2026 (1) TMI 1182 - AT - Customs

Transaction value between related persons requires importer proof that relationship did not influence price; declared value rejected

Transaction valuation between related persons requires examination of whether the relationship influenced price; the importer bears the burden to ... Transaction value between related persons - burden of proof on the importer - Contemporaneous import comparison - examination of the circumstances of the sale to determine influence of relationship - acceptance or rejection of declared invoice value - objective satisfaction of the authority based on material on record - HELD THAT:- The Central Government in exercise of the powers conferred by Section 156 of the Customs Act 1962 read with Section 22 of the General Clauses Act, 1897 and in supersession of the Customs Valuation Rules, 1963 has made the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, (‘Valuation Rules’). The transaction value in the case of related persons at the relevant time was governed by Rule 4(3) of the Valuation Rules. Hence the value of such goods for the purposes of assessment was deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course or international trade. Hence for the purpose of taxation what was important was not the actual prices at which the goods were sold but the price at which the goods were ordinarily sold. If there was a difference between the actual price at which the goods were sold and the ordinary price of the goods the value needed to be determined in terms of the Rule for the purpose of charging Customs levies. As per Rule 4(3) the transaction value between related parties shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price. It was for the importer to demonstrate that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time. The appellant was not able to show that after giving 20% discount the supplier was able to recover the cost of the goods. It appeared to the First Appellate Authority that the discount is being given to the appellant only because of the relationship. The presumption in law and a matter of common knowledge is that every businessman will arrange his affairs in his best interest and try to work out the best price for himself. If the declared price does not contain an element pf profit then, even if the test for reasonability is that of the 'prudent man', the value cannot be said to be the price at which such or like goods are ordinarily sold. As stated above, Rule 3(b) also incorporates a legal requirement that the importer demonstrates that the declared value satisfies the Rule. The burden of proof is hence on the importer, which he has not discharged. Rule 3(b) of the Valuation Rules clearly puts the burden to prove the value on the importer. Hence the judgments cited by the appellant which deal with the burden of proof being on the department are distinguished. The judgment of the Hon’ble Supreme Court in MAHAKALI SUJATHA [2024 (11) TMI 1 - SUPREME COURT] cited above, lends clarity to the legal issue. Thus, we uphold the impugned order and reject and dispose of the appeal accordingly. Issues: Whether the declared invoice price (after a 20% discount) from related suppliers should be accepted as the transaction value under the valuation rules, or whether the price must be adjusted (loaded) because the relationship influenced the price and the discount suggests lack of recovery of costs and profit.Analysis: The matter concerns valuation under Section 14 of the Customs Act, 1962 and the Valuation Rules (Customs Valuation Rules, 1988). The relevant Rule requires that where buyer and seller are related the transaction value is to be accepted only if examination of the circumstances indicates the relationship did not influence price; further, the importer must demonstrate that the declared value closely approximates comparable values (e.g., transaction value of identical or similar goods). The First Appellate Authority found that the supplier applied a 65% markup comprising handling/administration but did not show a profit element and that after a 20% discount the supplier may not have recovered cost plus profit. The Authority noted absence of breakup of costs/profit and absence of evidence that the supplier granted similar discounts to unrelated buyers, creating an inference that the discount arose from the relationship. The Tribunal applied principles on burden of proof and accepted that where facts (profitability, discounts) are especially within the knowledge of the importer/supplier the onus to prove those facts lies on them; if the authority's satisfaction is objective and based on material on record it should not be disturbed. The Tribunal held that the appellate authority's conclusion was supported by material and not perverse, and distinguished authorities cited by the appellant that placed burden on the department because Rule 4(3) imposes on importer the obligation to demonstrate comparability.Conclusion: The transaction value declared by the appellant (after the 20% discount) is not acceptably shown to be at arm's length; the impugned appellate order upholding the departmental appeal and directing loading of the declared price is upheld. The appellant's appeal is rejected.