AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2006 (2) TMI 331
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.... M-45 in India and started importing Mancozeb T-85% from R&H since Feb. 1996 at the following prices :- (1) Feb. 1996 to January, 1997 US$ 2.10 per kg. (2) Feb.1997 to Feb.1998 US$ 2.25 per kg. (3) March 1998 to Sept. 1999 US$ 2.10 per kg. 2. Show cause notice dated 25-1-2001 was issued to the appellant company proposing to recover alleged differential duty of Rs. 7,19,84,692/- under the proviso to Sec. 28(1) of the Customs Act, 1962 (by applying the value @ US$ 2.85 per kg. at which M/s. Indofil Chemical Company was importing the same product from R&H) together with interest, proposing confiscation of goods under Sec.111(m) and proposing penal action against the company under the provisions of Sec.112(a)/or under Sec.114A of the Customs Act. Penalty was also proposed on the officers of the company. The show cause notice inter alia alleged that the appellants and R&H are related to each other, that the agreement between the two was a sole distributor agreement, that the two are interested in the activity of each other in view of the financial transactions between them and that this relationship has influenced the price of imported Mancozeb T- 85%, that....
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.... a varying price is legally acceptable, provided that the price is arrived at on commercial consideration. 4. In view of the above, the transaction value in the present case cannot be rejected on the ground that M/s. Indofil has imported Mancozeb from R&H at a higher price. 5. During the period in dispute, as per clause (I) of Rule 3 of the Customs (Valuation) Rules, 1988, the value of the imported goods shall be the transaction value. Clause (ii) states that if the value cannot be determined under clause (i), then the value shall be determined in terms of Rules 5 to 8 of the Valuation Rules, 1988. Rule 4 states that the transaction value of the imported goods shall be "the price actually paid or payable for the goods when sold for export to India adjusted in accordance with the provisions of Rule 9 of these rules". None of the provisions of Rule 9 apply to the present case. Rule 4(2) provides for circumstances under which the transaction value between the importer and the supplier should be rejected and none of such circumstances exists in the present case. Rule 4(2) is reproduced below: - "Rule 4(2) - The transaction value of imported goods under sub-rule (1) above....
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.....10. per kg. Feb.97 to Feb.98 US $ 2.25 March 98 to March 2000 US $ 2.10." M/s. Indofil has imported 1680 MT of Mancozeb in 5 years (average of 336 MT per year) whereas Bayer has imported 3653 MT in 4 years ( average of 930 MT per year). Thus, imports by Bayer are three times more than the imports by M/s. Indofil and therefore, both imports are not at the same commercial level and also not at or about the same time, since Indofil stopped import in Feb. 1996. For this reason also the price of Indofil can not be the basis for enhancing the value of imports made by the appellants. 8. The department is assessing the goods in question under Rule 5. It is submitted that as per Rule 5(3) the lowest of the transaction value of identical goods is required to be adopted. There is nothing on record to show that the department has adopted the lowest of the transaction value of identical goods. 9. The transaction value between R&H and Bayer has been arrived at after negotiation, taking into account the resale price of imported goods in India and such a method is acceptable under Rule 4 and it also conforms to the value arrived at as per Rule 7 i.e deductive value method. Th....
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.... by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family . Explanation 1. - The term "person" also includes legal persons. Explanation II. - Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purpose of these rules, if they fall within the criteria of this sub-rule." 12. The mere existence of a distributorship agreement between Bayer and R&H cannot lead to the conclusion that they are related and the sole distributor is related only when he falls within any of the clauses (i) to (viii) to Rule 2(2). The Commissioner has held that R&H directly or indirectly controls Bayer. Although it may be stated that R&H is interested in the business of Bayer since Bayer is selling its goods, it cannot be said that Bayer is interested in the business of R&H as there is no cross shareholding between the two. At this stage, it will be apt to refer to the observations of the Tribunal in Kerala Electric Lamp Works v. CCE [1988 (33) E.L.T. ....
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.... country and the local selling price of the formulation made from the imported goods will also not affect such price, as per para 4 of the Explanatory Note 1.1 of Technical Committee on Customs Valuation, World Customs Organization which clarifies that " consequently, provided that the conditions prescribed in Article 1 are fulfilled, the transaction value of imported goods should be accepted irrespective of any market fluctuations after the date when the contract was concluded." 16. The Commissioner has held that the transaction between Bayer and R&H is not under fully competitive condition. This is not relevant for the purpose of the present appeal as the requirement that transaction value is to be accepted only when the transaction between the importer and the exporter are under fully competitive condition came into force only in September 2001 with amendment of Rule 4(2) of the Customs Valuation Rules. 17. The Commissioner has found that the price at which Mancozeb has been imported into India by others during 1994 to 2000 is steadily increasing and for this purpose, the following evidence has been cited :- Import by United Phosphorous from China and Lupin Agro C....
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....as reasons to doubt the truth and accuracy of the value declared to the customs, where the Customs authorities feel that there has been manipulation in the invoices or in the value declared to Customs and involving extra remittance to the foreign supplier over and above the invoice value. That is no so in the present case as there is no dispute about the truth and accuracy of the declared value. 21. On the plea of limitation also, we find that the appellants have a strong case. What is used against them is their declaration to Customs that they and R&H are not related. This declaration was based on the understanding of the Customs Valuation Rules. The agreement between the appellants and the foreign supplier was submitted to the department on 2-5-97 itself and goods were assessed on the price declared by the appellants and it is only on 25-1-01 that the proceedings for undervaluation have been initiated against them. It is, therefore, clear that proceedings have been initiated only in view of change of opinion by the department. Hence allegation of suppression cannot sustain. The extended period of limitation is, therefore, not available to the department. The case law relied up....