2024 (4) TMI 1019 - AT - Customs

Customs valuation accepted for imported modular panels despite related party discount challenge

M/s. Paschal Form Work India Pvt. Ltd. Versus Commissioner of Customs (Import), Chennai

CESTAT Chennai allowed the appeal regarding customs valuation of imported modular panels. The importer, a subsidiary of Paschal Germany, received 25-40% ... Transaction value - Valuation (Customs) - Related person - loading of import value - Modular panels of different sizes for use in the construction industry - imports raw materials - provisional duty assessment - special or abnormal discount to the related buyers which were in excess of 3% discount - HELD THAT:- We find that the Chairman and Managing Director of Paschal Germany has confirmed that their normal trade practice in the course of international trade is to offer discount at the range of 25% to 40% of the normal sale price to all their customers located across the globe including the group companies/ affiliates. The importer has also demonstrated that even at the time that they were not in existence in India their parent company had allowed 25% discounts to buyers like NCC in India. The cash discount of 3% is allowed by the parent company if the subsidiary pays the import bills within the time. No cash discount was ever availed by the Appellant as the import payments could not be made to the suppliers within the time. The cost construction statement duly certified by the CA shows that on average the profit margin was around 16%. None of this was refuted through facts. The OIO also mentions that the learned Adjudicating Authority did not find any cash flow back towards Royalty/ Technical Know-How fees/ Licence fee in respect of the imported goods. We find that the department at the first instance has not shown any concrete reason to discard the transaction value. The OIO states that ‘it appears that the importer is giving 25% discount to their related parties and may be another 3% as per the terms and condition of the price list.’ He goes on to opine that ‘there can not be mass production of such machinery plant which warrants such huge discount’, without any factual substantiation. The whole arguments to discard the transaction value are based on conjectures and surmises. This being so the question of determining a fresh value as per the CVR does not arise. The Commissioner (Appeals) after examining the matter is also unsure about the exclusive nature of the discounts affecting the transaction value on the imported goods and states in conclusion that ‘the discount enjoyed by the importer appears to be a special one made only for related importers’. On the other hand he has gone beyond his statutory functions, traversed beyond the scope of the appeal and taken on the role of an investigator directing the lower authority to examine why the loading of value should not be at 25%. Hence the impugned order must fail both for sustaining the OIO which was based on conjectures and surmises and could not give any concrete reasons to discard the declared transaction value and further for exceeding his statutory functions by ordering a fresh enquiry. Thus, we set aside the impugned order. The appeal succeeds and is disposed of accordingly. ISSUES PRESENTED AND CONSIDERED 1. Whether the declared transaction value is to be accepted under Rule 3 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 where buyer and seller are related, in the absence of evidence that the relationship influenced the price. 2. Whether discounts (a 25% trade discount and a 3% prompt-payment cash discount) afforded by the foreign seller to a related importer are special/abnormal and therefore must be disallowed from the invoice value for customs valuation. 3. Where contemporaneous transactions with independent buyers are limited or not strictly contemporaneous, whether the department can discard transaction value and resort to loading the value without concrete factual proof. 4. Whether an appellate authority exceeds its statutory function by directing a fresh enquiry or further investigation into valuation (e.g., directing the adjudicating authority to examine a higher percentage loading) when the initial assessment lacks concrete reasons to discard the transaction value. ISSUE-WISE DETAILED ANALYSIS Issue 1: Acceptance of declared transaction value under Rule 3 (Related Parties) Legal framework: Rule 3 CVR permits acceptance of transaction value even when buyer and seller are related, provided the relationship did not influence the price. Precedent treatment: Higher court authority places onus on the department to demonstrate that the declared price was influenced by the relationship before rejecting transaction value. Interpretation and reasoning: The Tribunal examined documentary evidence submitted by the importer, including a declaration from the seller confirming a uniform global discount policy (25-40%), contemporaneous invoice comparisons showing identical part numbers and prices in supplies to other affiliates, and certified cost-construction statements indicating average profit margins. The departmental adjudication relied upon conjecture that such large discounts were 'special' and could not be commercially justified without adducing concrete contrary facts. Ratio vs. Obiter: Ratio - where the department fails to produce concrete evidence that relationship influenced price, transaction value must be accepted under Rule 3. Obiter - the Tribunal's observations on the commercial plausibility of global discount policies. Conclusion: The declared transaction value should be accepted; the department did not discharge its burden to show influence of relationship on price. Issue 2: Treatment of trade and cash discounts in valuation Legal framework: Under the valuation rules, discounts that affect the price actually paid or payable must be examined; discounts that are general trade practice and contemporaneously available to unrelated buyers cannot be prima facie disallowed simply because parties are related. Precedent treatment: Authorities require demonstrable differentiation between discounts available to related and unrelated buyers before disallowing a discount for valuation purposes; the burden of proof lies with the department. Interpretation and reasoning: The record showed a trade discount policy applied across affiliates and third parties and specific invoice comparisons where identical part numbers and prices appeared for different customers. The 3% cash discount was not availed by the importer (payments were not made within time), and there was no factual material showing any benefit in the form of cash-back or other flow-backs (royalty/technical fees) that would offset or alter the transaction value. The department's conclusion that a 22% special discount was given was based largely on suspicion rather than evidential findings. Ratio vs. Obiter: Ratio - a discount shown to be part of general trade practice and not uniquely conferred on related buyers cannot be disallowed absent concrete contrary evidence. Obiter - discussion of how contemporaneous non-related transactions should be weighed. Conclusion: The trade discount of 25% and the unavailed 3% prompt-payment discount could not be summarily disallowed; available evidence supported acceptance of the discounts as genuine and not special inducements affecting valuation. Issue 3: Use of contemporaneous transactions and deductive valuation when contemporaneity is lacking Legal framework: Where contemporaneous independent transactions are lacking, valuation rules permit other methods (deductive or computed methods), but any departure from transaction value requires objective justification. Precedent treatment: Departures from transaction value require concrete justification; mere absence of contemporaneous imports or the availability of non-identical part numbers in other affiliates is not sufficient to discard transaction value. Interpretation and reasoning: The importer furnished deductive/computed valuation material (cost construction statements with certified profit margins) and evidence of global discounting practice. The department rejected these on the ground that some comparisons predated the importer's incorporation and that some affiliate invoices had different part numbers; however, specific matching invoices with identical part numbers and prices undermined that reasoning. The adjudicating authority's reliance on conjectural commercial improbability (e.g., 'there cannot be mass production... warranting such huge discount') lacked factual support and thus was insufficient to trigger a valuation method other than the declared transaction value. Ratio vs. Obiter: Ratio - absence of perfect contemporaneity does not automatically justify discarding transaction value; objective, factual reasons are required to apply alternative valuation methods. Obiter - observations on commercial practices and global pricing strategies. Conclusion: The department did not establish the necessary factual basis to discard the transaction value or validly apply alternative valuation/loading; the importer's alternative valuation evidence could not be rejected without reasoned findings. Issue 4: Scope of appellate authority and propriety of directing fresh enquiry/loading at higher percentage Legal framework: An appellate authority must confine itself to examining the legality and correctness of the impugned order within the scope of appeal and cannot assume investigative functions beyond its statutory mandate by directing fresh fact-finding without basis. Precedent treatment: Appellate bodies may remit matters for factual enquiry where material gaps exist, but must not exceed their role by initiating new investigatory directions absent prima facie basis. Interpretation and reasoning: The Commissioner (Appeals) upheld the initial loading in part but directed the adjudicating authority to examine loading at a higher rate (25%), effectively ordering further enquiry. The Tribunal found this to be beyond the statutory role of an appellate authority because the underlying OIO itself lacked concrete reasons to discard the transaction value. Where the primary order is unsustainable (based on conjecture), an appellate direction to conduct further investigation cannot stand, particularly if the direction goes beyond assessing the correctness of findings on record. Ratio vs. Obiter: Ratio - an appellate authority exceeds jurisdiction when it mandates new investigative measures or higher adjustments without a proper record-based foundation. Obiter - remarks on appropriate limits of remittal versus fresh investigative directives. Conclusion: The appellate direction for further enquiry/loading at a higher percentage exceeded statutory functions and was impermissible; the impugned appellate order failed both for upholding an infirm primary order and for exceeding appellate scope. Final Disposition (Court's Conclusion) The Tribunal set aside the impugned appellate order and accepted the declared transaction value, holding that the department failed to discharge its burden of proving that the relationship influenced the price and that the appellate direction for a fresh enquiry/loading was beyond permissible scope. The appeal was allowed.