2015 (11) TMI 81 - SC - Customs

Supreme Court rules on valuation and exemption issues, emphasizes adherence to proper rules and certifications.

M/s GMR Energy Ltd. Versus Commissioner of Customs, Bangalore

The Supreme Court allowed the assessee's appeal, setting aside the Tribunal's judgment on the valuation issue, and dismissed the revenue's appeal, ... Import of goods in replacement under Long Term Assured Parts Supply Agreement (LTAPSA) - Valuation of the import of parts of the Gas Turbine Hot Section of a naphtha based power plant which have to be replaced after 12,500 fired hours of use under a Long Term Assured Parts Supply Agreement dated 20 th December, 2000 entered into with GE, USA - Benefit of the exemption notification No.21 of 2002 dated 1.3.2002 - Held that:- Rules 4 and 9 would only apply 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 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 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 to goods which may have been imported much earlier to the imported goods. Therefore, what is necessary is that there should be proceeds which arise from re-sale, disposal, or use of the very imported goods 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-rules would apply. Prices stated in the invoices accompanying the bills of entry in the present case are list unit prices or catalogue prices. By 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 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. A conjoint 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 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 case, it is clear that there is no infraction of Rule 10. - Decided in favor of assessee. Claim of Exemption - Both the requisite certificate as well as the recommendation of the Principal Secretary, Government of Karnataka, have been dealt with in the proper perspective. 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 deny the benefit of the exemption notification. The finding of the Commissioner has been correctly set aside by the Tribunal - decided in favour of assessee. Issues Involved:1. Proper valuation of the import of parts of the Gas Turbine Hot Section.2. Entitlement to the benefit of exemption notification No. 21 of 2002 dated 1.3.2002.Issue-wise Detailed Analysis:1. Proper Valuation of the Import of Parts of the Gas Turbine Hot Section:The appellant imported a naphtha-based power plant with five gas turbines mounted on a barge for power generation. To maintain the plant, the appellant entered into a Long Term Assured Parts Supply Agreement (LTAPSA) with GE, USA. Under this agreement, parts were replaced after 12,500 fired hours, and the replaced parts were re-exported to GE, USA. The customs department issued a show cause notice alleging that 1/3rd of the value of the imported items should be added to the invoice value, as the declared value did not reflect the true transaction value due to the rotable exchange program.The customs department relied on statements from company officials and the terms of the LTAPSA to support their claim. The Commissioner of Customs and the Tribunal upheld the customs department's position, stating that the invoice value represented only the incremental value of the imported parts. However, the Supreme Court found that Rules 4 and 9 of the Customs Valuation Rules, 1988, did not apply as there was no sale of goods. The Court noted that the invoice prices were list unit prices or catalogue prices and not adjusted for the value of re-exported parts. Consequently, the Commissioner and Tribunal's orders were set aside.2. Entitlement to the Benefit of Exemption Notification No. 21 of 2002:The Tribunal held that the exemption notification No. 21/2002 dated 1.3.2002 applied to the appellant's case. The relevant portion of the notification required certification and recommendation from the appropriate authorities that the goods were for renovation or modernization of a power generation plant. The Tribunal found that the appellant had obtained the necessary certificates and recommendations from the Principal Secretary, Government of Karnataka, and the General Manager of the Karnataka Power Transmission Corporation Ltd.The Tribunal rejected the customs department's argument that the goods were only for upkeep and not renovation. It emphasized that the competent authorities had approved the renovation scheme, and the customs department should not deny the benefit of the notification based on a narrow interpretation. The Supreme Court upheld the Tribunal's decision, stating that the customs department should not engage in hair-splitting and semantic niceties to deny the exemption once the competent authorities had approved the scheme.Conclusion:The Supreme Court allowed the assessee's appeal, setting aside the Tribunal's judgment on the valuation issue, and dismissed the revenue's appeal, affirming the Tribunal's decision on the exemption notification. The Court emphasized the importance of adhering to the proper valuation rules and respecting the approvals and certifications from competent authorities regarding exemption notifications.