Holding

Rules 4 and 9 do not apply as there is no sale; the invoice price is the full transaction value, and the Commissioner’s addition of one‑third is erroneous, so the appellant’s appeal is allowed and the revenue’s appeal dismissed.

Summary

M/s GMR Energy Ltd. imported hot‑section turbine parts under a Long‑Term Assured Parts Supply Agreement (LTAPSA) with GE USA, re‑exporting the used parts and paying customs duty on the invoice value. The Customs Commissioner, relying on Rules 4 and 9 of the Customs Valuation Rules, added one‑third of the invoice value, claiming the invoice reflected only an incremental price, and denied exemption under Notification No.21/2002 because the required certificate was not produced at import. The Tribunal upheld the Commissioner. The Supreme Court held that no sale occurred, so Rules 4 and 9 are inapplicable; the invoice price is the full transaction value, not merely incremental, and the LTAPSA need not be disclosed unless specifically called for. Consequently, the Commissioner’s and Tribunal’s orders were set aside, the exemption notification was upheld, and the appellant’s appeal was allowed while the revenue’s appeal was dismissed.

Issues considered

The applicability of Rules 4 and 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 to imports made under a LTAPSA where no sale takes place.
Whether the invoice price represents the full transaction value or only the incremental value of the refurbished parts, and whether an addition of one‑third of the invoice value is required.
Whether the importer was obligated to disclose the LTAPSA under Rule 10(1)(b) read with Section 17(3) of the Customs Act.
The entitlement to benefit under Exemption Notification No.21/2002 when the certificate was produced after import.
The validity of the customs duty demand, penalty and confiscation orders.

Legislation cited

Customs Act, 1962s. 111(m), s. 111(o), s. 112(a), s. 114A, s. 14, s. 17(3), s. 28(1), s. 28AB, s. 46(4)
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988s. Rule 10(1)(a), s. Rule 10(1)(b), s. Rule 4, s. Rule 5, s. Rule 8, s. Rule 9(1)(d), s. Rule 9(1)(e)
Exemption Notification No.21/2002 (Customs)

Subjects

Customs valuationTransaction valueLTAPSARatable exchange programmeExemption notificationCustoms duty assessmentRule 4Rule 9Rule 10Section 46(4) of Customs Act

Judgment

[2015] 10 S.C.R. 106

A M/S. GMRENERGY LTD.
v.
COMMISSIONER OF CUSTOMS, BANGALORE
(Civil Appeal No. 4920 of 2007)
B
OCTOBER27, 2015
[A. K. SIKRI AND R. F. NARIMAN, JJ.]
Customs Valuation (Determination of Price of Imported
c Goods) Rules, 1988- r. 4 rw r. 9(1 )(d) & (e), r. 10- Customs
Act, 1962- s. 46(4):

Transaction value - Import of parts of the Gas Turbine ·
Hot Section of a power plant which have to be replaced after
12, 500 fired hours of use under a Long Term Assured Parts
0
Supply Agreement(LTAPSA) entered into with foreign
company - Valuation of - Appellant entered into an
agreement for seri/ice and supply of parts with the company
being a LTAPSA - Import of various parts of the said plant
E under two bills of entry - Parts identified as having to be
replaced re-exported back to the company under cover of
shipping bills before the aforesaid bills of entry presented
for import of the replaced parts to the customs authorities -
Appellant paid customs duty based on the value declared in
F the said bills of entry but did not make any payment to the
company based on these invoices since payments had
already been made based on fired hour charges - Issuance
of show cause notice that 1/3rd of the value of the imported
items be added to the invoice value as that was said to
G represent the amount of the parts that were replaced and re-
exported back to the company - Evasion of customs duty
and goods liable to confiscation - Commissioner of Customs
upheld the demand holding that as per the LTAPSA since
assessee declared only the differential value of the returned
H parts and the parts imported, 1/3rd of the invoice value of the
106
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 107
CUSTOMS, BANGALORE

imported parts needs to be added to arrive at the correct A
assessable value - Tribunal upheld the order- On appeal,
held: Commissioner of Customs and the tribunal were wrong
in concluding that the invoice price is only an incremental
value price and not the price of the articles supplied by the
company - Thus, order of Commissioner and tribunal set B
aside.

Exemption notification - Benefit of - Import of goods
under bills of entry - Exemption notification - Claim of, by
appellant- Importer-appellant did not produce the certificate C
at the time of import - Denial of benefit of exemption
notification to the appellant by the Department, however,
allowed by the tribunal- On appeal, held: Once the authorities
are satisfied that the goods are required for renovation, the
customs department does not need to go deep into the matter D
and by hairsplitting and semantic niceties deny the benefit
of the exemption notification - Tribunal was right in setting
aside the finding of the Commissioner.

Allowing the assessee's appeal and dismissing the E
revenue's appeal, the Court

HELD: 1.1 Rules 4 and 9 of the Customs Valuation
(Determination of Price of Imported Goods) Rules, 1988
would only apply in case imported goods are "sold" for F
export to India. On facts, there is no sale. All that happens
under the LTAPSA is that parts are replaced without any
further charge after a certain number of hours of the
running of the power plant. This being the case, the
assessee was correct in submitting that neither Rules 4 G
nor Rule 9 would apply, as Rule 4 itself, if applicable,
makes Rule 9 also apply. Rule 4(2)(g) and Rule 9(1)(d)
refer only to the very goods that are imported _and not to
goods which may have been imported much earlier to
the imported goods. Therefore, what is necessary is that H
108 SUPREMECOURTREPORTS (2015] 10 S.C.R.

A there should be proceeds which arise from re-sale,
disposal, or use of the very imported goods by the buyer.
The case of the department is that these sub-rules are
attracted only because there was an earlier sale at the
time when the entire plant was imported and that
B subsequently there would be a disposal of goods
imported much after the plant was set up by the buyer.
As it is clear that there is no subsequent re-sale, disposal
or use of the very imported goods-that is the parts
imported under the two bills of entry dated 25.6.2003,
C the assessee is right in his contention that in any case
neither of these sub-rules would apply to the facts of
the instant case. Equally, Rule 9(1)(e) would have no
application for the reason that there is no other payment
actually made or to be made as a condition of sale of the
0
imported goods by the buyer to the seller. Also Rule 5
would have no application. [Para 11, 12] [124-E-H; 125-
A-D; 126-A] .

1.2 The basis of the Commissioner's order as well
E as the Tribunal's order is clause 2.8 of the LTAPSA. It is
accepted that the seller is only to furnish the buyer with
"information" regarding the incremental value of each
refurbished part so that customs duty may be limited to
F the incremental value of each such refurbished part. On
facts, the assessee has, in its reply to the show cause
notice, made it more than clear that the price of the
imported goods was a rotable exchange programme
price which was a common uniform price at which such
G parts were supplied worldwide by GE, USA. This is clear
from a document that was relied upon by the show cause
notice itself, which dealt with GE's ratable exchange
programme. From the said document it becomes clear
that the prices stated in the invoices accompanying the
H bills of entry in the instant case are list unit prices or
catalogue prices. By no stretch of imagination can they
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 109
CUSTOMS, BANGALORE

said to be prices after re-exported items' value has been A
taken into account. This being the case, both the
Commissioner and the tribunal were wrong in arriving
at a conclusion that the invoice price is only an
incremental value price and not the price of the articles
supplied by GE, USA. This being the case on facts, both B
the Commissioner's order and the tribunal's order would
have to be set aside on this ground alone. [Para 14, 15]
[126-C-E; 127-C-D]

1.3 A conjoint reading of Section 46(4) and Rule C
10(1 )(a), makes it incumbent on the importer while
presenting a bill of entry to subscribe to a declaration as
to the truth of its contents and in addition to produce to
the proper officer the invoice relating to the imported
goods. There is no doubt t{lat the assessee has fulfilled D
this condition. It was submitted that the assessee should
also have disclosed the LTAPSA entered into with Mis.
GE, USA which would have disclosed the true value of
the imported goods and other details to the proper officer
who could then have made an informed assessment. The E
LTAPSA would be a document which would fall within
Rule 10(1)(b) read with Section 17(3) of the Act as itthen
stood. A conjoint reading of Section 17(3) and Rule
10(1 )(b) would make it clear that the proper officer may F
require the importer to produce any contract with
-reference to the imported goods consequent upon
-which the importer shall produce such contract. On facts
mthe proper officer has not called upon the assessee to
1produce any contract in relation to the imported goods. G
Thus, there is no infraction of Rule 10. The judgment of
Rhe tribunal is set aside. [Paras 19-22] [128-D-G; 129-C-
J, E]

1.4 Both the requisite certificate as well as the H
·ecommendation of the Principal Secretary, Government
110 SUPREME COURT REPORTS [2015) 10 S.C.R.
•

A of Karnataka were dealt with in the proper perspective.
The t;ibunal is quite correct in stating that once these
authorities are satisfied that the impugned goods are
required for renovation, the customs department does
not need to go deep into the matter and by hairsplitting
B and semantic niceties deny the benefit of the exemption
notification. The finding of the Commissioner was
correctly set aside by the tribunal. Thus, paragraph 11
of the CESTAT's order is set aside save and except sub-
clauses (ii) and (vi) thereof. [Para 25] [132-F-G]
c
CIVILAPPELLATE JURISDICTION: Civil Appeal No.
4920 of2007

From the Judgment and Order dated 03.08.2007 of the
o Customs, Excise, Service Tax Appellate Tribunal, South Zonal
Bench, Bangalore in Appeal No. C/347/06

V. Sridharan, K. Radhakrishnan, M. P. Devanath, S.
Vasudevan, L. Charanaya, Shagun Arora, Hemant Bajaj,
E Anandh K., Aditya Bhattacharya, Rupesh Kumar, Shirin
Khajuria, Ritesh Kumar, Pratik, B. Krishna Prasad for the
appearing parties.

The Judgment of the Court was delivered by

F R. F. NARIMAN, J. 1. Two appeals have been filed
against the impugned judgment dated 3.8.2007 passed by
CESTAT. The appeal filed by the assessee M/s GMR Energy
Ltd. concerns itself with the proper valuation of the import of
parts of the Gas Turbine Hot Section of a naphtha based power
G plant which have to be replaced after 12,500 fired hours of
use under a Long Term Assured Parts Supply Agreement
(hereinafter referred to as "LTAPSA") dated 201h December,
2000 entered into with GE, USA. The appeal of revenue
H concerns itself with whether the assessee is entitled to avail
itself of the benefit of the exemption notification No.21 of 2002
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 111
CUSTOMS, BANGALORE [R. F. NARIMAN, J.] .

dated 1.3.2002 in respect of the goods imported under two A
bills of entry dated 25.6.2003.

Assessee's Appeal

2. The appellant had imported a naphtha based power
8
plant with five gas turbines which was mounted on a barge
which. floated in a river at a Tanir Savi Village near Mangalore
for purposes of power generation. The capacity of the said
power plant is 220 MW. and the entire power generated is
uploaded into the grid of the Karnataka Power Transmission c
Corporation Limited. The power plant had to be kept in good
running condition as the contract with KPTCL is to supply power
to them continuously. For this purpose, the appellant entered
into an agreement for service and supply of parts with GE,
USA being a Long Term Assured Parts Supply Agreement o
dated 12.12.2000, (hereinafter referred to as "LTAPSA"). In
terms of the said agreement, the appellant was to make
payments based on either fired hour charges or maintenance
charges. Various parts of the Gas Turbine Hot Section of the
said plant, which had to be imported under the LTAPSAwere E
imported under two bills of entry dated 25.6.2003 after 12,500
fired hours had come to an end. The parts that were identified
as having to be replaced were re-exported back to GE, USA
under cover of shipping bills of the month of May, 2003 before
the two bills of entry dated 25.6.2003 were presented for import F
of the replaced parts to the customs authorities. The appellant
paid customs duty based on the value declared in the said
bills of entry but did not make any payment to GE based on
these invoices since their payments had already been made·
based on fired hour charges. The assessment of the said G
import was completed by the customs department after due
verification of the documents produced at the time of import.

3. Subsequently, by a show cause notice dated
12.8.2004, the customs department sought the aid of Rule H
112 SUPREME COURT REPORTS [2015] 10 S.C.R.

A 4(2)(g) and Rule 9(1 )(d) and 9(1 )(e) as they stood at the
relevant time in order that ~13'd of the value of the imported
items be added to the invoice value as that was said to
represent the amount of the parts that were replaced and re-
exported back to GE, USA. The show cause notice essentially
B based itself on statements made by one Shri Naresh
Manchanda, Finance Manager of the appellant and .Shri
Siddharth Deb.Associate General Manager of the Company.
It stated:

c "29. From the investigation conducted the following facts
appear to emerge:
(i) M/s GEL, Bangalore entered in to three agreements
with Mis GE, USA which included a Long Term Assured
Parts Supply Agreement(LTAPSA), for the maintenance
D
and upkeep of the Gas Turbines of the barge mounted
power plant.
(ii) This agreement envisaged a ratable exchange
programme for the hot path parts, which are parts of an
E essential nature, requiring replacement after a scheduled
period of 12 ,500 hours of use or earlier in case they are
found not usable.
(iii) These hot path parts, after their use, are removed
from the gas turbines. Under the ratable exchange
F
programme of the agreement, once removed, the hot
path parts become the property of M/s GE, USA and the
Indian firm Mis GEL are required to export them to Mis
GE. On receipt of these parts, M/s GE verifies their
G condition and accordingly they are refurbished. Such
refurbished parts bear no difference to the new parts and
are identical in all respects. Mis GE, USA supplies these
parts to their customers. Customers like Mis GEL do
not know whether the parts supplied to them are new or
H refurbished.
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 113
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

(iv) When M/s GEL exports these used parts, for the A
exports made, no export sale proceeds are realized and
M/s GE, USA makes no payment to M/s GEL. However,
when M/s GEL imports the hot path parts, the price fixed
is based on the ratable exchange programme. The cost
of the returned used hot path parts by M/s GEL is taken B
care, and an abatement is given and thereafter, the price
is arrived at.

(v) Thus the invoice furnished by M/s GE, USA, to M/s
GEL, Bangalore is a discounted price based on the C
ratable exchange programme. The prices under the
ratable exchange programme though are discounted
prices, the same are widely in use and are popularly
called catalogue prices or published price lists.
D
(vi) The invoice produced to the Customs along with the
Bill of Entry is only the ratable exchange price. The
abatement given towards the cost of the exported used
hot path part is not reflected in the invoice. Therefore,
for the purpose of Customs assessment, the declared E
price requires an adjustment by way of addition equal to
the cost of returned hot path part, which was discounted.

(vii) This abatement I discount is to the extent of 1/3'd of
the catalogue price under the ratable exchange F
programme. M/s GE, USA wanted M/s GEL to declare
this price at the time of export from India.

(viii) M/s GEL have not submitted the agreements
entered into with M/s GE, USA to the Customs. They G
suppressed the vital information as regards the payments
made under the ratable exchange programme and the
agreements.

(ix) The removed parts become the property of M/s GE, H
USA and M/s GEL has no option but to export I return to
114 SUPREME COURT REPORTS [2015) 10 S.C.R.

A Mis GE. The import of Hot Path parts by M/s GE, USA.
The cost of returned parts is adjusted against the imported
parts. Thus the very import is a conditional sale and the
cost of returned parts accrues to the seller. This situation
is covered by Rule 9(1)(d) and (e) of the Customs
B Valuation Rules. 1988.

(x) In view of the evidences discussed in this notice, the
declared values require to be rejected; and the same
cannot be accepted as representing the true transaction
C values under Rule 4 of the Customs Valuation Rules,
1988."

4. The customs duty was said to be evaded to the tune
of approximately 4.20 crores. Goods were said to be liable to
o confiscation and ultimately a demand was made as follows:-

"30. Now, therefore, M/s. GMR Energy Ltd., Bangalore
are hereby called upon to show cause to the
CommissionerofCµstoms, C.R. Building, P.B. N0.5400,
Queens Road, Bangalore- 560 001 as to why:
E
(a) the value of the imported goods, covered by5 Bills of
Entry (as listed in Annexure-11) should not be re-
determined at Rs. 45,24,23,850/- (Rupees Forty Five
Crores Twenty Four Lakhs Twenty Three Thousand Eight
F Hundred and Fifty only) under Rule 4 read with Rule
9(1)(d) & (e) of Customs Valuation (Determination of
Price of Imported Goods) Rules, 1988 and in terms of
Section 14 ofCustomsAct, 1962,

G (b) the benefit of exemption under notification No. 21/
2002-Cus dated 01.03.2002 should not be denied in
respect of Bills of Entry Nos. 9140 dated 25.06.2003
and 598675 dated 12.04.2004,
(c) A total duty of Rs.7,36,88,521/- (Rupees Seven
H Crores Thirty Six Lakhs Eighty Erght Thousand Five
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 115
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

Hundred Twenty One only) being the import duty short A
paid should not be demanded under proviso to Section
28(1) of the Customs Act, 1962 as detailed in the
Annexure to this notice,
(d) interest at applicable rate(s) on the above mentioned B
duty amount should not be demanded under Section
28AB of the Customs Act, 1962,

(e) the goods indicated in (a) above should not be
confiscated under Section 111 (m) of Customs Act, 1962. C

(f) the goods imported and cleared under Bills of Entry
Nos.9140 dated 25.06.2003 and 598675 dated
12.04.2004, valued at Rs.13,20,93,674/-, forming part
of goods indicated at (a) above should not be con~scated
under Section 111 (o) of the Customs Act, 1962, apart D
from their liability to confiscation under Section 111 (m)
of the Customs act, 1962,

(g) Penalty under Section 112(a) and/94 Section 114A
of the CustomsAct, 1962 should not be imposed." E

5. The reply to the show cause notice sent by the
assessee disputed all the allegations made and stated in
particular as follows:~
"H. VALUE DECLARED FOR INSURANCE IS THE F
BEST REFERENCE TO DETERMINE THE
INTRINSIC VALUE OF THE GOODS IMPORTED
H.1 it is well known that the imported goods are invariably
covered by a marine insurance policy or air insurance G
policy, as the case may be. Such insurance is necessary
from the point of the view of the parties involved so that
they may be able to recover the value of the goods in
case the goods are lost/damaged during transportation
from one country to another. H
116 SUPREME COURT REPORTS [2015] 1OS.C.R.

A H .2 In this case, GE has a worldwide practice of insuring
the goods dispatched by them under the Ratable
Exchange Programme to all their customers throughout
the world and therefore, GE has duly declared that the
value indicated in their invoice raised on the Noticees is
B inclusive of insurance.

H.3As has already been submitted elsewhere in this reply,
the Noticees submit that the values declared by GE in
their invoices exactly correspond to the prices indicated
C in GE's worldwide ·price-fist for the Ratable Exchange
Programme.

H.4 Since the Noticees have not made any payment to
GE for each invoice raised against supply undertaken
o under the LTSA and the Ratable Exchange Programme,
the Noticees submit that the value declared by GE
inclusive offreight and insurance, which in turn is as per
their published price-list, should be taken to represent
the intrinsic value of the Hot Path Gas Parts imported by
E the Noticees.

H .5 This is corroborated by the fact that GE has insured
the imported Hot Path Gas Parts only to the extent of
import invoice value. A copy of the letter dated
F 05.02.2005 of GE clarifying the position in this regard is
enclosed asAnnexure-9.

H.6. It is now settled law that where invoice values are
doubted, the values declared for insurance could be the
G basis for determining assessable values under the
CustomsAct, 1962.

J. ASSUMPTION THAT THE PRICE FIXED UNDER
THE ROTABLE EXCHANGE PROGRAMME IS
DEPRESSED IS BASELESS.
H
MIS. GMR ENERGY LTD. v. COMMISSIONER OF 117
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

J.1 The Noticees submit that the presumption in sub- A
paras (iv) to (vii) of para 29 of the show cause notice that
the published price lists for supply of parts by GE under
the Ratable Exchange Programme reflect the prices after
deducting the price of the returned part is without any
basis. There is no material to support such an erroneous B
presumption also.
J.2 This presumption is apparently based on the
statement of Shri. Naresh Manchanda recorded on
03.09.2003 who has stated that the commercial invoice c
for the replacement Hot Path Gas Parts is raised on the
Noticees taking into consideration that the existing part
will be sent back.
J .3 The Noticees submit that the above statement is not
in any way implicatory as alleged in the show cause D
notice. The above statement, in fact, only reiterates the
agreed position in terms of the Ratable Exchange
Programme as per which the removed part has to be
received by GE.
E
J.4 The Noticees further submit that the Ratable
Exchange Programme clearly stipulates return of the
removed part within 30 days of receipt of the
replacement Hot Path Gas Parts. The Programme also
states that parts not returned within 30 days would be F
subject to a surcharge of 10% of the catalog price.
J.5 The condition stipulated in the Programme that a
surcharge of 10% of the catalog price would be charged
for receipts after 30 days can only be implemented after G
the expiry of the period of 30 days. Therefore, the
statement of Shri Naresh Manchanda is only a reiteration
of the position explained in the Programme.
J.6 The Noticees, therefore, submit that no conclusion
can be drawn from the statement of Shri Naresh H
118 SUPREME COURT REPORTS [2015] 10 S.C.R.

A Manchanda to the effect that the prices under the Ratable
Exchange Programme have been deliberately depressed
after taking into account the return of the removed part.
J.7 On the contrary, the Noticees submit that the return
of the removed Hot Path Gas Parts under the Ratable
B
Exchange Programme is as per the established
international practice of GE and clearly brought out in ,
the brochure itself.
J.8 It is not the case of the departmentthat the Noticees
c have declared a price which represents the published
price of GE less the price of the returned part. The
Noticees, therefore, submitthatwhen the published price
of GE has been declared as the assessable value for
purposes of payment of duty, it cannot be said that the
D return of the Hot Path Gas Parts has influenced the price
of the imported Hot Path Gas Parts.
J:9 In any case, the Noticees desire to cross-examine
Shri Naresh Manchanda. The Noticees, therefore,
E request that Shri Naresh Manchanda may be made
available for cross-examination by the Hon'ble
Commissioner before adjudicating the matter."

6. By an order dated 2.5.2006 passed by the
F Commissioner of Customs, the learned Commissioner
specifically found that as per the LTAPSA since the assessee
has declared only the differential value of the returned parts
and the parts imported, 1/3rrJ of the invoice value of the imported
parts needs to be added to arrive at the correct assessable
G value. Thus, it confirmed the demand made in the show cause
notice.

7. The appeal filed to the Tribunal was also dismissed,
the Tribunal arriving at the same conclusion as the learned
H Commissioner. The Tribunal in addition found that there is no
transaction value at all and, therefore, Rule 8 will have to be
MIS. GMR ENERGY LTD. v. COMMISSIONER OF 119
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

referred to and relied upon and a best judgment assessment A
was to be made. The Tribunal then went on to hold, quoting a
clause in the LTAPSA, as follows:

"2.8 SUPPLY OF CERTAIN REFURBISHED
PARTS B
In the performance of its scope of work under this
Agreement, Seller may supply Parts which have been
previously installed at a power generation facility other
than the Power Barge and subsequently refurbished by
the Seller. Such refurbished Parts shall be warranted by C
Seller in accordance with the provisions of Article 8. Seller
will provide reasonable documentation for purposes of
Buyer's tax calculations as to those components that are
new, and those that are repaired, but Buyer remains
obligated to pay all taxes, import duties, value added D
and all other taxes, however characterized, arising from
the supply, repair, refurbishment, import, delivery to the
Power Plant, and use of such Parts. With Respect to
refurbished Parts, seller shall furnish Buyer with E
information regarding the incremental value of each
refurbished Part over the value of the comparable
used Part .that was exported in order to limit the
assessment of customs duties to the incremental
value of each such refurbished Part." F
9.8 It is clear from the Agreements that the appellant is
required to export the replaced old part while receiving
the refurbished part from the foreign supplier. The above
mentioned para 2.8 makes it very clear that the value
furnished in the Commercial Invoice is only an incremental G
value and also the same was provided to limit the
assessment of customs duties. This is very clear
evidence indicating that the value declared at the time of
import is not the true value of the goods. The Revenue H
was right in rejecting the said value.
120 SUPREME COURT REPORTS [2015] 10S.C.R.

A 9.10. It has been urged that the value indicated in the
Insurance Policy for the imported goods should be
accepted. That value happens to be the value under the
Rotable Exchange program. The Adjudicating Authority
has stated that in that case, the value should cover even
B the value of the returned part on the ground that the
insurance amount is split between imported parts and
old parts exported back to M/s. GE as both have a value
of their own. Therefore, taking the insurance amount
applicable only to the imported parts and arriving at the
c conclusion as contended by the appellant is not correct."
8. Shri Sridharan, learned counsel appearing on behalf
of the assessee, argued before us that the values stated in the
invoices were values after the goods were insured and there
o is usually a mark-up of 10-15% of the actual value of the said
goods. Therefore, even if these values are to be taken into
account, they would be more than what the imported parts were
actually worth in the market. According to him, the said invoices
were made from a list of these parts published by GE, USA for
E sale worldwide under a rotable exchange !)rogramme, which
programme made it clear that these are list unit prices or
catalogue prices and would, therefore, by their very nature not
include any adjustment made on account of the parts that were
re-exported to GE, USA He further argued that Rules 4 and 9
F had no application in the present case as there was, in fact,
rio "sale" so as to attract the provisions of Rule 4 and
consequently Rule 9. He added that the basic infirmity in the
judgments below was reliance upon clause 2.8 of the LTAPSA.
That clause if properly read only refers to "information"
G regarding the incremental value of each refurbished part over
the value of the comparable used part that was exported. In
fact, as has been pointed out in the reply, the invoices
represented the full value of the imported parts, and not any
H adjusted value as was clear from the fact that prices were fixed
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 121
CUSTOMS, BANGALORE [R. F.NARIMAN, J.]

worldwide and had no reference to any re-exported items of A
used parts. This being the case, according to him, the two
judgments of the Commissioner and CESTAT are wholly wrong
in basing themselves on this clause ofthe agreement. Further,
they were also wrong in basing themselves on the statements
of Shri Manchanda and Shri Deb, as those statements did not B
in any manner incriminate the assessee, and even if they did,
the assessee asked for cross-examination which was denied
to it. .Thus, these statements could not be relied upon at all and
if these statements go, nothing really remains by way of
evidence in the hands of the department. He further argued C
that most of the demand made would be time barred, as the
show cause notice was beyond the six months' period, and
findings of suppression on the assessee's part by the
authorities and the Tribunal was said by him to be perverse D
inasmuch as the assessee did not have to disclose any
agreement at the time of import and the assessee was never
called upon by the customs department to furnish any
agreement so that they could justifiably state that there was
willful suppression on its part. He referred to Section 17(3) E
and Section 46(1) and (4) of the Customs Act to buttress this
submission. He cited several judgments in support of the plea
that there could not, in law, be suppression on his part on
account offailure to produce the LTAPSA. He further submitted
that identical goods had been imported by BSES, and the F
Assistant Commissioner of Customs, by order dated
17.4.2002, had taken the invoice value of the imported items
without any add-ons. Since this would be the value of identical
goods imported at or about the same time as the goods being
valued, Rule 5 of the Customs Valuati<;>n Rules would apply G
and, therefore, any reference to Rule 8 would be incorrect.
Under Rule 5 of the said rules, as in the case of BSES, only
the invoice value of the imported items could be taken into
account without 1/3rd more being added.
H
122 SUPREME COURT REPORTS [2015) 10 S.C.R.

A 9. Shri Radhakrishnan, learned senior counsel appearing
ori behalf of the revenue refuted each of these allegations and
argued before us that the case was squarely covered by Rule
4(2)(g) read with Rules 9(1)(d) and 9(1)(e). In any case,
according to learned counsel, even if one had to go by best
B judgment assessment, it is clear that 113rc1 value of the imported
goods would have to be added inasmuch as clause 2.8 of the
agreement clearly stated that it was only the differential value
that would bethe value of the import of the new parts. He also
stated that it was incumbent upon the assessee to disclose
C the LTAPSA to the customs authorities as two very important
things would emerge from a reading ofsuch agreement. One,
that used parts would have to be re-exported and that such
parts would have a value, and second, that as per clause 2.8
of the agreement, only the difference between the actual value
0
of the imported parts and the value of the used parts, which
according to the assessee itself is 1/3rd of the value of the
imported parts, would be the invoice value of the imported
items. He added that Mr. Manchanda's statement was clear
E and would have to be given effect to and that the authorities
and the Commissioner of Customs had clearly stated that as
Shri Manchanda was abroad, he c;ould not be cross-examined,
and that this would be enough reason under Section 138 B of
the Customs Act to accept his statement. It was also argued
F by Shri Radhakrishnan that as the importer in the present case
was required to furnish a declaration disclosing full and
accurate details relating to the value of imported goods, he
should in the first place have disclosed the entire LTAPSA
agreement to the customs authorities which was not done.
G
10. Since reliance has been placed on a number of
Rules, we deem it appropriate to set out the Customs Valuation
Rules, 1988 which would apply to the imports in question. Rule
4 reads as follows:-
H
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 123
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

"4. Transaction value. - (1) The transaction value of A
imported goods shall be the price actually paid or payable
for the goods when sold for export to India, in accordance
with the provisions of Rule 9 of these rules.
(2) The transaction value of imported goods under sub-
8
rule (1) above shall be accepted:
Provided that:
(g) no part of the proceeds of any subsequent resale,
disposal or use of the goods by the buyer will accrue C
directly or indirectly to the seller, unless an appropriate
adjustment can be made in accordance with the
provisions of Rule 9 of these rules;"
5. Transaction value of identical goods. - (1 )(a) Subject
to the provisions of Rule 3 of these rules, the value of D
imported goods shall be the transaction value of identical
goods sold for export to India and imported at or about
same time as the goods being valued."
8. Residual method. - (1) Subject to the provisions E
of rule 3 of these rules, where the value of imported goods
cannot be determined under the provisions of any of the
preceding rules, the value shall be determined using
reasonable means consistent with the principles and
general provisions of these rules and sub-section (1) of F
section 14 of the customsAct, 1962 (52of1962) and on
the basis of data available in India.
9. Cost and services- (1) In determining the transaction
value, there shall be added to the price actually paid or
payable for the imported goods, - G
(d) the value of any part of the proceeds of any
subsequent resale disposal or use of the imported goods
that accrues, directly or indirectly, to the seller;
H
124 SUPREME COURT REPORTS [2015) 10 S.C.R.

A (e) all other payments actually made or to be made as a
condition of sale of the imported goods, by the buyer to
the seller, o~ by the buyer to a third party to satisfy an
obligation of the seller to the extent that such payments
are not included in the price actually paid or payable.
B
10. Declaration by the importer. - (1) The importer or
his agent shall furnish -

(a) a declaration disclosing full and accurate details
c relating to the value of imported goods; and

(b) any other statement, information or document including
an invoice of the manufacturer or producer of the
imported goods where the goods are imported from or
through a person other than the manufacturer or producer
D
as considered necessary by the proper officer for
determination of the value of imported goods under these
rules."

11. It will be noticed that Rules 4 and 9 would' only apply
E in case imported goods are "sold" for export to India. The
expression "shall be the price actually paid or payable for the
goods when sold for export to India" would necessarily postulate
that transaction value would be based upon goods that are
F .sold in the course of export from a foreign country to India. It is
clear on the facts that there is no sale in the present case, a
fact that has been accepted by the revenue as well. All that
happens under the LTAPSA is that parts are replaced without
any further charge after a certain number of hours of the running
G of the power plant. This being the case, counsel for the
assessee is correct in his submission that neither Rules 4 nor
Rule 9 would apply, as Rule 4 itself, if applicable, makes Rule
9 also apply. Further, it is clear that Rule 4(2)(g) and Rule
9(1 )(d) refer only to the very goods that are imported and not
H to goods which may have been imported much earlier to the
M/S.GMRENERGYLTD. v. COMMISSIONEROF 125
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

imported goods. Therefore, what is necessary is that there A
should be proceeds which arise from re-sale, disposal, or use
of the very imported goods by the buyer. The case of the
department is that these sub-rules are attracted only because
there was an earlier sale at the time when the entire plant was
imported and that subsequently there would be a disposal of B
goods imported much after the plant was set up by the buyer.
As it is clear that there is no subsequent re-sale, disposal or
use of the very imported goods - that is the parts imported
under the two bills of entry dated 25.6.2003, the assessee is
right in his contention that in any case neither of these sub- C
rules would apply to the facts of the present case.

Equally, Rule 9(1)(e) would have no application forthe
reason that there is no other payment actually made or to be
made as a condition of sale of the imported goods by the buyer D
to the seller. This being the case, we have now to see whether
Rule 5 of the Rules would apply as contended by learned
counsel for the assessee.

12. We have gone through the order dated 17.4.2002, E
passed by t.he Assistant Commissioner of Customs, Cochin,
in the case of another assessee, namely, BSES. The entire
discussion in that order proceeds only on whether various other
charges should be adde~ on to the invoice price and it was
held that all such charges should be so added on~ We do not F
find any reference to any argument or finding to the effect that
a certain portion of the invoice price should be added on
because of re-export of used parts. This case would therefore
be distinguishable, as has rightly been held by the Tribunal.
Further, we find that the bill of entry in the present case is dated G
25.6.2003, long after the imports effected in the BSES case.
The imports made in that case were of the year 1998, which
was four years before the present impoii, and would not,
therefore, be identical goods imported at or about the same H
126 SUPREME COURT REPORTS (2015] 10S.C.R.

A time as the goods being valued. It is, therefore, correct to say
that Rule 5 would have no application in the facts of the present
case.

13. We will, therefore, have to proceed on the footing
B that Rule 8 alone applies, and that the best judgment
assessment made by the Commissioner would have to be
reasonable and not arbitrary.

14. We find that the basis of the Commissioner's order
c as well as the Tribunal's order is clause 2.8 of the LTAPSA.
We are in agreement with the learned counsel for the assessee
when he has argued that the seller is only to furnish the buyer
with "information" regarding the incremental value of each
refurbished part so that customs duty may be limited to the
o incremental value of each such refurbished part. On the facts
we have found that the assessee has, in its reply to the show
cause notice, made it more than clear that the price of the
imported goods was a ratable exchange programme price
which was a common uniform price at which such parts were
E supplied worldwide by GE, USA. This is clear from a document
that was relied upon by the show cause notice itself, which
dealt wit.h GE's ratable exchange programme. The said
document states:-

F "Effectivity

These prices supersede all previously published prices
for the sa'!le service. The prices of additional or newly
established service will be available on a quotation basis
G and may be subject to revision until such time as they
are incorporated into the next issue of this price sheet.
The prices indicated are list unit prices and are subject
to change without notice.

Return of Removed Assembly
H
MIS. GMR ENERGY LTD. v. COMMISSIONER OF 127
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

Unless an alternate schedule is agreed to in advance, A
the customer must return removed assembly to GE within
30 days of receipt of the ratable asset. Assemblies not
returned within 30 days are subject to a surcharge of 10%
of the catalog price. Removed assemblies become the
property of GE. Removed assemblies are to be in a B
repairable condition."

15. From this document what becomes clear is that the
prices stated in the invoices accompanying the bills of entry in
the present case are list unit prices or catalogue prices. By C
no stretch of imagination can they said to be prices after re-
exported items' value has been taken into account. This being
the case, on facts in the present case, both the Commissioner
and the learned Tribunal were wrong in arriving at a conclusion
that the invoice price in the present case is only an incremental D
value price and not the price of the articles supplied by GE,
USA. This being the case on facts, we are afraid that both the
Commissioner's order and the Tribunal's order would have to
be set aside on this ground alone.
E
16. Relying upon Shri Manchanda's statement and Shri
Deb's statement would, therefore, not carry the matter much
further as it is found that on facts, the commercial invoices do
not take into consideration the fact that existing used parts
are to be sent back to GE, USA, which parts would have a F
value - that is 1/3'd of the invoice price of the imported items.

17. Shri Radhakrishnan has argued that it was incumbent
upon the assessee to submit a declaration disclosing full and
accurate details relating to the value of imported goods under G
Rule 10 of the Customs Valuation Rules, 1988. He has also
argued that under sub-clause (b) of Rule 10(1), it was
incumbent upon the assessee to have handed over the entire
LTAPSA to the Customs authorities and as the assessee has
breached the aforesaid rule, there has been a mis-declaration H
128 SUPREME COURT REPORTS [2015] 105.C.R.

A by the assessee of the value of the goods consequent to which
the assessee is liable to additional duty and penalty.

18. Rule 10(1) which has been set out earlier in this
judgment consists of two sub-clauses. Under sub-clause (a),
B the assessee/importer has to submit a declaration disclosing
full and accurate details relating to the value of the imported
goods. This sub-clause obviously has reference to Section
46( 4) of the Act which states as follows:

c "(4) The importer while presenting a bill of entry shall
make and subscribe to a declaration as to the truth of
the contents of such bill of entry and shall, in support of
such declaration; produce to the proper officer the
invoice, if any, relating to the imported goods."
D
19.Aconjoint reading of Section 46(4) and Rule 10(1)(a),
thus makes it incumbent on the importer while presenting a
bill of entry to subscribe to a declaration as to the truth of its
contents and in addition to produce to the proper officer the
E invoice relating to the imported goods. There is no doubt that
the assessee has fulfilled this condition. What is sought to be
argued by Shri Radhakrishnan is that the assessee should
also have disclosed the LTAPSA entered into with M/s. GE,
USA which would have disclosed the true value of the imported
F goods and other details to the proper officer who could then
have made an informed assessment.

20. The LTAPSA would be a document which would fall
within Rule 10(1)(b) read with Section 17(3) of the Act as it
G then stood. Section 17(3) reads as follows:

"17(3) For the purpose of assessing duty under sub-
section (2), the proper officer may require the importer,
exporter or any other person to produce any contract,
broker's note, policy of insurance, catalogue or other
H
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 129
CUSTOMS, BANGALORE [R. F. NARIMAN, J.)

document whereby the duty leviable on the imported A
goods or export goods, as the case may be, can be
ascertained, and to furnish any information required for
such ascertainment which is in his power to produce or
furnish, and thereupon the importer, exporter or such other
person shall produce such document and furnish such B
information."

21.Aconjoint reading of Section 17(3) and Rule 10(1)(b)
would make it clear that the proper officer may require the
importer to produce any contract with reference to the imported C
goods consequent upon which the importer shall produce such
contract. On the facts of the present case, the proper officer
has not called upon the assessee to produce any contract in
relation to the imported goods. This being the c_ase, it is clear
that there is no infraction of Rule 10 as contended by Shri D
Radhakrishnan.

22. As the assessee succeeds on merits, it is
unnecessary to go into the point qf limitation. The assessee's
appeal is, therefore, allowed and the judgment of the Tribunal E ·
is set aside.

Revenue's appeal

23. The impugned judgment has held that exemption F
notification No.21/2002 dated 1.3.2002 would apply to the
assessee's case. The relevant portion of the said notification
is reproduced below:-
S. NJ. Ola!Xa- t-m:ling c:esa;ptiai a gocx:1s StMcml Pdditiona Qirdtiai
NJ. or slb- Rate [lrtyrate f'.b.
healing NJ, . -· .
G
.. - -.
84orany~er An giods tor rero,,ation
-·~-·--

236. 5% 16'/~ 45
or mcderrizaion a a
poy.e- gena-ation plait
(dher tila'l cap1i ve JlCMElf'
aeneration olant\
45. If,-
H
130 SUPREME COURT REPORTS [2015] 10 S.C.R.

A (i) in the case of a power (except a nuclear power plant),-
(a) in the case of Central Power Sector Undertakings,
the Chairman of the concerned Undertaking or an officer
authorized by him certifies that the scheme for renovation
or modernization as the case may be, of such power
B
plant, has been approved and an officer not below the
rank of Deputy Secretary to the Government of India in
the Ministry of Power recommends, in each case, the
grant of the aforesaid exemption to the goods for such
c scheme;
(b} in other cases, an officer not below the rank of the
Chief Engineer of the concerned State Electricity Board .
or State Power Utility certifies that the scheme for
renovati<?n or modernization, as the case may be, of such
D power plant, has been approved and an officer not below
the rank of a power or electricity recommends, in each
case, the grant of the aforesaid exemption of the goods
for such scheme;
. E (ii) in the case of nuclear power plant, an officer not below the
rank of a Deputy Secretary to the Government of India in the
Department of Atomic Energy certifies the scheme for
renovation or modernization as the case may be, of such power
plant, has been approved and recommends the grant of the
F aforesaid exemption to the goods for such scheme; and
(iii) in all cases, the importer furnishes an undertaking to the
Deputy Commissioner of Customs or the Assistant
Commissioner of Customs, as the case may be, to the effect
G that the said goods shall be used for the purpose specified
above and in the event of his failure to use the goods for the
renovation or modernization of the said power generation plant,
he shall pay an amount equal to the difference between the
duty leviable on the said imported goods but for the exemption
H under this notification and that alrec:idy paid at the time of
importation."
M/S. GMR ENERGY LTD. v. COMMISSIONER OF 131
CUSTOMS, BANGALORE [R. F. NARIMAN, J.]

·24. On this aspect of the matter, the Tribunal has held as A
follows:-

"10.3. The case of the Revenue is that at the time of
importation the required Certificate was not produced. It
is also the case of the Revenue that the appellants 8
misrepresented the facts to the concerned authorities
for obtaining the Certificate. The objection of the Revenue
that at the time of import, the Certificate was not
produced is not a very strong ground for denying the
benefit of Notification. There is a plethora of decisions C
in which various Courts and Tribunals have accepted the
production of Certificate even after the importation for
granting benefits. The appellant, after representing to
the concerned authorities, obtained a Certificate dated
23.01.2004 to the effect that the scheme of renovation D
has been examined thoroughly and approval accorded
for the same. The Principal Secretary, Government of
Karnataka has also recommended the exemption under
the said Notification. The list of spare~ recommended
have also been mentioned. The General Manager of the E
Karnataka Power Transmission Corporation Ltd. has
certified that the spares listed in the letter of the appellant
dated 29.09.2003 are essential for the proper upkeep
of the generating units. The Revenue contends that the
impugned goods are not for renovation but only for F
upkeep. In our view, one cannot take such a narrow view.
What is the meaning of renovation? To renovate means
to make new. We talk of renovating a house or building
etc. In the present case it is the renovation of the Power G
Plant. In their letter addressed to the Government of
Karnataka, the appellants have stated that they have
been undertaking the renovation of the Gas Turbines at
their plant. On going through that letter, we do not find
that there is any misrepresentation. They have H
132 SUPREME COURT REPORTS [2015] 105.C.R.

A emphasized the point that after 12,500 fixed hours,
renovation is necessary. We also find that the old parts
are exported and the re-furbished parts are imported for
replacement. In a way, this can be understood to be a
sort of renovation. In any case, the State Government
B has accepted the proposal of the appellants and the
Certificate has been issued by the Principal Secretary,
Government of Karnataka, Energy Department. Once
the competent authority is satisfied that the impugned
goods are required for renovation, the Customs
c Department need not go deep into hair splitting and
semantic niceties to deny the benefit of Notification. The
ORI had taken up the matter with the State Government
who have confirmed the approval of the Scheme. Once
the scheme is approved by the State Government for the
D
Power Project, in our view, the benefit of exemption
Notification cannot be denied. Therefore, we set aside
the Commissioner's order denying the benefit of the
Notification. In our view, the appellants have fulfilled the
E conditions of the said Notification and are rightly entitled
for its benefit."
25. We find that both the requisite certificate as well as
the recommendation of the Principal Secretary, Government
of Karnataka, have been dealt with in the proper perspective.
F The Tribunal is quite correct in stating that once these
authorities are satisfied that the impugned goods are required
for renovation, the customs department does not need to go
deep into the matter and by hairsplitting and semantic niceties
G deny the benefit of the exemption notification. The finding of
the Commissioner has been correctly set aside by the Tribunal
and hence we dismiss revenue's appeal. In sum therefore,
paragraph 11 of the CESTAT's order is set aside save and
except sub-clauses (ii) and (vi) thereof.

H Nidhi Jain Appeal disposed of.