Supreme Court Rules
against Notional 1% Addition to Import Value for Loading/Unloading Charge where
Actuals are Available
•
Government to Lose Rs. 750 crs Revenue?
•
Importers may File Claims for
Past 1% Value Adds
The Supreme Court (SC) struck down
proviso (ii) to Rule 9(2) of Customs Valuation (Determination of Price of
Imported Goods) Rules, 1988, providing for notional fixation of handling /
loading / unloading charges at 1% of FoB value of
goods, when actual cost is ascertainable. The court has said the proviso ‘ultra
vires’ Sec 14(1) and Sec 14(1)(A) of Customs Act.
(Relying on SC decision in
Garden Silk Mills Ltd., Chennai High Court had dismissed assessee’s
writ petitions and stated that rule making authority vested with power to make
provision of this nature for valuation purposes and Legislature’s power to levy
tax must be widely construed. This ruling has been over turned by the Supreme
Court.
Taking note of assessee’s contention that actual handling charges
determined for manufacture and marketing of computer systems in accordance with
prescribed charges by International Airport Authority, which is not even
fraction of ‘notional handling charges’, SC concedes that only when actual cost
cannot be arrived, notional cost should be made applicable.
Clause (a) of Rule 9(1) which
specifies addition of various heads of costs to price, mandates that it is to
be “to the extent they are incurred by the buyer”, clearly implying inclusion
of ‘actual cost’; While said clause amended in 1989, spirit behind unamended proviso maintained and kept intact, i.e. proviso
made applicable only when actual cost indeterminable, however, amendment in
1990 changed entire basis by providing complete deviation and departure by
stipulating 1% FoB notional value.
The Court Observes, “when the
actual charges paid are available and ascertainable, introducing a fiction for
arriving at the purported cost of loading, unloading and handling charges is
clearly arbitrary with no nexus with the objectives sought to be achieved. On
the contrary, it goes against the objective behind Section 14...”. The Court hold that High Court reliance on Garden Silk
Mills Ltd., was misplaced as in that case, actual cost was ascertainable: SC
(Industry can file application
for refund also for past cases of 1% add on to value claims – Ed.)