TaxTMI 
TaxTMI 
1998 (7) TMI 282
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....of the liberalisation ordered by the Government of India, HPI now, therefore, is a 100% fully held subsidiary of HP USA. This fact is not disputed. After a periodical three year review of the earlier order by the Custom House, a fresh Order No. S 50/23/91 SVB, dated 5-8-1996 was passed by Assistant Commissioner, SVB. In the said order it was held that the invoice price of components imported for the manufacture of test and measuring equipments as well as for the components for manufacture of computers were accepted under Rule 8 of the Customs Valuation Rules. However, for finished goods imported for stock and sale (mainly Computer Peripherals), the loading factor as per Annexure-2 of the order was prescribed on the ground that HPI was being sold these goods at a lower price i.e. exclusive of selling commission. 3.  Aggrieved by this order, the respondents went in appeal before the Commissioner (Appeals), who vide impugned Order-in-Appeal dated 22-9-1997 bearing No. C.CUS. 1066/97 allowed their appeal and set aside the Order-in-Original mentioned above with respect to the import of such computer peripherals. This decision was on the following grounds; (a) In view of the Judgm....
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....vidence of flow back and wherein the learned Commissioner (Appeals) has applied interpretative note to Rule 4. He submitted in this connection that this conclusion was not correct and was not available to the learned Commissioner as he has not considered Rule 9(1)(a)(i) as per this note. (d) Because HPI and HPU were related persons, therefore, there is mutuality of interest. The profits earned by HPI flow back to enrich HP USA. Therefore, it is not correct to hold that there is no mutuality of interest and the Order-in-Original has correctly loaded the invoice values. (e)  He cited the following case laws :- (i)  1988 (37) E.L.T. 70 (Cal.) - wherein - it has been held that the value under Section 14 is a deemed value and not necessarily the actual transaction value. (ii) 1989 (42) E.L.T. 693 (Tribunal) - Calcutta Motor Dealers Association, wherein, it has been held that the words "normally sold" would mean the normal price and not the negotiated price even though as the negotiated price may be a perfectly genuine one. (iii) 1991 (51) E.L.T. 481 (Tribunal) - Radiation Technologies (India) Pvt. Ltd. - wherein, it has been held that if one company holds 75% or more shar....
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....g as even 26% of the shares were held by Suzuki Motor Corporation in Maruti Udhyog Ltd., the two were related persons on the law as per Rule 2(2) of Customs Valuation Rules. Secondly, this decision decides the issue of what constitutes mutuality of interest, and holds that mere holding of shares or being the related persons under the Customs Valuation Rules per se, does not constitute mutuality of interest. What is required to be proved is that each company has a clear interest in the business of the others i.e. to say the interest should be both ways. Learned Advocate also cited the case of Atic Industries in this connection, wherein, a similar decision has been taken. 8. Explaining their marketing strategy, learned Advocate used an example. HP USA was a worldwide organisation having business dealings with a number of countries in Latin America, Europe, Asia and Australia. Therefore, their strategy was to have a uniform price list applicable to the whole world for all its products. An individual buyer would be sold as per this price list. However, the subsidiaries of HP USA in any country including HPI would be sold these goods at a discounted price. The reductions from the ....
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....ed on the fact that whereas an individual consumer does not have to incur any expenditure in stock and sale trade as also for post sale services, HPI has to undertake all these operations. Naturally the cost thereof has to be considered as is the normal practice in international trade. (b) Merely because HPI gets at Rs. 4/- cheaper, this does not make the price tainted. He submitted that an actual user importer who directly consumes goods which are imported in only few numbers is a different class of buyer from HPI which imports large quantities of these goods for stock and sale. Section 14 as well as the rules recognised different class of buyers. (c) To illustrate the submissions at (a) and (b) above, he submitted that the total imports by HPI of these items during the last 3 years was for a value of Rs. 276 Crores and the average number of Bills of Entry per month filed in the Custom House varies between 300 to 400 Bills of Entry per month. As against this, the department wants to impose the price on the basis of mere 5 imports in 1994 valued at only Rs. 7.5 Lakhs i.e. hardly .03 percent of the above. Out of these 5 imports, two are by M/s. IIT, under duty exemption, two are b....
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....by this relationship. 12. Since the aforesaid citations are basically mainly on Section 4 of the Central Excise Act, 1944, the question arises whether the Central Excise law can apply to the Customs Section. Learned Advocate submitted that this question has been considered in the case of Maruti Udhyog, supra, wherein, it is held that on material points i.e. on mutuality of interest, Section 14 of Customs Act is similar to Section 4 of Central Excise Act and, therefore, the case law can apply to Customs also. Accordingly, the Hon'ble Supreme Court dismissed the department's appeal vide their judgment as reported in 1989 (22) ECR 482 (S.C.). 13. Learned Advocate submitted that the construction of Section 14(1)(a) clearly shows that the assessable value can only be determined by reading the said section along with the Customs Valuation Rules. Therefore, he proceeded to make his submissions with respect to the Customs Valuation Rules as applicable to his case. He submitted that as per Rule 2(2), HPI and HP USA were related persons in view of the provisions of sub-rule (iv), (v) and Explanation 2 thereof, this was conceded. He further submitted that Rule 3(a) talked of relat....
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....nd Chartered Accountants in America M/s. Price-Waterhouse, is contained in the paper book. 16. Learned Advocate thus concluded his argument and prayed that the prices actually declared should be accepted in view of these arguments and the case law cited. He, therefore, prayed that the revenue's appeal had no merits and needs to be dismissed, thus upholding the Order-in-Appeal of the Commissioner of Customs (Appeals), which was absolutely correct in law. 17. Heard learned SDR, Shri Victor Thyagaraj, who pointed out that in view of the fact that HP USA and HPI were related persons, therefore, the transaction value and acceptance thereof, is ruled out under Rule 4 and referred to the argument contained in Para 12 of the Order-in-Original, therefore, Rule 3(2) is to be resorted to. While doing so, there was no import of identical similar goods on comparable levels available and, therefore, Rules 5 to 7A were not applicable, hence, Rule 8 was used in the Order-in-Original. Since the price declared was not at arms length being between related persons, therefore, the value of 3rd party imports was taken as this is the deemed value under Section 14A. He, therefore, prayed that ....
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.... related persons in law. (ii) However, we cannot accept the contention of learned SDR that by merely because they are related persons, this relationship introduces a mutuality of interest between the two in view of the 100% shareholding involved. This is because Rule 4B(a) of the Customs Valuation Rules clearly lays down that "where the buyer and seller are related, the transaction value 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". Therefore, instead of accepting the position that the said relationship ipso facto leads to discarding the transaction value declared in these imports, we have necessarily to examine whether this relationship did or did not influence the price i.e. to say whether this remains a transaction at arms length or on the contrary, there exists a mutuality of interest between the buyer and the seller, whereby, the price becomes affected.    Learned Advocate has named the basic point in this connection viz., that there is no evidence led by the department to show any flow-back of profits from HPU to HPI. Therefore, while it ....
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....mmercial levels, quantity levels and adjustments in accordance with the provisions of Rule 9. Now the facts of this case are undisputed regarding the contemporaneous imports at higher price cited by revenue. However, learned Advocate for the appellant has seriously contended that the levels, both commercial and of quantity, in the two imports are very widely different. We find great merit in this argument, because it would be totally illogical to compare the value of 5 pieces of goods imported directly by consumers for actual use whose cumulative value is only Rs. 7.5 Lakhs with imports of similar goods running into hundreds of Crores on 300 or more Bills of Entry per month by HPI. We find that this issue is clearly decided in the case of Atco Industries as reported in 1992 (57) E.L.T. 654, wherein, it has been held that higher discounts due to big order of 104 sets is not unreasonable and, therefore, under-valuation has not been established. Learned Advocate for appellants has further argued in this context that the differing levels of quantity are also connected with the commercial level between these two imports being compared by the revenue. This is because HPI as the sole deal....
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....s not disputed even by revenue that these deductions are not uniformly available globally to all such subsidiaries, throughout the world. It is also not disputed that the level of these deductions are not known in advance. Hence, on these two counts, clearly this price reduction is given during the ordinary course of international trade and is clearly at arms length, in fact totally transparent. This we accept. Having done so, we further proceed to examine the reasonability of the quantum of this price reduction made available by HP USA through this marketing policy. It is not disputed that the total reduction available is on account of the Indian Companies cost of selling as discussed above plus a meagre 10% of this selling cost as margin of profit for them. The cost of selling incurred by HPI has been quantified and certified by Chartered Accountants and has been submitted by the appellants at the original stage itself. Reacting to this, the revenue has not led any evidence to show that there is any manipulation or factual inaccuracy involved in this. They are, therefore, to be accepted to be good and fair evidence. A further addition of 10% to this cost as their profits in India....
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....ded to the price actually paid or payable for the imported goods, -        (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely :-    (i) commissions and brokerage, except buying commissions;    On a plain reading of the above, provides that commissions and brokerage are includable if they are incurred by the buyers. Perhaps, the learned SDR was of the opinion that the aforesaid discussed price reduction is covered by the words and phrases "commissions and brokerage" as contained therein and, therefore, was to be added to the declared value of these goods. We cannot agree to this proposition. Brokerage is paid either by the buyer or by the seller or both to a third party viz., the broker. There is no evidence in this case that any third party is involved in these imports, excepts the foreign exporter and the Indian importer. Similarly, commissions, which are clearly distinct from discounts, are again payable only to a third party, which in this case does not exist on facts. Therefore, there is no questi....
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....n indirect method of payment by HPI to HP USA. As per the aforesaid notes, this is not considered as correct legal proposition. 23. We also note that it is clearly provided in the notes to Rule 4(2)(b) that the activities relating to the marketing of the imported goods by the buyer on his own account shall not result in reduction of the transaction value. Therefore, in this case also merely because HPI aggressively markets the goods imported from HP USA, on this ground alone the transaction value declared by HPI cannot be rejected. Note 1 to Rule 4(3) explains that Rule 4(3)(a) and 4(3)(b) provides different means of establishing the acceptability of a transaction value. It further provides that under Rule 4(3)(a) where the proper officer of customs carries a doubt that the price declared may have been affected the relationship between the importer and exporter, he should examine all relevant aspects of the transaction including the way in which the buyer and seller organise their commercial relations and the way in which the price in question was arrived at in order to determine whether the relationship influenced the price. In the discussions above, we have carefully consid....