AI Drafter 
TaxTMI 
TaxTMI 
1994 (1) TMI 135
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.... 3. On the Ist issue namely Customs Valuation Rules, 1963, in his order, the ld. Collector held that the position regarding the valuation of goods under Section 14 of the Customs Act, 1962 prior to 16th August, 1988 however, would be different since under the pre-amended Section 14, there was no legal recognition of the concept of transaction value. After consideration of the case law and other relevant material on record and the various submissions made by the appellant before the ld. Collector (Appeals) he held that "while the method adopted by the Asstt. Collector to arrive at the set percentage of loading is neither rational nor legal inasmuch as he has sought to determine the percentage of loading on the basis of amount of Commission received without taking into account the comparative description and value of goods imported by the third parties during the relevant period, I would like to consider the addition of 8.3% not unreasonable." Against this portion of the order passed by the ld. Collector (Appeals), M/s. GMMCO have come in appeal. 4. On the IInd issue, the ld. Collector observed "Appellants have claimed that they have satisfied the conditions for accepta....
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....re of transaction was gone into and the assessment finalised. Apart from the imports of attachment, parts and exchange components by M/s. GMMCO from M/s. CFEL for re-sale in their service territory M/s. GMMCO also imported these parts on the strength of letter of authority for certain actual users like ONGC, BEML. M/s. GMMCO maintained that the transaction relating to goods imported by them on their account for re-sale is on principal to principal basis and as such invoice price alone should be the basis for levy of customs duty. M/s. GMMCO received certain amount as commission from the foreign supplier in respect of imports by actual users. In the absence of comparative price and total value of such imports, the Asstt. Collector while adjudicating the case took into account value of imports during 1989-90 and Commission received by M/s. GMMCO. After allowing adjustment by way of commercial level of imports to the extent of six per cent and adjustment for diagnostic and after-sale service to the extent of five per cent of the said commission amount, the Asstt. Collector loaded the CIF value of imports by 8.3% both under Customs Valuation, Rules, 1963 for imports prior to 16-8-1988 ....
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....m in Indian market; that M/s. GMMCO are not exclusive dealers; that M/s. GMMCO are rendering certain administrative and diagnostic after sales service to the actual users who purchase Caterpillar products directly form M/s. CFEL or locally from any one of the dealers; that M/s. GMMCO has in this connection undertaken to render diagnostic and after sale service to all actual users; that M/s. GMMCO are entitled to get a commission for having affected the third party import; that the commission payable to M/s. GMMCO is repatriated by credit notes issued by the suppliers. 7. On the question of special relationship between M/s. GMMCO and M/s. CFEL, the department was of the view that M/s. GMMCO was definitely related to the foreign suppliers and their relationship influenced the pricing pattern of M/s. CFEL vis-a-vis those of third parties. In support of this relationship the department relied on various clauses of the agreement which provided for fully and adequately developing and promoting the sale to customers and for the servicing of all the products; that the agreement provided for that during the life of this agreement M/s. GMMCO will avoid any affiliation whether by way ....
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....at if the conditions referred to in the preceding paragraphs are taken together, the foreign company namely M/s. CFEL exercised control over the Indian company namely M/s. GMMCO in token to mutuality of interest compensated it by paying commission, as a result of which there existed a relation within the meaning of Rule 2(2) of the Customs Valuation Rules, 1988. The department therefore was of the view that besides the existence of the dual pricing system whereby the dealers are shown a preferential treatment would go against the substance of Section 14(1) of the Customs Act, 1962 which clearly lays down that the value of the imported goods would be deemed to be the price at which such or like goods are ordinarily sold or are offered for sale for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade whereby seller and the buyer had no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. In the light of the statutory provision acceptance of different values for different classes of importers would appear to be in accordance to the substance of the statute. 8A....
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....ers for the territory to which the agreement applies; that in the present case the question of agency functioning does not subsist; that M/s. CFEL did not pay commission to M/s. GMMCO based on fixed percentage; that in instances where the third parties like Govt. agencies purchase directly from M/s. CFEL consequent upon the diagnostic services being rendered to them by M/s. GMMCO, M/s. CFEL reimburse M/s. GMMCO by an amount that it estimated would cover M/s. GMMCO's cost; that such reimbursement were by way of credit to an account current of M/s. GMMCO with their principals; that these amounts by their very nature were not fixed percentage of invoice value but were direct reimbursement of cost not bearing any relationship to quantum or value of the goods purchased by third parties; that the above mentioned points were not considered by the Tribunal in passing its order for not accepting its invoice value and the same order was used by the ld. Collector in the instant case; that there were overwhelming evidence to show that the facts in both the cases are distinguishable and that the points considered by the Tribunal do not apply to the instant case. The ld. Counsel for M/s. GMMCO p....
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....reed to submit the audited financial statement to the foreign company at the close of the Indian company's fiscal year. The ld. JDR submitted that though M/s. CFEL and M/s. GMMCO were not related by way of sole selling agency relationship, yet there were sufficient grounds in the form of various conditions imposed and cited above to infer that the Indian company was controlled by the foreign suppliers. The ld. JDR therefore submitted that the ld. Collector (Appeals) had erred in holding that there was no special relationship between the two companies, and therefore there was no question of loading the CIF value of imports, by the Indian company by 8.3% after 16-8-1988. He, therefore, prayed that the order of the Collector (Appeals) to this effect namely accepting the transactions value on or after 16-8-1988 may be set aside. 10. Heard the submissions made by both the sides. Perused the evidence on record, various provisions of the agreement referred to by the two sides as also earlier judgment of the Tribunal and considered them. 11.As indicated earlier there are two issues involved in the appeal. One pertains to valuation of imports prior to 16-8-1988 covered by the Cus....
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...., source of capital, common ownership or otherwise except to the extent the foreign company agreed in writing; that the agreement provided for furnishing all information on ownership, audited financial statement consisting of the balance sheet at the close of financial year and the result of such operations. On the other hand, M/s. GMMCO in their reply to the investigation circular submitted that they are not related with any local manufacturer of the product of the foreign supplier; that they did not have any foreign collaboration; that they have not paid any amount directly or indirectly to the foreign suppliers for the engineering development work, design work etc.; that there are no common directors in the two companies; that they are not partners; that they are not controlled directly or indirectly or hold equity shares worth 5% or more in the Indian company. Examining the above two views we find that the conditions of the sales and service agreement do indicate that the foreign company exercises sufficient control over the working of the Indian company. The manpower, the finance, the accounts, the inventories, the associates etc. are all decided in consultation or with the co....
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....ce, nevertheless this is an amount which is paid by the foreign supplier to M/s. GMMCO. This amount is very material for showing that the price charged from M/s. GMMCO by the foreign company is not the sole consideration but is over and above the amount of the transaction or invoice price. This amount may be given any name, nevertheless the fact remains that this amount is a compensation for the goods supplied to or through M/s. GMMCO for the special relationship that exists between the two companies. Dual pricing shows that the difference between the dealer's net price and the suggested consumer's price is of the order of 22 to 25 per cent whereas the administrative and diagnostic service charges on an average come to 19.3% as calculated by the lower authorities. This amount was accounted for by M/s. GMMCO as commission. This dual pricing also shows that M/s. GMMCO controls pricing of 3rd parties. (c) CATEGORIES OF IMPORTS : It would be seen from the evidence on record that M/s. GMMCO import goods from M/s. CFEL on their own account on dealers' net price which is 22 to 25 per cent less than the suggested consumers' price. Indian company's imports comprise of spare par....
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....ly sold, or offered for sale, for delivery at the time & place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer of sale." For imports on or after 16-8-1988, Customs Valuation Rules, 1988 will apply. We have already held in the preceding paragraphs that the case of the Indian company is covered by Customs Valuation Rule 2(2)(v) of the 1988 Rules for imports after 16-8-1988. As the sale and service agreement is common for the two periods and special relationship has been established, Rule 8 of the Valuation Rules shall be applicable for arriving at the value. (ii) By process of elimination as examined by the Assistant Collector, Rule 8 of the Customs Valuation Rules will be applicable which lays down the residual method of determining the value. For the sake of convenience, Rule 8 of the Customs Valuation Rules, 1963 and Customs Valuation Rules, 1988 is reproduced : (iii)Customs Valuation Rules, 1963 (Rule 8) : "If the value of imported goods cannot be determined under the foregoing provisi....
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....alued could be the basis for customs valuation; customs values of similar imported goods already determined under the provisions of Rule 7 could be used. (c) Deductive method :- The requirement that the goods shall have been sold in the "condition as imported" in Rule 7(1) could be flexibly interpreted; the 90 days requirement could be administered flexibly." (v) We shall first deal with the question relating to valuation of goods in accordance with Customs Valuation Rules, 1963. It would be seen that Rule 8 is the Residuary Rule which inter alia lays down that if the value of the imported goods cannot be determined under the foregoing provisions, the proper officer shall after taking into account all relevant material which he has gathered, determine the value on the basis of his judgment. (vi) On the question of computation to arrive at the loading/adjustment factor in terms of Section 14 of the Customs Act, 1962, we find that general principles of financial accounting will not be applicable, as we are neither concerned with the profit aspect nor with determination of assets and liabilities in the balance sheet. Here in this case, we are concerned wi....
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....n because of the special relationship and therefore should have been the loading factor. However, we find that the Asstt. Collector has examined this aspect in greater detail and worked out the loading factor after taking into consideration all the aspects of the question and therefore we find that the observation of the Ld. Collector (Appeals) that this loading factor is neither rational nor legal, is neither based on facts nor the appreciation of the reasonable attitude that the Asstt. Collector adopted in deciding the loading factor. There may be various opinions as to the quantum of various considerations that went into deciding the loading factor, we feel that the position was examined rightly in the facts and circumstances of the case by the Asstt. Collector and his decision as quoted elsewhere in the preceding paragraph is more reasonable in the circumstances. We, therefore hold that the loading factor of 8.3% is sustainable in law also. (e) DECISION OF THE TRIBUNAL : M/s. GMMCO Ltd. in their submissions submitted that the ld. Collector (Appeals) was influenced by the Tribunal's decision in their own case reported in 1987 (27) E.L.T. 344 in which the Tribunal ha....
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....components others were not. The two other dealers had different contracts and were not extended the same facility. We also find that there are two prices. One is the dealers' net price and the other is the suggested consumer's price. The dealers' net price is 22-25% less than suggested consumer's price. This price is in respect of spare parts which are imported by M/s. GMMCO only. Every third party had to place its indents for purchase of these spare parts from M/s. GMMCO at the suggested consumers' price. In a situation like this when every actual user of spare parts had to pay 22-25% higher price, the lower price available to the dealers could not be said to be the price at which the goods were ordinarily sold or offered for sale. The contention of M/s. GMMCO that they were not functioning as an agency is not supported by the facts on record inasmuch as the type of control exercised over them and the compensation given to them in the form of dual pricing and diagnostic charges in respect of third party orders indicated clearly that M/s. GMMCO had a special relationship with M/s. CFEL. Similarly though the sales and service agreement mentioned that M/s. GMMCO was a non-exclusive d....