Custom, Excise & Service Tax Tribunal
Mukand Bekaert Wire Industries Pvt. Ltd vs Commissioner Of Customs (Import), ... on 29 April, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPLICATION No. C/EH/471/11 C/Stay/295/11 APPEAL No. C/80/11 (Arising out of Order-in-Appeal No. 133/MCH/JC/SVB/2010 dated 18.11.2010 passed by Commissioner of Customs (Appeals), Mumbai-I) For approval and signature: Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. Sahab Singh, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Mukand Bekaert Wire Industries Pvt. Ltd. Appellant Vs. Commissioner of Customs (Import), Mumbai Respondent Appearance:
Shri Manoj Sanklecha, Advocate, for appellant Shri K. Lal, Authorised Representative (SDR), for respondent CORAM:
Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. Sahab Singh, Member (Technical) Date of Hearing: 29.4.2011 Date of Decision: 29.4.2011 ORDER NO Per: P.G. Chacko The appeal is directed against an order of the Commissioner (Appeals) upholding an order of the Joint Commissioner of Customs (GATT Valuation Cell), who had ordered 100% enhancement over the assessable value declared by the appellant (assessee) in respect of the machinery imported from M/s. N.V. Bekaert SA, Belgium. The appellant is a joint venture company constituted under Joint Venture Agreement dated 5.9.2007 between M/s. N.V. Bekaert and M/s. Mukand Ltd. (a company registered in India under the Companies Act). M/s. N.V. Bekaert holds 50% stake in the joint venture (JV), the rest being held by the Indian company. The joint venture company (JVC), the appellant herein, entered into two other agreements with M/s. N.V. Bekaert, viz. (1) Bekaert Engineering Services Agreement dated 15.11.2007 and (2) Technology Agreement dated 15.11.2007. Under the Technology Agreement, the foreign company provided licences to the JVC for the manufacture, in India, of stainless steel wires (hereinafter referred to as the licensed product). They also transferred technical knowledge including patent rights to the JVC to enable them to manufacture the licensed product, to maintain the machinery and equipment used for such manufacture etc. They also agreed to provide adequate training on the subject of technology to the employees of the JVC, for which the JVC would pay the expenses. In consideration of the licences granted to the JVC by the foreign company, the former was required to pay to the latter running royalties @ 1% of the net sales value of the licensed product manufactured and sold in India. However, no royalties were required to be paid during the calendar years 2008, 2009 and 2010. The agreement also contained provisions for quantification of the running royalty to be paid by the JVC. As per the Engineering Services Agreement, Bekaert should provide the following services to the JVC (appellant):
(i) Design consulting services for buildings, infrastructure and support equipment;
(ii) Construction consulting services;
(iii) Assembly, fitting and fine-tuning services;
(iv) Services not expressly specified in the agreement but which may be requested for by the JVC.
The first three services were to be provided by Bekaert to the JVC in connection with, or during the course of, construction of the manufacturing plant. The charges and expenses for the above services were required to be paid by the JVC to Bekaert on a quarterly basis on the basis of invoices raised by the foreign company. Another important provision of this agreement was that Bekaert was accepted as the preferred supplier of machinery to the JVC and that, where any machinery was proposed to be purchased from other sources by the JVC, the same could be done only with the prior technical approval of Bekaert. An amount of Rs.32 million was paid by the appellant to Bekaert prior to August 2008 under the Engineering Services Agreement.
2. The Joint Commissioner of Customs (GVC) considered the above agreements and issued a questionnaire to the appellant for eliciting necessary information with a bearing on the assessment of the machines imported by them from Bekaert. The questionnaire was answered by the appellant. This was prior to start of imports. In answer to one of the queries, the appellant stated thus Royalty is payable @ 1% of net sales value to N.V. Bekaert but waived for first three years. Copy of board resolution is attached for waiver. After examining certain provisions of the Engineering Services Agreement and the Technology Agreement, the Joint Commissioner (GVC) held (1) that the appellant was related to the supplier (Bekaert) in terms of Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules; (2) that the declared invoice value for the goods imported by the appellant from Bekaert was liable to be enhanced to the extent of 100%; (3) that, if contemporaneous imports at higher prices were noticed in future in respect of identical goods, the assessment should be done appropriately under the said Rules and (4) that on expiry of a period of three years, the order would expire in the absence of any revision. On this basis, the Joint Commissioner (GVC) directed that assessments of machines imported by the appellant from Bekaert be done provisionally subject to security deposit (EDD) equivalent to duty based on the above enhancement of value. All pending provisional assessments were also directed to be finalised accordingly.
3. Aggrieved by the Joint Commissioners order, the appellant preferred an appeal to the Commissioner of Customs (Appeals) but the latter did not interfere with the order-in-original. The appeal filed by the assessee thus came to be dismissed on merits. The appeal is directed against the appellant Commissioners order. There are two applications before us, one for stay of operation of the impugned order and the other for out-of-turn hearing of the stay application. As the stay application itself comes up before us for hearing, the other application is dismissed as infructuous. After hearing both sides on the stay application, we are of the view that the appeal itself is fit for summary disposal. Accordingly, after staying the operation of the appellate Commissioners order, we proceed to dispose of the appeal.
4. The learned counsel for the appellant submits that both the orders, one by the Joint Commissioner of Customs and the other by the Commissioner (Appeals), were passed in violation of the principles of natural justice. It is submitted that, in a letter dated 16.2.2009, the appellant had clarified to the original authority that the royalty amount should be calculated on the basis of net sales value of the licensed product after deduction of cost of imported raw material as per Article 17 of the Technology Agreement. It is further submitted that, in a subsequent letter dated 3.3.2009, the appellant had made certain submissions to the original authority regarding the value of the machines imported by them from Bekaert. In that letter, it was submitted that Bekaert did not sell machines to anybody outside their group company and also that the prices charged by Bekaert to the appellant and other entities in the group company in respect of identical goods were the same. In order to establish this point, the appellant also enclosed a statement of comparative prices of Bekaert machines supplied to buyers worldwide. Again, on 16.3.2009, the appellant submitted another letter to the original authority explaining Bekaerts Global Transfer Pricing Policy. A copy of the Policy was also enclosed. The learned counsel for the appellant invites our attention to a provision contained in this Policy, which relates to new equipment and says that the transfer price of new equipment is equal to manufacturing cost with an uplift of 20% + design cost at 100%. A statement analyzing the price of one of the machines imported by the appellant from Bekaert was also enclosed with their letter dated 16.3.2009 ibid. The learned counsel has referred to yet another letter which was submitted by the appellant to the Joint Commissioner of Customs on 13.5.2009, wherein an explanation was offered to the original authority regarding the services which were liable to be provided to the appellant by Bekaert. This explanation/clarification was offered with reference to Articles 2 and 3 of the Engineering Services Agreement ibid. The learned counsel submits that the original authority did not take into account any of the above submissions in its findings. In other words, the order-in-original was passed without considering the submissions of the assessee. With regard to the impugned order of the Commissioner (Appeals), it is submitted that the appellant was heard on two occasions, viz. 11.3.2010 and 12.8.2010, by the learned Commissioner (Appeals). The learned counsel submits that, on the first date of hearing, the learned Commissioner (Appeals) required the appellant to submit an independent Accountants report on the applicability of Bekaerts Transfer Pricing Policy to the goods imported by the appellant from Bekaert. It is submitted that, accordingly, the appellant furnished, under cover of letter dated 4.5.2010, to the appellate authority a report from PricewaterhouseCoopers (PWC), independent Tax Consultants. The learned counsel has invited our attention to relevant paragraphs of the said report. It is submitted that PWC randomly selected two of the invoices under which the appellant had imported machines from Bekaert, and analysed the significance of the entries contained therein. The focus of the learned counsel is on the operative part of PWCs report, wherein it was reported to the effect that the transfer price was equal to the price mentioned in the invoice. The structure of the intercompany transfer price was also elucidated in the operative part of PWCs report. Accordingly, the internal costs and external costs were estimated and the sum of the two was then increased with a 20% mark-up to arrive at the intercompany transfer price. The cost of goods sold was then estimated from material costs and labour costs and, therefrom, the invoice price was arrived at, which was then compared with the intercompany transfer price. This exercise was made in respect of each of the two invoices. PWCs report concluded by stating that there was nothing on record to show that the sale of new equipment by Bekaert to the appellant with respect to financial years 2008 and 2009 was not in accordance with the above transfer pricing policy and also that the sale of new equipment to the appellant was in line with the sale of new machinery to other Bekaert group entities. The learned counsel points out that the Accountants report was not considered by the learned Commissioner (Appeals). On the other hand, certain written submissions filed by an Appraiser of Customs was considered by the appellate authority and, that too, without supplying any copy thereof to the appellant. In this connection, it is pointed out that it was from the impugned order that the appellant came to know that certain written submissions had been filed by the department and considered by the appellate authority. Therefore, after the impugned order was passed, the appellant, in a letter dated 5.1.2011, requested for a copy of the said written submissions as also for an opportunity of being heard with reference to the said written submissions. In that letter dated 5.1.2011, the appellant prayed for review of the order passed by the Commissioner (Appeals) and for passing fresh order after considering their submissions. The appellant, in letter dated 5.1.2011, alleged that principles of natural justice had been violated in their case. Subsequently, the appellant received a communication from the office of the Commissioner (Appeals) to the effect that the appellate authority being functus officio was unable to modify or review its order. In these circumstances, the learned counsel prays for setting aside the impugned order on the very ground of breach of natural justice.
5. The learned counsel has also adverted to the merits of the case. He has referred to the relevant provisions of the various agreements and has claimed that nothing contained in any of the agreements would warrant the proposition that the amounts paid by the appellant to Bekaert under the Engineering Services Agreement and Technology Agreement are liable to be included in the assessable value of the goods imported by the appellant from Bekaert, under Rule 10 of the Customs Valuation Rules, 2007. The learned counsel has also referred to the relevant provisions of Rule 10 ibid. It is his submission that neither the amount paid by the appellant to Bekaert under the Technology Agreement nor the one paid under the other agreement had any relation to the imported goods and that such payments cannot be said to have been made, directly or indirectly, as a condition of the sale of the goods under assessment. It is submitted that these material aspects were not considered by the learned Commissioner (Appeals) in the correct perspective with reference to the provisions of Rule 10 ibid. According to the learned counsel, the impugned order is vitiated by non-application of mind and is liable to be set aside.
6. In the context of assailing the Joint Commissioners order, the learned counsel has made a reference to Rule 12 of the Customs Valuation Rules, 2007. It is submitted that, if the assessing authority had any reason to doubt the truth or accuracy of the declared value, he should have required the importer under Rule 12 to furnish further information and produce evidence in support of the declared value. This, however, was not done in this case. Had the assessing authority called for such information/evidence from the importer under Rule 12(1), it would have been open to the importer to insist on supply of the grounds for doubting the truth or accuracy of the declared value, in which event the assessing authority would have been legally liable to disclose its reasons for doubt. Therefore, according to the counsel, the Joint Commissioner of Customs (GVC) committed gross violation of the rule of natural justice embodied in Rule 12 ibid. By upholding his order, the Commissioner (Appeals) also, virtually, upheld the breach of natural justice. In the circumstances, it is urged that both the orders be set aside and the matter be remanded.
7. The learned SDR has not adverted at length to the aspect of violation of natural justice. He has, however, filed parawise comments on the grounds of the appeal filed by the assessee. In this write-up, the learned SDR has also, incidentally, referred to Rule 12(2) of the Customs Valuation Rules, 2007. On the merits of the case, this write-up refers to certain provisions of the Engineering Services Agreement and Technology Agreement. These comments are, by and large, in the nature of submissions in justification of the impugned order.
8. After giving careful consideration to the submissions, we are convinced that natural justice was denied to the appellant. The learned Joint Commissioner of Customs ordered enhancement of the assessable value to the extent of 100% without any meaningful consideration of the provisions of the relevant agreements and without taking into account any of the submissions of the assessee. We have already referred to a few letters submitted by the assessee to the original authority clarifying the pricing policy of Bekaert and its impact on the assessable value of the imported goods. In some of those letters, the assessee explained/clarified certain provisions of the agreements. None of these submissions was considered in the order-in-original. The Joint Commissioners order recommending provisional assessment for the future and finalization of assessments of past imports on the above basis was of serious consequences for the assessee. The learned Commissioner (Appeals), however, appears to have overlooked this aspect. The assessees grievance that natural justice was denied to them by the original authority was not addressed, nor redressed, by the appellate authority. On the merits of the case, the learned Commissioner (Appeals), without considering the submissions of the assessee, chose to interpret the provisions of the agreements in his own way and to uphold the order-in-original. The learned counsel has invited our attention to a factual incorrect finding contained in the impugned order. The relevant finding reads thus .., it is found that no machinery is procured independently of the related supplier. The learned counsel has submitted that machines worth Rs.1798 lakhs were imported by the appellant from Bekaert and that machines worth Rs.3360 lakhs were imported from others. However, the counsel fairly concedes that these figures were not presented before the lower authorities. If the figures presented by the learned counsel are correct, the above finding recorded by the learned Commissioner (Appeals) cannot be sustained. In the context of applying Rule 10 of the Customs Valuation Rules, 2007 to the goods imported by the appellant, the learned Commissioner (Appeals) observed thus: Regarding the other aspect of condition of sale, nowhere it is categorically established that no such condition is imposed by the supplier. We are indeed surprised at this observation. If the learned Commissioner (Appeals) wanted to invoke Rule 10(1)(c) and (e) of the Valuation Rules to the imported goods, it was open to him to find out the provisions of the relevant agreements indicating that the payments of fees/royalties by the appellant to Bekaert had been made as a condition of the sale of the goods under assessment. From the above finding, it appears that the learned Commissioner (Appeals) proceeded on the premise that the burden was on the importer to establish that the supplier did not impose any such condition. In other words, the importer was called upon to prove the negative.
9. We have noted hereinbefore many an infirmity in the orders passed by the lower authorities. Hence both the orders are liable to be set aside. It goes without saying that the original authority shall pass fresh order on the valuation issue in accordance with law and the principles of natural justice, having regard to the relevant observations contained herein. The appellant is at liberty to present their case before that authority. It goes without saying that the appellant should be given a reasonable opportunity of adducing evidence and of being personally heard.
10. The appeal is allowed by way of remand. The EH and stay applications also stand disposed of.
(Dictated in Court) (Sahab Singh) Member (Technical) (P.G. Chacko) Member (Judicial) tvu 1 2