Holding

The transaction value, i.e., the price actually paid, must be accepted under Rule 4(1) unless it falls within the exceptions of Rule 4(2); a commercially permissible discount does not create a special circumstance, and a price list alone cannot defeat the declared transaction value.

Summary

Mis Eicher Tractors Ltd imported a five‑year‑old stock of bearings from a Japanese vendor at a 77% discount and declared the price actually paid in its Bill of Entry. The Assistant Commissioner of Customs rejected the declared value, deeming the discount abnormal, and instead fixed the value using the vendor's price list with a maximum 30% discount under Rule 8. The Customs Tribunal upheld this assessment. The Supreme Court held that, under Rule 4(1) of the Customs Valuation Rules, the price actually paid is the transaction value and must be accepted unless it falls within the specific exceptions listed in Rule 4(2). A commercially permissible discount, even if large, does not constitute a special circumstance, and a price list alone cannot override the declared transaction value. Consequently, the Tribunal’s order was set aside and the appeal was allowed.

Issues considered

The customs authority may reject the transaction value declared by the importer and determine value under Rule 8 based solely on the vendor's price list when a large discount is given.
Whether a 77% discount on old stock is a 'normal' commercial discount under the Customs Valuation Rules.
Interpretation of Rule 4(1) and Rule 4(2) regarding the mandatory acceptance of the price actually paid and the scope of the exceptions.
Whether a price list constitutes conclusive evidence of the ordinary sale price for customs valuation.

Legislation cited

Customs Act, 1962s. 14(1), s. 14(1A), s. 14(2)
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988s. 2(j), s. 3(i), s. 3(ii), s. 4(1), s. 4(2), s. 5, s. 6, s. 7, s. 7A, s. 8

Subjects

customs valuationtransaction valuediscountprice listRule 4Rule 8special circumstancesimport dutyCustoms Actordinary sale price

Judgment

MIS. EICHER TRACTORS LTD., HARYANA A
v.
COMMISSIONER OF CUSTOMS, MUMBAI

NOVEMBER 14, 2000

[A.P. MISRA AND RUMA PAL, JJ.] B

Customs Act, 1962-Sections 14(1), 14(2), 14(/A)-Customs Valuation
(Determination of Price of Imported Goods) Rules, 1988-Rules 2(j), 3(i),
3(ii), 4(1), 4(2), 5, 6, 7, 7A, 8-Appellant importing a jive year old stock C
of bearings from the foreign vendor at a discount of 77%-Assistant
Commissioner of Customs holding that the 77% discount was not normal and
instead, determined the price of the bearings based on the price list of the
vendor by allowing a discount of 30% which was the maximum permissible
discount according to the terms of agency between the vendor and its Indian
agent-Tenability of-Held, when a discount is permissible commercially, D
and there is nothing to show that the same would not have been offered to
any one else wishing to buy the old stock, there is no reason why the
declared value in question was not accepted under Rule 4(1)-The price
paid by an importer to the vendor if! the ordinary course of commerce is to
be taken as the value for the purpose of assessment of customs duty in the
absence of any of the special circumstances indicated in Section 14(1) and E
particularised in Rule 4(2)-ln the present case, production of the price list
by the customs authorities neither indicated that the value as declared by
the appellant was not· the 'ordinary' sale price of the bearings imported ~or
implied the presence of any 'extraordinary' or special ' circumstances.

The appellant being manufacturers of tractors and tractor engines in
F
India, used to import bearings of spec~fic size for their tractors and tractor
engines. The import of the aforesaid bearings was stopped when the appellant
started utilizing bearings manufactured for them by an Indian Company. As
a result, the foreign vendor was left with a stock of the bearings. Not finding
any customer for the bearings, the vendor's agent in India offered to sell the G
stock of bearings to the appellant at a discount of 77%. The appellant found
the offer competitive and agreed to buy the bearings from the vendor at the
price offered. On the arrival of the bearings in India, the appellant filed the
Bill of Entry together with the invoice with the Custom authorities.
The Assistant Commissioner of Customs noted that the declared price H
597
598 SUPREME COURT REPORTS (2000) SUPP. 4 S.C.R.

A was only 23% of the vendor's list price and was of the view that the 77%
discount allowed to the appellant by the vendor was not normal and could not
be accepted for the purpose of determining the price of the bearings under
Section 14 of the Customs Act, 1962 and Rule 4 of the Customs Valuation
(Determination of Price of Imported Goods) Rules, 1988. The Assistant .
B Commissioner determined the price of the bearings based on the list price of
the vendor and deducting 30% on account of discount, which according to
the terms of agency between the vendor and its Indian agent, was the maximum
permissible discount allowable. -
,

Against the aforesaid order of the Assistant Commissioner, the appellant
C preferred an appeal before the Commissioner of Customs (Appeals) which was
allowed. Thereafter, the respondent preferred an appeal before the Customs,
Excise and Gold (Control) Appellate Tribunal which was allowed by the Tribunal
holding that specially quoted price was not acceptable in preference to the
ordinary price in the course of international trade. Hence the present appeal.

D On behalf of the appellant, it was contended that giving of discounts was
a normal incidence of commerce and given the circumstances of the case, a
discount of77% was perfectly justified; that Rule 8 of the Customs Valuation
(Determination of Price of Imported Goods) Rules could not have been relied
on by the Assistant Commissioner without determining the value of the
bearings under Rule 4; that the reason given by the Assistant Collector for
E not accepting the actual price paid for the bearings as the true value of the
transaction was erroneous particularly when there was no allegation of under-
valuation.

On behalf of the respondent, it was contended that the principle for
F valuation of imported goods was to be found in Section 14(1) of the Customs
Act which provided for the determination of the value on the basis of an
international sale price; that the use of the words 'price payable' in Rule 4
meant the market value of the goods in international trade; that the onus on
the customs authority to establish the market value of the imported goods
had been discharged by proof of the vendor's price list; that the phrase ' the
G transaction value' read in conjunction with the word 'payable' in Rule 4(1)
allows determination of the ordinary international value of the goods to be
ascertained on the basis of data other than the price actually paid for the goods.

Allowing the appeal, the Court

H HELD: 1. A discount is a commercially acceptable measure which may
EICHER TRACTORS v. COMMISSIONER OF CUSTOMS 599

be resorted to by a vendor for a variety of reasons including stock clearance. A
A price list is really no more than a general quotation. It does not preclude
discounts on the listed price, In fact, a discount is calculated with reference
to the price list. Admittedly, in this case discount upto 30% was allowable in
ordinary circumstances by the Indian agent itself. There was the additional
factor that the stock in question was old and it was a one time sale of 5 year B
old stock. When a discount is permissible commercially, and there is nothing
to show that the same would not have been offered to any one else wishing to
buy the old stock, there is no reason why the declared value in question was
not accepted under Rule 4(1). No reascn has been given by the Assistant
Collector for rejecting the transaction value under Rule 4(1) except'the price
list of vendor as if a price list is invariably proof of the transaction value. C
This was erroneous and could not be a reason by itself to reject the transaction
value.160~E-G, El

Mirah Exports Pvt. ltd. v. Collector of Customs, (1998 ) 98 ELT 3,
relied on.
D
2.1. The price of imported goods is to be determined under Section 14(IA)
in accordance with the rules framed in this behalf i.e. the Customs, Valuation
(Determination of Price of Imported Goods) Rules, 1988 and are subject to
the conditions in Section 14(1 ). According to Section 14(1) of the Act, the
assessment of duty is to be made on the value of the goods. The value may be E
fixed by the Central Government under Section 14(2). Where the value is
not so fixed, the value has to be determined under Section 14(1). The value,
aecording to Section 14(1), shall be deemed to be the price at which such or
like goods are ordinarily sold, or offered for sale, for delivery at the time and
place of importation-in the course of international trade. The word 'ordinarily'
necessarily implies the exclusion of 'extraordinary' or 'special' F
circumstances. Rule 4 is in fact directly relatable to Section 14(1). Both
Sections 14(1) and Rule 4 provide that the price paid by an importer to the
vendor in the ordinary course of commerce shall be taken to be the value in
~

the absence of any of the special circumstances indicated in Section 14(1)
and particularized in rule 4(2). 1602-E-F; 604-C) G
2.2. Reading Rule 3(i) and Rule 4(1) together, it is clear that a mandate
has been cast on the authorities to accept the price actually paid or payable
for the goods in respect of the goods under assessment as the transaction
value. But the mandate is not invariable and is subject to certain exceptions
specified in Rule 4(2). It follows that unless the price actually paid for the H
600 SUPREME COURT REPORTS [2000) SUPP. 4 S.C.R.

A particular transaction falls within the exceptions, the customs authorities are
bound to assess the duty on the transaction value. It is only when the
transaction value under Rule 4 is rejected, then under Rule 3(ii) the value
shall be determined by proceeding sequentially through Rules 5 to 8 of the
Rules. Conversely ifthe transaction value can be determined under Rule 4(1)
B and does not fall under any of the exceptions in Rule 4(2), there is no question
of determining the value under the subsequent Rules. In the present case,
production of the price list did not discharge the onus cast on the Customs
authorities to prove that the value of the Five Year old stock of bearings as
declared by the appellant was not the "ordinary" sale price of the bearings
-
imported. The Assistant Collector, thus, should have determined the
C transaction value under Rule 4 at the price actually paid by the appellant for
the bearings and not under Rule 8. 1603-C, H; 605-B, q

Padia Sales Corporation v. Collector of Customs, Bombay, (19931 Supp.
4 SCC 57; Basant Industries v. Additional Collector of Customs, Bombay,
(1996) 81ELT195 SC and Sharp Business Machines Pvt. Ltd, Bangalore v.
D Collector of Customs, Bangalore, 1199111 sec 154, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6492 of 1998.

From the Judgment and order dated 23.9.98 of the Central Excise Customs,
E and Gold (Control) Appellate Tribunal, Mumbai in A. No. Cl340194-A in F.O.
No. 2135of1998-WRB.

Joseph Velapally, S. Swaminathan, Tarun Gulati, R. Santhanam, Rajinder
Singhvi and Ashok Kumar Singh for the Appellant.

F T.L.V. Iyer, S. Wasim A. Quadri and P. Parmeswaran for the Respondent.

The Judgment of the Court was delivered by

RUMA PAL, J. Mis Eicher Tractors Ltd., the appellant before us,
manufacturers tractors and tractor engines in India. From 1955 the appellant
G imported bearings of a specific size for their tractors and tractor engines from
Mis NTN Corporation, Osaka, Japan. This 33 year relationship was snapped
in 1988 when the appellant started utilizing bearings manufactured for them
in India by Mis HMT Ltd. The Japanese vendor was left with a stock of the
bearings which had been manufactured by it for the appellant anticipating the
appellant's continued custom. Not finding any customer for the bearings, by
H letter dated 12th February 1993 the vendor's agent in India offered to sell the
, .>
' '
EICHER TRACTORS v. COMMISSIONER OF CUSTOMS [RUMA PAL, J.] 601

1989 stock of 3579 bearings to the appellant at a price of Japanese Yen (JY) A
826 per piece. The appellant found the offer competitive and agreed to buy
the bearings from the vendor at the price offered. An order was pfaced by
the appellant on the vendor on 17th April 1993. The bearings were shipped
from Japan and arrived in India. The appellant filed the Bill of Entry on 3rd
December 1993 together with the invoice dated 6th October, 1993 with the
Custom authorities.
B

The Assistant Commissioner of Customs was not satisfied that the
value of the bearings as declared by the appellant was the value of the
bearings for the purposes of levying customs duty. He issued a notice on
14th December 1993 to the appellant. The appellant gave a detailed reply c
setting out the facts noted earlier. The Assistant Commissioner noted that the
declared price was only 23% of the vendor's list price and was of the view
that the 77 per cent discount allowed to the appellant by the vendor was not
normal and could not be accepted for the purpose of determining the price
of the bearings under Section 14 of the Customs Act, 1962 and Rule 4 of the
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 D
(referred to briefly as the 'Rules'). The Assistant Commissioner determined
the price of the bearings at JY 2507 per piece under Rule 8. In arriving at this
- figure, the Assistant Commissioner took the list price of the vendor and
deducted 30 per cent on account of discount, which, according to the terms
of agency between the vendor and its Indian agent, was the maximum E
permissible discount allowable.

The appellant preferred an appeal before the Commissioner of Customs
(Appeals), Mumbai. The Commissioner allowed the appeal. The respondent
preferred an appeal before the Customs, Excise and Gold (Control) Appellate
Tribunal. The Tribunal allowed the appeal by its order dated 23rd September F
1998. The Tribunal accepted the reasoning of the Assistant Commissioner '
~
and relied upon the decision of this Court in P'!dia Sales Corporation v.
Collector of Customs Bombay, (1993] Supp. 4 SCC 57 to hold that "specially
quoted price was not acceptable in preference to the ordinary price in the
course of international trade". According to the Tribunal, the ordinary price
G
of the bearings in question was as mentioned in the vendor's price list. The
decision of the Tribunal has been assailed before us by the Appellant.

According to the appellant, Rule 8 of the Rules, could not have been
relied on by the Assistant Commissioner without determining the value of the
bearings under Rule 4. It was submitted that giving of discounts was a normal H
602 SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.

A incidence of commerce and given the circumstances of the case a discount
of 77% was perfectly justified. Reference was made to the decision in Mirah
Export Pvt. Ltd. v. Collector of Customs, ( 1998) 98 ELT 3 where discounts
ranging between 50% to 70% were found to be acceptable. According to the
appellant, the reason given by the Assistant Collector for not accepting the
B actual price paid for the bearings as the true value of the transaction was
erroneous particularly when there was no allegation of under-valuation.

The respondent contended that the principle for valuation of imported
goods was to be found in Section 14( I) of the Act which provides for the
determination of the value on the basis of the international sale price. It is
C argued that the Rules would have to be read subject to Section 14(1) and that
the use of the words 'price payable' in Rule 4 meant the market value of the
goods in international trade. While conceding that the onus was on the
Customs authority to establish the market value of the imported goods, the
respondent claimed that the onus had been discharged by proof of the
vendor's price list. In· support of this argument, the respondent relied on
D Sharp Business Machines Pvt. Ltd., Bangalore v. Collector of Customs,
Bangalore, [1991] 1SCC154 ..

Under the Act customs duty is chargeable on goods. According to
Section 14 ( 1) of the Act, the assessment of duty is to be made on the value
E of the goods. The value may be fixed by the Central Government under
Section 14(2). Where the value is not so fixed, the value has to be determined
under Section 14(1). The value, according to Section 14(1), shall be deemed
to be the price at which such or like goods are ordinarily sold, or offered for
sale, for delivery at the time and place of importation--in the course of
international trade. The word 'ordinarily' necessarily implies the exclusion of
F "extraordinary" or "special" circumstances. This is clarified by the last phrase
in Section 14 which describes an "ordinary" sale as one " where the seller
or the buyer have no interest in the business of each other and the price is
the sole consideration for the sale .......... ". Subject to these three conditions
laid down in Section 14(1) of time, place and absence of special circumstances,
G the price of imported goods is to be determined under S. 14( IA) in accordance
with the rules framed in this behalf.

The rules which have been framed are the Customs, Valuation
(Determination of Price cif Imported Goods) Rules, 1988. The rules came into
force on 16th August, 1988. Under Rule 3(i) " the value of imported goods
H shall be the transaction value". "Transaction value" has been defined in Rule
EICHER TRACTORS v. COMMISSIONER OF CUSTOMS [RUMA PAL, J.) 603
2(t) as meaning the value determined in accordance with Rule 4. Rule 4 (I) A
in turn states:

-
"The transaction value of imported goods shall be the price actually
paid or payable for the goods when sold for export to India, adjusted
in accordance with the provisions of Rule 9 of these rules."
B
Reading Rule 3( i ) and Rule 4 (I) together, it is clear that a mandate
has been cast on the authorities to accept the price actually paid or payable
for the goods in respect of the goods under assessment as the transaction
value. But the mandate is not invariable and is subject to certain exceptions
specified in Rule 4(2) namely:
c
"(a) there are no restrictions as to the disposition or use of the goods
by the buyer other than restrictions which -

(i) are imposed or required by law or by the public authorities in
India;
D
or

(ii) limit the geographical area in which the goods may be resold; or

(jii) do not substantially affect the value of the goods;
E
(b) the sale or price is not subject to same condition or consideration
for which a value cannot be determined in respect of the goods being
valued;

(c) no part of the proceeds of any subsequent resale, disposal or use
of the goods by the buyer will accrue directly or indirectly to the F
seller, unless an appropriate adjustment can be made in accordance
with the provisions of Rule 9 of these rules; and

(d) the buyer and seller are not related, or where the buyer and seller
are related, that transaction value is acceptable fnr customs purposes G.
under the provisions of sub-rule (3)."

These exceptions are in expansion and explicatory of the special
circumstances in Section 14 (I) quoted earlier. It follows that unless the price
actually paid for the particular transaction falls within the exceptions, the
customs authorities are bound to assess the duty on the transaction value. H
604 SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.

A The respondent's submission is that the phrase "the transaction value"
read in conjunction with the word "payable" in Rule 4(1) allows determination
of the ordinary international value of the goods to be ascertained on the basis
of data other than the price actually paid for the goods. This, according to
the respondent, would be in keeping with the overriding effect of Section
B 14(1). We cannot agree.

It is true that the Rules are framed under Section 14(1A) and are subject
to the conditions in Section 14( I). Rule 4 is in fact directly relatable to Section
14(1). Both Sections 14(1) and Rule 4 provide that the price paid by an
importer to the vendor in the ordinary course of commerce shall be taken to
C be the value in the absence of any of the special circumstances indicated in
Section 14(1) and particularized in rule 4(2).

Rule 4 (I) speaks of the transaction v.alue. Utilization of the definite
article indicates that what should be accepted as the value for the purpose . ·
D of assessment to customs duty is the price actually paid for the paitic'ular
transaction, unless of course the price is unacceptable for the reasons set out
in Rule 4 (2). "Payable" in the context of the language o'f Rule 4 (I) must,
therefore, be read as referring to "the particular transaction" and payability
in respect of the transaction envisages a situation where payment of price
may be deferred.
E
That Rule 4 is limited to the transaction in question is also supported
by the provisions of the ot~er Rules each of which provide for alternate
modes of valuation and allow evidence of value of goods other than those
under assessment to be the basis of the assessable value. Thus, Rule 5 allows
for the transaction value to be determined on the basis of identical goods
F imported into India at the safue time; Rule 6 allows for the tra~saction value
to be determined on the value of similar goods imported into India at the same
.time as the subject goods. Where there are no contemporaneous imports into
India, the value is to be determined under Rule 7 by a process of deduction
in the manner provided therein. If this is not possible the value is to be
G computed under Rule 7 A. When value of the imported goods cannot be
determined under any of these provisions, the value is required to· be
determined under Rule 8 "using reasonable means consistent with the principles
and general provisions of these rules and sub Section 1 of Section 14 of the
Customs Act, 1962 and on the basis of data available in India." If the phrase
'the transaction value' used in Rule 4 were not limited to the particular
H transaction then the other Rules which refer to other transactions and data
EICHER TRACTORS v. COMMISSIONER OF CUSTOMS [RUMA PAL, J.] 605

would become redundant. A
It is only when the transaction value under Rule 4 is rejected, then
under Rule 3(ii) the value shall be detennined by proceeding sequentially
through Rules 5 fo 8 of the Rules. Conversely if the transaction value can be
detennined under Rule 4(1) and does not fall under any of the exceptions in
Rule 4(2), there is no question of determining the value under the subsequent B
Rules.

The Assistant Collector in this case detennined the value of the imported
goods under Rule 8. The question is whether he should have determined the
transaction value under Rule 4 at the price actually paid by the appellant for C
the 1989 bearings. Naturally, if Rule 4 applies to the facts of this case, the
Assistant Collector's reasoning under Rule 8 must, by virtue of language of
Rule 3 (ii), be set aside.

The Assistant Collector appears to have proceeded on the law as it was
prior to the 1988 Rules when 'special considerations' on the basis of which D
a transaction was held not to be an ordinary sale in the course of international
trade within the meaning of Section 14( 1), had not been statutorily particularized.

As to what would constitute such "special consideration" has been
considered in several decisions of this Court. For example, a special quotation
for the importer singling him out from other importers in India was held to be E
a special consideration in Padia Sales Corporation v. Collector of Customs
Bombay, (supra) justifying the rejection of price paid as the transaction value.
On the other hand in Basant Industries v. Addi. Collector of Customs, Bombay,
[1996] 81 EL T 195 (SC), a special quotation for an "old and valued customer"
was upheld as not being a special circumstance.
. F
The decision in Sharp Business Machines Pvt. ltd., relied upon by the
respondent is another case where the transaction value was rejected. In that
case, the importer had wrongly mis-described the imported goods and sought
to defraud the Revenue by attempting to surreptitiously impo.t items prohibited
under the import policy. It was. found that there was justification, in the G
circumstances, for rejecting the price shown in the invoice. The transaction
value having been rejected, as:;essment of value was made on the basis of
the price list of the foreign vendor.

Both the decisions, Padia Sales Corporation and Sharp Business
Machines Pvt. Ltd.-were distinguished subsequently in Mirah Exports Pvt. H
606 SUPREME COURT REPORTS [2000) SUPP. 4 S.C.R.

A Ltd. v. Collector of Customs, ( 1998) 98 EL T 3. As the facts of this case are
somewhat similar to the case before us, it is dealt with in some detail.

Mirah Exports Pvt. Ltd. along with other importers had imported bearings .
at high rates of discount. The declared value was rejected by the Customs ~
authorities on the basis of the price list of the vendors. This Court set aside
B the decision of the respondent authorities accepting the argument that a
discount is a recognised feature of' international trade practice and that as
long as those discounts are uniformly available to all and based on logical
commercial bases, they cannot be denied under Section 14. It appears from
the judgment that a distinction was drawn between a discounted price special
C to a particular customer and discounts available to all customers.

As already noted all these cases dealt with imports made prior to the
coming into force of the Rules in 1988. Now the 'special considerations' are
detailed statutorily in Rule 4(2).

D In the case before us, it is not alleged that the appellant has mis-
declared the price actually paid. Nor was there a mis· description of the goods
imported as was the case in Padia Sales Corporation. It is also not the
respondent's case that the particular import fell within any of the situati~ns
enumerated in Rule 4(2). No reason has been given by the Assistant Collector
for rejecting the transaction value under Rule 4(1) except the price list of
E vendor. In doing so, the Assistant Collector not only ignored Rule 4(2) but
also acted on the basis of the vendor's price list as if a price list is invariably
proof of the transaction value. This was erroneous and could not be a reason
by itself to reject the transaction value. A discount is a commercially acceptable
measure which may be resorted to by a vendor for a variety of reas~ns
F including stock clearance. A price list is really no more than a general quotation.
It does not preclude discounts on the listed price. In fact, a discount is
calculated with reference to the price list. Admittedly in this case discount
upto 30% was allowable in ordinary circumstances by the Indian agent itself.
There was the additional factor that the stock in question was old and it was
a one time sale of 5 year old stock. When a discount is permissible
G commercially, and there is nothing to show that the same would not have
been offered to any one else wishing to buy the old stock, there is no reason
why the declared value in question was not accepted under Rule 4(1 ).
,
In the circumstances, production of the price list did not discharge the
onus cast on the Customs authorities to prove that the value of the 1989
H bearings in 1993 as declared by the appellant was not the "ordinary" sale
EICHER TRACTORS v. COMMISSIONER OF CUSTOMS [RUMA PAL. J.] 607

price of the bearings imported. A
The decision of the Tribunal accepting the determination of value by
the Assistant Collector cannot, therefore, be sustained. We accordingly allow
the ,appeal by setting aside the judgment under appeal but without any order
as to costs.
B
M.P. Appeal allowed.