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2007 (8) TMI 122
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.... Valuation Rules. He denied the benefit of exemption Notification 21/2002-Cus. for the goods imported under two Bills of Entry. He confirmed differential duty amount of Rs. 4,20,31,824/- on account of undervaluation and an amount of Rs. 3,16,56,697/- on account of denial of the Notification benefit. The longer period has been invoked. Interest under Section 28AB was demanded. Mandatory penalty equal to the duty demanded was imposed under Section 114A of the Customs Act. The impugned goods were held liable for confiscation under Section 111(m) and under 111(o) of the Customs Act, 1962. A penalty of Rs. 10,00,000/- was imposed on Shri Siddharth Deb, Associate General Manager of M/s. GEL under Section 112B of the Customs Act, 1962. The appellants strongly challenge the impugned order. Hence, they have come before the Tribunal for relief. 3. S/Shri V. Sridharan and G. Shiva Dass, the learned Advocates, appeared for the appellants. Shri P.R.V. Ramanan, the Special Counsel for the Revenue assisted by Shri K. Sambi Reddy, JDR, appeared for the Revenue. 4. In order to appreciate the issues involved in these appeals, we record the following facts :- 4.1 The appellants M/s. GEL had ....
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....d investigations revealed that in terms of the LTPSA, the appellants are required to export each part, which is supplied by the foreign supplier within thirty days of the replacement. In other words, the condition of supply of any part is that the appellant had to export the used part. The part, which is imported, can either be new or refurbished. However, as per the LTPSA, after 12500 fired hours, each part will be replaced. The payment is based on the agreed sum for fired hours and sum fixed chargers. Further, it is seen that the seller has goods title to the components removed. While exporting the old part, the appellant declared its value based on the advice of the foreign supplier. This value comes to one-third of the price of the new part. From the above, it is clear that in the present case, there is no Transaction Value. The amount shown in the Commercial invoice is different from what one is required to pay for outright purchase. In fact the amount shown in the commercial invoice corresponds to what is known as exchange price under Rotable Exchange Programme. Under the Rotable Exchange Programme, the cost of the returned part is taken into account and the customer will hav....
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.... amount is almost equal to USD 17,40,000 declared by the appellants at the time of import of the Hot Path Gas Parts. Hence, by operating under LTSA, no extra consideration accrues to GE even after the period of the Agreement. (ii) The valuation of the imported goods is to be done under Section 14 on the basis of the price at which such or like goods are ordinarily sold, or offered for sale, and not on the basis of the 'cost' of the imported goods. The Department has committed a fundamental error while trying to equate the price paid or payable to the cost of the imported goods. After making this fundamental error, the Department is trying to arrive at the cost of the imported parts by adding the price of the removed Hot Path Gas Parts. (iii) The assumption that the price of the defective/returned Hot Gas Path Parts was not considered by GE at the time of fixation of the price under the Rotable Exchange Programme is erroneous and clearly without any basis. It is a common international practice that the replaced part is returned to the supplier under Exchange Programmes in operation to machinery used in industrial application. The Indian Customs has recognized the above concept....
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....in any provision to redetermine the assessable value of the imported goods under Rule 8 of the Customs Valuation Rules. Consequently, the appellants were never put on notice about the intention of the Department to resort to the provisions of Rule 8 of the Customs Valuation Rules, 1988. Therefore, the confirmation of demand under Rule 8 is beyond the proposal contained in the Show Cause Notice. The following case-laws are relied on : (a) Hindustan Polymers Co. Ltd. v. CCE - 1999 (106) E.L.T. 12 (S.C.) (b) Warner Hindustan Ltd. v. CCE - 1999 (113) E.L.T. 24 (S.C.) (c) Chimique Industries v. CCE - 2005 (100) ECC 373 (xi) The assumption that the cost of the removed parts is adjusted against the imports is incorrect and without basis. The above assumption is based on the letter dated 11-7-2003 written by the appellants to the Manager, Bank of India. A reading of the letter does not in any way suggest that the cost of the removed part is adjusted against the imported part. (xii) The value declared for insurance is the best reference to determine the intrinsic value of the goods imported. GE has duly declared the value ....
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....he effect that GE would furnish to the appellants reasonable information about the incremental cost of the refurbished part which is in keeping with internationally accepted practice to levy duty in respect of repaired/refurbished items only on the value of repairs and the value of parts/components replaced. (xvi) The appellants have not misdeclared the assessable value of the parts at the time of import. They have correctly declared the value in the Bill of Entry based on price indicated by GE in the invoice raised for Customs purposes. As the defective/returned part had only scrap value, the return of such a part did not constitute additional consideration under Rule 9(1)(d) and 9(1)(e) of the Customs Valuation Rules. In the invoice, the value of the goods declared was as per the prices indicated in the price list of GE for the Rotable Exchange price. At the foot of the invoice, GE has also duly declared that the supplies were as per the LTSA between the appellants and GE. The value of one third import price attributed to the returned goods is the value attributed by GE and as far as the appellants are concerned, these goods have no commercial value. The appellants are a Publi....
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.... (a) Cosmic Dye Chemical v. CCE, Bombay - 1995 (75) E.L.T. 721 (S.C.) (b) Tamil Nadu Housing Board v. Collector - 1994 (74) E.L.T. 9 (S.C.) Though the Commissioner, in para 122 of the impugned order, has invoked the proviso to Section 28(1) of the Customs Act, 1962 to confirm the demand of duty, no findings have been adduced to justify invoking the longer period of limitation. (xxi) As regards the denial of exemption Notification 21/2002-Cus in respect of the two Bills of Entry, it was submitted that the Show Cause Notice alleged that the appellants had not produced the prescribed Certificate at the time of import of the goods. The appellants were not in a position to produce the prescribed certificate and, therefore, they executed a Bond for the differential duty as directed by the Department. The appellants were, thereafter, permitted to clear the goods by paying duty at the concessional rate of duty pending production of the prescribed certificate. Subsequent to the import, the appellants furnished the necessary certificate. Inviting our attention to the said Notification to clause (b) of condition 45, it was urg....
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..... CCE - 1999 (113) E.L.T. 24 (S.C.) (c) Chimique Industries v. CCE - 2005 (100) ECC 373. (xxiii) Once the authority competent to grant the Certificate is satisfied that the goods are required for renovation/modernization, the Customs authorities cannot sit in judgment over the validity of the certificate. (xxiv) The Commissioner has sought to deny the exemption on the ground that the Certificates did not meet the requirements of the Notification, as some of them used the term 'upkeep' instead of the term 'renovation/modernization'. The Commissioner has conveniently ignored the certificates as per the terms of the Notification. In any case, the interpretation given by the Commissioner that the term 'upkeep' was not the same as 'renovation/modernization' is a narrow interpretation and is not keeping with the intention of the Government and the authority competent to grant such certificate. (xxv) The 5 Bills of Entry in respect of which the demand has been confirmed have been assessed during the period April 2003 to April 2004 and the Show Cause Notice has been issued on 12-8-2004. The assessments have been completed and the clearances allowed. In the case of CCE v. ....
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....ted to GE, USA; (iii) no sale proceeds are received by GEL on the export of removed Hot Path Parts to GE, USA; (iv) such returned Hot Path Parts, on removal from the main equipment, become the property of GE, USA; (v) such returned Hot Path Parts are repaired/refurbished by GE, USA and sold to any of its customers and the resultant proceeds accrue to GE, USA; (vi) the price of the imported Hot Path Parts under the Rotable Exchange Program is adjusted by taking into account the cost of the returned part; (vii) the price of the returned Hot Path Parts is taken as 1/3rd of the price of the refurbished parts by the US Customs; (viii) the price of the imported goods i.e. refurbished Hot Path Parts is a reduced price on account of the above; (ix) GEL did not declare or disclose these facts to Customs at the time of importation and misdeclared the assessable value of the imported goods; (x) the fact that the goods imported were under Rotable Exchange Program was not brought to the notice of the Customs. (xi) the same was also not declared at the time of exporting the remoted Hot Path Parts; (xii) in the case of two imports in which the benefit of exemption un....
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.... the incremental value and not the real value of the imported parts. Our attention was invited to a ruling by Inland Revenue Service, USA, consequent to a Court decision that the transaction involving rotable exchange of spares under a service agreement were not in the nature of sale and such spares should be regarded as depreciable assets and not as inventory meant for sale. 2. The appellant contended that Rules 9(1)(d) and 9(1)(e) are not applicable, as the goods have only scrap value and the proceeds on account of return of the used/old goods do not accrue to GE and that the payments are not made in any of the forms specified in the Rule. Further, it was urged that once the goods are defective and removed, they have no commercial value for the appellants. · While exporting the old parts, the appellants had declared certain value in the relevant shipping bills and invoices. The proceeds of the removed Hot Path Parts exported are not realized by GEL, but adjustment to that extent is made in the price of the refurbished Hot Path Parts imported. This is substantiated by the price difference demonstrated earlier. · If the exported goods were only scrap and had ....
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....ce cover has been taken to cover the risk. From the above, it is clear that such parts have substantial value. As per US Customs and as accepted by GE, the value of the returned parts is 1/3rd of the exchange price. As the insurance amount is split between imported part and used part exported to GE as both have a value of their own, taking the insurance amount applicable only to imported parts and arriving at the conclusion as above, is not correct. 5. The appellants contend that the Department has presumed that the price under Rotable Exchange Program is the price after deducting the price of the returned part. The following evidence adduced is relevant :- (i) Article 2.8 of the LTAPSA states that with respect to refurbished parts, the seller shall furnish to the buyer information regarding the incremental value of each refurbished part over the value of the comparable used part that was exported in order to limit the assessment of customs duties to the incremental value of each such refurbished part; (ii) Under the Rotable Exchange Program, the price is mentioned as 'Exchange Price; (iii) Payment made to GE is not according to the prices mentioned....
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....r. The above contention is not acceptable because in para 29(xiii) of the Show Cause Notice, there is a specific allegation of wilful misstatement as regards the requisite exemption certificate from the competent authority and the said exemption is not extendable to the goods in question. It is in examination of the said allegation the Commissioner has come to the conclusion that the subject goods are not eligible to the aforesaid exemption. Hence, he has not traversed beyond the Show Cause Notice. In terms of the Notification, the requisite certificate was required to be produced at the time of importation. But, the appellant had produced it seven months after import. Moreover, in their application to the competent authority, they had stated that they were proposing to import on a future date for renovation of the power plant, though that was not the case. It is also seen that the first competent authority has only certified that the spares in question were essential for the proper upkeep of the generating units. In terms of the Notification, the purpose should be only for modernization/renovation. 8. The appellants have contended that the confirmation of demand under Rul....
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....ppeal on 8-6-2007, certain questions were put to the respondent. Shri P.R.V. Ramanan, the learned Special Counsel, submitted additional submissions clarifying the questions put to him. On the additional submissions, the appellants had also responded by their written submission dated 15-6-2007. 9. We have gone through the records of the case carefully. The facts of the case have been elaborately dealt with in the submissions made by the appellants and also by the Revenue. Therefore, we do not find it necessary to repeat the same. The main issues involved are as follows :- (i) Whether the values declared by the appellants for the Hot Gas Path Parts imported represent the correct value for Customs assessment purposes and whether the re-determination of such values by the Commissioner and consequent demand of differential duty are in accordance with law? (ii) Whether the denial of benefit of exemption Notification 21/2002-Cus. dated 1-3-2002 in respect of the goods imported under the two Bills of Entry are in order? Based on the findings in respect of the above issues, the other issues, which arise, can be decided. 9.1. Fir....
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....to know all the intricacies involved in the Agreement? In any case, the value declared in the Commercial Invoice and on which the duty has been paid is not the Transaction Value for the simple reason that no payment is made according to the value mentioned therein. 9.3 We would like to mention that these Agreements are very voluminous. When the goods are imported, the Customs Department has an onerous task of clearing the goods expeditiously. They are also supposed to clear the goods in accordance with law. The appellant's statement that they did not produce the Agreements because the Customs did not ask for it indicates, to say the least, a very irresponsible attitude especially when the value of the impugned goods declared by them is not the Transaction Value. 9.4 The appellants, by not producing the Agreements at the time of import and not informing the Customs about the Scheme under which the goods were supplied, had actually suppressed the relevant facts and, therefore, at the outset, we hold that the longer period is invocable. 9.5 In the industry, there is a practice of returning the used part to the original manufacturer who will repair or refurbish the old part. T....
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.... may have a core value include brake shoes, brake master cylinders, water pumps, starters, alternators and air-conditioning compressors. Let's say you buy a remanufactured water pump with a $15 core charge, but you haven't removed the old water pump yet. You must pay the core charge when you buy the part. After you replace the pump, you return the old one to the store with your receipt (which includes the core charge). As long as the old part is in acceptable condition, the store will then refund the $15. 9.6 Coming to the present appeals, we find that in terms of the Agreement, the foreign supplier is responsible for the entire maintenance of the Turbines in the Power Plant. In terms of the Agreement, after 12,500 firing hours, each Hot Gas Path Part is to be replaced. We have already mentioned the terms of the payment. As far as Customs is concerned, when any item is imported, Customs duty has to be paid on the value. The value is governed by Section 14 of the Customs Act read with the Customs Valuation Rules. Under normal circumstances, the Transaction Value is taken for assessment purposes with suitable adjustment. What is Transaction Value? In the language of the layman,....
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....ion of the appellants is that the Show Cause Notice has not invoked this Rule and, therefore, the Adjudicating Authority is going beyond the scope of the Show Cause Notice. On going through the Show Cause Notice, we find that although Rule 8 has not been invoked, there is a proposal to re-determine the assessable value by adding the value of the returned part. The value of the returned part is taken as 1/3rd of the value of the imported part under the Rotable Exchange Programme. Since this proposal is made in the Show Cause Notice, the non-mention of Rule 8 will not vitiate the same. In other words, the invocation of Rule 8 is implied in the manner in which the assessable value was proposed to be re-determined. The Adjudicating Authority has also taken recourse to Rule 9(1)(d) and Rule 9(1)(e) of the Customs Valuation Rules, 1988. The appellants strongly challenge the re-determination of assessable value on various grounds. It is the contention of the appellants that the addition to the Transaction Value in terms of the above mentioned rules should be in the form of some payment. According to them, the seller is not receiving any monetary consideration from the buyer. They have als....
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....e insurance amount applicable only to the imported parts and arriving at the conclusion as contended by the appellant is not correct. 9.11 The appellant has referred to Notification No. 94/96 dated 16-12-1996 to contend that the intention of the Government has always been to levy duty on repair charges. This point also is not acceptable for the reason that the said Notification deals with cases where the same goods are returned after repair abroad. In the present case, even though old parts are exported, the returned part need not be the same one, which was exported. In any case, while arriving at the value for the assessment purposes, we cannot go by the intention of the Government indicated in some other Notification. We have to go only by Section 14 of the Customs Act read with the Valuation Rules. 9.12 Our attention was also drawn to an adjudication order relating to imports made by BSES, Kerala where the value as per the Rotable Exchange Program was accepted by the Adjudicating Authority. Further, it has been urged that the said order of the Adjudicating Authority has not been appealed against and, therefore, the Department is bound to follow the same. We are not i....
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....Adjudicating Authority has correctly determined the assessable value by adding the cost of the returned part. Hence, the re-determination of the assessable value and the consequential demand of differential duty are in accordance with law. 10. Now, let us deal with the denial of benefit of exemption Notification No. 21/2002-Cus. dated 1-3-2002 in respect of the goods imported under two Bills of Entry. 10.1 The above mentioned notification grants exemption from Basic and Additional Duty of specified goods mentioned in a Table annexed to the exemption notification. The impugned goods were sought to be cleared claiming exemption under Sl. No. 236 of the Table annexed to the Notification. The relevant portion is reproduced below :- S. No. Chapter Heading No. or sub-heading No. Description of goods Stan-dard Rate Additional Duty Rate Condition No. 236 84 or any Chapter All goods, for renovation or modernization of a power generation plant (other than captive power generation plant) 5% 16% 45 45 If, - (i) in the case of a power plant (except a n....
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....ank of the Chief Engineer of the concerned State Electricity Board or State Power Utility, should certify that the scheme for renovation or modernization has been approved and an officer not below the rank of a Secretary in the State Government concerned dealing with the subject of power or electricity recommends the grant of exemption. 10.3 The case of the Revenue is that at the time of importation, the required Certificate was not produced. It is also the case of the Revenue that the appellants misrepresented the facts to the concerned authorities for obtaining the Certificate. The objection of the Revenue that at the time of import, the Certificate was not produced is not a very strong ground for denying the benefit of Notification. There is a plethora of decisions in which various Courts and Tribunals have accepted the production of Certificate even after the importation for granting benefits. The appellant, after representing to the concerned authorities, obtained a Certificate dated 23-1-2004 to the effect that the scheme of renovation has been examined thoroughly and approval accorded for the same. The Principal Secretary, Government of Karnataka has also recommende....