Case: Pernod Ricard India(P) Ltd Vs. Commr.Of Customs, Icd Tughlakabad

These two appeals under Section 130E of the Customs Act, 1962 (for short "the Act") by the importer (hereinafter referred to as "the appellant") (C.A. No. 5840 of 2008) as well as by the revenue (C.A. No. 1110 of 2009) arise from the final order dated 25th June 2008, passed by the Customs, Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi (for short "the Tribunal"), in Custom Appeal No.559 of 2006. By the impugned order, while upholding the decision of the Commissioner of Customs in determining the value of the "Concentrate of Alcoholic Beverages" ("CAB" for short), imported by the appellant, under Rule 6 of the Customs Valuation (Determination of Prices of Imported Goods) Rules, 1988 (for short "the 1988 Rules"), the Tribunal has directed the jurisdictional Commissioner to redetermine the customs duty liability of the appellant after making certain adjustments in the manner indicated in the order.2. As both the appeals call in question the same order, these are being disposed of by this common order.3. The case has had a chequered history and, therefore, in order to appreciate the controversy, it would be necessary to narrate the facts in detail.The appellant (formerly named and styled as Seagrams India Pvt. Ltd.) is asubsidiary of the Seagram Company Ltd., Canada, established for manufacturing/blending ofbased spirits. The appellant imported CAB from M/s Joseph E Seagram and Sons Ltd., Scotland, a whollyowned subsidiary of Seagram Company Ltd., Canada. The strength of CAB imported was about 60%. It is not in dispute that the appellant is a "related person" to the supplier and this fact was disclosed to the Customs Authorities. The import of CAB was of four varieties, each one meant for manufacturing four brands of scotch whiskies, namely "100 Pipers", "Passport", "Something Special" and "International Malts" (Royal Stag; Oaken Glow; Blenders Pride and Imperial Blue). The import of CAB was in wooden barrels and their value was declared separately for assessment. The appellant diluted the imported CAB by adding demineralised water and reduced the strength to 42.8% v/v; packed them in bottles under respective brands; paid State excise duty and sold these to the dealers for ultimate sales to the consumers.4. In the year 1999, the Directorate of Revenue Intelligence commenced investigation into the imports of CAB by the appellant, which resulted in the issuance of two show cause notices. The first show cause notice dated 19th December 2000 was issued proposing demand of differential duty of customs amounting to Rs.37,96,70,451/in respect of imports relating to the period from January 1995 to June 2000 and the second show cause notice dated 16th August 2001 was issued demanding differential duty of customs of Rs.12,08,42,462/relating to imports during the period July 2000 to May 2001. Penal action was also proposed in both theuse notice dated 19th December 2000, the appellant filed a writ petition before the High Court of Delhi. Vide its order dated 27th August 2001, the High Court directed that the notice issued under Section 28 of the Act be treated as notice for finalization of the provisional assessment in terms of Section 18(2) of the Act. While disposing of the petition, the High Court observed that the authorities were free to decide as to whether any notice in terms of Section 111/124 of the Act was warranted. At the same time, the High Court granted liberty to the appellant to seek its remedy as per law in the event of issuance of such a show cause notice.6. The Commissioner of Customs adjudicated upon both the show cause notices by a common order dated 31st May 2002, finalizing the assessments and confirming the demand of Rs.40.37 crores as against proposed demand of Rs.50.04 crores. The Commissioner classified the imported CAB under the Chapter heading 2808.30 as whisky as against the claim of the appellant under the Chapter heading 2808.10.7. Being aggrieved by the order of adjudication, the appellant filed an appeal before the Tribunal. Vide order dated 25th March 2003, while accepting the claim of the appellant that CAB should be classified under heading 2808.10, the Tribunal rejected the plea of the appellant that in spite of the fact that the supplier was a "related person", the value declared by them should be accepted in terms of Rule 4(3)(b) of the 1988 Rules. Nevertheless, the Tribunal remanded the matter to the adjudicating authority for a fresh consideration on the question of applicability of Rule 6 as it felt that the appellant had not been granted adequate opportunity to put forth their case against the proposal to apply Rule 6. The Tribunal, however, permitted the Commissioner to proceed under Rule 7 or 8 in the event of his accepting the appellants plea that Rule 6 could not be applied. Relevant portion of the order is extractedare also of the view that while working out the provisions of Rule the Commissioner has not taken into consideration all the relevant factors. While fixing the value under Rule 6, the authority has to look into the definition of the term `similar goods under Rule 2(e) and that the conditions contained therein are satisfied. Clauses (b) and (c) of2) andof Rule 5 are made applicable to Rule 6 also. We find that there is no proper consideration of the above provisions by the Commissioner while arriving at the value under Rule 6. The appellant is justified in complaining that comparison was not made with the transaction of similar goods sold for export to India and imported at or about the time as the goods being valued, especially in the case of the goods covered by the second show cause notice dated 16 th September, 2001. Comparison is made with imports which had taken place in January 1999, May 1999 and December 1998 for valuing the goods imported during the period July 2000 to May 2001.The appellant challenged the said order before this Court by way of an appeal under Section 130E of the Act, which was dismissed on 21st November 2003. The appellant pleaded that invocation of Rule 6 by the Commissioner in the final adjudication order was beyond the scope of the show cause notice, in as much as, in the show cause notice itself it was observed that Rule 6 could not be applied because ofof requisite data for adjustments required to be made under the said Rule. It was asserted that the value of CAB imported had to be determined as per Rule 4(3)(b) of 1988 Rules.9. Pursuant to the order of the Tribunal, dated 25 th March 2003, the Commissioner passed a fresh order dated 29th August 2003 and held that Rule 6 was applicable on the facts of the instant case. He accordingly, confirmed the demand of duty of customs amounting to Rs.39.96 crores. The said order was again challenged by the appellant in the Tribunal, mainly on the ground that the value of imported CAB could not be determined under Rule 6. In the alternative, it was pleaded that even the quantification of the value under Rule 6 was seriously flawed.10. Accepting the alternative submission of the appellant relating to the errors committed by the Commissioner while determining the assessable value of CAB on the basis of the transaction value of "similar goods", by its order dated 29th June 2005, the Tribunal again set aside the order of adjudication by the Commissioner and remanded the matter back to him with certain directions. Since the observations of the Tribunal contained in paragraphs 7 and 13 have some bearing on the merits of the rival stands on behalf of the parties, these are extractedWe are not going into the above mentioned issue about the appropriateness of Rule 6 for two reasons. Firstly, we had left this Rule open to the adjudicator in our remand order and no appeal had been filed against that order. Secondly, the present appeal can be disposed of after considering the appellants contentions in terms of Rule 6.As already noted we are not going into the submissions made by the appellant against valuation under (sic) Rule 6. Instead, the appeal is being disposed of after considering the alternate submissions relating to errors committed while determining the assessable values based on the transaction value of similarfinal direction by the Tribunal reads asthe above, it is clear that the valuation of the items in question should beby using lowest transaction value of Findlaters for determining the price of 100 Pipers. Further, due adjustments towards quantity difference and retail price difference should be made wherever warranted. In order to facilitate such revaluation, we set aside the impugned order and remit the case to the Commissioner for fresh adjudication. Both sides would be at liberty to present data relevant to the above issues.This decision of the Tribunal was not put in issue by the appellant before a higher forum. Pursuant to and in furtherance of the directions issued by the Tribunal in the said order, the Commissioner passed a fresh adjudication order on 20th June 2006, confirming a total differential duty of Rs.40.37 crores, which happened to be more than the duty amount of Rs.39.96 crores as confirmed in the second adjudication order.12. As expected, the appellant challenged the said order by preferring yet another appeal to the Tribunal.observing that in the first remand order the question of applicability of Rule 6 was left to be decided by the adjudicator and in the second remand order, dated 29th June 2005, the Tribunal did not go into the applicability of the said rule and allowed the appeal on the basis of alternative pleas of the appellant, the Tribunal decided to go into the question of applicability of Rule 6. Uponof the issue, the Tribunal upheld the decision of the Commissioner in determining the value of the imports under Rule 6. However, partly accepting the appeal, the Tribunal held that the appellant will be entitled to further adjustments in the value of CAB determined on the basis of the value of similar goods, on account of: (i) imports of substantially higher volumes of CAB; and (ii) where the retail price of bottled whisky was substantially lower than those of the comparable brands. It was, however, clarified that once the assessable value was determined for any brand by following the above method, the assessable value shall not be enhanced till a higher import price of the similar goods was noticed. The Tribunal also laid down the following methodology for making the adjustments on account of difference in volume of imports and the retailprice difference between each variety of CAB of the importer (say PIPrice of Import) and the corresponding CAB of competitor (say PCPrice of Comparable goods) shall be arrived at first asthereafter value of the import of CAB of each brand shall be determined as PI+80% ofIn other words, instead of adding the entire difference it shall be restricted to 80% i.e. by reducing the difference by 20%.We direct that the adjustments on account of difference in retail prices shall be made in the manner prescribed below. The percentage of difference between the retail price of any brand of the appellant with the corresponding brand being compared shall be arrived at and to that extent the value of CAB of the competitors import shall be reduced to arrive at the assessable value for CAB imported by the appellant.The above determination is subject to the followingThe value of any brand to be adopted shall not be higher than the value adopted by the Commissioner in his second order dated 28.09.2003.(b) The value of any brand to be adopted shall not be lower than the value declared by the importer.Being dissatisfied with the order/directions of the Tribunal, as stated above, both the parties are before us in this appeal.

Reasoning:
22. Having carefully perused the orders of remand passed by the Tribunal on 25th March 2003 and 29th June 2005, we are of the opinion that the issue with regard to the applicability of Rule 6 of the 1988 Rules for valuation of CAB had attained finality on the summary dismissal of the appellants appeal by this Court vide order dated 21st November 2003. It is clear from a bare reading of the observations of the Tribunal in its order dated 25th March 2003, extracted in para 11 supra that remand to the Commissioner for fresh adjudication was confined only to the errors committed while determining the assessable values based on the transaction value of "similar goods". Thus, in principle, the Tribunal proceeded on the premise that the valuation had to be done as per the procedure laid down in Rule 6. This is also evident from appellants pleadings when they challenged the order of remandcontending in their appeal under Section 130E of the Act that Rule 6 had no application on the facts of their case and the value of imported CAB by them had to be determined as per Rule 4(3)(b)of the 1988 Rules. The appeal was, however, dismissed in limine. In our opinion, once a statutory right of appeal is invoked, dismissal of appeal by the Supreme Court, whether by a speaking order or non speaking order, the doctrine of merger does apply, unlike in the case of dismissal of special leave to appeal under Article 136 of the Constitution by a. In the present case, the appellant preferred statutory appeal under Section 130E of the Act against order of the Tribunal dated 25th March 2003 and, therefore, the dismissal of appeal by this Court though by aorder, was in exercise of appellate jurisdiction, wherein the merits of the order impugned were subjected to judiciary scrutiny. In our opinion, in the instant case, the doctrine of merger would be attracted and the appellant is estopped from raising the issue of applicability of Rule 6 in their case.25. In the view we have taken, we are fortified by a decision of this Court in V.M. Salgaocar & Bros. Pvt. Ltd. Vs. Commissioner of Income Tax (2000) 5 SCC 373 , wherein the Court was called upon to consider the effect of dismissal of an appeal under Section 261 of the Income Tax Act, 1961 by a non speaking order. Speaking for the Bench, D.P. Wadhwa, J. while drawing distinction between an order dismissing in limine a special leave petition under Article 136 of the Constitution and an appeal under Article 133, and drawing support from the decision of this Court in Supreme Court Employees Welfare Association Vs. Union of India & Anr. (1989) 4 SCC 187 , held that former case does not but the latter does attract the doctrine of merger.Moreover, in the instant case the issue with regard to the applicability of Rule 6 had attained finality for yet another reason. It is manifest from the Tribunals order dated 29th June 2005, that the scope and purpose of remand to the Commissioner was limited. As it is evident from theparagraphs of the said order of the Tribunal, that the Tribunal categorically declined to go into the issue about the appropriateness of Rule 6, with the result that the finding of the Commissioner in his order passed pursuant to Tribunals earlier order dated 29th August 2003, regarding applicability of Rule 6 remained undisturbed and in fact attained finality, in as much as, the appellant did not question the correctness of the remand order passed by the Tribunal on 29th June 2005. Keeping in mind the factual scenario, we are of the opinion that the Tribunal erred inand examining afresh the question as to whether or not the value of CAB could be determined by applying Rule 6 and, therefore, the objection of the revenue in that regard deserves to be accepted. We order accordingly.27. In the light of our opinion on the first question, we deem it unnecessary to assess the merits of the submissions made by learned counsel for the parties on the question of applicability of Rule 6 of the 1988 Rules.The appellant as well as the revenue are both dissatisfied with the said direction. The former claims that they should get discount of at least 40%. The stand of the latter, to the contrary, is that no demonstrated evidence, establishing the reasonableness and accuracy of the adjustment, having been adduced, the appellant is not entitled to any adjustment.Rule 6 (2) provides that the provisions of clauses (b) and (c) of(1) to (3) of Rule 5 of these rules shall mutatis mutandis also apply in respect of similar goods. A similar stipulation appears in note (2) to Rule 6. Rule 5(1)(c) provides that where no sale referred to in clause (b) of(1) of this rule, is found, the transaction value of identical goods sold at different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both shall be used, provided that such adjustments shall be made on the basis of `demonstrated evidence, which clearly establishes the reasonableness and accuracy of the adjustments. Interpretative Note 4 to Rule 5 reiterates that such adjustment, whether it leads to an increase or a decrease in the value, be made only on the basis of `demonstrated evidence that clearly establishes the reasonableness and accuracy of the adjustment. One of such evidences could be a valid price list containing prices referring to different levels or different quantities.32. The case of the revenue is that the term `demonstrated evidence means some evidence to establish that the seller had agreed to give some discount to the importer on the listed price of the product on account of high volume of purchase, which in common parlance is termed as bulk discount and the production of such evidence is afor any adjustment under the Rule. The stand of the appellant, on the contrary, is that Rule 5(1)(c) and the interpretative note (4) to Rule 5 only seek to clarify that where identical goods are sold to two or more buyers at a time but are not at the same commercial level or quantity, an "adjustment" shall be made to take account of the difference attributable to commercial level or to quantity or both. Their plea is that since the rule itself recognizes that prices differ when quantity differs, reference to `discount in the interpretative note needs to be viewed in a wider context because according to the appellant, the expression "demonstrated evidence" is broader in scope than the term `discount, which is used only as an example of such evidence for adjustment. It is also pleaded that tying the concept of "adjustment" to `discount would severely restrict the application of Rule 5 or 6 as a clear evidence of `discount may not be available in all cases though on the facts of a particular case adjustment may be needed. In support of the proposition that there is a difference between the concept of "adjustment" and `discount, reliance was placed on the decision of this Court in Commissioner of Central Excise, Jaipur Vs. Rajasthan SPG. & WVG. Mills Ltd. & Anr. (2007) 13 SCC 129 , wherein it was observed that the concept of `discount and `abatement are different. It was also argued on behalf of the appellant that it is a well accepted norm that higher quantity of goods attract lower prices, which fact has received judicial recognition by this Court in Mirah Exports Pvt. Ltd. Vs. Collector of Customs (1998) 3 SCC 292 , Metal Box India Ltd. (supra) and Basant Industries Nunhai, Agra Vs. Additional Collector of Customs, Bombay 1995 Supp (3) 320. Responding to the stand of the revenue that on the facts of the case, no adjustment was warranted, the appellant asserts that the issue of adjustment has reached finality as the correctness of the second remand order, whereby the Tribunal had remanded the matter to the Commissioner in view of the mistake in the application of Rule 6, had not been questioned by the revenue. In the said order, the Tribunal had held that due adjustments towards quantity differences and retail prices difference should be made wherever warranted. Thus, recognizing that in the present case some "adjustments" were called for.33. We are of the considered opinion, that bearing in mind the object behind the provision for "adjustment" in terms of Rule 5(1)(c), the fine distinction between the words "adjustment" and `discount sought to be brought out by the appellant is of no relevance to the controversy at hand. The provision is clear and unambiguous meant to provide some adjustment in the price of identical goods, imported by two or more persons but in different quantities. It is plain that such "adjustment" may not necessarily lead to a decrease in the value. It may result in an increase as well. Reference to the word `discount in the interpretative note is by way of an illustration to indicate that a sellers price list is one of the relevant pieces of evidence to establish the factum of quantity discount by the seller. It is manifest that "adjustment" in terms of Rule 5(1)(c) of 1988 Rules, for the purpose of determination of value of an import, can be granted only on production of evidence which establishes the reasonableness and accuracy of adjustment and higher volumes of imports per se, would not be sufficient to justify an adjustment, though it may be one of the relevant considerations.34. Therefore, in so far as the question of "adjustment" in terms of Rule 5(1)(c) is concerned, we are in agreement with the Tribunal that the revenue having accepted the order of remand dated 29th June 2005, cannot now turn around and contend that no adjustment whatsoever is warranted. Similarly, there may also be some substance in the observation of the Tribunal that generally when the transactions are in large volumes over a long period, grant of discount is a normal commercial practice but again a commercial practice, per se, cannot be treated as conclusive evidence for determining real price of a consignment. In our opinion, therefore, in the absence of some documentary evidence indicating that any rebate/discount was given to the appellant by the supplier, adjustments under Rule 5(1)(c) cannot be justified.35. In the present case, it is evident from the impugned order that though the Tribunal had felt that requisite evidence to establish the range of adjustment was lacking and for that purpose, according to it, the matter was required to be remanded to the Commissioner but being influenced by the fact that there had already been three rounds of appeals to the Tribunal, it undertook the exercise itself. We are convinced that this approach of the Tribunal was not in order and therefore, in the absence of any demonstrated evidence, its direction foradjustment @ 20%, cannot be sustained.