TaxTMI 
TaxTMI 
2022 (7) TMI 837
X X X X Extracts X X X X
X X X X Extracts X X X X
....d APRL for setting up power projects at Tiroda in the State of Maharashtra and Kawai in the State of Rajasthan. The department alleges that though the power sector projects carry NIL rate of duty and the goods were imported directly to India, but the documents were routed through an intermediary entity created by APML and APRL for the purpose of raising invoices with inflated prices. 3. To appreciate the issues involved in this appeal, it would be necessary to first take note of some important factual aspects pertaining to APML and APRL. APML 4. APML is a 100% subsidiary of Adani Power Limited and is engaged in operating Thermal Power Plants. There was an acute shortage of power in the State of Maharashtra and in order to overcome this deficit of approximately 27.4% and meet the future requirements, the Government of Maharashtra encouraged private sector to set up power generating stations without the requirement of a license under The Electricity Act, 2003. APML was one such company that came forward to set up power generation plants in the State of Maharashtra. It acquired land in village Tiroda in the State of Maharashtra to develop a green field Thermal Power Plant. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to International Competitive Bidding for setting up of the Thermal Power Plant, including design, procurement and commissioning thereof. It is further stated that at the time when APML floated the tender for sourcing of Boiler-Turbine-Generator [BTG], no credible local supplier/manufacturer having a facility to manufacture/ supply the same was available and so APML had to invite global bids to source the BTG and related equipments from reputed foreign manufacturer/supplier. A Notice Inviting Tender was, therefore, issued on 08.01.2008. The bid of M/s. Sichuan Machinery & Equipment Export and Import Co. Limited, China [SCMEC] was found to be the lowest and most competitive and so the same was accepted and consequently APML entered into a contract with SCMEC on 28.11.2008 for supply of BTG and related equipments at a lumpsum value of USD 999.90 Million. Thereafter, APML applied for registration of the entire contract under Chapter Heading 98.01 of the Customs Tariff Act, 1985 [Tariff Act] as the same was in relation to setting up of mega power project. This registration of the contract allowed the imported goods to be cleared under NIL rate of duty. The entire contract for supply of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... SME for Phase III (Units 4 and 5) was registered with the Commissioner of Customs, Nhava Sheva on 06.01.2010. The essentiality Certificates for Units 4 and 5 were granted on 01.06.2010 and 30.09.2010 respectively by the Principal Secretary. These Certificates describe the equipments that were to be imported. 15. In the meantime the name of SME was changed to M/s. Electrogen Infra FZE, UAE [EIF] with effect from 04.01.2010. It needs to be noted that EIF became a 100% subsidiary of M/s. Electrogen Infra Holding Private Limited, Mauritius [EIH] w.e.f. 29.03.2010. 16. Upon import of the goods under the said supply contract dated 05.11.2009, APML filed Bills of Entry which were assessed provisionally and subject to reconciliation of the contract registered under the 2009 Regulations for Phase III (Units 4 & 5). 17. The total project cost on the date of financial closure of Phase III was Rs.6,290 crores per MW, as the cost per MW was Rs. 4.76 crores. According to APML, the project cost was in consonance with the Central Electricity Regulatory Commission (Terms and Condition of the Tariff) Regulation, 2009 [2009 Regulation] and to support this connection, reliance has been place....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp;Million 21. After evaluation, the bid dated 19.11.2009 of the consortium led by SME (later known as EIF) was found to be the lowest. From the bid documents submitted by APRL in this appeal, it appears that the total bid amount of SME led consortium was USD 1.2 Billion covering BTG supply, BTG services as well as BOP supply and services. It also transpires from the supply contract dated 02.04.2010 entered between APRL and EIF that out of the total bid amount, the contract for USD 790 Million was awarded to EIF towards supply of BTG and related equipment. The balance amount was divided, at the instance of EIF, into BTG services, BOP supply and services. The contract was thereafter registered under Chapter Heading 98.01 of the Tariff Act to seek the benefit of NIL rate of duty. An essentiality certificate dated 01.06.2010 was issued by the Principal Secretary certifying the goods that were to be imported by APRL for the project. Consequently, the goods were imported on the basis of a registered contract dated 02.04.2010 entered between APRL and EIF. 22. The total project cost on the date of financial closure was Rs.7,030 crores since the per MW cost was stated to be Rs.5.33 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to execute the planned conspiracy of siphoning off foreign exchange abroad to and for the benefit of their related entity. APML and APRL appear to have indulged in Trade Based Money Laundering by trade mis-pricing by routing invoice through an intermediary invoicing agent (EIF) in the UAE-a front company of the Adani Group rum and controlled by one of the Adani brothers and assisted by ex-employees of the Adani Group. EIF in UAE appears to have been created as a front for siphoning off of money under the guise of outward remittances for over-valued imports, by indulging in invoice inflating. xxxxxxxxxx 17.3 The relationship between EIF and APML and APRL has been established during the investigation. EIF is owned and controlled by Shri Vinod Shantilal Adani @ Vinod Shantilal Shah through M/s Electrogen Infra Holding Pvt. Ltd., Mauritius. Shri Vinod Adani is shareholder in flag ship company of Adani Group viz. Adani Enterprises Limited (AEL). AEL owns and controls APML and APRL through its subsidiary company M/s Adani Power Limited. 17.4 Investigation in the present case has clearly revealed that while the critical BTG and its auxiliaries from SEC were sour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re cleared on the strength of EIF's invoices by APML and APRL upon importation in India on the basis of combined analysis of invoice numbers & dates, shippers/exporters as appearing in the Bills of Lading/COO certificates and AORs/ORTTs showing the name of SEC as the beneficiary. The aggregate value of shipments invoiced by EIF to APML and APRL, wherein the actual shipper is SEC works out to USD 633,562,594 (APML:USD 307147429.72 + APRL:USD-326415164). Analysis of the outward remittances though AORs/ORTTs to SEC made from the accounts of EIF held with Axis Bank and Bank of Baroda has revealed a total outflow of USD 335,732,220 for consignments shipped to APML and APRL on the basis of invoice numbers appearing on the AORs/ORTTs made by EIF (which were found to match with invoice numbers of invoices raised by EIF on APML and APRL) to the Banks requesting for outward remittances through SWIFT mode. The extent of value inflation is summarised at Table-24 which is repeated below:-. (Table-24) Extent of Overvaluation i.r.o of supplies made by SEC Sr. No. Aggregate value of EIF invoices raised on APML and APRL where the actual supplier is Shanghai Electric Grou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of over-valuation between APML & APRL (Figures in Rs.) Sr. No. Name of the importer Declared CIF in Rs. Based on EIF invoices raised on APML & APRL Remittances made by EIF to OEM (Rs.) Difference in Rs. (C-D) A B C D E 1. APML 34690779941 15574421785 19116358156 2. APRL 36926537178 16301682151 20624855027 Total 7161,73,17,119 3187,61,03,936 3974,12,13,183 xxxxxxxxxxxxxx 17.10 In the guise of import of power sector machinery and equipment, APML and APRL, the two entities of Adani Enterprises Limited appear to have indulged in over- valuation of impugned imported goods. The actual value of the imported goods is Rs. 3187,61,03,936/-, whereas the same have been invoiced at Rs. 7161, 73,17,119/-, thus leading to an over-valuation Rs. 3974,12,13,183/- which appears to have been siphoned off abroad through EIF, an intermediary at UAE, which is controlled and managed by Shri Vinod Shantilal Adani @ Vinod Shantilal Shah, one of the promoters of Adani Enterprises Limited (flagship company of the Adani Group)." REPLY TO SHOW CAUSE NOTICE 25. APML and APRL filed separate replies date....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tween EIF and APML/APRL was a lumpsum contract wherein EIF was responsible for the entire gamut of activities as against the individual supply contracts between the Original Equipment Manufacturers and EIF, which was for supply of goods alone. The adjudicating authority, therefore, concluded that such individual stand alone contracts cannot be compared with the EPC contract that had several other factors built in it affecting various elements thereof namely the cash flow and the risks undertaken by the parties, which could potentially result in liabilities well beyond the total contractual payment over a period of time and also the fact that the obligation subsisted even after the supply was completed. The adjudicating authority also found that the terms and condition of the contract between EIF and APML/ APRL were far more stringent than the contracts between the Original Equipment Manufacturers and EIF, which led to an upward escalation in the price. The adjudicating authority, in such circumstances, concluded that the conditions such as extended warranty being a part of the condition of sale was a part of the contract between APML/APRL and EIF and further that the extra money in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vt. Ltd., Mauritius on 29.03.2010. I find that Shri Vinod Shantilal Adani was the sole 100% shareholder and Director of EIH from 12.01.2010. In effect, therefore, he was the owner of EIF from 29.03.2010. I find that the show cause notice has alleged that APML/APRL was related to EIF under section 2(2) of the CVR, 2007. I find that the show cause notice is silent on the specific sub- section under which the said two parties were related. Rule 2(2)(iv) - any person directly or indirectly owns, controls or holds five percent or more of the outstanding voting stock or shares of both of them; Rule 2(2)(viii) - they are members of the same family.` 5.1.3.1 Thus, to establish relationship one of the above conditions needs to be satisfied. I will discuss the same for each noticee individually. 5.1.3.1.1 In the case of Adani Power Maharashtra Ltd. (APML) I find that the contract between APML and EIF (erstwhile SME) was signed on 05.11.2009 after following the elaborate process of Global Tendering and evaluation of bids. Thus, I find that during the period of signing of the contract, EIF was still owned by Shri Nasser Ali Shaban Ahli, a UAE national. There....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly owns, controls or holds five percent or more of the outstanding voting stock or shares of both of them then the entities are related. I find that during the relevant time i.e. when the contract was signed Shri Vinod Shantilal Adani owned 100% of the shares of EIF by virtue of being the sole Director of EIH, its holding company. Further, I find that as discussed supra he was one of the promoters and shareholders of AEL. As per the declarations filed with the market regulators Shri Vinod Shantilal Adani held 8.27% of the shares of AEL. Thus, I find that the two entities were related by virtue of the provisions of Rule 2(2)(iv) of the CVR, 2007 on the date of signing of the contract. 5.1.3.3 Further I find that it was also alleged in the SCN that several ex-employees of Adani Group viz. Shri Jatin Shah & Shri Moreshwar Vasant Rabade joined EIF to manage its operations, and that in fact Shri Jatin Shah was made an authorised signatory in Sichuan Machinery & Equipments FZE even before it was acquired by Shri Vinod Shantilal Shah @ Adani. I find that the allegation is a matter of conjecture because the only way Shri Jatin Shah could be related would be by way Rule 2(2)(i) i.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9; is mentioned. Thus, some of the payments made by EIF to its OEM through those ORTT's were advance payments. Furthermore I find that in majority of the ORTT the multiple invoice numbers were mentioned without any breakup of the invoice wise value. Therefore, in order to find out the true and correct picture of the remittances made, it is essential to compare the remittances made through ORTT against the actual invoices raised by the OEMs. I find that the department had been able to find only three invoices of the OEMs. Thus I find that the allegation made in the SCN was based on extrapolation of the available data and thus was a conjecture and not based on any hard evidence. Therefore I am not in agreement with the allegation made in the SCN. 5.1.3.13.1 Further, I find that the other terms and conditions of the contract between EIF and APML/APRL are also much more stringent than the terms and conditions between OEM and EIF. xxxxxxxxx 5.1.3.18.7 Thus, I find that the goods in question were eligible for benefit under Project Import since it was meant for Power Plant. Further I find that the sponsoring authority is the Secretary (Energy) of Maharashtra and Raja....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the impugned order the adjudicating authority has found that APRL and EIF are related whereas in paragraph 5.1.3.19 it has been recorded that APRL and EIF were not related parties during the relevant period. Again, in paragraph 5.1.3.19 (i) and (ii)the adjudicating authority concluded that APRL and EIF can be considered as related; (ii) The finding recorded by the adjudicating authority that the show cause notice did not challenge the validity of the invoices issued by EIF and also the validity of the contracts between EIF and APML/APRL is not correct as the show cause notice had alleged that the transaction between APML/APRL were sham transactions and that EIF was only a front of Adani Group, which acted merely as an intermediary invoicing agent for inflation of value; (iii) The adjudicating authority accepted the contentions of the respondent without critically examining the manner in which the International Competitive Bidding was conducted. It is apparent that the whole International Competitive Bidding process was undertaken as part of a plan to provide the cloak of legality and transparency to an otherwise fraudulent act. It is evident that SME/EIF and A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he value of the contract dated 28.02.2008 with SCMEC for Phases I & II which is USD 999.90 million. Phase I and II covered three Units whereas Phase III covers two Units. Thus, the pro rata price of the contract dated 28.02.2008 for two units works out to USD 666 million, as against USD 736 million under the contract dated 05.11.2009. The price difference of around USD 70 million is due to market price escalation during these twenty months; (iii) The entire investigation is incomplete and inconsistent. The allegation of overvaluation is based on half-baked information received from the banks in relation to EIF; (iv) The documents adduced by the department from foreign banks were obtained contrary to the provisions of law and hence inadmissible as evidence. The allegations raised in the show cause notice are based on photocopies of documents allegedly recovered from overseas banks or overseas branches of Indian banks. The said documents are not authenticated and have not been proved under section 139(ii) of the Customs Act; (v) APRL and EIF are not related party. In any event, the alleged relationship has not influenced the price. Even the revenue has not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....RADICTORY FINDINGS 31. The first issue that needs to be addressed is whether contradictory findings have been recorded by the adjudicating authority in the order dated 22.08.2017. This submission of learned special counsel appearing for the department is based on the findings recorded in paragraphs 5.1.3.1.1 and 5.1.3.1.2 on the one hand of the order dated 22.08.2017 and paragraph 5.1.3.19 of the said order on the other hand. While examining whether APML and EIF were related, the adjudicating authority held in paragraph 5.1.3.1.1 that they were not related. While examining the relationship between APRL and EIF, the adjudicating authority observed in paragraph 5.1.3.1.2 that though APRL and EIF were related but the said relationship had not influenced the price. After having recorded such findings, the adjudicating authority summed up the discussion in paragraph 5.1.3.19 in the following manner: "5.1.3.19 In view of the above discussions I am of the opinion that: (i) the two entities viz. APRL and EIF were not related during the relevant period; (ii) APRL and EIF may be considered as related during the relevant period, but the price was not affected by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 29.03.2010 and, therefore, the contract awarded to EIF was by way of an independent process without being influenced by any relationship. 35. The contract between APRL and EIF was signed on 02.04.2010, which was four days after Vinod Shantilal Shah became a shareholder of EIF. However, what is important to notice is that the bid for APRL was submitted by EIF much earlier on 19.11.2009. Even if it is assumed that there was a relationship between APRL and EIF, the transaction value cannot be questioned unless the department is able to prove that the relationship has influenced the price. The evidence that has been led on behalf of the respondents in the form of contemporaneous data showing the per unit MW price of other projects undertaken by the competitors is similar to or higher than per unit MW cost of APML and APRL. This establishes there was no overvaluation as would be apparent from the following chart: Project Technology Project Year Capacity Unit Size Cost (Rs. Crs.) Cost Per MW (Rs. Crs.) APML (Phase-III) Super Critical 2009 1320 660*2 6,290 4.76 Indiabulls- Sophia Power Super Critical 2009 1320 660*2 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s no variation in the ultimate price paid by APML/APRL to EIF from the agreed contractual price and these contracts were arrived at through international competitive bidding process. 39. Learned senior counsel appearing for the respondents also contended that the show cause notice should have disclosed the particular clause of rule 2 (2) of the Valuation Rules that would be attracted for establishing the relationship between APRL and EIF, but it failed to so disclose. It would, therefore, not be open to the appellant to make any submission about the alleged relationship. In support of this submission, learned senior counsel placed reliance on the decisions of the Supreme Court in Amrit Foods Co. Ltd. vs. Commissioner of C. Ex., Meerut-I [2003 (190) E.L.T. 433 (S.C.)] and Commissioner of Central Excise, Nagpur vs. Ballarpur Industries Ltd [2007 (215) E.L.T. 489 (S.C.)]. Learned senior counsel for the respondent also submitted that when clause (v) of rule 2 (2) was not mentioned in the show cause notice for establishing the relationship, it is not open to the appellant to place reliance on this rule to establish that the relationship stood established. 40. In view of the afores....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-2 of GCC of Bidding Document." 43. Three bids were received for APML project. The consortium led by SMEs submitted their bid on 21.10.2009. Two other bidders had also bid. The bidding was done by following the ICB guidelines and the bid by the consortium led by SME was found to be the lowest. The total bid amount of SME was USD 1.2 Billion covering BTG supply, BTG services as well as BOP supply and services. Out of the total bid price, contract for USD 736 Million was awarded to SME on 05.11.2009 towards the supply of BTG alone. Learned senior counsel for the respondent stated that the balance amount was divided at the instance of SME into BTG services, BOP supply and services. As required by the consortium, the remaining three contracts were entered into with other consortium members. The exchange rate of the two contracts which were awarded in INR resulted in reduction of bid price to USD 1.13 Billion, which was the final bid price. 44. APRL invited tenders based on ICB guidelines for setting up of the Thermal Power Plant including design, procurement and commissioning thereof for the said power plant. This notice inviting tender was issued on 05.11.2009. The bid by SME wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t been disputed by the revenue. The department is, therefore, not correct in asserting that the ICB Process was a sham. 48. The department, in order to support its claim that the transaction was a sham transaction and more in the nature of tender fixing, has also placed reliance upon the letter of credit having being opened by APML and APRL in favour of EIF. The said action of opening the letter of credit cannot in any manner establish that the transaction was a sham transaction or that there was over-valuation. The adjudicating authority correctly appreciated that the letter of credit was opened by APML and APRL in favour of EIF in terms of Annexure-2 of the contract dated 05.11.2009 and was in relation to the payments to be made to EIF for purchase of BTG. The submission that the letters of credit were opened as EIF was an intermediary invoicing agent is without any basis as the amount mentioned in the letters of credit were payable only on submission of shipping documents showing clearance of BTG consignments. 49. There is also force in the submission of the learned senior counsel for the respondent that a belated challenge to the genuineness of the ICB process at the stag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad been obtained contrary to the Trade Agreement signed between UAE and India on 22.09.1993 and, therefore, could not be admitted as evidence. The admissibility of the said documents was also questioned in terms of the provisions of sections 138C (4) and 139 (ii) of the Customs Act. 52. To appreciate this contention, it would be necessary to reproduce section 138C of the Customs Act and it is as follows: "Section 138C- Admissibility of micro films, facsimile copies of documents and computer print outs as documents and as evidence. (1) Notwithstanding anything contained in any other law for the time being in force,- (a) a micro film of a document or the reproduction of the image or images embodied in such micro film (whether enlarged or not); or (b) a facsimile copy of a documents; or (c) a statement contained in a document and included in a printed material produced by a computer (hereinafter referred to as a "computer print out"). (2) The conditions referred to in sub-section (1) in respect of a computer print out shall be the following namely:- (a) the computer print out containing the statement was produced by the computer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (c) dealing with any of the matters to which the conditions mentioned in sub-section (2) relate, and purporting to be signed by a person occupying a responsible official position in relation to the operation of the relevant device or the management of the relevant activities (whichever is appropriate) shall be evidence of any matter stated in the certificate; and for the purposes of this sub-section it shall be sufficient for a matter to be stated to be to the best of the knowledge and belief of the person stating it. (5) For the purposes of this section, - (a) Information shall be taken to be supplied to a computer if it is supplied thereto in any appropriate form and whether it is so supplied directly or (with or without human intervention) by means of any appropriate equipment; (b) whether in the course of activities carried on by any official, information is supplied with a view to its being stored or processed for the purposes of those activities by a computer operated otherwise than in the course of those activities, that information, if duly supplied to that computer, shall be taken to be supplied to it in the course of those act....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... contained in the computer maintained by banks or EIF or APML and APRL since the banks had furnished the documents in response to the letters issued by the Department of Revenue Intelligence. 56. The entire case of the department in the show cause notice relates to data obtained from the banks. It is not the case of the department that the said data was hand written or typed. The said data provided by the foreign branches was admittedly stored in electronic form and print outs of the same were furnished by the foreign banks. The banks may have given these documents at the behest of the investigating authority, but they were print outs of some electronic record. Nothing prevented the investigating authority from seeking the certificate as required under section 138C (4) of the Customs Act from the person responsible at the bank who was handling such electronic medium for storage of the said documents. The documents annexed to the appeal do not bear any signature nor do they bear a proper seal or signature of the issuing authority. The onus was on the department to prove the correctness and the authenticity of the same. A perusal of the documents relied upon in the show cause noti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....un Panditrao Khotkar vs. Kailash Kushanrao Gorantyal & others [AIR 2020 SC 4908]. The Supreme Court held in paragraph 72 of the judgment that if the original device is not produced, then electronic record can be produced in accordance with section 65B (1) of the Evidence Act together with requisite certificate under section 65B (4). The relevant portion of the judgment is reproduced below: "(a) Anvar P.V. (supra), as clarified by us hereinabove, is the law declared by this Court on Section 65B of the Evidence Act. The judgment in Tomaso Bruno (supra), being per incuriam, does not lay down the law correctly. Also, the judgment in SLP (Crl.) No. 9431 of 2011 reported as Shafhi Mohammad (supra) and the judgment dated 03.04.2018 reported as (2018) 5 SCC 311, do not lay down the law correctly and are therefore overruled. (b) The clarification referred to above is that the required certificate under Section 65B (4) is unnecessary if the original document itself is produced. This can be done by the owner of a laptop computer, computer tablet or even a mobile phone, by stepping into the witness box and proving that the concerned device, on which the original information i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... admitted as evidence. Reliance cannot, therefore, be placed on these documents for this reason. 61. The learned senior counsel for the respondents also made submissions with regard to non-fulfillment of the provisions of section 139 (ii) of the Customs Act. It is the case of the respondents that the presumption under section 139 (ii) of the Customs Act would not be available as the authenticity of documents have been challenged. Under section 139 (ii) of the Customs Act, where any document has been received from any place outside India during the course of investigation under the Customs Act and such document is tendered as evidence, then unless it is proved to the contrary, the contents of the documents will be taken to be true, basis the signature in the case of the document executed or attested. In the present case it is seen that the ORTTs/AORs and the invoices which form the basis of redetermination of the transaction value have not been signed or attested. The documents that are neither signed nor authenticated cannot be admitted as evidence. 62. The learned special counsel of the department placed reliance on the purported originals of ORTTs and AORs that are supposed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ged declarations bears the seal of the Customs at Kobe and the name of the vessel is shown to be 'Raya Fortune' but the itinerary of that vessel collected at the instance of the Indian Customs shows that the said vessel had never touched Kobe which raises a serious doubt as to how far this document is authentic. The majority raises the question as to how the declaration at Kobe and shipment from Osaka are reconcilable noting that there is no explanation coming forth. The majority feels that the authenticity of the documents itself is suspect. In these circumstances, the presumption to be raised under Section 139 (ii) of the Customs Act could not be raised because the document did not bear any signature, did not come from proper custody and it is difficult to understand why the Indian Customs did not interact with the Japan Customs and obtain authentic copies of the document form the latter. Merely because the Department offered cross- examination of the steamer agency from whom the export declaration had been obtained and the Respondents chose not to avail of that opportunity is no ground for holding that the requirements of Section 139 are satisfied for the purpose of rais....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bmitted that out of the total bid price, contract for USD 736 million was awarded to SME on 05.11.2009 towards supply of BTG alone. The balance amount was divided between the balance consortium members, at the instance of SME into BTG services, BOP supply and services. As required by the consortium, the remaining three contracts were entered into with other consortium members. 69. The relevant clauses of the BTG supply contract in relation to APML are as follows: "Para IV of the agreement deals with contract price and the same reads as under: Para IV: Contract Price The lump sum contract price payable under this supply contract by the employer to the supplier shall be United States Dollars 736,000,000/- (United States Dollars Seven Hundred Thirty Six Million only). (a) Payment for the supply of Goods shall be made on the basis of dispatch of shipments, in accordance with Annexure 3 hereto. (b) The Supplier shall pay all taxes, duties and fees required to be paid by him under this Supply Contract in its country, and the Contract Price shall not be adjusted for any of these costs, except as stated in Sub-clause 13.4 [adjustments for cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... manufacture of goods. 7.4 Testing The Sub-Clause shall apply to all tests specified in the Contract, other than the Tests on Completion and the Tests after Completion. The Supplier shall provide all apparatus, assistance, documents and other information, electricity, equipment, fuel, consumables, instruments, materials, and suitably and experienced staff, as are necessary to carry out the specified tests efficiently. The Supplier shall agree, with the Employer, the time and place for the specified testing of any Goods. The assistance and cooperation to be provided by the Supplier to the Employer under this Sub-Clause shall also be similarly provided to any person nominated by the Employer to conduct tests in relation to the Goods. The Employer may, under Clause 13[Variations and Adjustments], instruct the Supplier to carry out additional tests. If these varied or additional tests show that the tested goods is not in accordance with the Contract, the Costs of carrying out this variation shall be borne by the Supplier, notwithstanding other provisions of the Contract. The Employer shall give the Supplier not less than 24 hours no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tract entered between the APML and SME for Phase III (Units 4 and 5) was registered under the same file No. for Phases I and II on 06.11.2010 with the Commissioner of Customs, Nhava Sheva, as prescribed under Regulation Nos. 4 and 5 of the PIR. 71. Pursuant to the said contract dated 05.11.2009, APML imported the said goods. Before import of the first consignment under the said contract dated 05.11.2009, APML registered the same under the PIR and consequently, the said goods were duty assessed under Heading 98.01 of the First Schedule to the Tariff Act. All Bills of Entry were assessed provisionally and subject to reconciliation under PIR. No objection was or has been taken, at any time, during the assessement of each of the Bills of Entry. Further, in respect of imports made for Phase I and II, the reconciliation was submitted in terms of PIR. 72. In relation to APRL, it is stated out of the total contract, contract worth USD 790 million was awarded on 02.04.2010 to EIF towards supply of BTG alone and the balance amount was divided between the consortium members at the instance of EIF, being the lead member, into BTG service and BOP supply and service. A contract was also en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enance of the Goods for a period of 12 months from the date of completion of successful performance guarantee tests, the costs of transportation and accommodation of Employer's staff for the purpose of such training shall be borne by the Employer. 4.8 Sufficiency of the Contract Price The Supplier has satisfied himself as to the correctness and sufficiency of the Contract price. Unless otherwise stated in the Contract, the Contract Price covers all the supplier's obligations under the Contract including those under Provisional Sums, if any and all things necessary for the Supply of the goods and the remedying of any defects therein. Clause 7.3 of Annexure 5 deals with inspection of goods which provide that Company Personnel shall at all times during production and manufacture, will be entitled to examine, inspect, measure and test the goods and to check the progress of manufacture of goods. 7.4 Testing The Sub-Clause shall apply to all tests specified in the Contract, other than the Tests on Completion and the Tests after Completion. The Supplier shall provide all apparatus, assistance, documents and other information, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d comply with the requirements of the Contract. If the Employer requires the Goods to be retested, the goods shall be repeated under the same terms and conditions. If the Rejection and retesting cause the Employer to incur additional costs, the Supplier shall subject to Sub-Clause 2.3 (Employers Claims) pay these costs to the Employer." 74. The aforesaid clauses of the contract entered into between APRL and EIF would show that the same are a part of EPC job awarded in respect of design, engineering, manufacturing, procurement, packing & forwarding, supply, transportation, receipt, unloading, installation, erection, testing, commissioning, and performance guarantee test of the equipment and machinery required for the respective power projects at a lumpsum price. APRL was concerned only with the said lumpsum price which was for the entire power project and not with the price of individual goods. 75. In terms of General Exemption No. 122 (Serial No. 400 of Notification dated 01.03.2002, which was amended to Serial No. 507 by Notification dated 17.03.2010), goods, equipment and machinery falling under Heading 98.01 of the Customs Tariff and required for setting up a Mega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efect notification/ extended warranty for 1-2 years and not 10 years and the casting of additional responsibility without increase in the contract price and the purported addendum is an afterthought. It was, accordingly, submitted that the adjudicating authority erred in accepting the submission of the respondents that the contract was an EPC contract. 78. It needs to be noted that the ICB process followed by APML and APRL to award the contract to EIF cannot be faulted. The scope of work mentioned in the EPC contract also clarifies beyond doubt that what was awarded by APML and APRL to SME/EIF was a complete EPC contract which included supply and service components. The entire contract was awarded on a turnkey basis and a lumpsum price was fixed for the entire contract as a whole. The execution of another contract by EIF or any of the consortium partners would, therefore, have no relevance so far as APML and APRL are concerned. It is also not the case of the department that APML and APRL paid any amount over and above the agreed contract value. The said contract was for design, engineering, manufacturing, procurements, packing & forwarding, supply, transportation, receipt, unloa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etter to this effect to the Procurer,". Similarly, I find that vide PPA agreement between Jaipur Vidyut Vitran Nigam Ltd. (Procurer 1), Ajmer Vidyut Vitran Nigam Ltd. (Procurer 2), and Jodhpur Vidyut Vitran Nigam Ltd. (Procurer 3) and Adani Power Rajasthan Ltd. dated 28.01.2010 in Article 3: Conditions Subsequent to be satisfied by Seller/Procurer in condition 3.1.1 (e) it is mentioned that "The seller shall have awarded the Engineering, Procurement and Construction contract (EPC contract) or main plant contract for boiler, turbine and generator (BTG), for setting up of the Power Station and shall have given to such contractor an irrevocable NTP and shall have submitted a letter to this effect to the Procurer. I find that EPC is a particular form of contracting arrangement used in some industries where the EPC Contractor is made responsible for all the activities from design, procurement, construction, to commissioning and handover of the project to the End- User or Owner. Essentially an EPC project is similar to a turnkey project. 5.1.3.17.1.1 I also find that the contract between APML and Sichuan Machinery & Equipments FZE and APRL and EIF encompasses all the factors of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... therefore, safely be concluded that APML and APRL had awarded contracts to EIF/SME which were in the nature of EPC. WHOLE EFFECT OF CONTRACT /EFFECT OF REGISTRATION UNDER PIR 82. The adjudicating authority concluded in paragraph 5.1.3.18 of the order as follows: "(i) The project cost of the contract between APML/APRL and EIF is within the norm fixed under Annexure II of the order dated 04.06.2012 issued under Central Electricity Regulatory Commission (Terms & Conditions of Tariff) Regulation, 2009; (ii) Further, in terms of Information Memorandum of SBI Capital Markets Limited cost per MW of APRL is competitive when compared with other projects of super critical technology; (iii) It is contended by APML / APRL that the value of the current contract in respect of Tiroda project was for Phase III of the project and is comparable with the earlier contract for Phase I & II entered into with Sichuan Machinery and Equipment Import and Export Co. Ltd. China. That no objection as to value of consignment imported in the past for Phase I & II. The argument may be valid, but it cannot be sole criteria for valuation of disputed goods; and (iv) All the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Y EQUIPMENT (INCLUDING THOSE REQUIRED FOR RESEARCH AND DEVELOPMENT PURPOSES, TESTING AND QUALITY CONTROL), AS WELL AS ALL COMPONENTS (WHETHER FINISHED OR NOT) OR RAW MATERIALS FOR THE MANUFACTURE OF THE AFORESAID ITEMS AND THEIR COMPONENTS, REQUIRED FOR THE INITIAL SETTING UP OF A UNIT, OR THE SUBSTANTIAL EXPANSION OF AN EXISTING UNIT, OF A SPECIFIED: "REGULATION" REGULATION 2. Application. These regulations shall apply for assessment and clearance of the goods falling under heading No. 98.01 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). REGULATION 4. Eligibility. The assessment under the said heading No. 98.01 shall be available only to those goods which are imported (whether in one or more than one consignment) against one or more specific contracts, which have been registered with the appropriate Custom House in the manner specified in regulation 5 and such contract or contracts has or have been so registered, (i) before any order is made by the proper officer of customs permitting the clearance of the goods for home consumption; REGULATION 5. Registration of Contracts. Every importer claiming assessment of the goods f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... original documents which are no longer required by him. REGULATION 7. Finalisation of contract. - The importer shall within three months from the - Customs clearance for home consumption of the last consignment of the goods or within such extended period as the proper officer may allow, submit a statement indicating the details of the goods imported together with necessary documents as proof regarding the value and quantity of the goods so imported in terms of this Regulation and any other document that may be required by the proper officer for finalisation of the contract." 86. Note 2 to Chapter 98 clarifies that Heading 98.01 will apply to all goods which are imported in accordance with the Regulations issued under section 157 of the Customs Act. PIR has been issued by the Central Government in exercise of the powers conferred by section 157 of the Customs Act. Regulation 2 clarifies that the Regulations shall apply to assessment and clearance of goods falling under Heading 98.01 of the Tariff Act. In terms of regulation 4, assessment under Heading 98.01 shall be available only to those goods which are imported in one or more than one consignment against one or more ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d value as against the actual value post redetermination is mentioned in Table 33 of the show cause notice and the same is reproduced below: "Table 33 Importer No. of Consignment Declared Value (CIF) (in Rs.) Actual value (CIF) (as redetermined) (in Rs.) APML 301 3469,07,79,941 1557,44,21,785 APRL 262 3692,65,37,178 1630,16,82,151 TOTAL 563 7161,73,17,119 3187,61,03,936 90. The adjudicating authority has not found any merit in said allegation made in the show cause notice proposing redetermination of value on various counts and consequently has dropped the proceedings against all the noticees. 91. It is seen that both APML and APRL set up Thermal Power Plants at Tiroda in Maharashtra and Kawai in Rajasthan. The contract was entered into between APML and SME (which is now known as EIF) on 05.11.2009. Similarly, a contract was entered into between APRL and EIF on 02.04.2010. While in both the cases, the case of the respondents is that the contract is EPC, the department contends that the said contracts are not in the nature of EPC but are purely supply contracts. It has been found as a fact that the contracts are in the nature ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Customs Act. For the balance of over 550 consignments, the value is sought to be redetermined under rule 9 of the Valuation Rules by proportionately reducing the declared value in ratio of inflation i.e. 2.2 times. The said figure of 2.2 inflation has been arrived at by the department by taking the total value of ORTTs by which payments have been made by EIF to Original Equipment Manufacturers as the amount representing actual transaction value and reducing the same with the transaction value declared by APML/APRL. Learned special counsel for the department, therefore, contends that the total transaction value of 563 consignments should be USD 669, 595,215/- instead of USD 1477,934,270/- as declared by APML/APRL. 96. Section 14 of the Customs Act, deals with valuation of goods. It was amended on 10 October 2007, and the amended section is as follows: "Section 14. Valuation of goods. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ying principle which runs though in the length and breadth of the scheme so eloquently. It categorically mentions the exact nature of those costs and services which have to be included like commission and brokerage, costs of containers, cost of packing for labour or material etc. Significantly, Clause (a) of sub-rule (1) of Rule 9 which specifies the aforesaid heads, cost whereof is to be added to the price, again mandates that it is to be "to the extent they are incurred by the buyer". That would clearly mean the actual cost incurred. Likewise, Clause (e) of sub-rule (1) of Rule 9 which deals with other payments again uses the expression "all other payments actually made or to be made as the condition of the sale of imported goods". ------ 31) In contrast, however, the impugned amendment dated 05.07.1990 has changed the entire basis of inclusion of loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation. Whereas fundamental principle or basis remains unaltered insofar as other two costs, viz., the cost of transportation and the cost of insurance stipulated in clauses (a) and (c) of sub-rule (2) are concerne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are fixed by International Airport Authority. ----- 36) We are, therefore, of the opinion that impugned amendment, namely, proviso (ii) to sub-rule (2) of Rule 9 introduced vide Notification dated 05.07.1990 is unsustainable and bad in law as it exists in the present form and it has to be read down to mean that this clause would apply only when actual charges referred to in Clause (b) are not ascertainable." 98. The Supreme Court also noticed the change in the principle that had been brought about in section 14(1) of the Customs Act in paragraph 22 judgment and they are as follows: "22) The underlying principle contained in amended sub- section (1) of Section 14 is to consider transaction value of the goods imported or exported for the purpose of customs duty. Transaction value is stated to be a price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation. Therefore, it is the price which is actually paid or payable for delivery at the time and place of importation, which is to be treated as transaction value. However, this sub-section (1) further makes it clear that the price actually p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provides that the value of imported goods shall be the transaction value of the similar goods. Rule 6 states that when the value cannot be determined under rules 3, 4 and 5, the value should be determined under rule 7. Rule 7 provides for deductive method of valuation. In terms of rule 8, when value cannot be determined under any of the above rules, the value should be determined basis the computed value. Rule 9 is a residual rule made applicable if the value cannot be determined under the provisions of the preceding rules. Rule 10 deals with certain cost and services which have to be added to the price actually paid or payable for the imported goods. Rule 12 gives power to department to reject the value. Thus, rules 3 to 9 are the rules under which the value of the goods can be redetermined. 101. While rule 3 is a general rule, as the same states that the value of the imported goods shall be treated as transaction value, rule 9 is a residual rule which can be resorted to only if the other rules cannot be applied. It is also important to note that rules 4 to 9 are subject to the provisions of rule 3. This means that if the transaction value of the goods is not doubted, the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation, there is no option but to reject value under rule 12 of the Valuation Rules. It has been also submitted that the rule does not prescribe the manufacturer's invoice alone as sole document for ascertaining authenticity of the declared value, but also includes any other statement, information, or document. Reliance has been placed on the mechanism provided under rule 11 to doubt the accuracy of declared value and in case there is a reasonable doubt, it permits comparison with manufacturer's invoice or other information. 107. The department has failed to appreciate that for accepting the invoice value of Original Equipment Manufacturers in terms of rule 11 of Valuation Rules, it was necessary to compare the contract between the Original Equipment Manufacturers and EIF and between APML/APRL and EIF. 108. The contract between APML/APRL & EIF and between EIF & the Original Equipment Manufacturers cannot be treated as a comparable contract by any stretch of imagination. This is for the reason that the contract between APML/APRL and EIF was a turnkey contract, whereas the contract between EIF and Original Equipment Manufacturers was a stand alone contract. 109. This would be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; measured Auxiliary Power Consumption of each Generating Unit is greater than the Guaranteed Auxiliary Power Consumption specified by the Supplier, the Supplier will be liable to pay damages to the Employer at the rate of USD 4000.00per KW increase in Auxiliary Power Consumption per Unit d) The sum of all damages payable by the Supplier for Shortfall in performance will not exceed USD 57,500,000.00 except in the following cases (threshold limit) on breach of which Employer shall have the option to reject the Contractual Plant. i. If the Gross Electrical Power output per Generating Unit of the Contractual Plant falls short below 97.5% of t he Guaranteed Gross Electrical Power Output Specified by the Supplier or ii. If the Gross Heat Rate per Generating Unit of the Contractual Plant is greater than 2205 kcal/kWHr or iii. If the percentage of Auxiliary Power Consumption per Generating Unit of the Contractual Plant exceeds by 5% over the Guaranteed Auxiliary Power Consumption per Generating Unit as specified by the Suppl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....14 days simple interest @ 6% shall be payable on delayed payments 110. A perusal of the terms of the contracts do substantiate the findings of the adjudicating authority that the terms and conditions in respect to the contract between APML/APRL and EIF are much severe in respect of exposure to foreign exchange variation, stringent payment terms, higher liquidated damages in case of delay, higher interest on delayed payments when compared to contract between EIF & Original Equipment Manufacturers. 111. The contract between APML/APRL and EIF is for entire gamut of goods and services and hence cannot be compared with stand alone supply contract with Original Equipment Manufacturers. Invoices issued under two different sets of contractual obligation cannot be compared and relied upon to determine the value. Rule 11, therefore, has no application to the facts of the present case. 112. The revenue has sought to invoke rule 9 by placing reliance on payments made by EIF to different vendors and/or manufacturers of the goods. The said evidence has been held to be not conclusive, as the revenue has considered the payment made through Axis Bank and Bank of Baroda only. 113. This a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are higher than the price indicated in the above documents. While the documents were received from Axis Bank and Bank of Baroda, the relied upon document at page 689 shows the name of Standard Chartered Bank as one of the other banks used by EIF. The same therefore, belies the case of the department that ORTTs and back-to-back invoices received from Bank of Baroda and Axis Bank are complete remittances made by EIF to Original Equipment Manufacturers. Merely because the department could not interrogate or make the Standard Chartered Bank join the investigation cannot be a reason to ignore the possibility of it acting as an active banker on behalf of EIF for the purpose of remitting the amount of Original Equipment Manufacturers. The burden was on the department to prove why the total remittance amount was only through these two banks and no other bank. It, therefore, follows that the investigation carried out by the revenue was incomplete. CONFISCATION 117. Another important issue that arises for consideration in this appeal is as to whether the goods can be held liable for confiscation under section 111 (d) and (m) of the Customs Act when there is no case of short levy of dut....