The Customs Appellate Tribunal has delivered a pivotal ruling affirming that transaction value declared by importers related to foreign suppliers cannot be rejected merely because a third party paid a higher price for identical goods. The judgment reinforces the primacy of SVB approvals and the strict conditions under which contemporaneous prices may be used for valuation.
Background & Facts
The Dispute
M/s Elkem South Asia Pvt Ltd, a 100% subsidiary of Elkem AS Norway, imported Elkem Micro Silica (EMS) into India through multiple ports. As a related party importer, it disclosed its relationship to the Special Valuation Branch (SVB), Mumbai, which had consistently accepted its invoice-based transaction value since 2000. However, for 21 Bills of Entry (BoE) imported through Visakhapatnam Port, the Appraising Officer rejected the declared value, relying instead on a higher price paid by M/s Vesuvius India Pvt Ltd - a direct end-user importing only 40,000 kg, compared to Elkem’s 427,750 kg.
Procedural History
- 2011: SVB issued an order accepting Elkem’s transaction value for three years.
- 2015: SVB reaffirmed the transaction value was not influenced by the related-party relationship, but noted that reassessment could occur if other grounds arose.
- 2016: Appraising Officer finalized assessments on 21 BoEs using Vesuvius’s price as "contemporaneous price," despite Elkem’s protest.
- 2016: Commissioner (Appeals) upheld the assessment.
- 2017: Appeal filed before the Customs Appellate Tribunal.
Relief Sought
The appellant sought annulment of the reassessment, restoration of the transaction value, and refund of excess duty paid under protest.
The Legal Issue
The central question was whether the Appraising Officer could reject a transaction value previously accepted by the SVB, solely on the basis of a higher price paid by a dissimilar buyer under Rule 9 of the Customs Valuation Rules, 2007.
Arguments Presented
For the Appellant
The appellant relied on Section 14 of the Customs Act, 1962 and Rule 3(1) of the Customs Valuation Rules, 2007, arguing that transaction value must be accepted if the relationship between buyer and seller does not influence price. It cited the SVB’s 2011 and 2015 orders as binding determinations that the declared value was valid. It further contended that Rule 3(b) requires comparability in commercial level, quantity, and cost structure - none of which existed between Elkem (a distributor) and Vesuvius (an end-user). The appellant emphasized that the SVB had already evaluated and approved the pricing structure, including overheads and distribution costs.
For the Respondent
The Respondent contended that the SVB’s 2015 order permitted reassessment if higher contemporaneous prices were observed. It argued that Rule 9 allows use of "any other reasonable method" when other valuation methods fail, and that Vesuvius’s price was the only available benchmark. It also claimed that Elkem’s discounts were excessive and indicative of undervaluation due to the related-party relationship.
The Court's Analysis
The Tribunal conducted a meticulous review of the Customs Valuation Rules, 2007, particularly Rule 3, Rule 4, and Rule 9. It held that the SVB’s 2011 order, valid for three years, had conclusively determined that the transaction value was not influenced by the related-party relationship. The 2015 order did not override this; it merely preserved the authority’s right to reassess if new, non-related-party factors emerged.
"The adoption of contemporaneous value of the third party is not sustainable with the provisions of the Rules."
The Tribunal emphasized that Rule 3(b) requires comparability not just in product, but in buyer class, quantity, and commercial level. Vesuvius, as a direct consumer importing 40,000 kg via a single BoE, was not comparable to Elkem, a distributor importing 427,750 kg across multiple consignments. The Tribunal noted that Rule 4 mandates adjustments for differences in commercial level and quantity, and that such adjustments must be based on demonstrated evidence - none of which the department provided.
It further held that the Appraising Officer’s reliance on a single BoE to reassess 21 consignments was arbitrary and violated the principle of consistency. The Tribunal concluded that the SVB’s prior approval, combined with the absence of demonstrable influence of relationship on price, rendered the reassessment legally unsustainable.
The Verdict
The appellant won. The Tribunal held that transaction value cannot be rejected merely because a dissimilar buyer paid a higher price, and that SVB’s prior acceptance of transaction value is binding unless new, material evidence of undervaluation emerges. The impugned order was set aside, and consequential relief was granted.
What This Means For Similar Cases
Transaction Value Prevails Over Arbitrary Comparisons
- Practitioners must insist that customs authorities demonstrate demonstrable comparability under Rule 3(b) before rejecting transaction value.
- Importers with SVB clearance should retain all approvals as binding precedent for future imports.
- Relying on a single BoE from a different buyer class (e.g., end-user vs. distributor) is legally untenable.
SVB Orders Are Binding Unless Overturned
- Once the SVB approves transaction value, the Assessing Officer cannot bypass it using vague observations from later SVB orders.
- Any reassessment must be grounded in new facts, not reinterpretation of prior approvals.
- The burden shifts to the department to prove influence of relationship or material undervaluation - not merely higher prices.
Adjustments Must Be Evidence-Based, Not Assumed
- Rule 4 requires quantifiable, documented adjustments for quantity or commercial level differences - oral assertions or generalized assumptions are insufficient.
- Practitioners should demand detailed comparability matrices from customs authorities before agreeing to any reassessment.
- Where third-party prices are cited, challenge their relevance by highlighting differences in buyer type, volume, and distribution costs.
