TaxTMI 
TaxTMI 
2026 (8) TMI 339
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....ain, Ms. Purvi Asati, Ms. Ashwini Nag Mr. Harshdeep Khurana, Ms. Vaishavi Nair and Ms. Aditi Sharma Advocates For the Revenue : Mr. PRV Ramanan, Special Counsel (AR) ORDER DR. D.M. MISRA: These appeals are filed against Order-in-Original No.02/2012 dated 30.03.2012 passed by the Commissioner of Customs, Bangalore. Also, the appellant had filed a miscellaneous application seeking to include two documents on record viz. Addendum No.1 to Distribution Agreement dated 01.11.2005 and Intercompany Product Distribution Agreement dated 01.11.2012. Learned advocate for the appellant fairly submitted that these documents were not part of the appeal paper book filed initially and also not submitted before the adjudicating authority; however, these documents have some relevance and the same may be allowed to be placed on record and be considered on merit during the course of hearing. Learned Special Counsel for the Revenue, after going through these documents, has not raised any objection for its admission and consideration. Consequently, these two documents are taken on record. Miscellaneous application is allowed. 2.1. Briefly stated the facts of the case are that the appellant....
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.... the said period along with proposal for penalty on individuals. All these show-cause notices were initially answerable to the respective Commissioners of Customs having jurisdiction over the ports or places wherefrom the imported products were cleared /seized; but later CBEC issued Notification No.63/2010-Cus(NT) dated 07.07.2010 appointing Commissioner of Customs, Bangalore as the common adjudicating authority for all the show-cause notices issued. On adjudication, the learned Commissioner has reduced the demand to Rs. 925,40,04,110/-; imposed penalty of equal amount Rs. 925,40,04,110/- under Section 114A, and Rs. 50,02,00,000/- under Section 114AA of the Customs Act, 1962 on the appellant company; personal penalty of Rs.26.20 lakhs against Mr. S. Srinath; of Rs.15.90 lakhs against Mr. D. Saikumar; of Rs.26.20 lakhs against Mr. NVP Tendulkar; of Rs.26.20 lakhs against Mr. B.S. Ravishankar; of Rs.26.20 lakhs against Mr. Deepak Kanti Bhowmick; of Rs.15.90 lakhs against Mr. Manoj Bavle under Section 112(a) of the Customs Act, 1962 were imposed; directed confiscation of the seized goods from various locations released provisionally with an option to redeem the same on payment of fine....
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....tor is compensated on arm's length basis of its cost i.e value-added costs (VAC) and nonvalue added costs (Non-VAC) and reasonable return on the value added costs. It is achieved by adjusting the discounts offered by the HP entities to the appellant from the list price of the products. He has submitted that similar distribution agreements were entered with other sale entities in almost 100 countries across the world. He has submitted that the import price determined using ROVAC principle is in consonance with the underlying principle of arm's length price under Transfer Pricing Policy and satisfying the Transaction Net Margin Method (TNMN) of Transfer Pricing which has been accepted in other countries. 3.2. Further explaining the ROVAC principle, he has submitted that the price to a sales entity is based on the net resale price which the sales entity expects to realise on the sale of its products. The net resale price realised for the imported goods in the country of importation is the starting point for determining the value for the goods imported. Thus, the importing HP entity purchases the product from the selling HP entity at a price which will enable the importing entity to....
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....LCP in order to arrive at the requisite net inter-company transfer price which will enable recovery of all costs and ROVAC. 3.4. Further explaining the concept of Reference Price (RP), he has submitted that RP is another base price used by HP for Inter-Company pricing, other than CLCP. RP is set as a global base price for each product and remains the same throughout the world. RP is not country-specific and is in USD. He has submitted that RP is used as base price (instead of CLCP) for the internal use orders and IC OEM orders (factory to factory) as in the case of internal use and IC OEM orders, the products in question do not get resold to trade customers in the same form. In case of Internal use orders, the products are meant for use within the buying HP entity for its operations. Similarly, in case of IC OEM orders, the products are meant for integrated into or combined with another product manufactured by the factory (buying entity). Hence, in both these cases, the products are not meant for resale in the same form, to trade customers. RP is also used as base price for sales from factory entity to distribution centers as the CLCP (which is country specific) at which the pro....
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....llant dealing with the independent 3rd party distributors but also in a situation when HP Singapore or HP Hong Kong sells the products to 3rd party distributors directly in countries like Bangladesh, Sri Lanka, Pakistan etc., where HP does not have its own subsidiary company. The HP's primary selling model is via a distributor /reseller channel and this model works on the fundamental principle of each unit in the supply chain being compensated for its costs and an assured return as they neither control the costs of the product (as that is controlled by the factory) nor the selling price of the product (which is market determined). The ROVAC pricing policy followed by the HP in determining the import price is supported by an example provided at para 589 of the Commentary on the GATT Customs Valuation Code by Saul L. Shermon. Further, he has submitted that the pricing policy based on ROVAC principle enshrines the principles of deductive value method provided under Rule 7 of the Customs Valuation Rules, which provides for certain deductions in terms of general expenses and profits from the net sales realisation in India so as to arrive at the assessable value. Thus, the declared impor....
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....erative Partner Marketing Discounts and (v) Influencer Fees. The learned Commissioner rejected these discounts observing that the trade discounts offered by the appellant to buyers in India should be known at the time of import and be indicated in the invoice. This is because there is a special relationship between the discounts offered locally by the appellant with that of the import transactions. Accordingly, there is no need to apply the test of eligibility of the discounts offered locally, as abatements at the import level. The learned Commissioner has further held the view that only some of the trade discounts offered by the appellant to its buyers were allowable discounts and others to be considered as ineligible trade discounts and not to be deducted from the gross sales revenue in the ROVAC computation. Accordingly, the learned Commissioner recomputed the assessable value of the imported products. 4.6 Rebutting the findings of the learned Commissioner on various discounts held to be inadmissible, the learned advocate has submitted that denying abatements on certain discounts is unsustainable in law. He has submitted that the starting point for computing the I....
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....e that it is offered only to a special class of customers. The fact that special negotiated discounts were offered to totally unrelated and independent customer like CBEC, Government of India clearly shows that these discounts were not restricted to some special class of buyers or customers. (ii) Price Protection Discount: - the policy of offering price protection is well known to the trade and agreed between the appellant and the buyer. The actual quantum of price protection discount may vary depending on the price reduction done by the appellant. (iii) End of Life Discount:- it is agreed and known at the time of sale of goods by the appellant to channel partners and therefore should be allowed. (iv) Cooperative Marketing Expenses:- It is just like sales goal attainment incentives. Cooperative partner marketing policy is also known and agreed upon in advance between appellant and channel partners though the actual quantum and eligibility get determined at the end of the period. (v) Influencer Fees:- The Department has already allowed deduction towards field selling expenses along with ROVAC margin while arriving at the Customs value. Therefore, ....
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....siness. In support, he has referred to the judgment in the case of CIT Vs. Walchand & Co. [(1967) 3 SCR 214 (SC)]. 4.11. He has further submitted that averaging of trade discounts is permissible as there is no bar in the CVR against averaging of expenses like trade discounts for the purpose of claiming deduction from the resale price in India to arrive at the assessable value. The concept of averaging expenses or deductions is well accepted by the courts. In support, he placed reliance in the following cases:- I. LSR Speciality Oil P. Ltd. Vs. CCE, Belapur [2015(324) ELT 582 (Tri. Mumbai)] II. Collector of Customs Vs. India Polyfibres Ltd. [1988(38) ELT 517 (Tr.)] III. Essar Steel India Ltd. Vs. CCE, Raipur [2017(345) ELT 139 (Tri. Del.)] 5.1 The learned advocate has further submitted that even though the learned Commissioner in the impugned order allowed deduction on account of customs duties, customs brokerage and fees in calculating the assessable value being post-importation expenses, he did not consider the same for the computation of ROVAC margin of 10% / 8%. It is their contention that the appellant had imported the IT products on CIF (Cost, ....
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....part of the assessable value. Even if the assessment is based on Rule 9 of the CVR 2007, the customs duty payable in India by all means is required to be deducted and cannot form part of the assessable value. It is their contention that once it is accepted that the customs duty paid on imported goods is deductible in computing the assessable value held to be forming part of the VAC, the ROVAC margin of 10% / 8% of customs duty ought to have been allowed automatically. The 10% / 8% target ROVAC margin is arrived at on a benchmark study carried out by the global transfer pricing team of HP at the worldwide level. It is consistently applied and calculated across the world to all the sales entities of HP. It is not permissible to the Customs Department in India to say that they would accept the ROVAC percentage but not the cost base on which the said margins are calculated. If the cost base changes, then the target margins (benchmark margins) will also undergo a change to bring parity and ensure proper comparison. In other words, if the cost base is reduced by excluding customs duty, then the benchmark margins will not be 10% / 8% but higher. He has submitted that in the show-cause not....
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....ion Agreement also provides that compensation is to be provided in the funding discount for all costs incurred for servicing, supporting, distributing etc. Therefore, a combined reading of Clauses 13 and 9 of the Distribution Agreement and HP ROVAC inter-company pricing policy, it is clear that warranty services provided by the appellant form part of the VAC. Also, since it is in the nature of post-importation expenses, eligible for reduction in computing the import value of the goods following deductive methods under Rule 7 of CVR 2007. In the present case, since the appellant is undertaking warranty obligation on its own account and neither they have made payment to overseas HP entities on account of warranty charges as a condition of sale of its products nor the appellant is paying an amount to 3rd party to satisfy the obligations of the supplier; therefore, the warranty expenses cannot be included in the assessable value. In support of the said argument, they referred to the Commentary on the GATT Customs Valuation Code by Saul L. Sherman (pages 75-76) and the judgment of the Tribunal in their own case reported as CC, Chennai Vs. Hewlett Packard Ltd. [1999(108) ELT 221 (Tri.)].....
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....% notional freight to the value of the imported goods is unsustainable in law. Further, they have submitted that the findings of the learned Commissioner that in case of every CIF transaction, the importer would be required to provide information regarding the actual international freight and insurance is commercially impossible and against the internationally accepted practice and hence, unsustainable in law. In support, they have referred the following judgments:- I. Ispat Industries Ltd. Vs. CC, Mumbai [2006(202) ELT 561 (SC)] II. Menon Technical Services Private Ltd. Vs. CCU [2010(249) ELT 383 (Tri. Chennai)] III. CC(Pre.), Jamnagar Vs. Hindustan Copper Ltd. [2016(331) ELT 99 (Tri. Ahmd.)] IV. UOI Vs. Mohit Minerals P. Ltd. [2022(61) GSTL 257 (SC)] V. (v)JBN Apparels Pvt. Ltd. Vs. CC, New Delhi ICD TKD [2025(3) TMI 514 - CESTAT NEW DELHI] 7.2 Further, they have submitted that HPUSA has taken a global insurance policy and the said policy, inter alia, covers movements of products /parts among HP entities worldwide. The premium for the entire policy is paid by the HPUSA to the insurance company. The cost of insurance is initially pai....
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....count as applicable to regular product less SRFR discount (towards the value of missing accessories and parts). During the relevant period, the funding discount is applied to the SRFR products as the same is applied to the regular products. Even though in the show-cause notice, it is proposed to allow only SRFR discount, the learned Commissioner has held that the appellant are entitled to the standard discount of 30%. The learned advocate has submitted that the appellant are entitled to the regular funding discount + SRFR discount whereas the learned Commissioner has allowed at standard discount of 30% from CLCP without any legal basis which is not only arbitrary but also contravention of the principles laid down in the valuation rules. He has submitted that the transaction value of regular printers cannot be taken as the CLCP, it is for the simple reason that the regular printers were never imported at CLCP but CLCP less funding discount. Therefore, the appellant had correctly valued the SRFR units in terms of the principles laid down under Rule 5 of CVRs i.e. transaction value of similar goods which is transaction value of regular printer subject to deduction on account of value ....
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....for relabelling in cases such as promo-bundling, rework of damaged cartons and sticker application etc.; none of which for altering the MRP. There are certain instances where labelling /stickering activity was undertaken in the warehouse and there was no intention to alter the MRP already affixed on the products. For example: Reasons for undertaking labelling /stickering in warehouse are: 'INR' shown in the price instead of 'Rs.' Size of display of the screen shown in 'inches' instead of 'cm'. Name of the place mentioned incorrectly. MRP did not carry the text 'inclusive of all taxes'. Decimals missing on MRP label. Part Nos. appearing on the labels. Re-boxing of damaged cartons Missing MRP label. 9.2 He has further submitted that the volume of relabelling activity was minimal compared to the volume of overall goods handled and in most cases, the activities were administrative in nature, aimed at ensuring regulatory compliance and customer specific requirements. Further, he has submitted that in isolated cases, errors in MRP values were identified and they chose to sell the products at or below the ....
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.... II. Videocon International Ltd. Vs. CCE [2004(167) ELT 33 (Tri. Mum.)] III. Kripal Drinks Vs. CCE [2004(173) ELT 96 (Tri. Kol.)] 9.4 Further he has submitted that the Customs authorities lack jurisdiction to demand differential duty as alteration of MRP results into manufacture in view of Section 2(f)(iii) of the Central Excise Act, 1944, which prescribes that processes such as packing, repacking, labelling, relabelling, declaration or alteration of MRP, or any treatment to render the product marketable amount to manufacture. Further, analysing the provisions of Section 4A of the Central Excise Act, 1944 and Section 3(2) of the Customs Tariff Act, he has submitted that there is no provision under the Customs Act or Customs Tariff Act or rules made thereunder which empowers the Customs authorities to determine or alter the declared MRP of imported goods. Therefore, the learned Commissioner cannot resort to provisions of Section 4A of Central Excise Act, 1944 or the provisions of Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 framed under Section 4A in order to question the correctness of the declared MRP or to redetermine the ....
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....and monitored for the company as a whole and ROVAC results for the company as a whole do not show any reason for rejection of declared customs value. However, in the present case, the ROVAC return as alleged to be computed for each funding type and on a quarterly basis, the appellant undertook the exercise of re-computation of the ROVAC results for the business of intercompany purchase and resale of HP products on a standalone basis. They have submitted the summary of the result of such analysis to the department, whereby it revealed underfunding for Financial Year 2006, FY 2007 and FY 2009 and overfunding for the FY 2005 and FY 2008. It is contended that if the entire period covered in the present case is considered, there was an underfunding of USD 113.5 Million (approximately Rs.511 crores). Further, if the overfunding is also considered for the year, then the amount of overfunding translates to approximately 2.22% of the total import value of Rs.12,630 crores during the period. Further, they have submitted that introduction of MRP based assessment for CVD purposes for bulk of the imported products (printers and notebooks) from January 2008 onwards also reduced the impact in ter....
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....ered by the SVB authorities and Commissioner (Appeals) in their orders. A study of the representative agreement and Distribution Agreement would clearly show that appellant was acting as an Indent Agent for direct sales made by HP, Hong Kong to customers in India and receiving remuneration (commission) expressed as percentage of sale price under the Representative Agreement. Further, the appellant was importing /purchasing products from HP, Hong Kong in the capacity of distributor for stock and sale under the Distribution Agreement. The entire proceeding before SVB in 1996 was relating to import of products by the appellant for stock and further sale in India (trading) and it is only with respect to such transactions, appellant had approached SVB for examination of the inter-company import price. The terms of the Distribution Agreement dated 01.11.1994 and subsequent Distribution Agreements dated 01.11.2002 and 01.11.2005 were materially same. Therefore, allegation of suppression or misstatement or misdeclaration on the part of the appellant is not sustainable in law and entire demand is barred by limitation. 12. Further, challenging the Order-in-Original confirming demand of di....
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....A.R. Sulphonates Private Limited Vs. UOI [2025(4) TMI 578 - Bombay High Court] ii. Mahindra & Mahindra Limited Vs. UOI [2022(10) TMI 2022] 15. Learned Advocate has further submitted that under Notification No. 89/1982-Cus. dated 25.03.1982 issued under Section 25 of the Customs Act, 1962, on an article on being imported into India is exempted from payment of additional duty of Customs. Once additional duty of customs on imported goods equal to excise duty is paid, all other duties levied under Section 3 including SAD is exempt said to have been exempted under this notification. It is submitted that in view of the clear and unambiguous language of the said notification, once additional duty of customs on imported goods equal to excise duty (CVD) is paid, all other duties leviable under Section 3 of the Customs Tariff Act, 1975 including SAD is exempt under the said notification. In the Finance Act, 2005, Section 3 of the Customs Tariff Act, 1975 was substituted and re-casted. Section 3(5) of the Tariff Act, 1975 levied @ 4% to counterbalance sales tax, value added tax, local tax or any other charges leviable on alike article on its sale, purchase or transportation in Ind....
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....policy in India by the appellant. He has submitted that the denial of deductions of various elements from the IC import price as held in the impugned order and the revised values arrived at by the Commissioner, would result in perennial losses to the appellant and the Appellant would be incapable of even recovering the import price, customs duty and other post importation expenses and reasonable profit. Further, it is argued that the revised assessable value determined in the impugned order is so illogical and absurd that the said value is much more than the total revenue earned by the appellant by way of resale of the imported products in India during the relevant period. The revised assessable value suggested by the learned Commissioner are astronomically high and impossible for any importer to be able to import the products at such high prices and resale the same in India at reasonable profit. Thus, the revised values confirmed in the impugned order are not in accordance with the ROVAC objective of enabling the appellant to earn reasonable profit; hence, not acceptable. 17.2 Further, he has submitted that the methodology adopted in the impugned order is not in consistent with....
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....ommissioner has totally ignored the Non-VAC cost (other than trade discounts) in the said formula. These Non-VAC costs are also in the nature of post-importation cost incurred by the appellant and hence have to be considered in allowing IC discounts. Thus, the calculation is incorrect to the extent it does not take into account the Non-VAC costs incurred by the appellant. The learned Commissioner in respect of the customs duties held that these are in the nature of Non-VAC incurred post-importation and accordingly allowed the same for deduction but erred in not allowing deduction towards other Non-VAC costs which are also in the nature of post-importation cost. Thus, the Commissioner's finding is contradictory in not considering other Non-VAC costs in the computation of revised discounts. 17.4 Further, the learned advocate has submitted that after rejecting the transaction values, the learned Commissioner has adopted Rule 9 of the CVR in computing the revised assessable value and the differential duty payable on such imported goods. He has submitted that wherever the revised assessable value is higher or equal to the declared assessable value, the differential duty demand confir....
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....ted amount of 'Funding discounts' indicated on the invoices, shown as deductions from the LP, was the aggregate of the following elements: VAC, ROVAC at 8% of VAC, 14 types of discounts, Estimated Customs duty on average basis, Estimated Customs charges, Warranty Costs, Freight on notional basis and above all unexplained deductions. This is totally contrary to the averments made by the appellant before the CEGAT in the decision cited above that the Invoice values were based on 'List price minus Value added Costs [ VAC] by HPISPL+ 10 % Return on such costs [ROVAC]. 18.2. It is submitted that the amounts representing - unexplained and unsubstantiated deductions, amounts relating to 9 out of the 14 types of discounts claimed, estimated Customs duty on average basis, estimated Customs charges, Warranty Costs and Freight on notional basis cannot be regarded as admissible abatements /deductions to arrive at the Customs value. He has submitted that the appellant was fully aware that the deductions i.e. 'Funding Discounts' (FDs), factored into the invoices raised on them by the various HP entities were far in excess of the deductions on account of VAC and ROVAC. They were also aware tha....
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.... sales entity is based on the resale price which the importing sales entity expects to realize on the sale of its products. Therefore, the resale price of the imported goods in the country of importation is the starting point for arriving at the value at which the said goods will be imported. Appellant claimed that the method adopted by them to arrive at the transaction value followed the principles enshrined in the 'Deductive value method' under Rule 8 of the CVR, 1988 and Rule 7 of CVR, 2007. But this method finds application only when the methods laid down in the preceding Rules of CVR cannot be applied for any reason. Besides, while arriving at the net prices indicated on the 'Customs invoices', appellant has applied only some of the principles of 'Deductive value method' which suited them. The effect is a mix of concepts, which satisfied neither the Transaction Value (TV) method nor the Deductive Value (DV ) method. (b) The basic requirement for accepting any price indicated on the invoice as transaction value is that such a sale should be in the ordinary course of trade under fully competitive conditions. In the case of sales to appellant by other HP entities, inasmu....
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....aised on appellant by other HP entities cannot be regarded as transaction values as contemplated under Rule 4 of CVR, 1988 or under Section 14 of Customs Act, 1962 read with Rules 3 and 12 of CVR, 2007 18.5. It is his contention that the appellant has all along misrepresented to the CEGAT /Department that all costs plus profit of appellant, which is representative of its overall profit realized over a representative period of time (e.g. on an annual basis) in sales of goods of the same class or kind, would demonstrate that the price had not been influenced. The CEGAT, accepted this argument and concluded that the prices declared by the appellant were not influenced by the relationship between the HP entities as the same were based on 'functional costs plus reasonable profits'. 18.6. Supporting the order of the adjudicating authority, he has submitted that CEGAT was not presented with the correct purport of the Rule 4(3)(a) / 3(3)(a) and Rule 7 of CVR, 2007 and the relevant Interpretative Notes. In the impugned order, Commissioner has rightly pointed out that the expression 'to ensure recovery of all costs' appearing in Rule 4(3)(a) / 3(3)(a) refers to the costs of the seller ....
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....g different cost structures; the goods imported are not of the same class or kind and hence, the concept of Customs valuation identifying HP's overall profit over a representative period of time could not be made applicable. b) In arriving at the firm's representative profit for the purpose of the DV method, the sale of imported goods of the same class or kind has to be taken and the service-related costs and revenue has to be excluded. In the instant case, appellant has taken into consideration costs and revenue related to manufacturing activity, service/support related activity like AMC, Carepacks, unsold inventory held by local channel partners /system integrators etc., in the computation of funding discount. Therefore, the firm's profit cannot be taken as bench mark to determine the reasonableness in recovery of all costs plus profit in arriving at the Customs value of imported goods. c) The three BUs viz., IPG, PSG and TSG of appellant have individualistic way of reporting their net revenue, costs and net margins achieved over a period of time to the HP management and therefore this segment-wise break-up of net revenue and costs has a separate bearing indepen....
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....Ts 6A, 6C & 6D) though there is some difference, the same is not as huge compared to other two BUs. h) From the various other agreements viz., Misc. Services Agreements w.e.f 01.11.2005 and also w.e.f 01.11.2006, General Services Agreements, Cost Reimbursement Agreements etc., entered by appellant with other HP entities world-wide, it appears that the exhibits attached to these agreements relate to the service such as IT support service, Logistic services, Relocation services, Travel services, work force services which are common to all the above agreements. The agreements, inter alia, contain a key feature wherein the payment is made by appellant to other HP entities as part of the direct and indirect costs relating to cost of sales viz., the imported goods sold by other HP entities to appellant. Therefore, these payments made by appellant are with regard to IC goods imported by them. It appears that these common elements are built into it only with a view for transferring the money by appellant to other HP entities world-wide. 18.10. Further, he has submitted that the appellant availed of special procedures for accredited importers and invariably their declarations we....
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....onsequently revamp the discount setting process. Later one more meeting was held on 25th November 2009 in the presence of DGDRI wherein HPI had accepted that they could not complete the review of their entire ROVAC calculation and accordingly committed not to raise the issue of limitation of time in judicial or quasi-judicial forum for the period from November 2004 to March 2009 by identifying themselves on the ethical values of HP's global policy. Thus, it is clear that the review conducted by HPI as a result of the investigation initiated by the DRI and the revelations there from point to the fact that the information relating to the nature, method and actual implementation of HP's product pricing policy including ROVAC review computation, which was not disclosed to the Customs Department at any point of time, had indeed a significant impact on the Customs values of goods imported into India. ii) As per ROVAC policy "Funding discount given at the sales entity < Funding discount given at the Hqrs. (rebiller) entity< Funding discount given at the distribution center < Funding discount given at the factory of HP". It was observed through sample calculation that the value of....
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.... result, the aspects of funding discounts and under /over funding could never be effectively analysed. vi) The ROVAC review computations were never subjected to audit. In the absence of any plausible explanation for the same, one is led to believe that HPI did not want to be exposed, on account of mismatches and aberrations in the application of the policy as also deviations from the policy. 20. Responding to the question whether values declared by the appellant on the Bills of Entry as transaction value in the light of decision of Tribunal, the learned Special Counsel has submitted that all along, the appellant has been representing that the cost referred to in the Interpretative Note to Rule 4(3)(a) / 3(3)(a) would correspond to their own costs and the profit would correspond to their ROVAC of 10% or 8% which is a clear misrepresentation of facts so as to attract the applicability of Rule 4(3)(a) / 3(3)(a) of the Customs Valuation Rules. The appellant ought to have resorted to Deductive Valuation method prescribed under Rule 7 of CVR in full and they cannot borrow concepts and principles from here and there to suit their convenience. He has submitted that as emphasise....
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....y the Hon'ble Delhi High Court in the case of J&K Cigarettes Ltd. Vs. Collector [2009(242) ELT 189 (Del.)] relied upon by the appellant was delivered on 28.08.2009. On the other hand, through their application dated 07.01.2012, the appellant sought cross-examination of only four witnesses which was allowed to the appellant. Subsequently, they have requested to examine four more persons and their examination was conducted through replies by mail to the question raised by the counsel. Thus effectively, the process of examination and cross-examination of the said witnesses were gone through during the adjudication proceedings. He has submitted that the judgments referred to by the learned advocate for the appellant viz. Paramath Iron (All.); Jindal Drugs (P&H), GTech Industries (P&H), Ambika International (P&H), Hi-Tech Abrasives (Chhattisgarh) and HIM Logistics (Del.)] relate to denial of cross-examination of specified persons and since delivered in different circumstances not applicable to the present case. Further, he has submitted that the jurisdictional Karnataka High Court in the case of Commissioner of Customs, Bangalore Vs. Jyothi C. Jain and oth. [2025(9) TMI 1225 - Karnataka....
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....rity has held that 'Special negotiated discounts', 'Price Protection discount', 'End of Life-Trade Sales Discounts, 'Cooperative Partner marketing fee discount', 'Influencer fee', are not eligible as deductions from the Base Price to arrive at the assessable value. To allow a discount to be deducted from the declared price, the adjudicating authority had observed that : (i) the discount should be genuinely known at the time of import; (ii) the discount should be indicated on the invoice at the time of import; (iii) the discount given at the time of import is normal; and (iv) the discount given at the time of import is uniformly available to all buyers at the same commercial level. 22.2 Further on the issue of admissibility of Special Negotiated Discounts, he has submitted that 'special negotiated discounts' are given to a 'specified end user' (not all end users) who had negotiated or bargained with the supplier (appellant). However, the wordings 'if passed through a channel partner' would indicate that even when the products are sold by appellant and are held in stock of the channel partners, the negotiation held by the specified end customer ....
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....as submitted that even where discounts given are found to be heavy, abatement can be disallowed in respect thereof, only if it is shown that such discounts are not available to all customers. From the said judgment, it follows that apart from availability of discounts to all, thus implying uniformity, the quantum of discounts, even if heavy, being available to any body, is a criteria relevant to accord abatement. 22.4. The learned Special Counsel has also distinguished the judgment in the case of Mirah Exports Pvt. Ltd. Vs. CCU [1998(98) ELT 3 (SC)] arguing that normal practice of giving discounts i.e., Contractual agreement discounts, Sales goal attainment discounts, Promotions trade discounts etc., were all allowed and only the special discounts and other retroactive discounts were proposed to be disallowed in the SCN. However, in the present case, Special discounts were given for strategic reasons for specified goods, limited by time and also limited to a specified end customer if passed through a channel partner. Therefore, there is only limitation, exceptions and conditions in allowing the said discount which makes it special and 'not normal' from all angles and hence does ....
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....oms purposes only. Also, referring to the Sherman and Glashoff's book on Customs Valuation, learned Special Counsel has submitted that cost of reimbursement relating to warranty ought not be reduced from the price. Further, the costs on account of warranty charges are accruing back (indirect costs) to the selling entity and therefore should form part of the transaction value. It is his argument that just because the appellant performs warranty obligations, it cannot be said that the import prices or the CLCP or the list price should be extended to the cost incurred by the appellant. Hence, the price cannot be adjusted downward to the extent of cost incurred by the appellant on the consideration that the costs of performance of warranty obligations are compensated by the parent company. Besides as per the HP's Customs Manual, warranty costs are built into the price and ought not to be unbundled from the customs value. Thus, as per the policy of HPUSA, reference price is the ex-factory price which invariably includes warranty costs, there could be no reason for the appellant to abate the same from the CLCP to arrive at the customs value. Referring to clauses 4, 10 and 13 of the Distr....
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....g discounts from the list price and was exclusive of freight and insurance. Even though the statement was later clarified by letter dated 20.01.2010, he has stated that the price indicated on the invoice always inclusive of insurance and international freight but he did not change his statement that the freight and insurance were actuals borne by the supplier /shipper at the time of export to India and that they would not form part of the CLCP and were not elements of funding discounts. Thus, it is clear that international freight and insurance paid by the supplier /shipper at the time of export to India alone were actuals. Further, the said elements forming part of IC pricing was with reference to the funding types while actuals were with reference to individual products. He has further submitted that at no stage, appellant has been able to demonstrate that international freight and insurance in actuals that has been included in the LCP and in turn in the import price declared to the Customs. Further, he has submitted that LCP is itself a target sale price estimated on the basis of market conditions, past data etc. Admittedly, while arriving at the LCP, funding discounts and ot....
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....this argument would, therefore, be totally without legal sanction. In the instant case, investigations have shown that actual international freight and insurance could not have been known at the stage of fixing the CLCP and would not in any case be equal to the amounts of international freight and insurance forming part of the CLCP. Besides, HPI has not been able to demonstrate that international freight and insurance is ascertainable. This fact cannot be ignored. 24.3 Further, referring to Section 14 of the Customs Act, 1962, the learned Special Counsel has submitted that when the element of price for the purpose of arriving at transaction value is the actual price paid or payable, the addition of cost in the form of freight and insurance cannot be on the basis of notional values. Rule 10(2) of CVR, 2007 does not envisage a bundled CIF value or DDU price in determining the transaction value. Each cost element of freight, insurance, loading and unloading charges and handling charges associated with the delivery of goods to the place of importation are separately mentioned in the rule thereby ascribing to the actual values meant for determination of transaction value. Rule 10(3) ....
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....ty was being reimbursed by the supplier or other HP entities, Appellant was eligible at best for only normal trade discount as available to the regular unit. Also he has submitted that where the funding discounts include several elements that are not in the nature of trade discounts, giving full deduction is illogical too. In fact, at Page 5 of Compilation No.6, featuring the Commentary by Sherman and Glashoff, it is observed that there is no authoritative answer available to the problem of valuing free warranty replacements and the answer should be governed by local customs practices. Further he has submitted that the judgments of physician's samples and captive consumption of goods by applying the provisions of Central Excise Valuation are not applicable to the facts of the present case and the unique nature of funding discounts. 26.1 On the issue of misdeclaration and undervaluation of MRP based imported goods, he has submitted that pursuant to the investigation by the DRI, it revealed that the appellant has changed the MRP stickers or modified the prices and other details affixed on the imported goods in the warehouses. Also, it revealed that MRPs declared on the imported go....
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.... base price ought to include all the specified elements and the abatements are to be taken only from this base price. At the time of import, CLCP is only base price that is known. Appellant itself does not know at what price the goods would be sold by them to dealers and other customers and what would be the maximum price at which it may be sold to the ultimate consumer. The net import price declared on the customs invoice cannot be the RSP because it has been arrived at after deducting funding discounts, which include many of the elements referred to earlier. CLCP represents the targeted sale price of the product upon resale by appellant and any MRP between CLCP and Net price would also have some deductions forming part of the elements included in the definition referred to above. Thus, CLCP is the only correct base price which can be taken as RSP. 27. Learned Special Counsel for the respondent, criticising the impugned order and reiterating the grounds of appeal filed by the Revenue against reduction duty demand to the tune of Rs.436.65 crores by extending abatement of the component representing customs duty factored in the import list price to arrive at the revised assessable....
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.... account of import duties as arrived at by HPI does not fit in with the provisions of Section 14 and the CVR, which have always had 'actual value' as the underlying principle. 29. Reiterating the findings of the adjudicating authority on the issue of overfunding, he has submitted that in the written submissions of the appellant, at Page 4, a Table has been shown and it is contended that from FY 2005 to FY 2009 (first half year) there was underfunding for 3 years and overfunding for 2 years and the net underfunding was Rs. 511 Cr. for the whole period. If overfunding alone is taken it came to Rs. 281 Cr. Considering the volume of imports, it is argued, that this amount is within tolerable limits. This line of argument totally ignores that assessment under Customs law is with reference to the goods under import; periodical assessment after balancing excess payments and short payments is not envisaged under Customs law. There is a separate provision to claim refunds in case of excess payments just as short payments become a subject matter of a demand. Balancing of the two is not provided in law. Where overfunding has been noticed, undoubtedly, the value of subject goods has....
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.... and increase his turnover. Where MNCs are involved, it would enrich foreign parent companies and result in flowback. Hence, the purported strong presumption against even suspicion of undervaluation has no basis whatsoever. iii. Thirdly, it is argued that import prices of indent customers were much lower than corresponding IC import prices of HP. To substantiate this submission some Tables containing comparative aggregate information have been provided in written submissions. The correctness of the figures therein has not been certified by appellant's Chartered Accountants. Nor has the same been filed under an affidavit. Hence, it should not be admitted and given credence to. Further, it is submitted that the divergence in import prices for indent purchasers and the redetermined values for appellant is on account of grave discrepancies in the availment of deductions. The mismatch between the requirements under the Customs valuation law and the pricing and discount setting policy and the claim that the values declared to Customs represent transaction value is the reason for re-determination of values. If appellant had resorted in full to the Deductive Value method, afte....
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....udging the goods to be liable to confiscation is perfectly legal. Further, in view of the positive act of misdeclaration and the fact that duty is not a material factor, imposition of penalty under sections 112 and 114AA of Customs Act, 1962 also justified. The learned Commissioner has relied on the decision of the Constitution Bench of the Apex Court in the case of C.A. Abraham Vs. Income Tax Officer, Kotayam reported in 1961 (2) S.C.R 765. In the said case, it was observed by the Hon'ble Supreme Court that penalty is regarded as an additional tax imposed upon a person in view of his dishonest or contumacious conduct. It was, therefore, held that the words "assessment, levy and collection" would also cover proceedings under which penalty could also be levied. In the instant case, further, the chargeability of the CVD under Section 3 (1) of Customs Tariff Act, 1975 as 'duty of Customs' is not questioned and therefore, the payment of additional duty of Customs (CVD), which is in addition to the BCD chargeable under Section 12 of Customs Act, 1962, the consequence of penalty as applicable to the provisions of Customs Act, 1962 should invariably apply. Therefore, the penalty in this c....
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....982, only ACD equal to the excise duty was leviable. Neither the levy under section 3(3) nor 3(5) was in existence. Therefore, Notification No. 89/1982 could not have referred to any levy other than excise duty. This notification is relevant only for section 3(1). When it was issued the legislature could not have envisaged the levies under sub-sections (3) and (5) and that the notification should apply to the said levies as well. c) The statutory provisions as above are to be read harmoniously so that none of the provisions is rendered non-est. If the situation so warrants the principle of purposive interpretation of the statute ought to be applied. In this context, the following words of BLACKSTONE are worth recalling: "The most fair and rational method for interpreting a statute is by exploring the intention of the legislature through the most natural and probable signs which are "either the words, the context, the subject matter, the effects and consequence, or the spirit and reason of the law". Merely looking at the text is not sufficient, the context in which the text was brought in, is equally important. Thus, the aforesaid Notification No. 89/1982 ....
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.... as, the Level B(Athena) Invoice raised by the Switzerland re-biller entity on the Appellant submitted to the Customs department along with Bill of Entry for payment of customs duty reflects the net price only, declaring the discount in the Bill of Entry as 'zero'. It is Revenue's claim that the funding discounts applied by the overseas HP entities(reflected in the Eiffel invoices) to arrive at the net price(Athena invoices) declared to Customs were overstated and included elements which were neither disclosed to customs department nor permissible as deductions for the purpose of customs valuation under the relevant Rules; hence, there is suppression of facts and thus the value of the imported goods declared by the Appellant is not acceptable as true transaction value being marred with their inter-se relationship and hence liable to be rejected under Rule 10A/Rule 12 and the assessable value needs to be determined under Rule 8/9 of the CVR,1988/2007 in the circumstances of the case. It is also the Revenue's argument that these facts were neither brought before SVB nor CEGAT during the earlier proceedings, but now came to the notice of the department as a result of DRI investigation....
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....o allowed their appeal holding that the commission on indent sale cannot be loaded to the net import price declared by the Appellant. On Revenue's Appeal, the Tribunal, inter-alia, analysing the issues raised upheld the Order of the Ld. Commissioner(Appeals). The learned advocate heavily relied on the following observation of the Tribunal: 21. ... ... ... The logic underlying this marketing policy is simple and transparent. This logic is that when such a subsidiary (like HPI) imports for stock and sale, they incur a certain amount of expenditure in this process of trading which would include items like maintaining their sales team, advertising, and above all rendering free of cost warranty service during the warranty period. It is a salient fact that the last of these activities also requires that HPI would have to always maintain a basic minimum level of spares and consumables which are required to service these products during the warranty period, which also involves additional cost. None of these costs are incurred by the individual importer who imports for his own consumption or actual use. It is, therefore, clear that the commercial levels between the two imports is a....
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....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 considered the marketing policy adopted by HP USA vis-a-vis HPI in view of these explanatory notes. And doing so, we have found that since in this case the price is declared to ensure recovery of all t....
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.... and CEGAT, hence no deliberation could be made on these issues. Hence, Revenue is justified in reopening the assessments. 42. We find that even though CEGAT in its order referred to the ROVAC pricing policy followed by the appellant and commented that the same is reasonable and did not influence transaction value with related overseas supplier HPUSA, however, it is in the context of the facts of the said case brought before them, that is, whether indent commission be loaded to the net import price of the Appellant for stock and sale goods. Further, after the said Judgment was passed fresh agreements have been entered; the investigation carried out by DRI brought on surface some new facts like maintenance of two sets of invoices viz. Level A(Eiffel) & Level B (Athena) invoices, Funding discounts shown in the Eiffel invoices but only net price declared to customs in the Athena invoices, composition of Funding discounts, various deductions from the price, overfunding and underfunding, MRP related issues etc.. In these circumstances, it is quite necessary and also relevant to re-examine the gamut of issues in the light of the fresh developments pursuant DRI investigation including ....
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....ctment, and it is to be remembered that judicial utterances made in the setting of the facts of a particular case. " 13. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. 14. The following words of Lord Denning in the matter of applying precedents have become locus classicus : "Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.'' 43. As far as the second objection is concerned, the learned advocate has submitted that statement of 47 people were relied upon and mentioned in the show-cause notice, of which the adjudicating authority has referred to statements of 27 people. From the said 27 witnesses, 8 people we....
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....al adjudications. The said judgment is binding on this Tribunal being an Order of the jurisdictional High Court as opined by the Larger Bench of this Tribunal in the case of Collector of Customs & Central Excise, Chandigarh Vs. Kashmir Conductors 1997(96) ELT257(Tri-LB) and endorsed by another Larger Bench in the case of JK Tyre & Industries Vs. Asst. Commissioner of Central Excise, Mysore 2016 (340) ELT 193(LB). 44. We are of the view that the contention of the appellant against admitting the oral evidence in the form of statements recorded under Section 108 of CA,1962 cannot be accepted at this stage, inasmuch as the appellant had participated in the adjudication proceedings by subjecting certain witnesses to cross-examination without raising any objection about conducting first their examination-in-chief, and thereafter for cross-examination; also, not raised objection about the admissibility of evidence of other witnesses who have not been called for examination-inchief/cross-examination. Hence, their submission not to accept the statements as evidence of the witnesses for the purpose of deciding the appeal filed against the impugned order, at this juncture, for not followin....
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....ne of them has no interest in the business of the other, and the price is the sole consideration for the sale or offer for sale Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill or bill of export, as the case may be, is presented under section 50 (1A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of his behalf.] imported goods shall be determined in accordance with the rules made in this behalf. (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), if the Board is satisfied that it is necessary or expedient so to do it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. (3) For the purposes of this section - (a) "rate of exchange" means the rate of exchange - (i) determined by the 3[Board], or ....
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....6, or a shipping bill of export, as the case may be, is presented under section 50. (2) Notwithstanding anything contained in sub-section (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. Explanation. --For the purposes of this section- (a) "rate of exchange" means the rate of exchange- (i) determined by the Board, or (ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) "foreign currency" and "Indian currency" have the meanings respectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999). 47. A Plain reading of the aforesaid provisions reveal that Section 14(1) of the Customs Act, 1962, till it is amended, laid down emphasis on a 'deemed value' s....
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....proceeding sequentially through Rules 5 to 8 of these rules.] 4. Transaction value. (1) The transaction value of 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. (2) The transaction value of imported goods under sub-rule(1) above shall be accepted: Provided that- (a) the sale is in the ordinary course of trade under fully competitive conditions; (b) the sale does not involve any abnormal discount or reduction from the ordinary competitive price; (c) the sale does not involve special discounts limited to exclusive agents; (d) objective and quantifiable data exist with regard to the adjustments re- quired to be made, under the provisions of rule 9, to the transaction value; (e) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which - (i) are imposed or required by law or by the public authorities in India; or (ii) limit the geographical area in which the goods may be resold; or (iii) do not substantia....
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....h the imported goods or identical or similar imported goods are sold in the greatest aggregate quantity to persons who are not related to the sellers in India, subject to the following deductions: (i) either the commission usually paid or agreed to be paid or the additions usually made for profits and general expenses in connection with sales in India of imported goods of the same class or kind; (ii) the usual costs of transport and insurance and associated costs incurred within India; (iii) the customs duties and other taxes payable in India by reason of importation or sale of the goods. (2) If neither the imported goods nor identical nor similar imported goods are sold at or about the same time of importation of the goods being valued, the value of imported goods shall, subject otherwise to the provisions of sub-rule (1) of this rule, be based on the unit price at which the imported goods or identical or similar imported goods are sold in India, at the earliest date after importation but before the expiry of ninety days after such importation. (3) (a) If neither the imported goods nor identical nor similar imported goods are sold in In....
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....importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being heard, before taking a final decision under sub-rule (1). 11. ... ...... 12. .... .... Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 Rule 1. Short title, commencement and application.- ... ... ... Rule 2. Definitions.- (1) In these rules, unless the context otherwise requires, - (a) "computed value" means the value of imported goods determined in accordance with rule 8. (b) "deductive value" means the value determined in accordance with rule 7. (c) to (f) ... ... .... (g) "transaction value" means the value referred to in subsection (1) of section 14 of the Customs Act, 1962; (2) For the purpose of these rules, persons shall be deemed to be "related" only if - (i) they are officers or directors of one another's businesses; (ii) they are legally recognised partners in business; (iii) they are employer and employee; (iv) any person direc....
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....never the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time. (i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India; (ii) the deductive value for identical goods or similar goods; (iii) the computed value for identical goods or similar goods: Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of rule 10 and cost incurred by the seller in sales in which he and the buyer are not related; (c) substitute values shall not be established under the provisions of clause (b) of this sub-rule. (4) if the value cannot be determined under the provisions of sub-rule (1), the value shall be determined by proceeding sequentially through rule 4 to 9. Rule 4. Transaction value of identical goods. - ... ... ... Rule 5. Transaction value of similar goods.- ... .... ... Rule 6. Determination of value where value can no....
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....ter in writing the grounds for doubting the truth or accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being heard, before taking a final decision under sub-rule (1). Explanation.-(1) For the removal of doubts, it is hereby declared that:- (i) This rule by itself does not provide a method for determination of value, it provides a mechanism and procedure for rejection of declared value in cases where there is reasonable doubt that the declared value does not represent the transaction value; where the declared value is rejected, the value shall be determined by proceeding sequentially in accordance with rules 4 to 9. (ii) The declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after the said enquiry in consultation with the importers. (iii) The proper officer shall have the powers to raise doubts on the truth or accuracy of the declared value based on certain reasons which may include - (a) the significantly higher value at which identical or similar goods imported at or about the same time in comparable....
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.... Customs Act, 1962. Rule 3 of the said Rules prescribes that value of imported goods shall be the transaction value adjusted in accordance with sub-section (1) with provisions of Rule 10; however, it is made subject to Rule 12 of the said Rules. Sub-rule (2) prescribes the circumstances where a transaction value shall be accepted. Under Clause (iii) of the said sub-rule says that the transaction value shall be accepted where the buyer and seller are not related, for Customs purposes under provisions of sub-rule (3) of the said Rules Clause (a) of sub-rule (3) prescribes 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; clause (b) of the said sub-rule(3) lays down that in a sale between related persons, the transaction value shall be accepted whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the values ascertained at or about the same time narrated under the said sub-rule viz. (i), the transaction value of identical goods or similar goods, ....
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....ised over a representative period of time (e.g. on an annual basis) in sale of goods of the same class or kind, it would demonstrate that the price has not been influenced. Also, referring to the Example cited at para 588 of page 193 of the Commentary on the GATT Customs Valuation Code by Saul L Shermon, it is submitted that the said example is applicable to the ROVAC policy followed by HP for determining the import price. Therefore, the pricing policy adopted by the appellant for arriving at the declared import price is fully compliant with the provisions of GATT Valuation Code as well as the Customs Valuation Rules in India. Besides, the pricing policy based on ROVAC principle enshrines the principles of deductive value method prescribed under rule 7 of the Customs Valuation rules, which provides for certain deductions in terms of general expenses and profits from the net sale realization price in India so as to arrive at the assessable value. Also, the ROVAC principle in determining the Transaction value was earlier considered by CEGAT and accepted. It is also argued by the appellant that the intercompany pricing policy has been accepted under the income tax law. Further, it is ....
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....aded prices. The value declared to customs is thus influenced by the relation with the overseas seller HPUSA. Therefore, the declared transaction value under Rule 4(3)(a)/3(3)(a) is not acceptable and liable for rejection under rule 10A/12 of CVR,1988/2007. 54. To consider the arguments advanced by both sides, it is necessary to understand the pricing policy(ROVAC) adopted by the appellant in arriving at the transaction value declared for assessment purpose. The ROVAC policy and related terminology used are outlined in their Accounting Financial Manual(AFM) are as below: GLOBAL REFERENCE PRICE A global reference price expressed in U.S. dollars must be established for each new product/service. Exceptions are custom products/services for which the price will be established for each quotation and take account of customer specifications, cost estimation and market competitive conditions. Global reference price is the basis for worldwide internal transfer pricing used to value products/ services that are sold from one HP legal entity to another HP legal entity. Global reference price is also a basis for local currency and export price. Global reference pric....
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.... Pricing Policies HP uses different distribution channels or "field entities" to move products from factories to trade customers. Field entities include distribution centers (DCs), headquarters operations (HQs) and sales offices (SOs). The objective of HP's intercompany (IC) pricing policy is to compensate each field entity for its costs plus a return on its value-added costs (based on US GAAP results). The return on value-added costs is determined by reference to the return unrelated parties with similar functions and risks would expect to earn (i.e. an "arm's length" return). Within HP, this objective of cost-plus funding is commonly referred to as "Return on Value Added Costs" or "ROVAC. (emphasis supplied) 55. The meaning and scope of Reference price (RP), CLP, CLCP and Intercompany (IC) sale of product pricing policy is self-explanatory. The Appellant has submitted that HP's method of determining the net price on sales of products from one HP entity to another is a form of base price less discount called as list less method. Either the Reference Price (RP) or the CLCP is used as base price for IC pricing. The IC prices for all transactions involved in di....
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....tary on the GATT Customs Valuation Code by Saul L. Shermon' at para 553 page 185 it is explained: "Of all the situations which may lead to a rejection of transaction value, the one which will arise most frequently in practice, and one which receives the most careful and thoughtful treatment in the code, is the situation where the buyer and the seller are related to each other. .................................................... A simple, typical case to which this provision would apply involves a manufacturing company which has a wholly owned subsidiary to handle the sale of its product in an important foreign market. Because the seller controls the buyer, customs may fear that the price is affected by the relationship. The owner of the parent company is indirectly also the owner of the subsidiary and he may be just as happy for the subsidiary to get the benefit of a lower price as for the parent to receive the benefit of a higher price. Where the parent is the importer and the subsidiary abroad does the manufacturing, there may be much or more concern about the possibility of an unduly low price. In fact, as will be seen below, there are many pres....
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....gh, the appellant had a Reference pricing policy, which is defined in their AFM reproduced as above, and adopted for determination of Customs Value for imported parts, but never submitted to the customs or is used as the base price for determination of the Transaction value for imported products. The price declared to the customs is arrived at applying the list-less method. 61. In the said book the author at para 586 of page 192, commented that when Customs does not accept the related transaction value, there are three ways to examine the same. It is stated : "The note next talks about some of the 'relevant aspects of the transaction' which customs 'should be prepared to examine'. These include the way in which the buyer and seller organize their commercial relations in general, and in particular 'the way in which the price in question was arrived at'. The test is satisfied if it appears that the parties buy from and sell to each other, as if they were not related. Finally, the note suggests three ways in which it can be shown that the parties deal as though they were not related: * they act in a manner consistent with the normal pricing practices of the indust....
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.... the leading domestic producer. The importer has always needed and received an 18 per cent markup on landed cost to cover his expenses and profit. The expenses show nothing unusual, and. the profit of about 8 per cent does not appear to be excessive. The price in the present transaction was arrived at by deducting 15.25 per cent from the prevailing market price on the second commercial level (which corresponds with a markup of 18 per cent on landed cost). TV should be found acceptable, even though there is no industry practice and the exporter sells only to the related importer and no cost or profit figures of the exporter have been furnished to Customs." A plain reading of the aforesaid example, in our view, cannot be made applicable to the present case as the circumstance referred therein is totally different, in as much as, in the instant case the Appellant has not presented the price charged by any leading domestic manufacturer in India; secondly, the landed cost of the imported goods has not been disclosed to the Customs department. On the contrary, the declared net price(transaction value) in the Level 'B'(Athena) Invoices declared to the Customs is arrived at after deduct....
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....ejected when there is a reasonable doubt that the declared transaction value does not represent the actual transaction value. In such cases the transaction value is to be sequentially determined in accordance with Rules 4 to 9 of the 2007 Rules. Sub-rule (2) of Rule 12 stipulates that on request of an importer, the proper officer shall intimate to the importer in writing the grounds, i.e. the reason for doubting the truth or accuracy of the value declared in relation to the imported goods. Further, the proper officer shall provide a reasonable opportunity of being heard to the importer before he makes the valuation in the form of final decision under sub-rule (1). 15. The requirements of Rule 12, therefore, can be summarised as under : (a) The proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of the value declared in relation to the imported goods. (b) Proper officer must ask the importer of such goods further information which may include documents or evidence; (c) On receiving such information or in the absence of response from the importer, the proper officer has to apply his min....
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.... to doubt" as a sequitur would require a different threshold and examination. It cannot be equated with the requirements of positive reasons to believe, for the word 'doubt' refers to un-certainty and irresolution reflecting suspicion and apprehension. However, this doubt must be reasonable i.e. have a degree of objectivity and basis/foundation for the suspicion must be based on 'certain reasons'. 65. We find the commissioner in the impugned Order, after analysing evidence on record observed that the value declared by the appellant of the goods imported from the related supplier cannot be accepted as true transaction value uninfluenced with their relationship, under Rule 4(3)(a)/3(3)(a) of CVR being not in consonance with Customs Valuation provisions. He has reasoned as : "54.3 On a close examination, however, I find that Rules 4(3)(a) and (b) or 3(3)(a) and (b) provide different means of establishing the acceptability of a transaction value in sale involving related persons, as in the present case. Rules 4(3)(a)/ 3(3)(a) envisages the examination of the circumstances surrounding the sale of imported goods to enable the Customs to decide whether the relationship has inf....
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....estigation, which can be accepted as reasonable grounds to doubt the correctness of Transaction value with related seller, being not based on mere apprehensions, suspicions, etc., hence its rejection under Rule 10A/12 of CVR,1988/2007 is in accordance with law. 67. Consequent to rejection of the declared transaction value, under Rule 10A/12 of CVR,1988/2007, as per clause(i) of Explanation to the said Rule, which only provides for the mechanism and procedure for rejection of declared value, and does not provide for the procedure or the method of valuation, the value shall be determined by proceeding sequentially in accordance with Rules 5 to 8 of CVR,1988 or Rules 4 to 9 of CVR,2007. This principle has been also laid by the Hon'ble Supreme Court in the context of of CVR,1988 in Eicher Motors' case: 12. Rule 4(1) speaks of the transaction value. Utilisation of the definite article indicates that what should be accepted as the value for the purpose of assessment to customs duty is the price actually paid for the particular transaction, unless of course the price is unacceptable for the reasons set out in Rule 4(2). "Payable" in the context of the language of Rule 4(1) mus....
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....ule 7 of CVR1988/2007. 69. The deductive method under Rule 7 of CVR is based on the resale price of the identical or similar goods or the goods imported by the importer in the country of importation at or about the same time at which the declaration for determination of value of the imported goods is presented, in the greatest aggregate quantity, to persons who are not related to the importer. Statutory deductions allowed from the selling price as mentioned under the said Rule are: Commissions and profits and general expenses in selling the goods in India, cost of transportation and insurance incurred in India and customs duties and other taxes payable by the importer in India by reason of importation or sale of the goods in India. The said Rule 7 is reproduced as below: 7. Deductive value. - (1) Subject to the provisions of rule 3, if the goods being valued or identical or similar imported goods are sold in India, in the condition as imported at or about the time at which the declaration for determination of value is presented, the value of imported goods shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the....
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....its channel partners at first commercial level has not been submitted to the department. Hence, the deductive method, which rests on the price at which the imported goods or identical or similar goods are sold in greatest aggregate quantity to unrelated buyer since not available, Rule 7 cannot be fully made applicable in determining the transaction value. Thus, after rejecting the transaction value declared, the assessable value of the imported goods is to be determined under Rule 8/9 broadly by adopting the principles of Deductive Value method under Rule 7 of CVR 1988/2007. 71. The learned Commissioner in the impugned order has observed that to arrive at the import price declared to the Customs, the local currency price is converted into Dollar terms less the Funding Discount. The Funding discount is indicated in the Level A (Eiffel) invoice as the total amount arrived at by a consolidated percentage of CLCP. He has observed that the import prices are shown in the Customs invoices as DDU or CIF. The funding discount is stated to be : (i) aggregate of trade discounts offered to the customers, (ii) value added costs(VAC); (iii) non-VAC and (iv)....
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....iven to the HQ must allow the HQ to recover its costs plus ROVAC return, taking into account the funding that it provides to the SO. The IC discounts given to the DC must allow the DC to recover its costs plus ROVAC return, taking into account the funding it provides to the HQ and SO. In other words, IC discounts are developed in a cascading manner from the SO back to the supplying factory. Legal Funding of International Sales Offices :- International sales offices (SOs) engage in marketing, sales, distribution, service and support activities. The intercompany (IC) funding model applicable to SOs is ROVAC. The value-added costs of a SO to be funded under ROVAC include field selling costs, field marketing costs, administrative expenses, warranty, service/support costs, and trading expenses. Nonvalue added costs (eg.: materials-related costs, cash/trade discounts, and billed-in expenses) are also funded but the SOs do not receive a mark-up on such costs. The IC price at which a SO purchases product is equal to the base price of the product minus discounts (trade and/or IC) established as a percentage of such base price. The base price for products purchased....
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....1.2005 reads as below: Clause 9. COMPENSATION Distributor will perform the functions of selling, servicing, supporting and distributing HP Products and Services that are sold to Distributor's customers. Decisions related to appropriate levels of product promotion, advertising, channels of distribution, and Distributor's selling costs are made under the responsibility of HP Factories.. Principally through HP's intercompany ("IC") pricing policies, Distributor shall receive compensation from HP Factories, through the Headquarters, for the costs of selling, servicing, supporting and distributing HP Products and Services. Such compensation will in most cases be realized by Distributor when Distributor purchases HP Products from the Headquarters at a discount (hereinafter referred to as "Purchasing Discount") and then resells HP Products to trade customers at a higher price. The goal in calculating the Purchasing Discount is to enable Distributor to recover its relevant value-added costs, plus earn an arm's length return on those value-added costs (hereinafter referred to as "ROVAC"). Distributor may also receive additional compensation from an....
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....ted for such price changes through corrective adjustments, transactional or lump sum, or through the ROVAC compensation mechanism. The Funding discount for each BU wise during the relevant period deducted from the CLCP are as below: MONTH ACTUAL FUNDING DISCOUNTS APPLIED TO LIST PRICE FT5A FT5B FT6A FT6B FT6C FT6D Nov-04 66 49 48 50 44 47 Dec-04 74 57 56 58 52 55 Jan-05 74 57 56 58 52 55 Feb-05 82 65 64 66 60 63 Mar-05 82 65 64 66 60 63 Apr-05 82 65 64 66 60 63 May-05 82 65 64 66 60 63 Jun-05 82 65 64 66 60 63 Jul-05 79 62 61 63 57 60 Aug-05 77 60 59 61 55 58 Sep-05 75 58 57 59 53 56 Oct-05 75 58 57 59 53 56 Nov-05 77 60 59 61 55 58 Dec-05 75 58 57 59 53 56 Jan-06 75 58 57 59 53 56 Feb-06 74 57 56 58 52 55 Mar-06 74 57 56 58 52 55 Apr-06 73 56 55 57 51 54 May-06 73 56 55 ....
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....FM) and (9) Sales type lease trade discount (3111 of AFM), applying the criteria of eligibility alleged at para 8.4 of the SCN i.e. (i) whether a discount is genuinely known and indicated in the invoice at the time of importation of the goods into the country; and (ii) whether the discount is normal (i.e. not abnormal) and is uniformly available to all customers at the same commercial level. Applying the said tests, internal pricing policy of the Appellant disallowed Special Negotiated Discounts, Price Protection discount, Cooperative Partner Marketing discount, End of Life Trade sales discount, and Influencer fee trade discount. 75. The nerve chord of the dispute revolves around the 'Funding Discount' which has been deducted from the CLCP, in arriving at the net price declared in the invoices(Athena) submitted to customs. As mentioned above, the Funding Discount broadly comprises: (i) aggregate of standard discounts and other trade discounts offered to the customers by the Appellant (ii) value added costs (VAC); (iii) non-VAC and (iv) ROVAC @ 8% or 10% of VAC. The objective of the Funding Discount is to com....
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....omers after importation of goods, the learned Commissioner has analysed the internal Accounting policy of the appellant and also the admissibility of discount from the perspective of the provisions of the Customs Act, 1962 and also applying the tests mentioned in the SCN observed that discounts viz. Special Negotiated Discounts, Price Protection discount, Cooperative Partner Marketing discount, End of Life Trade sales discount, Influencer fee trade discount and other discounts are inadmissible being given much after the import and are retroactive in nature. This is stated while denying the deduction of the 'Special Negotiated discount' as : "70.5 In a nutshell, I find that HPISPL, having all along followed the unique 'stock funding model' for all customers, the stock funding discount applied to arrive at import prices could not have been on the basis that the trade customers were known at the time of import. Therefore, if firm orders or customers are not known at the time of import of products, there cannot be any means to know the end price of the product sold to the customers. If the sale of products as such to any specified customer is not known, there cannot be any spe....
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....etermination of value is not the gross price(list price) but the net price after allowing admissible trade discounts from the said price, before unloading the same with post importation general expenses laid down at clause (i) (ii) and (iii) of the said Rule and profit. However, the admissibility of the said Trade discounts as deduction from the gross price depends on its nature and whether could be known at the time and place of importation of the goods. 81. At the cost of repetition, it is necessary to reiterate that for determination of value Under the deductive method, time and place of importation plays a significant role. As laid down under section 14 of CA,1962, the value of the goods imported is the 'transaction value' of the goods, when sold for export to India for delivery 'at the time and place of importation' subject to other conditions prescribed under the said provision, is an important factor to be considered for determination of value of imported goods. The same principle is also adopted under the deductive method in Rule 7 of CVR,2007. 82. In the 'Commentary on the GATT Customs Valuation Code by Saul L. Shermon' at Para 680 to 684 of page 212 on the scope of ....
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....are made in sufficient quantity to establish the unit price. 83. In Interpreting the deductive method under Rule 7 the expression, viz. "imported at or about the time at which declaration for determination of value is presented'' must be given due weightage. The deductive method is a backward calculation of the assessable value of the goods imported taking into consideration the resale price of the identical or similar or the same goods in the country of importation. The forward calculation, on the other hand, is the transaction value of the goods also rests on the factor 'at the time and place of importation'. Thus, the common thread running through both these principles for determination of value of imported goods depends on the factor 'time and place of importation'. Under sub-rule(2) of Rule 7 it is specifically laid down that the value be determined based on price at which the imported goods being valued or identical or similar goods sold earliest to the date of importation, but in any case not before the expiry of Ninety days. To give effect to the formula for determination of value enumerated under Rule 7 each of the expression employed thereunder has to be read harmoniou....
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.... and 'cash price' and accordingly the assessment could be done under Section 30(a) of the Sea Customs Act, 1878. On second Appeal to Privy council, interpreting the true scope of the expression " a wholesale cash price less trade discount for which goods of the like kind and quality sold at the time and place of importation", their Lordships disagreed with the view expressed by the Division Bench of Bombay court as the said expression should be interpreted as a whole. It is observed as:- 12. Sections 29 and 30 are sections of a taxing Act not to be pressed against the taxpayer beyond their plain intendment, and taken as a whole, as their Lordships read them, they seem to disclose on the part of the legislature when describing the price which is to represent the "real value" of the goods to be taxed a definite purpose to define a price-conservative in its every aspect and free in particular from any loading for any post importation charges incurred in relation to the goods. The price is to be a price for goods, as they are both at the "time" and "place" of importation. It is to be a "cash price" that is to say, a price free from any augmentation for credit or other advantag....
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.... place of importation'. In the show-cause notice as well as in the impugned Order, the learned Commissioner while dealing with the admissibility of discounts applied two criteria i.e. whether discount is genuinely known and indicated in the invoice at the time of importation of goods into the country; and secondly whether the discount is normal (i.e. not abnormal) and is uniformly available to all the buyers at the same commercial level. The objection of the appellant is that no such criteria has been prescribed under the Customs Valuation provisions; hence, cannot be applied to test for allowing the trade discounts/special discounts from the gross selling price(CLCP). In our opinion, even though specifically these conditions are not mentioned anywhere under the Valuation Rules, but in view of the above discussion relating to criterion of 'the time and place of importation' mentioned under Section 14 of Central Excise 1962 read with Rule 7 of CVR 2007, it is clear that the discounts which are eligible for deduction from the gross price, ought not to be known at the time and place of importation; indication of the discount in the import invoices makes it clear that the same are disc....
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....rtation. 88. The nature of these discounts narrated in their Accounting and Financial Manual (AFM) against the Topic No.760 are reproduced as below: (1) Special Negotiated Discounts- Trade Sales Discounts(A/C 3104) "To record customer and deal specific trade discounts associated with large volume or other strategic opportunities, negotiated as incremental to standard contractual discounts. These discounts are typically limited to a specified time period for a set of products in specified volumes, and if passed through a channel partner, limited to sales made to a specified end-user" (2) The Price Protection discount (A/C 3106) "To record list price or discount adjustments to trade sales for price protection on eligible channel inventory" (3) End of life- trade sales discounts ( A/C 3109): "Discount granted to channel partners, resellers or retailers when a product is still active on the price list, but approaching obsolescence." (4) Co-op Partner Marketing, Trade Sales Discounts (A/c 3107) "To record discounts or other payments made to channel partners, resellers and retailers for funding of various partner ....
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.... (set up in the World Customs Organization) held that these discounts are not normal discounts given to all the customer on an uniform criteria, but dependent on special circumstances, negotiations, etc. so as to be eligible for the same, hence are abnormal discounts, consequently not allowable to be deducted from the List price(CLCP). However, in contrast, advancing the reason for allowing deduction of Standard Discounts(A/c 3108) from the List price it is accepted by the department starting that since it could be known at the time and place of import being allowed adopting uniform criteria to all the customers, not an abnormal discount, hence qualify to be deducted from the List price in determining the value. 90. The Appellant assailed the said finding as mentioned earlier arguing that these discounts are part of the Funding discounts since agreed between the Appellant and HPUSA, known at the time and place of import, hence cannot be denied. We do not see merit in the said argument as the present exercise of determination of value under Rule 7 read with Ruel 8/9 of CVR is resorted to after rejecting the Transaction value declared by the Appellant for the reasons stated above.....
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.... be disclosed and should lead to an adjustment, since it now appears that the goods (not the price) were not what Customs and the parties had thought they were; -- a price reduction (or increase) should be reflected in the customs value if it is based on a formula or provision agreed upon before importation. 116 Of course the discount must not be the remuneration for other goods. services or rights which the seller obtains from the buyer, but it must be granted as part of the same transaction. Then it does not matter what the reason is for the discount (e.g., adaptation to market prices, to commercial level of the buyer, incentive for expansion of sales in the future). But there are two discounts which require a particular discussion here, i.e. cash dis-counts and quantity discounts. 92. The aforesaid principles of admissibility of discount from the declared price are relating to a transaction where the seller and buyer are not related. Where the buyer and seller are related and the transaction value is rejected under Rule 12 of the CVR 1988/2007, the value has to be determined following the deductive method from the selling price in the country of importation.....
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...., that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale : Provided that - (i) ................. (ii) ............... (iii) (b)............................................................................... (2) ...................... (3) ............... (4) For the purposes of this section - (a) ............................ (b) "place of removal" means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; or (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; (c) ............................... (d) "value", in relation to any excisable goods, - (i) .................................... (ii) does not include the amount of the duty of excise, sales tax and other taxes, in a....
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....ssessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely aftersales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery. 95. A plain reading ....
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....the assessee as per the requirement of individual customers and the supplies were made to such customers against negotiated prices which are mentioned in the contract; they have filed price list in Part-II(meant for different class of buyers) as was in force during the relevant time for sales to M/s. Ponds (I) Limited under a contract treating the customer M/s. Ponds (I) Ltd. as a "class of buyer". In that context, their Lordships held that since 90% of the product has been lifted by Ponds (I) Ltd., trade discount to the extent of 50% from the contract price cannot be disallowed. Hence, the discounts allowed to a class of buyer under a contract price as per second proviso to Section 4(a) of CEA,1944 cannot be generalised and made applicable to the present case. 98. Similarly, the judgment cited by the appellant in the case of Madras Rubber Factory Ltd. (supra), their Lordships confronted with the issue whether 1% turn-over discount and year ending discount could be allowed as discount from the price. Taking note of the finding of the original authority on facts that such discounts are known and understood prior to the time of removal of the goods and common in the trade, even th....
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....ing policy held that warranty costs are included in the product price; hence, cannot be considered as post-importation expenses and allowed to be deducted. 101. The issue for consideration is whether warranty charges are in the nature of post-importation expenses admissible as a deduction under the scope of general expenses in connection with the sale of imported goods prescribed under Rule 7 of CVR. In the Commentary on Customs Valuation, what deduction is covered under Rule 7 has been narrated at para 710 (page 218), which reads as below:- The deduction 'for profit and general expenses' will cover the importer's entire markup, since the general expenses category is intended to cover all overhead and selling expenses (except such direct expenses as are specifically covered by the provisions which follow, dealing with transportation and handling charges, duties and taxes, etc.). As will be seen in the discussion of Computed Value below (759 et. seq.), the term 'general expenses' is essentially intended to differentiate manufacturing expenses from other expenses which are deemed 'general'. Since the importer in the situation we are discussing ....
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....nd neither an addition to nor-a reduction in the price is called for in arriving at TV. (emphasis supplied) Analysing the aforesaid comments, it is clear that when the warranty cost is already built into the manufacturer-exporter's price, it cannot again be added to the transaction value even though the said warranty charges are reimbursed by the exporter - manufacturer and provision of warranty service is incorporated in the sales/distributor agreement with the importer. 104. The appellant has claimed that in the Technical Committee on Customs Valuation, World Customs Organisation (WCO) comments under Commentary 20.1 relating to Warranty Charges, out of the two situations referred under para 5, the present case falls under clause (b); hence, the warranty charges be deducted from the price. The Special Counsel for the Revenue, on the other hand, submitted that reading paragraphs 5, 6, 7, and 8 and the Commentary on the GATT Customs Valuation Code by Saul L. Sherman, it would be clear that once the warranty charges are inbuilt in the product cost even though the same is executed indirectly through the distributor, its cost cannot be deducted under the deductive method. To unde....
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....the buyer to or for the benefit of the seller for the imported goods. This definition is further amplified in paragraph 7 of Annex III, which states that the price actually paid or payable includes all payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller. Consequently, where the seller requires the buyer to make a payment to a third party with whom the seller has contracted to provide warranty cover, the payment must be included in the transaction value of the imported goods. The same would also be true where warranty cover is provided by other parties related to the seller. Warranty undertaken by the buyer 9. As stated in paragraph 5(b), there may be cases where the buyer may decide to bear the cost of warranty on his own account. In these circumstances, any payments, or other costs incurred by the buyer for warranty, are not part of the price actually paid or payable by application of the Interpretative Note to Article 1, since this is an activity undertaken by the buyer on his own account. The aforesaid Commentary has to be read i....
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....sioner while passing the impugned order, particularly the expression 'on its behalf' used in clause 13 of the Distribution Agreement dated 01.11.2005. In the Addendum, it is clarified that warranty expenses incurred by each Distributor shall form part of its value added costs and the same will be taken into account for computing the compensation, by way of Purchasing Discounts, under Section 9 of the Distributor Agreement. This change in phraseology of Clause 13 in absence of any change to the meaning of reference price and HP valuation provision and HP's marketing policy, the warranty cost continues to be a part of the product price; hence, expenses incurred by the appellant in rendering warranty services cannot be deducted from the List Price (CLCP). 107. On the issue of deductibility of the customs duty, brokerage and fees under Rule 7 of CVR, we find that the learned Commissioner in the impugned order has observed that these expenses as post-importation expenses and allowed to be deducted from the CLCP in arriving at the assessable value. Deduction of the said expenses specifically mentioned under clause (iii) of Rule 7 of CVR, hence, we do not find any discrepancy in the sa....
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....on of international freight charges and insurance to the price, in the impugned order, the learned Commissioner has directed to add international freight charges and insurance to the CLCP under Rule 10(2) of the CVR, 1988/2007, observing as follows:- 103. I am of the view that some amount towards freight and insurance may have been factored in the invoice since the import price is arrived at based on LCP. Whether this amount represented the actual cost of transportation and actual insurance relatable to the goods being valued is not substantiated by HPISPL. But the fact remains that there is no visibility as to the quantum thereof in the import invoice. Some of the employees of HPISPL even stated that what was factored was 'estimated freight' and estimated insurance based on global insurance agreement. Given this situation, I am not in a position to treat the import invoices as on 'CIF basis' under the Indian Customs valuation rules. Further, HPISPL have stated that they had adopted the principle of deductive methodology. If it is so, they ought to demonstrate the quantum of freight and insurance factored in the import invoices. I find that all the pricing information are ....
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....e, such cost shall be 1.125% of free on board value of the goods : Provided also that where the free on board value of the goods is not ascertainable but the sum of free on board value of the goods and the cost referred to in clause (a) is ascertainable, the cost referred to in clause (b) shall be 1.125% of such sum : ... ... ... ... 111. We find that in the present case, after rejection of the transaction value, deductive method as per Rule 7 of CVR has been adopted in determining the assessable value of the imported goods. The CLCP is considered as the fully duty delivered price by the appellant on its sale to customers at the first commercial level in India. Since the international freight and insurance are already part of the fully duty delivered price, no further amount on account of freight and insurance is required to be added as laid down under Rule 10(2) when the value is determined adopting deductive method principle under Rule 7 of CVR 1988/2007. Thus, the Commissioner's order adding international freight and insurance resorting to Rule 10(2) of the CVR which prescribed addition of the cost of transportation and insurance to the ....
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....could be allowed on the CLCP of corresponding regular product of which the SRFR is a stripped down version, in arriving at the Customs value of the SRFR goods. The duty quantification of differential duty has to be re-worked based on my findings as above, and the same would be part of the final order on the subject. 113. We do not find merit in restricting the discount to 30% in the case of SRFR products; therefore, whatever discounts are held admissible to regular products from the price discussed as above, the same are also admissible to SRFR products in addition to SRFR discount already allowed by the Department. 114. On the issue of MRP based valuation of the imported goods, we find that w.e.f. 25.01.2008, IT products imported by the appellant became liable to MRP based assessment for the purpose of levy of additional customs duty. Section 3(2) of the Customs Tariff Act, 1975 provides for assessment of additional customs duty in accordance with sub-section (2) of Section 4A. Accordingly, the appellant declared the MRP of the respective imported products in their Bills of Entry and discharged duty after availing abatement from the MRPs as prescribed under Notification No.0....
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....t inasmuch as reading the scope of CLCP reproduced above, it says that these prices are meant for all transaction involved in the distribution and delivery of a product to a final trade customer based on the published rate price of those products. The trade prices for products are published in the local price list in each country where it is offered for sale. In determining the assessable value, after rejecting their transaction value, deductive method under Rule 7 of CVR has been adopted. LCP (CLCP) has been considered as the price at which the imported goods are deemed to be sold at first commercial level, the basis for determination of the assessable value of the imported goods. Thus, LCP (CLCP) has not been considered as the price meant for retail consumers but it is the price at the first commercial level. Therefore, statutory requirement of declaration of MRP on the packages of the imported goods in compliance with Rule 6 of the Packaged Commodities Rules, 1977 read with Standards of Weights and Measures Act, 1976 cannot be equated with LCP(CLCP), hence the list price cannot considered as MRP under Notification No. No.05/2008-CE(NT) dated 24.1.2008. 118. On the issue of al....
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....d, below the target return, which is described as 'overfunding' or 'underfunding' in respect of the import transaction over a period of time. It is alleged that during the relevant period (2004 - 2009), there is an overfunding of USD 355.24 mn (Rs. 1598 crores approx..) and USD 137.69 mn (Rs.619.18 crores - approx..) as underfunding. The appellant assailing the finding of the adjudicating authority submitted that the results of recomputaion of ROVAC during the Financial Year 2005-2009 (upto 1st half year). It is contented that there was overfunding only for the years 2005-2008 whereas underfunding for the remaining period i.e. 2006-2007 and 2009 (1st half-year) totalling to underfunding of USD113.50 M (Rs.511 crores approx.). It is their argument that the difference between the figures arrived at by the learned Commissioner in the impugned order is due to miscalculation of the overfunding / underfunding during the relevant period. The Department has wrongly calculated overfunding / underfunding on a quarterly basis whereas the profitability of a firm is normally calculated over of period of time (ie. Annual basis). Therefore, their contention that the methodology adopted by the DRI....
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....be addressed i.e. once additional duty of customs on imported goods equal to excise duty is paid, the other duties are exempted. Since SAD was introduced in the year 2005 while issuing the said Notification, it could not be visualised about exemption from SAD. Therefore, the appellant's contention that SAD is exempted by the said Notification is unsustainable. Besides, in view of the ratio of judgment of the Hon'ble Supreme Court in Dilip Kumar & Co.'s case, in the event any ambiguity in the exemption notification, it is to be decided in favour of the Revenue. It is held as: 52. To sum up, we answer the reference holding as under - (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took s....
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....olumn as '0' led to the positive act of misdeclaration on the part of the appellant. Raising Level A and Level B invoices for the same transaction which was material to ascertain the relative price of the distributor and the rebilling entity, also having a bearing on the price declared by the appellant, was never submitted to the Customs at any point of time. It is submitted that earlier before the CEGAT, the issue was of loading of sales commission amount up to 20% for the products imported by the appellant in contrast to indent sales, whereas in the present case, the cumulative funding discount was up to 82% of the CLCP, a fact was never disclosed to the Customs Department. Further in the EIFFEL and Athena invoices, only the Product Line (PL) indicated without mentioning the funding type, list price, funding discount etc. We find force in the contention of the learned Special Counsel for the Revenue as the said submissions are duly supported by documentary as well oral evidences discussed by the learned Commissioner in the impugned order. As discussed above, we reached a conclusion that the facts and circumstances of the present case revealed post-DRI investigation are different ....
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....ction 2(14) ―dutiable goods means any goods which are chargeable to duty and on which duty has not been paid; Section 2(15) ―duty means a duty of customs leviable under this Act; Section 3(12) of the Customs Tariff Act, 1975 reads as follows:- Section 3(12) - The provisions of the Customs Act, 1962 and the rules and regulations made thereunder, including those relating to drawbacks, refunds and exemption from duties shall, so far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section as they apply in relation to the duties leviable under that Act. 124. It is their argument that the issue is no more res integra and covered by the judgement of the Hon'ble Bombay High Court in the case of Mahindra & Mahindra Limited Vs. UOI (supra) which has been upheld by the Hon'ble Supreme Court and Review Petition filed later was dismissed by the Supreme Court vide order dated 09.01.2024. The learned advocate for the appellant fairly submitted that the same was not before the learned adjudicating authority. We find that the Hon'ble Bombay High Court in Mahindra & Mahindra's case, after analysing the relevant provisions of ....
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....of surcharge. Both sub-section (6) of Section 3 and sub-section (4) of Section 3A of the Customs Tariff Act, 1975 or subsection (4) of the Finance Act, 2000 make no reference to interest or penalty. There is no substantive provision in Section 3 or Section 3A under the Customs Tariff Act, 1975 or Section 90 of the Finance Act, 2000 requiring payment of penalty or interest. There is, therefore, no substantive provision which obliges a party to pay interest or penalty on CVD, i.e., the additional duty equal to excise duty or SAD, i.e., special additional duty to be levied at a rate having regard to the maximum sales tax or local tax or any other charges leviable on a like article or surcharge to be levied under the Finance Act, 2000. 28. A perusal of sub-section (6) of Section 3 and sub-section (4) of Section 3A of the Customs Tariff Act, 1975 or Section 90 of the Finance Act, 2000 show that the breach of the provisions has not been made penal or an offence. It only provides for application of the procedural provisions of the Customs Act, 1962 and the rules and regulations made thereunder so far as it apply to the duty chargeable under section 3 or Section 3A of the Customs ....
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....cannot be faulted. Since the BCD payable has been confirmed invoking suppression of fact, accordingly interest under section 28AA and penalty under Section 114A of Customs Act, 1962 equivalent to BCD are also payable; penalty under section 114AA is set aside. 125. The learned Commissioner besides imposing penalty on the appellant-company also imposed penalty on other individual appellants working in different capacities during the relevant period under Section 112(a) of the Customs Act, 1962. The appellants in their submissions emphasised that they have carried out the pricing policy followed by the appellant and they do not have any personal interest for incorrect implementation of the pricing policy in determination of the assessable value of the products. The pricing policy is formulated at head quarter level and they were only executing the policy, hence imposing personal penalty on each of them alleging aiding and abetting to the incorrect determination of assessable value resulting in short payment of duty is bad in law. We find substance in the argument of the individual employees that the pricing policy formulated at the headquarter level was ultimately implemented by th....