Related person test under Customs valuation fails without dual ownership or control; transaction value could not be rejected.

Under the Customs Valuation Rules, 1988, related-person status under Rule 2(2)(iv) arises only where a third person directly or indirectly owns, controls or holds at least 5% of the outstanding voting stock or shares of both parties. A foreign supplier's 35% shareholding in the Indian importer, by itself, did not meet that test, so the parties were not related. Once no related relationship was proved, Rule 4(3) on price influence did not apply. The valuation rules also provided separate treatment for royalties and licence fees, leaving no basis for an arbitrary 20% enhancement of assessable value. The rejection of transaction value was therefore not justified.

---

---

Issues: Whether the importer and the foreign supplier could be treated as related persons under Rule 2(2)(iv) of the Customs Valuation Rules, 1988, and whether rejection of the transaction value with consequential loading of assessable value was justified.

Analysis: Rule 2(2)(iv) deems persons related only where a third person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stock or shares of both of them. Mere holding of 35% share capital by the foreign supplier in the Indian importer did not satisfy that test. The original authority had proceeded on an incorrect reading of the rule, while the lower appellate authority correctly held that the relationship was not established. In the absence of proved relationship, the question whether the relationship influenced price under Rule 4(3) did not arise. The valuation rules also contained specific provisions for royalties and licence fee, and there was no legal basis for an arbitrary 20% enhancement of value.

Conclusion: The finding that the parties were not related under Rule 2(2)(iv) was upheld, rejection of the transaction value was not justified, and the departmental appeal failed.

---