices were issued and orders were passed in December,
1986 and March, 1987 by the Collector who proceeded on the basis that the
price list did not show any discount sc,hedule and that the prices with the
discount upto 20% was discretionary and that any price which was less by B
.>.- ,... more than 20% of the price indicated in the list price cannot be admissible
while determining the assessable value under Section 14 of the Act. The
Collector held that for arriving at the assessable value under s. 14 of the
Act, prices indicated in the price list would be taken as the base and discount
upto 20% of the price list, depending on the quantity would be allowed. The
appellants appealed to the Tribuna!.
c
Dismissing the appeals of the appellants and allowing those of the
Department, the Tribunal directed the authorities to fix the value as mentioned
in price list of February, 1981 less 20% discount.
D
In this Court, the appellants contended that the Tribunal had not taken
-'- note of the documents referred to by the Additional Collector of Customs in
his order of April, 1985 which showed that other importers had been given
50% to 70% discount over the list price by SKF. The department supported
the Tribunal's finding that the invoice price had to be ignored in view of the
price list. E
Allowing the appeals, this Court

HELD : 1.1. The invoice prices as mentioned in the invoices for the
imports of ball bearings by the appellants shall be treated as the value for
the purpose of assessment of customs duty under s. 14 of the Act. (592-E] F
-~ 1.2. The prices mentioned in the invo1ces could be treated as the price
at which the goods were ordinarily sold in the course of international trade
and that it had been rightly accepted as the value for assessment purposes
under s.14 of the Act by the Additional Collector of Customs. Neither had
it been alleged nor had any material been produced to show that ME and the G
foreign suppliers had any interest in the business of each other. There was
---i-·· nothing to show that S had any interest in the business of AB-SKF.
[591-D-E]
Basant Industries v. Addi. Collector of Customs, Bombay, (1996) 81
ELT 195 SC; Collector of Customs, Bombay v. Nippon Bearings (P) Ltd., H
582 SUPREME COURT REPORTS [1998] 1 S.C.R

A (1996) 82 ELT 3 SC; Commerce International v. Collector of Customs, (1995)
7 EL T 20 SC 11nd Union of India v. Mahindra & Mahindra Ltd., (1995) 76
ELT 481 SC, referred to.

Sharp Business Machines Pvt. Ltd v. Collector of Customs, (1990) 49
ELT 640 SC and Padia Sales Corporation v. Collector of Customs, (1993)
B 66 ELT 35 SC, distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 47 of
1990 Etc.

From the Judgment and Order dated 4.9.89 of the Customs, Excise and
C Gold (Control) Appellate Tribunal, New Delhi in appeal from C/1926 of
1985-A.

Harish N. Salve, Jimmy Pochkhanawala, Mahesh Agarwal, G.P. Srivastava,
Ravinder Narain, Ms. Amrita Mitra, Ms. Manisha Nigam, Amit Bansal, M.
D Gauri Shanker Murthy, Heman! Sharma, R.N. Verma and V.K. Verma for the
appearing parties.

The Judgement of the Court was delivered by

S.C. AGRA WAL, J. These appeals have been filed against the judgment
E of the Customs, Excise & Gold [Control] Appellate Tribunal [hereinafter referred
to as 'the Tribunal'] dated September 4, 1989. They raise the question whether
there was undervaluation for the purpose of levy of customs duty under
Section 14 of the Customs Act, 1962 [hereinafter referred to as 'the Act'] in
the invoices of the various consignments of ball bearings which were imported
by the appellants.
F
Skefko India Bearing Co. Ltd. [hereinafter to as 'the Skefko'], appellant
in C.A. Nos. I 030-34/90, are importers of ball and roller bearings. They also
act as intending agents for marketing of imported ball bearings for and on
behalf of AB-SKF, Sweden. Ball bearings of various types are manufactured
G by AB-SKF in Sweden and by their subsidiary companies in U.K., Germany,
France and Italy. Skefko book orders from different types of customers which
can be classified into three categories:

(a) Original Equipment Manufacturers [OEM]; l
H (b) Replacement user - also described as Actual Users (Aus); and
M. EXPORTS v. COLLEC. OF CUSTOMS (S.C. AGRAWAL, J.] 583
(c) Dealers who import for stock and sale. A
In addition to this Skefko book orders on their own behalf for stock and
sale in India. Ball bearings could only be imported against an import licence
and in order to secure a large volume of orders, agents were required to
contact the licence holders and secure their orders for the purpose -of
consolidating these orders into one large order. Skefko had appointed persons, B
~ )--- described as "Canvassers", who would go round the market and secure large
volume of orders. Punjab Bearing Traders were appointed as one such
canvasser by Skefko.

Mirah Exports Pvt. Ltd. [hereinafter referred to as 'Mirah Exports'], C
appellant in C.A.No. 47/90, is a private limited company incorporated under
the Companies Act, 1956, carrying on business as importers, exporters and
manufacturers' representative at Bombay. In July and September, 1982 Mirah
Exports contacted Skefko for purchase of approximately 15 lakh pieces of ball
bearings from SKF from Italy/Germany. The entire negotiations for purchasing
the said goods were carried out by Mirah Exports with Punjab Bearing Traders. D
Out of the goods contracted to be purchased by Mirah Exports, 24
consignments of ball bearings were imported by Mirah Exports from SKF;
Italy and SKF; Germany and the balance quantities were imported by Skefko
in the months of November, 1982 and January, 1983. The Bills of Entry in
respect of 24 consignments imported by Mirah Exports were submitted to the E
Collector of Customs, Bombay in the months of November, 1982 and January,
1983 and the same were noted. Clearance was sought against 22 import
licences held by Mirah Exports. On or about June 22, 1983, pursuant to certain
information, the officers of the Enforcement Directorate carried out search at
the premises in Bombay of: [i] Skefko; [ii] Associated Bearings Co. Ltd.; and
[iii] Shri Kishan Chand, the President of Skefko. During the said search certain F
documents were seized by the Enforcement Directorate. After further
investigation a show cause notice dated May 31, 1984 was issued to [i]
Skefko; [ii] Mirah Exports; [iii] Punjab Bearing Traders; and [iv] the clearing
agents of Mirah Exports. In the said show cause notice it was stated that by
undervaluing, Mirah Exports had misdeclared the value for bearings nos.
6201,6202,6203 including shielded bearings in each of24 Bills ofEntry which G
misdeclaration had rendered all the 24 imports liable for action under Section
-·-·r 11 l(m) of the Act and that in respect of the goods, so under-valued to the
extent as indicated in the said show cause notice, no import licences had been
produced and in the absence of any import licence in respect of such goods
in each consignment, such goods had apparently become liable for action H
584 SUPREME COURT REPORTS [1998) 1 S.C.R.

A under Section 11 l(d) of the Act read with Section 3(2) of the Imports &
Exports (Control) Act, 1947 and that Mirah Exports, Punjab Bearing Traders
and Skefko had done or omitted to do certain acts, which acts of commission/
omission had rendered the goods liable for confiscation and that they had
thus become liable for action under Section 112 of the Act. The parties
B mentioned above were required to show cause to the Collector of Customs,
Bombay as to why the goods detailed in Annexure 'A' to the show cause
notice should not be confiscated under Section 111 (d) of the Act read with
Section 3(2) of the Imports & Exports (Control) Act, 1947 and also under
Section 11 l(m) of the Act and why penal action should not be taken against
them under Section 112 of the Act. The said show cause notice was based
C primarily on the price list for the year 1981-82 that was furnished by the
Central Office of the Overseas Suppliers to Skefko since the invoice value of
the goods imported by Mirah Exports was 48.7% of the prices mentioned in
the said price list. It was claimed that the price list was recovered during the
course of search that was conducted by officers of the Enforcement Directorate
on or about June 22, 1983.
D
Replies to the said show cause notice were submitted by Mirah Exports
as well as Skefko. Mirah Exports, in their reply to the said show cause notice,
stated that they were not <..vare of any price list in use by Skefko; since the
quantity being imported was about 5 lakh pieces of each type reduced prices
E had been given by the suppliers; the imports by Mis Crompton Greaves,
Mahindra & Mahindra and Jay Engineering Works, who had been importing
quantities from 10,000 to 50,000 pieces, had been at similar prices and that
even the Government undertakings like BHEL, Hindustan Tele-Printers and
other public limited companies had been offered discounts ranging from 50%
to 70% and the invoice prices were favourably comparable with similar bearings
F from other countries like USSR, Romania, Czechoslavakia and Japan. Skefko,
in their reply to the show cause notice, submitted that Mirah Exports were
not required to pay any amount over and above the invoice prices; the prices
charged in the invoice were in consonance with the pricing policy of the
company; the exchange rate difference had caused variation of approx. 27%
G over their prices in 1981-82 for US Dollar when compared with the exchange
rate applicable to DM; and the local agent have a discount upto 20% and for
any higher discount, prices had to be accepted for each import by the
supplier.

The Addi. Collector of Customs by his order dated April 16, 1985
H discharged the notice since the charges set out in the show cause notice
M. EXPORTS v. COLLEC. OF CUSTOMS [S.C. AGRAWAL, J.] 585
failed and directed that the consignments in question be assessed on their A
invoice value. The Addi. Collector of Customs has found that the appellants'
herein, particularly during the personal hearing, had led substantial evidence
to chronologically show that despite the said price list there was a development
of a new sales and pricing policy for not only India but the world over, after
exchange of numerous correspondences and personal discussions during B
visits of representatives of the seller and that this policy distinguished between
following categories of buyers on logical commercial grounds:

(i) Replacement users who order small lots at infrequent intervals;

(ii) Original Equipment manufacturers (OEMs) who import for fitment
in their manufactured products and for this build up inventories C
with sizeable orders after securing favourable prices between
various competitors and in view of their sizeable orders and the
competition involved, the sales policy allowed upto 20%
'• discounts (on quantity) upon the prices of the said price list;

(iii) Canvassers and Skefko, who import in even greater bulk for the D
. ..(. purposes of only trading and may secure even lower price,
particularly if they generated additional volumes of sales.

This policy was aimed at a more aggressive marketing objective and
envisaged discounts even over 20% (but on the approval of the sellers on
a case-by-case basis, on reference to them). E
The Addi. Collector held that since the documents which had been
referred by the appellants to evidence the existence of the said policy were
valid and acceptable since they were from amongst those which were seized
by the Enforcement Directorate and on some of which even the department
had based its case. The Addi. Collector found that apart from Mirah Exports, F
a number of other importers, viz., Skefko, Amul Engg., Krishna Engg. Works,
Delhi, Jayaveer Forge, Davangere, Ajay Trading Co., Delhi, Ramgopal Lachmi
Narayan, Bombay, Sanmukh Engineering Industries, etc. had also imported
comparable quantities of similar bearings at the same (or lesser) prices as
those of Mirah Exports and the mere fact that the prices charged to buyers
through Punjab Bearing Traders is as low as 48. 7% of the price list does not G
prove anything by itself. The Additional Collector also found that the evidence
produced by Mirah Exports, along with their reply to the show cause notice,
shows that 50 to 70% discount over the list prices were the normal invoice
prices for a number of unconnected importers during that period (including
a public sector institution) and that there is nothing abnormal in the alleged H
586 SUPREME COURT REPORTS [1998] l S.C.R.

A 51.93% discount averaged by Punjab Bearing Traders. While referring to the
provision contained in Section 14 of the Act, the Addi. Collector held that
quantity discounts· is a recognized feature of international trade practices and
that different prices for different commercial levels of import is supported by
international trade practices and that as iung as those discounts are uniformally
B available to all and based on logical commercial basis they cannot be denied
under Section 14. It was observed that there was nothing in the documents
evidencing the new sales policy to show that it is a restricted policy not open
'
to all canvassers. It was held that the policy of selling additional volumes at
higher discount is totally within the ambit of the expression "in the course
of international trade" in Section 14 of the Act and that it also does not, by
C itself, constitute any special interest between the buyer and seller in the
business of each other and that on the contrary it is a contract based on the
seller's considerations of his own profits and continuance of industry in the
teeth of fierce international competition and the buyer's considerations of
obtaining goods of acceptable quality at the lowest possible prices. The
Addi. Collector also held that the Department has not been able to prove
D beyond doubt that a special relationship exists between supplier [M/s SKF] .}.._ ,

and the importers [Mirah Exports] through the media of Skefko and Punjab
Bearing Traders inasmuch as no evidence was forthcoming to prove that
there is any interest in the business of each other e.g. due to share holdings,
royalty, common directorships, family relationship, etc. and there is also no
E evidence available to prove or even create a doubt that any illegal relationship
exists in the subject transaction i.e. that any extra sums have been unofficially
passed on by the buyer to the seller either directly or indirectly through the
canvassers/indenting agents.

In pursuance of the orders dated June 7, 1985 passed by the Central
F Board of Excise & Customs, the Collector of Customs presented three appeals
against Skefko, Mirah Exports and Punjab Bearing Traders against the order
of the Addi. Collector before the Tribunal. The said appeals were registered
as Appeal Nos. C/1925/85A, C/1926/85A and C/1927/85A.

G Skefko had also imported ball bearings on the basis of import licence
issued in its favour under invoice dated May 20, 1983 from SKF-Germany and
under Invoices dated March 17, 1983 and April 29, I 983 from SKF-Italy. In
addition M/s Rajkumar & Co. had imported one consignment of bearing of
SKF brand part .No. NU 209 under invoice dated July 31, 1984. Separate show
cause notices dated January 30, 1984, February 3, 1984, March 29, 1984 and
H October 21, 1986 were issued by the Collector of Customs, Bombay in resp_ect
M. EXPORTS v. COLLEC. OF CUSTOMS [S.C. AGRA WAL, J.] 587
A
-
of the said imports. Skefko filed its reply to the said show cause notices. On
y- the basis of the said show cause notices separate orders dated March 20,
1987 were passed in respect of the show cause notices dated January 30,
1984, February 3, 1984 and March 29, 1984 and order dated December 5, 1986
was passed in respect of the show cause notice dated October 21,1986. In the
said orders the Collector of Customs took a view contrary to that taken by B
, the Addi. Collector in his order dated April 16, 1985. The Collector of Customs
'• proceeded on the basis that the price list does not show any discount
schedule or reduction in the price for any reasons, i.e., cash discount, trade
discount or quantity discount and that from the record seized it is seen that
Skefko were entitled to 6% commission on the c.i.f. value 'if the invoice prices
are as per the list price and that if the invoice prices are with the discount C
higher than 20% they are entiiled to 3% commission only and that the prices .
with the discount upto 20% is not available to everyone but is discretionary
discount to be given by the importers with utmost discretion and that any
price which was less by more than 20% of the price indicated in the list price
was a special price and that such discount is not available to all and hence
it cannot be admissible while detennining the assessable value under Section D
14 of the Act. He further held that the importers had not made out any case
of quantity discount at pre-deiennined level available to all customers exceeding
certain quantity or value limit. The Collector was of the view that a special
· price for bulk purchase is not a quantity discount and is not a percentage of
a basic price and that it could.at best be a negotiated price arid nonnally even E
such a price will not be accepted under Section .14 of the Act, unless it is
shown that it is the price at which such or like goods are nonnally sold or
offered for sale in such quantities at the time and place of importation. The
Collector has also referred to one of the seized documents, namely, "Fixation
of Price Level Objective for 1983" and has observed that the said document
shows sales to Kirloskar Electric, Bangalore of Bearing for c.i.f. value of Rs. F
22,43,000 at 0.5% discount oflist price, to Mis Premier Automobiles Ltd.'for
c.i.f; value of Rs. 20,64,000 at a price 30% higher than the list price, to Eicher
Good Earth.for c.i.fvalue of Rs. 20;36,000 at a discount of20% of the price·
list as against the sales to Punjab Beai-irig Traders of Rs. 9,21,000 at 48.7%
discount. The Collector has o.bserved tha't this cleatiy, shows that discounts G
given for even larger quantity or value is not more than 20%. According to·
the Collector, the contention of the importers that only negotiated price which
is actually paid should be the assessable price is therefore not tenable and
is contrary to the pi:ovisions of Section 14 of the Act and that once it is
established that for the similar quantity, discounts not exceeding 20% is
nonnally given, place and period of import being same, discount more than H
588 SUPREME COURT REPORTS [1998] I S.C.R

A 20% becomes .inadmissible in arriving at assessable value. The Collector,
therefore, held that for arriving at value for assessment purposes in terms of
Section 14 of the Act prices indicated in the price list No.821 I for 1982 will
-Y
-
be taken as the base and if discount is allowed upto 20% of the price list,
depending upon the quantity, the same can be accepted. This being an old
case, where the goods have already been cleared provisionally, the Collector
B refrained from taking any action under Section 111 (d) of the Act and further --.( "
held that since the importers declared their special relationship with the
supplier and, therefore, special price charged cannot be treated as
misdeclaration as the importers have paid the amount only due to their special
relationship, charge under Section I I I (m) of the Act was also dropped.
c Feeling aggrieved by the aforesaid orders of the Collector of Customs, Skefko
filed four appeals [Nos. C/1473/87-A, C/2426/87-A, C/2435/87-A and C/2472/
87-A] before the Tribunal.

All the 7 appeals have been disposed of by the Tribunal by the impugned
judgment dated September 4, I 989. The Tribunal has dismissed the appeals
D filed by Skefko against the orders of the Collector of Customs dated December >- ...
5, I 986 and March 20, I 987 but has allowed the appeals filed by the Collector
of,Customs against .
the order of the Addi. Collector of Customs dated April
16, 1985. The Tribunal has directed the revenue authorities to fix the value
as mentioned in price list No. 8 I 02 dated February 15, I 98 I less 20% discount.
The Tribunal has also found that there is violation of provision of Section
E
11 J(d) and Section I I J(m) of the Act and has difected the Collector of
Customs to fix the quantum of fine and penalty keeping in view the gravity
of the offence and the margin of profit. The Tribunal has proceeded on the
basis that the.genuineness of the price list No.8102 dated February 15, 1981
has not been doubted by the appellants and that reliance could not be placed
F on the pricing policy of the foreign supplier of the appellants and that the
invoice price could not be accepted in view of the said price list. According ....-
to the Tribunal 20% discount is the normal discount. Feeling aggrieved by
the said decision of the Tribunal, the appellants have filed these appeals. The
Tribumll has not taken note of the documents referred to by the Addi.
Collector of Customs in his order dated April 16, 1985, showing that other
G importers had been given 50% to 70% discount over the list price by SKF.
"""'(-

Shri H:N. Salve, the learned coun_sel appearing on behalf of the
appellants, has urged that burden lies on Revenue to show that the invoice
price does not represent the true price of the goods and that there is an
H under-valuation and that in the present case Revenue has not adduced any
r-

M. EXPORTS v. COLLEC. OF CUSTOMS [S.C. AGRA WAL, J.] 589

...._ evidence except the price list No.8102 dated February 15, 1981 which was A
,,, found among the documents seized during the course of search and seizure
of the premises of Sketko, etc. It was submitted that on the basis of the said
price list only it could not be said that the value as indicated in the invoices
was not the corrl'ct value of the goods which were imported by the appellants.
It has also been urged that the Addi. Collector of Customs in his order dated
~ April 16, 1985 has taken into consideration the evidence that was produced
B
~ by the appellants to come to the conclusion that the invoice prices represent
• a proper basis for valuation of the consignment for the purpose of assessment
under Section I 4 of the Act and neither the Collector of Customs nor the
Tribunal have taken note of the said evidence and that in view of the said
evidence it could not be held that the invoice prices cannot be made the basis c
for valuing the consignment for the purpose of assessment under Section 14
of the Act. It has been urged that the price list of the supplier does not
preclude the supplier and the importers from negotiating at a lower price
keeping in view the quantity of the bearings to be imported and that the
Collector of Customs was in error in holding that such negotiated price was
D
lA._ not. permissible for the purpose of assessment of the value of the goods
under Section 14 of the Act. It was also urged that the Tribunal was in error
in holding that the reliance could not be placed on the pricing policy of the
foreign supplier. Shri Salve has submitted that at the relevant time SKF was
facing stiff competition from other manufacturers and the prices of SKF were
higher than those quoted by Japanese manufacturers of bearings and· that E
this fact is borne out by the documenis that were seized during the course
of search of the premises of Sketko, etc. The learned counsel has placed
reliance on the decisions of this Court in Basant Industries v. Addi. Collector
a/Customs, Bombay, (1996) 81ELT195 SC; Collector of Customs, Bombay
v, Nippon Bearings (P.) Ltd., (1996) 82 ELT 3 SC and Union of India v.
F
Mahindra & Mahindra Ltd., (1995) 76 ELT 481 SC .
.'(
Shri Gauri Shanker Murthy, the learned counsel appearing on behalf of
the Revenue, has submitted that the Tribunal has rightly, ignored the. invoice
price in view of the price list of the foreign supplier, the genuineness of which
is beyond doubt. The learned counsel has placed reliance on the decision of G
this Court in Sharp Business Macliines Pvt. Ltd. v. Collector of Customs,
r (1?90) 49 ELT 640 SC; Padia Sales Corporation v. Collector of Customs,
(1993) 66 ELT 35 SC and Commerce International v. Collector of Customs, .,
(1995)7 ELT 20 SC.

The legal position is well settled that the burden of proving a charge H
590 SUPREME COURT REPORTS (1998] l S.C.R.

A of under7valuation lies upon Revenue and Revenue has to produce the
necessary evidence to prove the said charge "Ordinarily the Court should
proceed on the basis that the apparent tenor of the agreements reflect the real
state of affairs" and what is to be examined is "whether the revenue has
succeeded in showing that the apparent is not the real and that the price
B shown in the invoices does not reflect the true sale price." See : Union of
India v. Mahindra & Mahindra, (supra), at p. 487. -<
In the present case the only evidence that was adduced by Revenue
in support of the charge of under-valuation is the price list No. 8102 dated
February 15, 1981 which was found during the course of search in the
CJ premises of Skefko, etc. that was conducted by the officers of the Enforcement
Directorate on or about June 22, 1983. The price list does not even mention
about the discount of 20% that has been allowed by the Tribunal in the
impugned judgment. The matter of discount to be given on the prices indicated
in the price list is actually mentioned in other documents that were seized
during the search. The said documents include the various letters and telexes
D received from SKF Oversees Bearings Division, Sweden which indicate the
new pricing policy of the foreign supplier. As pointed out by the Addi.
Collector o.f Customs in his order dated April 16, 1985 the said documents
show that 20% discount is allowed to the original equipment manufacturers
who impor~ for fitment in their manufactured products and for this build up
E inventories with sizeable orders after securing favounible prices between
various competitors but as regards canvassers and Skefko, who import in
even gre:iter bulk for the purposes of only trading, the policy envisaged that
they may even secure lower price particularly if they generated additional
volumes of sales. The documents seized during the search and seizure that
were produced by the appellants before the customs authorities (genuineness
F of which was accepted by the Addi. Collector of Customs) show that apart
frotn Mirah Exports a number of other importers namely, Skefko, Amul Engg.,
Krishna Engg. Works, Delhi, Jayaveer Forge, Davangere, Ajay Trading Co.,
Delhi Ramgopal Lachmi Narayan, Bombay, Sanmukh Engineering Industries,
etc. has also imported comparable quantities of similar bearings at the same
G or lesser prices as that of Mirah Exports and that discount from 50% to -70%
on the list prices was the normal invoice price for a number of unconnected
importers during the period. The Collector of Customs, while passing the
order dated December 5, 1986 and March 20, 1987 and the Tribunal in the
impugned judgment have not taken note of the said documents and the fact
that the importers had been given 50% to 70% discount on the prices indicated
H in the list price.
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M. EXPORTS v. COLLEC. OF CUSTOMS [S.C. AGRAWAL, J.] 591

Jn Basant Industries [supra] this Court has pointed out that "in the A
business world, considerations of relationship with the customer are also a
relevant factor" and that "a price which is offered by a supplier to an old
customer may be different from a price which the same supplier offers to a
totally new customer". In that case, the Court, on the basis of the
correspondence that had ensued between the supplier and the importer,
found that there was some bargaining before the price was finalised and that B
the price mentioned in the invoice that was agreed was in view of the quantity
that was being imported by the importer. Thus it is not unusual for a foreign
supplier to give a higher discount to an importer who is importing a much
larger quantity and merely because such a discount has been given by the
supplier it cannot be said that .there has been any undervaluation in the C
invoice.

Section 14 ofthe Act prescribes that valuation of goods for the purpose
"" of assessment has to' be made at the price at which such goods or like goods
are ordinarily sold, or offered for sale for delivery at the time and place of
' ..(_ importation or exportation, as the case may be, in the course of international D
trade, where the seller and the buyer have no interest in the business of each
other and the price is the sole consideration for the sale o.r offer for sale. In·
the present case neither has it been alleged nor has any material been produced
to show that _Mirah Exports and the foreign suppliers have any interest in the
business of each other. As regards Skefko it has been pointed out that AB- E
SKF, Sweden holds 39.8% of the share capital in Skefko but there is nothing
to show thai Skefko has any interest in the business of AB-SKF. Moreover
it is of no consequence in the present case because the invoice price at which
·the imports were. made by Skefko were the same at which Mirah Exports and
other importers had imported and no special price was given to Skefko for
import. In tlJ.ese circumstances, we are of the opinion that the invoice prices F
as mentioned in the invoices could be treated as the price at which the goods
are ordinarily sold or offered for sale in the course of international trade and
that it had been rightly accepted. as the value for assessment purposes under
Section 14 of the Act by the Addl. Collector of Customs.

In Sharp Business Machines Pvt. Ltd., [supra) the invoice value was not G
accepted as the. real value of the go<?ds which were imported in view of the
special facts and circumstances of that case, It was found that the appellant
1
company in that case had tried to practise a fraud in ·defeating the import
policy relating to import of Copiers wh:cb enabled the new entrepreneurs.
establishing small scale industries to import, in the first phase, 62% of the H
592 SUPREME COURT REPORTS [1998] 1 S.C.R.

A components of the copiers and the balance of the 38% was to be manufactured
by them indigenously. In that case it was found that the appellant company
had purchased 14 fully finished Plain Paper Copiers of Japanese origin in
Hong Kong and Singapore and had them dismantled in Hong Kong for
importing the same in the guise of the components of the copiers and thereby
B the company not only had violated the terms and conditions of the licence
but had also committed a fraud on the Import Policy itself in importing the
fully finished copiers which was totally prohibited item for import. The finding \.---
,...
about undervaluation in the invoices was arrived at on the basis of prices '
mentioned in quotations of the authorised agents of the manufacturers and
it was held that there was no question of supplying the components of the
C copiers on a lower price than given by the manufacturers themselves. The
decision in Sharp Business Machines '[supra] has, therefore, no application
to the facts of this case. Similarly the decision in Padia Sales Corporation
[supra] and Commerce International [supra] which were decided on their own
facts have no application to. the present case.
D In the result, the appeals are allowed, the impugned judgment of the
Tribunal is set aside and it is held that the invoice prices as mentioned in the
invoices for the imports of ball bearings by the appellants shall be treated as
the value for the purpose of assessment of customs duty under Section 14
of the Act. No order as to costs.
E
S.M. Appeals allowed.

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