1. The petitioner is a private limited company carrying on business of manufacturing chocolates, cocoa powder and other related products in its factory at Bombay. The petitioner- Company is associated with a company known as 'Cadbury Limited (U. K.)', (referred to hereafter as 'the U. K. Company'), incorporated in the United Kingdom. The principal raw material used in the manufacture of the petitioner's products is cocoa beans which are imported from abroad as they are not produced in India. Ever since the petitioner- Company commenced manufacturing its chocolate products, it has, from time to time, been purchasing cocoa beans in the following manner.
2. The U. K. Company sent to the petitioner-Company a weekly report on the price trends of cocoa beans in the international market and specifically advised the petitioner-Company in respect of the appropriate time for purchasing the petitioner's requirements of cocoa beans. Based on such reports and advice, the petitioner-Company asked the U. K. Company to purchase the requirements of the petitioner- Company of cocoa beans at the then prevailing international prices either from West Africa or from Malaysia. In accordance with such orders placed by the petitioner-Company, the U. K. Company actually purchased the cocoa beans for and on behalf of the petitioner-Company. In the case of imports from West Africa, the U. K. Company received delivery of the cocoa beans and stored the same for and on account of the petitioner-Company. A few months prior to the actual requirements by the petitioner-Company of the cocoa beans in its factory in Bombay, the petitioner-Company issued to the U. K. Company shipping instructions for the despatch of the required quantity of cocoa beans by means of an indent and such cocoa beans were accordingly shipped by the U. K. Company. In respect of these cocoa beans, in the relevant invoices raised by the U. K. Company on the petitioner-Company, the U. K. Company charged to the petitioner-Company the purchase price of the cocoa beans plus handling, retagging and storage charges as well as the cost of freight and insurance. In the case of imports from Malaysia, the same practice was followed as in the case of imports from West Africa, except that in the case of imports from Malaysia the contract was arrived at on a c. i. f. Bombay basis and the cocoa beans were shipped directly from Malaysia to Bombay. The invoices raised by the U. K. Company on the petitioner-Company were, therefore, for the same amount as that raised on the U. K. Company by the Malaysian suppliers.
3. Under the provisions of Section 14 of the Customs Act, 1962, a branch of the Customs Department known as 'the Special Valuation Branch' had on number of occasions gone into the question of the real value of the cocoa beans for the purpose of Customs duty. For this purpose, the Special Valuation Branch had considered all relevant materials including inter alia the fact that the petitioner-Company and the U. K. Company were associated companies and had thereafter on 22nd August 1963, 26th August 1965 and 1st March 1971 accepted that, for the purpose of Customs duty, the invoice value thus determined was, in fact, the real value of the cocoa beans imported by the petitioner-Company.
4. In 1973, the petitioner-Company imported two consignments of cocoa beans from the U. K. one on board S. S. Jalagomati and the other on board S. S. Indian Valour and one consignment of cocoa beans from Malaysia on board S. S. Luanda in the following manner.
5. By its telex dated 15th February 1972, the U. K. Company suggested that the petitioner-Company could buy part to its requirements for 1973 at the then current prices, namely, Pounds 227.5 to Pounds 232.5 per ton. By its telex dated 16th February 1972, the petitioner-Company gave orders to the U. K. company to purchase 250 tonnes of cocoa beans for the first quarter of 1973 and 250 tonnes of cocoa beans for the second quarter of 1973 at the prices indicated by the U. K. Company. On 18th February 1972, a contract was entered into between the U. K. Company on the one hand and the sellers, namely, Woodhouse Drake and Carey Ltd., (referred to hereafter as 'the Woodhouse Contract') for the sale to the U. K. Company of 250 tonnes of Good Fermented Nigerian Cocoa Main Crop 1972/73 at Pounds 225 per long ton to be shipped from Nigeria to U. K. during December 1972/January/February 1973. This contract was forwarded by the U. K. Company to the petitioner-Company. By its telex dated 21st February 1972, the U. K. Company confirmed the purchase on behalf of the petitioner-Company of 250 tonnes of cocoa beans at Pounds 225 per tonne c. i. f. U. K. The two consignments, ex S. S. Jalagomati and S. S. Indian Valour referred to earlier, form part of this Woodhouse Contract and the corresponding Order being No. B/1729. On 17th January 1973, the U. K. Company informed the petitioner-Company that the price per tonne of the cocoa beans which was Pounds 225 f. o. b. U. K., would come to Pounds 282.21 c. i. f. Bombay. On 5th July 1973, the petitioner-Company forwarded to the U. K. Company shipping instructions bearing No. 5436 for the shipment of 800 kgs. Hyfoama and the balance quantity of cocoa beans out of the aforesaid Order No. B/1729 so as not to exceed the total licence value of Pounds 46,943. In these shipping instructions the relative import licence number and the period of validity of the licence were also given. The U. K. Company accordingly despatched 664 bags of cocoa beans aggregating to 41.5 tonnes on board S. S. Jalagomati. The U. K. Company also sent an invoice for Pounds 11,711.72 at the rate of Pounds 282.21 per tonne c. i. f. Bombay supported by a letter giving the following particulars :
Price per ton f.o.b. U. K. Pounds 225.00
Bagging charges Pounds 15.00
Handling and storing charges Pounds 3.75
Buying Commission Pounds 1.13
Freight Pounds 35.75
Insurance Pounds 1.58
6. On the arrival of S. S. Jalagomati in Bombay, the petitioner- Company filed a Bill of Entry showing the assessable value aggregating to Rs. 2,22,843/- including landing charges.
7. On 8th May 1973, the petitioner-Company sent to the U. K. Company its shipping instruction No. 5434 for shipment of such quantity of cocoa beans out of the aforesaid Order No. B/1729 so as not to exceed the total licence value of Pounds 253.68. In these shipping instructions the relative import licence number and the period of validity of the licence were also given. Accordingly, the U. K. Company despatched 14 bags of coca beans aggregating to 889 kgs. on board S. S. Indian Valour and also sent to the petitioner-Company an invoice for Pounds 246.93 at the rate of Pounds 282.21 per tonne c. i. f. Bombay supported by the following particulars :
Price per ton f.o.b. U. K. Pounds 225.00
Bagging charges Pounds 15.00
Handling and storing charges Pounds 3.75
Buying Commission Pounds 1.13
Freight Pounds 35.75
Insurance Pounds 1.58
8. On the arrival of Indian Valour in Bombay, the petitioner-Company filed a Bill of Entry showing the assessable value aggregating to Rs. 4,698/- including landing charges.
9. Coming to the third shipment ex S. S. Straat Luanda, on 17th January 1973, an agreement was entered into in England between 'Cadbury Overseas Ltd. a/c. Cadbury Fry (India) Private Limited' (the latter being the petitioner-Company) and the sellers, namely, Cocoa Merchants Ltd. (referred to hereafter as 'the Malaysian suppliers'), for the sale of 60 tonnes of Malaysian Cocoa Beans at Pounds 317.50 per long ton c. i. f. Bombay to be shipped from Malaysia to Bombay in three lots of 20 tonnes each during the period August/October, October/December 1973 and November 1973/January 1974. On 31st July 1973, the petitioner-Company forwarded to the U. K. Company shipping instructions No. 5441 for shipment of the first lot of 20 tonnes out of Order No. S. 3499. In these shipping instructions the relative import licence number and the period of the validity of the licence were also given. The Malaysian suppliers accordingly despatched 280 bags of cocoa beans aggregating to 20 tonnes on board Straat Luanda. The U. K. Company also sent and invoice for Pounds 6350/- at the rate of Pounds 317.50 per long ton. On the arrival of S. S. Straat Luanda in Bombay, the petitioner-Company filed a Bill of Entry showing the assessable value aggregating to Rs. 1,20,823/- inclusive of landing charges.
10. After the aforesaid consignments were received in India and the Bills of Entry were duly filed, the Customs authorities assessed the same at a value of Pounds 777.35 per metric tonne in the case of the Jalagomati consignment, Pounds 495.03 per metric tonne in the case of the Indian Valour consignment and Pounds 730 per metric tonne in the case of the Straat Luanda consignment and demanded from the petitioner-Company additional differential duty which the petitioner- Company paid under protest. On 8th January 1974, the petitioner- Company submitted to the Customs authorities the requisite refund applications for the difference of duty collected. Thereafter at the behest of the Customs authorities, the petitioner-Company furnished certain information, documents and particulars required by the Customs authorities. After considering the aforesaid refund applications and the material furnished by the petitioner-Company, the Assistant Collector of Customs granted to the petitioner-Company a refund of the excess duty collected amounting to Rs. 2,80,581.70 in the case of the Jalagomati consignment, Rs. 3,304.70 in the case of the Indian Valour consignment and Rs. 1,12,994.70 in the case of the Straat Luanda consignment.
11. On 15th October 1975, a notice was issued by the Collector of Customs stating that the aforesaid refunds had been improperly sanctioned for the reasons stated therein and calling upon the petitioner-Company. By this shown cause notice it was further stated that the petitioner's refund applications had been wrongly sanctioned contrary to a decision taken by the Collector of Customs. The petitioner-Company thereupon requested the Customs authorities to furnish a copy of Collector's decision mentioned in the show cause notice. That was not done despite various communications addressed to the Customs Department. Ultimately a letter was addressed on 27-11- 1975 by the Department stating that there was no separate order of the Collector of Customs but that the assessment had been made on the basis of the Collector's observations dated 20-12-1973, 'to the effect that the assessment should be based on the price prevailing on the date of the firm indent of Cadbury Fry (India) Pvt. Ltd., placed on Cadbury Overseas Ltd. The price prevailing on the latter date is readily available from the published market report of Gill and Duffus.' After further correspondence and representations, a personal hearing was given to the petitioner-Company on 15-4-1976 by the Collector of Customs. On 30-4-1976, the Collector passed his impugned order holding that the aforesaid refund of duty had been erroneously paid by the Department to the petitioner-Company and ordered the same to be repaid forthwith by the petitioner-Company to the Department. It is this order that is being challenged by way of this petition.
12. At the outset, it would be pertinent to refer to the grounds on which the Collector has based his finding order. After setting out the facts and submissions and paraphrasing the provisions of Sec. 14 of the Act, the impugned order states that judged by the requirement of that section, the price paid by the importer as worked out on the basis of the purchase price paid by the importer's principals at the time of the forward purchase cannot be accepted as the price for determining the assessable value. In coming to this conclusion the Collector has given three reasons as under :
'Firstly that price is not between the importers and supplier. Secondly, the purchase transaction is not related to any specific importation and thirdly, the principals and the importers are related persons. As against this, there is a price which is quoted in the international markets in respect of this commodity. Therefore, it is possible to determine the price prevalent at the time of sale for delivery at the time and place of importation.'
13. At this stage Section 14 of the Customs Act may be recapitulated. It provides for the valuation of goods for purposes of assessment and states that for the purposes of the Indian Tariff Act, 1934 or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be -
'(a) the price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation of exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale.'
14. Mr. Setalvad, the learned Counsel appearing on behalf of the petitioner-Company, challenged the impugned order on the ground that the reasons given by the Collector are irrational and unrelated to the requirements of Section 14. The contrary was urged by Mr. Dalal, the learned Counsel appearing on behalf of the respondents.
15. In order to appreciate the rival contentions of the parties, the reasons given in the impugned order must be examined and analysed. As stated earlier, the first ground given by the Collector is that 'price is not between the importers and supplier'. This reason given by the Collector does not appear to be sound. It proceeds on the misconception that the U. K. Company was the supplier, which it was not. The terms and conditions in the Woodhouse Contract clearly reveal that the supplier was not the U. K. Company but Woodhouse Drake and Carey Ltd. which had sold the goods to the U. K. Company, viz., 250 tonnes of cocoa beans at Pounds 225 per long ton. It must also be remembered and the suppliers, namely, the Woodhouse Drake and Carey Ltd., it was for and on behalf of the petitioner-Company that the U. K. Company had entered into the contract. That contract and the communications exchanged between the petitioner-Company and the U. K. Company reveal that the U. K. Company had merely acted as the agent of the petitioner-Company. Though in the impugned order the Collector has referred to the U. K. Company as the principals of the petitioner- Company, this is factually incorrect. The Woodhouse Contract and the various telexes and other Communications exchanged between the U. K. Company and the petitioner-Company disclose in no uncertain measure that all that the U. K. Company did was to purchase the goods from the supplier, namely, Woodhouse Drake and Carey Ltd., not on its own account but for and on behalf of the petitioner-Company. The same would also apply to the Malaysian Contract which indisputably shows that the goods covered by that contract were purchased 'a/c Cadbury Fry (India) Pvt. Ltd.' (viz. the petitioner-Company). Thus the price mentioned in those contracts cannot be said not to be the price between the importer and the supplier as held by the Collector.
16. Mr. Dalal, however, urged that the price mentioned in Order No. 5436 and the price mentioned in the invoice, namely Pounds 282.21 per tonne, was not the rice between the importer, namely, the petitioner- Company, and the supplier, namely, Woodhouse Drake and Carey Ltd. This contention is fallacious. As stated earlier, the rice of Pounds 282.21 mentioned in the invoice is comprised of the price per tonne f. o. b. U. K., namely Pounds 225, together with bagging, handling and storing charges, buying commission, freight and insurance aggregating to Pounds 57.21. Mr. Dalal also relied on the Order No. 5434 and the Indent No. 5434. Here also the price of Pounds 282.21 stated in this order and invoice, comprised of Pounds 225 per tonne f. o. b. U. K. which is the contract rate in the Woodhouse Contract plus bagging, handling and storing charges, buying commission, freight and insurance aggregating to Pounds 57.21, in all amounting to Pounds 282.21. Mr. Dalal also relied on the Order No. 5441 where the price has been shown at Pounds 317.50 per long ton. In the invoice of the seller, namely, Cocoa Merchants Ltd., and in the invoice of the U. K. Company, the same price, namely, Pounds 317.50 per long ton, has been shown. This is the same price which was the contract price in the Malaysian Contract entered into between Cocoa merchant Ltd. and Cadbury Overseas Ltd. a/c. Cadbury Fry (India) Pvt. Ltd. Thus, these documents relied on by Mr. Dalal can be of no assistance to the respondents. Mr. Dalal was unable to point out, and rightly so, that these factors urged by Mr. Dalal were within the Collector's contemplations as the basis of the first ground give by him.
17. Coming to the second ground given by the Collector, at first flush it is difficult to understand what exactly he had at the back of his mind when he said that 'the purchase transaction is not related to any specific importation'. Mr. Dalal, however, attempted to give an explanation by urging that the specific importation, namely, imports under Order No. 5436 and 5434 cannot be co-related with the purchase transaction between the U. K. Company and the Woodhouse Drake and Carey Ltd. and the imports under Order No. 5441 cannot be co-related with the purchase transaction in respect of the Malaysian Contract. Mr. Dalal elaborated that though under the Woodhouse Contract, shipment was to be made during December 1972/February 1973, the cocoa beans were not shipped to India within the delivery period mentioned in the agreement, with the result that it was not possible to co- relate the purchase under the Woodhouse Contract with the consignment sent on board S. S. Jalagomati and Indian Valour. This contention of Mr. Dalal does not take into account the number of telex messages and the communications exchanged between the petitioner-Company and the U. K. Company. The genuineness of these telex messages and communications between the petitioner-Company and the U. K. Company have never been questioned by the Department at any time nor are they by Mr. Dalal. Thus, apart from the contract, these telex messages and communications being to the forefront that the coco beans sent by the U. K. Company to the petitioner-Company on board S. S. Jalagomati and S. S. Indian Valour were certainly a part of the Woodhouse Contract entered into between Woodhouse Drake and Carey Ltd. as the suppliers and the U. K. Company as the agent for an on behalf of the petitioner-Company. The reliance placed by Mr. Dalal on the Order No. 5441 pertaining to the Malaysian Contract showing the rice of Pounds 317.50 can avail the respondents nothing, for, in any event, as far as the Malaysian cocoa beans are concerned, this was surely a case of specific purchase transaction being related to a specific importation. Also what cannot be lost sight of is that there is nothing in Sec. 14 which states that the relevant price is the rice which must be related to some specific date of importation.
18. This bring me to the third reason given by the Collector, namely, that the principals and the importers are related persons. The very premise of this reason is factually incorrect as it proceeds on the total misconception that the U. K. Company was the principal of the petitioner-Company. The U. K. Company was not the principal but was merely the agent of the petitioner-Company. This is amply clear from the contracts themselves without necessitating dissection of the telexes and communications exchanged between them. The U. K. Company has even charged its commission to the petitioner-Company. Further that cannot be lost sight of is that under Section 14 it is the seller and the buyer who should have no interest in the business of each other. The Collector appears to have proceeded on the totally erroneous conception that the U. K. Company was the seller, which it was not. In the present case, in the Woodhouse Contract the seller, which it was not. In the present cause, in the Woodhouse Contract the seller was Woodhouse Drake and Carey Ltd. and in the Malaysian Contract the seller was the Cocoa Merchants Ltd. The U. K. Company was, merely the petitioner's agent for and on whose behalf the goods were purchased from the sellers. However, according to Mr. Dalal, in reference to the invoice of the U. K. Company, the U. K. Company and the petitioner-Company are related persons. There is no merit in this contention, for even assuming the U. K. Company and the petitioner- Company have an interest in each other, that is not the kind of interest envisaged by Section 14. The interest contemplated in Section 14 has to be between the seller and the buyer and not between the principal and his agent. The U. K. Company was not the seller but acted merely as the agent of the petitioner-Company. Furthermore, it has never been even the case of the Department that Woodhouse Drake and Carey Ltd. or Cocoa Merchants Ltd. (viz. the respective sellers in respect of the Woodhouse and Malaysian Contracts), had any interest in the business of the U. K. Company or the petitioner-Company or vice versa. It may also be stated that the ground urged by Mr. Dalal in order to substantiate the third reason of the Collectors is an attempt at justification across the Bar contrary to the ratio in Mohinder Singh Gill and Another v. The Chief Election Commissioner, New Delhi and Others, : 2SCR272 , where it was laid down by the Supreme Court that an order cannot be justified on ground other than those contained in the order itself.
19. Thus, these three grounds on which the Collector has principally based his finding do not stand the light of scrutiny.
According to the Collector, he has -
'..... also been influenced by the fact that the invoice value does not include all the considerations relevant in a commercial transaction perhaps because the two firms are related parties.'
Pausing here for a moment this is not only vague but is conjecture on the part of the Collector. He has not chosen to state what relevant considerations are not included in the invoice value except by adding -
'In one of the examples cited by the firm at the time of hearing they had pointed out that in one case the goods had been purchased at a price of Pounds 225 per ton but the importers' principals charged only Pounds 1.13 as buying commission.'
If this trained 'example' was to be emphasised by the Collector surely the petitioner-Company should have been asked to give its explanation. Be that as it may, I hasten to add that this reasoning was fairly not slight to be justified by Mr. Dalal and rightly so.
20. Another ground which, according to the Collr., influenced him was that -
'..... if it was a transaction between unrelated parties then the suppliers would have charged the price prevalent at the time of shipment irrespective of the price at which they might have procured the goods....'
It is matte or wonderment whether these observations are meant to convey that a transaction cannot be accepted as genuine because a party did not commit a breach of contract to extract a higher price. Further comment is unnecessary and, once again, Mr. Dalal fairly did not seek to justify this curious observations made by the Collector.
21. Mr. Dalal, however, urged that this was not a transaction in the course of international trade because in the Woodhouse Contract both the parties were in U. K. and delivery was to be effected in England. There is no merit in this contention. It is correct that under that contract the supplier had to effect deliveries in England where the goods would be stored by the petitioner's agent, viz. the U. K. Company, and thereafter send the same to the petitioner-Company according to its requirements. Surely, this does not make it any less a contract in the course of international trade. Mr. Dalal next urged that in the Woodhouse Contract though the period of delivery was mentioned as between December 1972/February 1973, the order placed by the petitioner-Company to ship the goods were on 5-7-1973, namely far beyond the delivery period mentioned in the Woodhouse Contract. This fact by itself would not make the transaction outside the course of international trade as urged by Mr. Dalal. Furthermore, what also cannot be lost sight of is that it has never been even the case of the Department that either the Woodhouse Contract or the Malaysian Contract was a sham or bogus contract or that there was any under hands dealing in respect thereof. Even less acceptable is Mr. Dalal's contention that even the Malaysian Contract was in the course of international trade because the contracting parties were in London and the August/October 1973 consignment mentioned in that contract arrived in Bombay on 3rd November 1973. It is true that this contract (like the Woodhouse Contract) is on the contract form of the Cocoa Association of London Ltd. It is also true that this contract was signed in London. But does that make it any less a contract in the course of international trade Emphatically not. What is important is that under thus contract the goods were to be shipped by the Malaysian party from Malaysia to Bombay. The 20 tonnes of cocoa beans under that contract for August/October 1973 shipment were, in fact, shipped within that period, viz., on 6-10-1973 and arrived in Bombay on 3-11- 1973. Thus there is even much less that can be said about this contract not being in the course of international trade.
22. Mr. Dalal urged that the U. K. Company was the seller and the purchaser was the petitioner-Company and they have mutual interest in the business of each other within the meaning of Section 14. As stated earlier, the U. K. Company was not the seller but the seller was Woodhouse Drake and Carey Ltd. in the Woodhouse Contract and Cocoa Merchants Ltd. in the Malaysian Contract, the U. K. Company having merely acted as the agent of the petitioner-Company. Hence even assuming the petitioner-Company and the U. K. Company have an interest in the business of each other, the same would not be hit by the vice of Section 14 which speaks of the seller and the buyer (and not the principal and agent) having an interest in the business of each other.
23. Mr. Dalal finally urged that the price was not the sole consideration because the U. K. Company has charged its commission. There is also no merit in this contention. The very fact that U. K. Company charged its commission to the petitioner-Company itself discloses the nature of the relationship between the U. K. Company and the petitioner-Company, viz. that of agent and principal. It has never been even the Department's case that the price was not the sole consideration between the seller sin those two contracts and the petitioner-Company or the U. K. Company. In the facts of this case, the question of price being or not being the sole consideration between the U. K. Company and the petitioner-Company does not even arise.
24. In the result, the impugned order is set aside. Rule is made absolute accordingly. There will be no order as in costs.