LLM Group 2 Business Law Law Relating to Customs and Foreign Exchange 2016 Question Paper with Solutions

The conditions in section 14(1) must be stated together, because each is a gateway. The value of imported goods and export goods is the transaction value, that is the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale, subject to such other conditions as may be specified in the rules made in this behalf.

The section then requires additions. The transaction value includes, in addition to the price, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges, to the extent and in the manner specified in the rules. The first proviso allows the rules to provide for the manner of determination where there is no sale, or the buyer and seller are related, or price is not the sole consideration. The second proviso allows the Board to fix tariff values for any class of goods by notification, and where a tariff value is fixed it displaces the transaction value.

Rule 12 is where the criticism begins. It permits the proper officer, where he has reason to doubt the truth or accuracy of the declared value, to ask the importer for further information and, if the doubt remains after receiving it or where no response comes, to determine the value under the sequence in Rules 4 to 9. The Explanation says the rule does not provide a method of determination but only a mechanism to reject a declared value, and requires that the officer's doubt be based on certain reasons, which may include a significantly higher value at which identical or similar goods were assessed, an abnormal discount, a sale involving special discounts to exclusive agents, a misdeclaration of parameters, or fraudulent documents.

The leading Indian decision on transaction value is Eicher Tractors Ltd v. Commissioner of Customs, Mumbai, (2001) 1 SCC 315. The importer had bought a consignment of bearings at a discounted price because the supplier was closing a stock line, and the department loaded the value on the footing that the ordinary international price was higher. The Supreme Court held that the price actually paid must be accepted unless the case falls within one of the exceptions in the rules, and that a commercially real discount, freely negotiated between unrelated parties, does not take the transaction outside the section. The reasoning is that section 14 fixes the value by reference to the particular transaction and not to a hypothetical market, so the department must bring the case within an exception rather than substitute its own view of the right price.

On related-party imports the machinery is Rule 3(3) read with Rule 2(2). Where the buyer and seller are related, the transaction value is accepted only if the examination of the circumstances of the sale shows that the relationship did not influence the price, or if the importer demonstrates that the value closely approximates a test value, being the transaction value of identical or similar goods in sales to unrelated buyers in India, a deductive value or a computed value.

The taxable event has to be stated with care because the definitions invite an error. "India" in section 2(27) includes the territorial waters, and "import" in section 2(23) means bringing into India from a place outside India, so the literal reading is that the charge attaches when a vessel enters territorial waters. That is not the law. The taxable event is the crossing of the customs barrier, the point at which the goods mingle with the mass of goods in the country, which for goods entered for home consumption is their clearance under section 47, and for warehoused goods is their removal from the warehouse under section 68. On the export side the event is the crossing of the customs barrier outwards under a let export order.

The practical consequence of that rule is what makes it worth stating. Goods that enter territorial waters and are then re-exported without clearance attract no duty; and warehoused goods bear the rate in force on the date the bill of entry for home consumption is presented, not the rate on the date they were first imported, which is why the warehousing provisions in Chapter IX are a duty-deferment mechanism and not merely a storage facility.

Exemption is the mirror of levy and belongs in this answer in one paragraph. Section 25(1) permits a general exemption by notification in the public interest and section 25(2) a special exemption by order in circumstances of an exceptional nature to be stated in the order. Since Commissioner of Customs v. Dilip Kumar and Company, (2018) 9 SCC 1, a Constitution Bench decision, an exemption notification is construed strictly and any ambiguity is resolved in favour of the revenue, which reverses the older rule and is the single most important recent change in this part of the law.

The critical assessment

Three criticisms are worth making and each should be tied to a provision.

The first is that Rule 12 converts a rule of evidence into a rule of assessment in practice. The declared value is the starting point in law and the disputed point in fact, and an importer whose price is doubted bears the cost of establishing it, through provisional assessment, bond and often a Special Valuation Branch reference. The two-year limit in section 18(1B) from 1 May 2025 addresses the delay but not the underlying allocation of the burden.

Conclusion

Conclusion. The three ideas the question names run in sequence, and the Act keeps them apart. Chargeability arises under section 12 read with Entry 83 of List I, and it attaches not when a vessel enters territorial waters but when the goods cross the customs barrier, which is clearance for home consumption under section 47 or removal from a warehouse under section 68. Levy fixes what is payable, and section 15 ties the rate and valuation to the date of the bill of entry, with basic duty, integrated tax, compensation cess, anti-dumping, countervailing and safeguard duties and the surcharges stacked above it.

Valuation quantifies the base, and since 2007 it does so by the real price rather than a notional one. Section 14 accepts the transaction value where the parties are unrelated and price is the sole consideration, requires the specified additions, and lets the 2007 Rules supply a mandatory sequence of identical goods, similar goods, deductive value, computed value and a residual method. Eicher Tractors holds that a genuine negotiated discount between unrelated parties does not take a transaction out of section 14, which is the strongest protection an importer has.