Custom, Excise & Service Tax Tribunal
Google India Pvt. Ltd vs Commissioner Of Customs (Svb) on 29 September, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH
CHENNAI
Appeal No.C/MISC/41474/14 & C/260/2012
[Arising out of Order-in-Appeal No. C.Cus. 658/2012 dt.28.6.2012 passed by the Commissioner of Customs (Appeals), Chennai]
For approval and signature :
Honble Shri P.K. Das, Judicial Member
Honble Shri R. Periasami, Technical Member
1. Whether Press Reporters may be allowed to see 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 CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not ? :
3. Whether the Members wish to see the fair copy of
the order? :
4. Whether Order is to be circulated to the Departmental authorities ? :
Google India Pvt. Ltd. Appellant
Versus
Commissioner of Customs (SVB),
Chennai Respondent
Appearance:
Shri Rohit Jain, Advocate For the Appellant
Ms. Indira Sisupal, AC (AR) For the Respondent
CORAM :
Honble Shri P.K. Das, Judicial Member
Honble Shri R. Periasami, Technical Member
Date of Hearing : 6.6.2014 Date of Pronouncement : 29.9.2014
FINAL ORDER No.40636/2014
Per R. Periasami
1. The appellant has filed the present appeal against the Order-in-Appeal No.658/2012 dt. 28.6.2012 passed by the Commissioner (Appeals). They have also filed a MISC application No.C/MISC/41474/14 dated 5.6.2014 under Rule 23 of the CESTAT (Procedure) Rules, 1982 and an affidavit of Shri Hari Raju.M, Financial Controller and Authorized Signatory of the appellant-company, with a request for considering the additional evidence. Accordingly, the additional evidence is taken on record. MA is allowed.
2. The brief facts of the case are that M/s.Google India Pvt. Ltd., Bangalore (Indian Company/appellant herein) is registered with Software Technology Park of India (STPI, for short) for development of software and Information Technology Enabled Software and export thereof. They are availing full exemption from payment of Customs duty under Notification No.52/2003 dt. 31.3.2003 on imports i.e. Desktops, Laptops etc. from various suppliers and other equipments from M/s.Google Inc., USA. Since Google Inc. (Supplier) holds one share (0.001%) in the appellant-company and M/s.Google International LLC holds 99.99% of shares in the Indian company i.e. appellant. and the Board of Directors of the appellant-company are also represented by employees of Google Inc., USA, the Customs Special Valuation Branch, Chennai has taken up the issue and registered a case for determining the relationship and valuation of the imports made from their related supplier. After issuing detailed questionnaire to the appellants, and upon receipt of replies and documents and also after personal hearing, the Deputy Commissioner (Customs), Special Valuation Branch, Chennai vide Order-in-Original No.13413/2010 dt. 3.11.2010 held that both the appellant and M/s.Google Inc., USA are related in terms of Rule 2 (2) of Customs Valuation (Determination of Value of Imported Goods) Rules 2007, rejected the declared invoice price and ordered for loading price by 20% and 41.125% if the invoice is CIF or FOB basis respectively. Aggrieved by this SVB order passed by the adjudicating authority, the appellant preferred appeal and the Commissioner (Appeals) vide impugned Order dt. 28.6.2012 upheld the Lower Authority's order loading of invoice value and rejected their appeal. Hence the present appeal.
3. Heard both sides.
4. The Ld. Advocate for the appellants submits that M/s.Google Inc., USA entered into global purchase agreements with various vendors for supply of computers, laptops etc. for meeting their demands within their group companies. They procure and supply to their affiliated companies operated in different countries as per their requirements. M/s.Google Inc. USA is not doing any commercial purchase and sale for making profit and the supplies made is only to their internal consumption by the group companies. He also submits that the group companies also procure the items from vendors directly at the same price as per the agreement entered into by the M/s.Google Inc. USA. He submits that the lower authority has ordered for loading of freight (20%), insurance (1.12%), Overheads (10%) and Profit (10%) amounting to a total 41.125%. He submits that they are not contesting the issue on loading of freight and insurance elements.
4.1 As regards Overheads, he submits that for the clearances made prior to 2008, overheads are not charged in the invoice price. However, for post-2008 imports, the supplier has already added overheads ranging from 5 to 33% which is already included in the invoice price. Therefore, again adding under the head "overheads" of another 10% is not acceptable whereas the lower authority has uniformly ordered for loading of 10% overheads in respect of the entire imports covering the period from 2006 to 2009. By adding 10% overheads for post-2008 imports will result in double addition. The variation of overheads from 5 to 33% is arrived at based on the purchases made for a particular period and supplies made to the appellant.
4.2 As regards the loading of 10% on account of profit, the advocate submits that M/s.Google Inc. USA (supplier) is not a commercial agency involved in trading, purchase and selling of goods for making profit on the supplies made to the appellant. They are acting only as facilitator in order to save time and to maintain uniformity to have centralized inventory so that whenever group companies need certain goods, the same will be resourced to them immediately. He therefore submits that loading of profit is not justified. He also submits that they have also made certain purchases directly from their approved vendors around the same time and at the price which is higher than the invoice price declared by the supplier. Therefore, he submits that invoice price should be accepted. He also submits, if at all the profit is to be loaded on the invoice price, it should be only of nominal profit in the range of 0.5% to 1% as there is no profit involved between the supplier and the appellant.
5. Ld. Advocate relies on the following decisions :-
(a) Siemens Ltd. Vs CC New Delhi -
2000 (126) ELT 1134 (Tribunal)
(b) CC, Mumbai Vs Clariant (India) Limited 2007 (210) ELT 481 (SC)
(c) CC, MUMBAI Vs Mahalaxmi Gems 2008 (231) ELT 198 (SC)
(d) CC, Calcutta Vs South India Television (P) Ltd.
2008 (214) ELT 3 (SC)
(e) CC KOLKATA Vs Initiating Explosives Systems (I) Ltd.
2008 (224) ELT 343 (SC)
6. On the other hand, Ld. A.R reiterates the finding of the adjudicating authority and the lower appellate authority. He submits that the appellants are related person as all the imports are made from the group company. The invoice price is not represented as true transaction value. Therefore, valuation was determined under Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. He submits that the group company supplied the goods to the appellant at the same price at which they have procured from their vendors and termed as CIF price without adding of the overhead towards, storage, testing, packing, transportation etc. Therefore, the appellate authority has rightly upheld the order of the adjudicating authority for loading the invoice price.
7. We have carefully considered the submissions of both sides and also examined the records. We find that the adjudicating authority has held that both the supplier and the appellants are related in terms of Rule 2 (2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and examined their relationship and accordingly ordered for loading of 41.125% on the invoice price for all the imports made from 2006 to 2008 on various heads viz Freight (20%), Insurance (1.125%) Overheads (10%) and Profit (10%). We find that appellants are registered with STPI for development and export of computer software under information technology to overseas. Being a STPI unit, they availed exemption on all their imports at NIL rate of duty under Notification No.52/2003-Cus. dt. 31.3.2003. In spite of appellant being a registered STPI unit, the Special Valuation Branch examined the relationship for valuation and the Lower authority has ordered for loading the invoice price on all imports supplied by M/s.Google Inc. USA under Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and the same was upheld by the Lower Appellate Authority.
8. We find that out of four issues on which loading has been ordered by the lower authority, namely freight, insurance, overheads, profit margin, the appellants are not contesting the loading of freight and insurance elements in their invoice price. They are contesting only on the two issues of loading of overheads (10%) and profit (10%). Accordingly, we proceed to discuss the issue in respect of these two issues.
9. As regards overheads, we find that lower authority has ordered for 10% of loading on the invoice price on account of overheads for the period from 2006-08. As seen from the records, the works sheets and other documents produced by the appellants, we find that for the period after April 2008, M/s.Google Inc. USA has started computing the Material Overhead (MOH) on all the goods supplied to the appellants. It is seen from the worksheet submitted by the appellant that the supplier had computed the overheads on the goods by taking into account various expenses like logistics, freight and capital purchases by pooling all the expenses as per the following formula :-
MOH = Cost Pool (cost center expenses, i.e. freight, logistics etc.) ______________________________________________ Capital purchases (Capex) Further, it is seen that the percentage of overheads varies from 5% to 33% during the relevant period and it is also noticed this percentage varies for each quarter in the same year. It is seen from records that since the invoice price for all the imports made after April 2008 the cost of overheads already built in the invoice price, further addition of 10% as overheads on the invoice price will certainly amount to loading overheads twice.
10. Further, we find that in certain cases, the percentage of overheads as computed above is more than 10% and upto a maximum of 38%. In few cases, it is 5% to 7% and majority of the cases the percentage is more than 10%. In view of the above facts that the supplier has already built in the overheads cost in the invoice price, we hold that loading of additional 10% under 'overheads' as determined by the lower authority is not justified in so far as the imports effected after April 2008 and therefore liable to be set aside to that extent.
11. For the shipments made from April 2006 to April 2008, the appellants have admitted that their supplier has not made any addition of overheads in the invoice price. As seen from the records, we find that the supplier has quoted the procurement price from their vendors same as CIF price in the invoices raised to the appellants. Therefore, in terms of Valuation Rules, for determining the correct transaction value of the goods supplied by the related person, addition of overheads and other charges are essential to arrive at the transaction value. The lower authority by taking into various factors has ordered for loading only a nominal 10% which appears to be well within the provisions of the Rules. Considering the fact that for the post-2008 imports, the percentage of overheads as arrived by the supplier from 5% to a maximum of 38%, whereas the lower authorities has ordered for only 10% which is just and reasonable. Accordingly, we are of the considered view that addition of 10% under 'overheads' on the imports made from April 2006 to April 2008 is justified.
12. As regards loading of 10% profit in the invoice price, on perusal of records and the findings of the adjudicating authority, we find that the lower authority has not brought out any reasons for arriving the quantum at 10% towards profit margin. It is seen that M/s.Google Inc. USA has set up affiliated companies at various countries and as a global policy and taking into the requirement of IT infrastructure for development of software of the affiliated companies they have entered into various purchase agreements with vendors for procurement of equipments at a competitive price. As seen from the copy of Masters Purchase Agreement dt. 2.3.2009 entered into between M/s.Google Inc. USA and M/s.Dimension Data North America, Inc. The preamble of the said agreement reads as under:-
"This Agreement creates a single global mechanism pursuant to which Google an its Affiliates may acquire Cisco Systems, In. ("Cisco") Products and/or Services in multiple countries from Dimension Data and its Affiliates. When Google or one o its Affiliates wishes to acquire Products and/or Services, the parties shall execute a Purchase Order and such other documents as specified herein describing the Products and/or Services that Dimension Data or its Affiliate will provide, the associated charges, the Location to which such Products and/or Services will be provided, and any additional terms agreed to by the parties. This Agreement permits Google to obtain Quotas and place Purchase Orders internationally using a centralized model, a local model, or a combination of models, depending on the requirements of Google and availability of the models."
(emphasis supplied) It is also seen that lower authority has held that on the basis of common trade practice that any supplier of the imported goods normally adds profit margin in the normal course of transaction value. We find that although there is no dispute on the fact that both the supplier and the appellants are related persons in terms of Rule 2 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, M/s.Google Inc. USA are not selling the goods and buying for trading purpose but being a principal company of the appellant, they have procured the goods on the global basis for supply to their own affiliated group companies located across the world.
13. We find from the record that M/s. Google Inc.USA supplied to the appellant the following items :-
(1) Networking equipment, such as servers, switches, ports Wi-fi items.
(2) IT equipments i.e. Logistics, monitors, CPUs etc. (3) Video Conferencing Equipments (4) Telematic equipments and (5) Furniture and fixtures, security cameras etc. These goods are procured by the supplier from various sources and centralized at USA and resupplied to their affiliated companies including the appellant as per the specific requirement. It is not the case of the Revenue that M/s.Google Inc. USA supplied these goods to any third parties other than their own affiliated companies at higher price. Therefore, it is evident that in order to maintain the standard and quality of the equipments, and also the uniformity of the prices and to maintain continuous availability of goods, the procurement is centralized by the supplier by maintaining a centralized procurement, warehousing, quality, inspection etc. and thereafter supply to their various affiliated companies, including the appellant. Therefore, it is evident that the goods supplied to the appellant is not for making any profit. The lower authority has ordered for loading of 10% on notional basis which is purely based on the trade practice. We find that in terms of the Valuation Rules, notional profit element shall be added to the invoice price for arriving at the transaction value. Therefore, taking into consideration the above facts, we find that the loading of 10% profit margin on the invoice value appears to be on the higher side. We are of the considered view that since the appellant is a STPA unit and also taking into the fact that the imports made by the appellant from the supplier i.e. Google Inc. is only for the purpose of development of software and export and also taking into consideration the principal supplier has not sold these goods to any third party but supplied to their affiliated companies only, loading of a nominal profit of 1% (one percent) on the declared value would be suffice.
14. Accordingly, we hold that (1) the impugned order in respect of loading of overheads 10% and Profit Margin (10%) on the declared value is modified to the extent as under :-
(a) 10% of loading of overheads on all imports made prior to April 2008 is upheld.
(b) 10% of loading of overheads on imports made post-2008 is liable to be set aside.
(c) Loading of 10% notional profit for all imports made would be reduced from 10% to 1%.
The appeal is partly allowed in the above terms.
(Pronounced in open court on 29/9/2014)
(R. PERIASAMI) (P.K. DAS)
TECHNICAL MEMBER JUDICIAL MEMBER
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