ALL INDIA GLASS MANUFACTURERS' FEDERATION, NEW DELHIversusCOLLECTOR OF CUSTOMS, BOMBAY

       ALL INDIA GLASS MANUFACTURERS' FEDERATION,
                                                                                   A
                        NEW DELHI
                            v.
              COLLECTOR OF CUSTOMS, BOMBAY

                              AUGUST 13, 1991
                                                                                   B
           [S. RANGANATHAN, M. FATHIMA BEEVI AND
                 '     N.D. OJHA, JJ.)

         Customs Act, 1962: Sections 22, 27-Jmport of goods as per
    contract-Clearance of goods paying customs duty-Detection of sup-
    ply of infehor goods-Payment of compensation by sellers to
    importer-Whether amounts to reduction in price-Whether refund of
                                                                                   c
    customs duty can be claimed.                               ..
                                                                                  --~



         The appellant-Federation entered into a contract with a Soda
    Company of Kenya, for supply of 5000 metric tonnes of soda ash dense
    and the consignment arrived at Bombay on 23.12.1981. The goods                 b
    were cleared on payment of customs duty of Rs.32,15,904.21.

          The appellant on distribution of the goods to various members of
'   the Federation, received complaints that the soda ash which had been
    supplied was of sub-standard quality. When the sellers as well as their
    agents were approached, they sent a team of experts to examine the             E
    goods and on inspection the goods were found defective; As per agree-
    ment dated 9.2.1982, the sellers sent a credit note of US $ 2,40,000 as
    compensation on account of the defective goods. The amount remitted
    on account of the import made was only US $ 5,35,000 as against the
.   earlier contracted amount of US $ 7, 75,000 .
                                                                                   F
           Io view of such reduction, the appellant filed a refund application
    before the Customs Department to the tune of Rs.9.95,892.65. The
    Assistant Collector rejected the refund application as he was not
    satisfied to the extent of deterioration of the goods before clearance as ·
    provided by Section 22 of the Customs Act.
                                                                                   G
          The appeal preferred was rejected by the Collector of Customs on
    the reasoning that the damage wad discovered after the goods were out
    of customs control.

          The further appeal to the Tribunal was rejected holding that the
    alleged inferior nature of goods was discovered after clearance.               H
                                       513
    514                    SUPREME COURT REPORTS             [1991] 3 S.C.R.


A         Under Section 130E of the Customs Act, 1962, present appeal was
    made to this Court, contending that the goods supplied were not in
    accordance with the contractual specification, the defects being inhe-
    rent in nature resulted in diminution in the real value of the goods and
    what had been agreed upon by the foreign seller was reduction in price
    on account of the defects, and daimed that it would be entitled to
B   refund of customs duty under Section 22 of the Act.

          On the question, whether the appellant was entitled to the refund
    of customs duty on account of the compensation given by the seller to
    the appellant on supply of goods, dismissing the appeal, this Court,
                                                                                 r
          HELD: 1.01. When the value is assessed on the basis of the invoice
c   and the goods are cleared, the implication is that no remission is
    allowed and no abatement has been occasioned. There is no express
    provision which enables the proper officer to make a re-assessment for
    the purpose of remission on the ground that the goods at the time of
    their importation or at the time of the clearance was sub-standard or
D   damaged and the invoice price does not represent the real value. [S211E-F]

          1.02. Any error in the assessment of the value by itself does not
    enable the importer to claim re-assessment or refund. It has necessarily
    to be shown that on account of the damaged or deteriorated condition of
    the imported goods before or during the unloading of the goods in
E   India, the duty to be charged on the goods was proportionate to the
    value of the damaged or deteriora~ed goods. [520G-521A]

         J.03. The question of redetermining the value of the imported
  goods can arise only in a case where such damage or deterioration
  before the clearance is proved to the satisfaction of the proper officer.
F When there had been no indication of any such condition and the duty
                                                                                 -
  has been assessed on the basis of the invoice value and duty is paid, the
  assessment would be binding. The importer on finding the goods
  cleared and distributed not to his entire satisfaction may have a claim in
  contract against the seller for providing sub-standard, damaged or
  deteriorated goods for the value in the invoice, and it may be open to the
G buyer to realize from the seller such damages as he would in law be
  entitled to. That claim for damages cannot have any bearing to the
  assessment at the time of the clearance. The price at which the goods
  has been sold is represented by the invoice price and whatever amount
  is realized on subsequent agreement is only by way of compensation as
  damages. It cannot be said that the damages thus received represents
H the difference in price that had been paid and that ought to have been
                GLASS MANUFACTURERS v. C.O.C [FATHIMA BEEVJ. J.}             515

         paid. When the seller had agreed to compensate the boyer for the           A
         quality of the goods imported, the buyer does not get the right to claim
         abatement of dnty on the assnmption that the real price was something
         less than what has been indicated in the invoice. [521A-D]

               1.04. There is no material on record to show that there had been
         a re-assessment of the value of the goods. What had been estimated is      B
         only quantnm of damages sustained hy the buyers and to that extent
         they had been compensated. That arrangement between the buyer and
         the seller cannot be linked with the assessment of duty and no claim for
         abatement of dnty under the provisions of Section 22 or a claim for
         refund under Section 27 could be legitimately entertained. [523A-B]

               Biggin & Co. Ltd. v. Premanite, LD .• Berry Wiggins & Co.
                                                                                    c
         L.D., [1951] l K.B. 422; Cehave NVv. Bremer. [1975] 3 A.E.R. 739;
         Ford Motor Company of India v. Secretary of State for India, [1937-8]
         L.R. 659. A. 32 and Vaccum Oil Co. v. Secretary of State for India,
         [1932] L.R. 59, IA 258, referred to.
                                                                                    D
              Halsbury's Laws of England, para 574 at page 121, Vol. 12;
        referred to.
    '
              CIVIL APPELLATE JURlSDICTJON: Civil Appeal No. 1661
        of 1990.
                                                                                    E
             From the Judgment and Order dated 26.10.-1989 of the Customs
        Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal
        No. CD/SB/A No. 424 of 1983(A) in Order No. 729/89-A.

              H.N. Salve, Ms. Meenakshi Arora. Ms. Ayesha Khatri, Ms.
        Shirin Jain and Ms. lndu Malhotra for the Appellant.                        F

              KTS Tulsi, Additional Solicitor General, A.S. Rao and
        P. Parmeshwaran for the Respondent.

              The Judgment of the Court was delivered by
                                                                                    G
'   ~          FATHIMA BEEVI, J. The appellant is a federation of glass
         manufacturers in India. The Federation entered into a contract with
        ,M/s. Magadi Soda Company Ltd., Kenya, for supply of 5000 metric
         tonnes of soda ash dense at the rate of US$ 155 per metric tonne c.i.f.
         Bombay. The consignment arrived from Mombasa, Kenya on
         23.12.1981. The goods were cleared on payment of customs duty of           H
    516                   SUPREME COURT REPORTS            [ 1991]   ~ S.C.R.I
    Rs.32, 15,904.21 from Bomhay. The appellant on distribution of the
A
                                of
    goods to various members the federation, received complaints that
    the soda ash which had been supplied was of sub-standard quality. The
    sellers M/s. Crescent Dyes & Chemicals as well as their agents were
    approached. They sent a team of experts to examine the goods. The
    inspection confirmed that the goods were defective. As per agreement
B   dated 9.2.1982, M/s. Crescent Dyes & Chemical sent a credit note of
    US $ 2,40,000 as compensation on account of the defective goods sent
    by M/s. Magadi Soda Company Ltd. The amount remitted.on account
    of the import made was only US $ 5,35,000 as against the earlier
    contracted amount of US$ 7,75,000.

           In view of such reduction, the appellant filed a refund applica-
c   tion before the Customs Department to the tune of Rs.9.95,892.65.
    The Assistant Collector w4s not satisfied as to the extent of deteriora-
    tion of the goods before clearance as provided by Section 22 of the
    Customs Act and rejected the refund application vide order dated
    19. 7.1982.
D
          The appeal preferred against the order dated 19. 7 .1982 was
    rejected by the Collector of Customs on 23.12.1982 on the reasoning
    that the damage was discovered after the goods were out of customs
    control. The further appeal to the Tribunal was also unsuccessful. The
    Tribunal by the order dated 26.10. 1989 held that the alleged inferior
E   nature of goods was discovered after clearance.

         This appeal is filed under :Section 130E of the Customs Act, 1962
    against the order of the Tribunal dated 26.10.1989.

         The question involved in the present appeal is whether the appel-
F lant is entitled to the refund of customs duty on account of the com-
  pensation given by the seller to the appellant on supply of goods.•The
  appellant who imported the goods detected defects and the foreign
  supplier accepted the defects and damages and agreed for payment of
  compensation. According to the appellant, goods supplied were not in
  accordance with the contractual specification. The defects being inhe-         (

G re!ll in nature resulted in diminution in the real value of the goods and
  what had been agreed upon by the foreign seller is reduction in price
  on account of these defects. The appellant claimed that it wouJd be
  entitled to refund of customs duty under Section 22 of the Att for
  reasons set out thus. The value to be assessed under Section 14 of the
  A~t is the real price at which goods imported are ordinarily sold at the
H time and place of importation and not the price erroneously indicated
            GLASS MANUFACTURERS '· C.0.C [FATHIMA BEEYI. J.l            517

    by the seller at the time of filling the bill of entry. The buyer who
                                                                               A
    successfully sets up diminution of price on account of breach of war-
    ranty, which claim is accepted by the seller, can seek refund or adjust-
    ment in the customs duty payable where the duty has been paid
    erroneously on the full price prior to such diminution. The claim under
    Section 22 of the Act would be maintainable where imported goods
    were defective and had deteriorated in quality even prior to the import    B
    when the assessment has lo be on the basis of the real value of goods.

           The contract dated 30. 9.1981 is for the supply of 5000 metric
    tonnes of soda ash dense. The complaint was that the sodium carbo-
    nate content was less than the specified 97%, that there was moisture
    in, the soda ash dense supplied and hence it had turned lumpy. M/s.
    Crescent Dyes & Chemicals Ltd. was the agent of the seller M/s.            c
    Magadi Soda Company Ltd. The consignment arrived in Bombay
    sometime in December, 1981. The appellants filed their bill of entry
    with the customs and the goods were cleared on payment of customs
    duty of Rs.32,15,904.21, on 28.12.1981. the complaint about damage
    and deterioration was made long after clearance. The team of experts       D
    examined the goods and confirmed the defects. The customs authori-
    ties were not associated with such inspeCtion.

          It is maintained by the appellant that the credit received was
    recorded in the letteidated 15.3.1982 and the letter indicated that the
    amount remitted on account of the import made was only US                  E
    $ 5,35,000. The reduction in the amount remitted was to the extent of
    US $ 2,40,000. The appellant claimed that on account of the reduction
    in the value of the consignment, the appellant is entitled to refund of
•   customs duty proportionately.

          The Collector of Customs pointed out that:                           F

                "The duty is leviable on the basis of the value of the such
               or like goods at the time of clearance. It has not been
               proved that the alleged defect on account of which the price
               has been reduced was present in the goods at the time of
               clearance. At least some of the defects of the type pointed     G
               out, viz., the lumpy character, are such as could develop
               due to exposure to moisture etc. during the period the
               goods were out of customs. In any case, the customs were
               not associated even with the post-clearance examination.
               Any alleged reduction in value on the basis of a post-
               clearance agreement between the buyer and the supplier on       H
    518                    SUPREME COURT REPORTS              [ 1991] 3 S.C.R.

                some alleged grounds which the customs had no chance to
A
                verify prior to clearance is fraught with great risks to
                Revenue."
                                                     (emphasis supplied)           ,_

           According to the appellant, this reasoning is wrong. The appel-
B   lant stated that mos: of the defects were due to non-adherence to
    specification provided under the contract. The defects being inherent
    in character, the appellant could not have known about the same at the
    time of clearance of the consignment from customs. The ground of
    deterioration of goods was not relevant as the claim for refund was
    based on the ground of diminution in value of the goods as the same
    were not as per the standard contracted for. The assessable value of
c   the goods under Section 14 of the Act is the price at which such goods
    were actually sold in the course of international trade. It is the real
    price of the goods actually imported which is ordinarily the basis for
    assessable value. Where goods do not conform to the description or
    stipulation as to quality or fitness. it is open to the buyer to treat the
D   defect as a breach of warranty. It is also open to the buyer to set up
    against the seller the breach of warranty in diminution of the price. It
    is the diminished price which will be the real price of the goods and not
    the price claimed by the buyer initially which is reflected as c.i.f. value
    on the invoice. Customs duty paid on the c.i.f. value is a duty paid
    under mistake of fact. At the time of clearance of goods, the buyer did
E   not have any knowledge of the defects in the goods. Where defect
    which constitutes a breach of warranty and which the buyer elects to
    treat as a breach of warranty became apparent and ultimately cul-
    minated in diminution of price, it would be open to the buyer to claim
    refund of the customs duty paid under mistake of fact. It is not relevant as
    to when the defect became apparent to the buyer. The fact that the
F   documents proving the true and real value of the goods were not in
    existence at the time when the goods were cleared from the customcs is
    wholly irrelevant. This in short, is the argument advanced on behalf of
    the appellant.

          Duties of customs shall be levied under Section 12 at such rate as
G   may be specified under the Customs Tariff Act or any other law for the
    time being in force on goods imported into or exported from India.
    Section 14 of the Customs Act provides that value of such goods shall
    be deemed to be the price at which such or like goods are ordimrily
    sold or offered for sale for delivery at the time and place of importa-
    tion in the course of international trade. Such price shall be calculated
H   with reference to the rate of exchange as in force on the date on which
       GLASS MANUFACTURERS v. C.O.C [FATH!MA BEEV!, J.)             519


a bill of entry is presented under Section 46. The duty is ordinarily
                                                                           A
chargeable with reference to the tariff value in the case of goods
entered for home consumption on the date on which the bill of entry in
respect of such goods is presented.

      Section 22 provides for payment of duty on damaged or deterio-
rated goods. It reads thus:                                                B

           "22. Abatement of duty on damaged or deteriorated
           goods.

           ( 1) Where it is shown to the satisfaction of the Assistant
           Collector of Customs-
                                                                           c
           (a) that any imported goods had been damaged or had
           deteriorated at any time before or during the unloading of
           the goods in India; or

           (b) that any imported goods, other than warehoused D
           good,, had been damaged at any time after the unloading
           thereof in India but before their examination under Section
           17, on account of any accident not due to any wilful act,
           negligence or default of the importer, his employee or
           agent; or
                                                                       E
           (c) that any warehoused goods had been damaged at any
           time before clearance for home consu1nption on account of
           any accident not due to any wilful act, negligence or default
           of the owner, his employee or agent;

                 such goods shall be chargeable to duty in accordance      F
           with the provisions of sub-section (2).

           (2) The duty to be charged on the goods referred to in
           sub-section (!)shall bear the same proportion to the duty
           chargeable on the goods before the damage or deteriora-
           tion which the value of the damaged or deteriorated goods       G
           bears to the value of the goods before the damage or
           deterioration.''

     Where it is shown to the satisfaction of the Assistant Collector
that any imported goods have been lost or destroyed at any time
before clearance for home consumption, the Assistant Collector of          H
    520                   SUPREME COURT REPORTS            [1991] 3 S.C.R.

    Customs shall remit the duty on such goods. The period of six months
A
    has been prescribed under Section 27 to claim refund of duty paid with
    protest. Refund is allowed when the Assistant Collector of Customs is
    satisfied that the whole or any part of the duty paiu ;hould be
    refunded. No claim for refund of any duty shall be entertained except
    in accordance with the provisions of Section 27.
B
          Chapter VII of the Customs .' -• rleals with the clearance of
    imported goods. The imported goods unloadea ;., ~ customs area
    remain in the custody of the approved person until they are cleared for
    home consumption. Without permission in writing of the appropriate
    officer, such goods are not removed or otherwise dealt with. The
    importer shall give a declaration as to the truth of the contents of the
c   bill of entry supported by the invoice. The order permitting clearance
    of the goods for home consumption is made on payment of the import
    duty, if any, assessed.

          Thus, under the scheme of the Act, the importer is entitled to
o clear the goods on payment of duty assessed and such assessment is to
    be made with reference to the tariff value of the goods where tariff
    values are fixed. In other cases, the price at which the goods are ordi-
    narily sold for delivery at the time and place of importation represents
    the tariff value for the purpose of the assessment. When the value is
    assessed on the basis of the invoice and the goods are cleared, the
E   implication is that no remission is allowed and no abatement has been
    occasioned. There is no express provision which enables the proper
    officer to make a re-assessment for the purpose of remission on the
    ground that the goods at the time of their importation or at the time of
    the clearance was sub-standard or damaged and the invoice price does
                                                                               "1
    not represent the real value. Even if it is assumed that in view of the
F   provisions contained in Section 28(a) enabling the proper office to
    determine the amount of duty due in cases where duty has not been
    levied or has been short levied or erroneously refunded after issuing
  show cause notice, there is a corresponding right on the importer to
  claim refund of the excess duty levied, it is necessary for the importer
  to prove to the satisfaction of the proper officer that the goods at the
G time of the clearance was chargeable to a lesser or lower duty for
  anyone of the reasons contained in Section 22 which alone provides for
  abatement of duty. Any error in the acsessment of the value by itself
  does not enable the importer to claim re-assessment or refund. It has
  necessarily to be shown that on account of the damaged or deterio-
  rated condition of the imported goods before or during the unloading
H of the goods in India, the duty to be charged on the goods was propor-
       GLASS MANUFACTURERS v. C.0.C {FATHIMA BEEVI. J.l               521

tionate to the value of the damaged or deteriorated goods. The ques-
                                                                             A
tion of redetermining the value of the imported goods can arise only in
a case where such damage or deterioration before the clearance is
proved to the satisfaction of the proper officer. When there had been
no indication of any such condition and the duty has been assessed on
the basis of the invoice value and duty is paid, the assessment would be
binding. The importer on finding the goods cleared and distributed not       B
to his entire satisfaction may have a claim in contract against the seller
for providing sub-standard, damaged or deteriorated goods for the
value in the invoice, and it may be open to the buyer to realize from
the seller such damages as he would in law be entitled to. That claim
for damages cannot have any bearing to the assessment at the time of
the clearance. The price at which the goods had beet\ sold is. rep-
resented by the invoice price and whatever amount is realized on
                                                                             c
subsequ'ent agreement is only by way of compensation as damages. It
cannot be said that the damages thus received represents the diffe-
rence in price that had been paid and that ought to have been paid.
When the seller had agreed to compensate the buyer for the quality of
the -goods imported, the buyer does not get the right to claim abate-        D
ment of duty on the assumption that the real price was some thing less
than what has been indicated in the invoice.

     Learned counsel for the appellant referred para 574 at page 121,
Vol. 12, Halsbury's Laws of England:
                                                                             E
            "574. Goods not in accordance with contract.

            Where it is shown to the ~atisfaction of the Commissioners
            of Customs and Excise that goods were imported in
            pursuance of a contract of sale and that iheir description,
            quaHty, state or condition was not in accordance with the        f
            contract, or that they were damaged in transit, and also
            that the importer •. with the consent of the seller, either
            returned the goods to him or destroyed them unused, the
            importer is entitled to obtain from the Commissioners
            repayment of any customs duty paid on their importation.
            The foregoing, however, does not apply to the goods              G
            imported on approval, or on sale or return, or on other
            similar terms."

It dea,ls with the returning of goods or destroying the goods unused
without acceptance and not where the goods have been accepted and
used and the importer had been compensated for the reduction in              H
    522                    SUPREME COURT REPORTS             I 19911 3 S.C.R.

    standard. The learned counsel also referred to the decision in Biggin &
A
    Co. Ltd. v. Premanite, LD., Berry Wiggins & Co. LD. [ 195 II KB 422;
    Cehave NV v. Bremer, [1975] 3 A.E.R. 739; Ford Motor Company of
    India v. Secretary of State for India, [1937-381 L.R. 65 I.A. 32 and
    Vacuum Oil Co. v. Secretary of State for India, I 1932] L.R. 59 I.A.
    258.
B
          On the basis of these decisions, the learned counsel for the
    appellant contended that when the seller has allowed the reduction,
    the real price of the goods is that which has been accepted by the seller
    and that the assessment made on a higher value on the basis of the
    invoice price is in excess and such excess is refundable to the appellant.
c         It is not necessary to elaborate on the principle stated in the
    decisions on the facts of the present case.

           It is admitted case of the appellants that the alleged inferior
    nature of goods was discovered by the appellant after clearance. Until
D   the refund application was made, no requisition appears to have been
    made to the customs authorities to have the value of the goods re-
    determined for the purpose of Section 22. The correspondence bet-
    ween the appellants and the sellers and their agents could only reveal
    that the appellant put forward a claim for compensation on the ground
    that the goods imported had become lumpy and was also of inferior
E   standard. Ultimately the sellers agreed to reimburse the appellants
    and pay compensation to the tune of US $ 2,40,000. What appellants           '
    have received from the sellers is compensation for the damage for
    breach of warranty. It does not appear that the value was reduced or
    amount remitted by the appellant was the reduced value of the goods.
    The amount was the total compensation extended by the sellers tc the
F   appellants. From that fact of payment of compensation or reimburse-
    ment by the sellers it cannot be taken that at the time and place of
    importation the goods imported was worth only the amount stated in
    the invoice less the compensation paid. In other words, there is no
    proof that the real value of the goods at the time and place of importa-
    tion was less than that what had been entered in the invoice and stated
G   in the Bill of Entry. So long as examination of the goods had not been
    made or its value re-assessed to the satisfaction of the asssessing au-
    thorities, it cannot be said that duty was charged not on the real value     '
    of the goods but on a higher amount. The contention that the inherent
    defect in the supply of goods resulted in the diminution of the value of
    the goods cannot be countenanced when it is conceded that what had
H   been paid by the seller is only compensation for the breach of war-
               GLASS MANUFACTURERS v. C.O.C {FATHIMA BEEVI, J.)        523


      ranty. Furthermore, there 1s no material on record to show that even A
      by the team of experts there had been a re-assessment of the value of
      the goods. What had been estimated is only quantum of damages
      sustained by the buyers and to that extent they had been compensated.
      That arrangement between the buyer and the seller cannot be linked
      with the assessment of duty and no claim for abatement of duty under. B
      the provisions of Section 22 or a claim for refund under Section 27
      could be legitimately entertained.

           For the reasons given above, the appeal must fail, The appeal is
      dismissed with no order as to costs.

      V.P.R.                                             Appeal dismiss¢d .




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