Customs, Excise and Gold Tribunal - Delhi
General Marketing And Manufacturing ... vs Collector Of Customs on 3 November, 1986
Equivalent citations: 1987(11)ECC49, 1987(10)ECR505(TRI.-DELHI), 1987(27)ELT344(TRI-DEL)
ORDER K.L. Rekhi, Member (T)
1. Under a Dealer Selling Agreement with M/s. General Motors Scotland Limited, the appellants imported spare parts of TEREX Earth Moving Machinery. The lower authorities have enhanced their import invoice prices by 18% on the ground that other importers of TEREX Spare Parts in India had to pay that much amount extra by way of buying commission to the appellants. The appellants are aggrieved by the lower orders and pray that their invoice prices should be accepted as assessable value under Section 14(1)(a) of the Customs Act, 1962.
2. During the hearing before us, the appellants pressed for the following arguments :
(1) The Agreement made it clear that the appellants were a nonexclusive dealer in the area comprising Union of India including the States of Sikkim and Bhutan and M/s. General Motors reserved the right to sell TEREX Spare Parts to anybody else also in India. They cited the instance of M/s. Hindustan, Motors who were importing TEREX parts directly from M/s. General Motors at the same invoice price.
(2) The appellants were not an agent or local representative of General Motors. They purchased TEREX Spare Parts in the capacity of a principal on outright sale basis and on sale the property passed to the appellants. They relied on the Delhi High Court judgment in the case of M/s. Jay Engineering Works Ltd. ILR (1981) 1 Delhi 795.
(3) Import by others who had to pay 18% buying commission over and above the invoice price was only about 8%. The remaining 92% or so of the goods brought into India were imported by the appellants. Considering that the overwhelming quantity was imported by the appellants, it was their invoice price which was the value ordinarily charged.
(4) General Motors invoiced the goods at the same prices to every one. The appllants, however, admitted that other importers could not import TEREX Spare Parts directly from General Motors; they had to place their indents through the appellants only and pay the appellants' buying commission of 18% over and above the price invoiced by General Motors. They pleaded that this buying commission represented the service charge of the appellants. At one stage, they stated that this service included delivery of the goods at the buyer's site. However, when the learned representative of the department pointed out that this was a new argument and there was nothing on record to support it, the appellants did not press for it. They argued, however, that the buying commission was paid in India in Indian rupees and was, therefore, a post-importation charge, which could not be added to the assessable value of the goods as at the time and place of importation They asserted that no part of the buying commission of 18% flowed back to the foreign supplier, i.e., M/s. General Motors. They contended that while the department could add the buying commission to the assessable value of imports made by others since they in fact incurred it, there was no justification to add it to the invoice price of the appellants when they did not incur it.
(5) Since their purchases from General Motors were at arm's length, the transaction value as represented by the import invoice should be accepted. This was in accordance with the General Agreement on Tariffs and Trade which was an International agreement to Which India was a signatory. Articles 37 and 51 of the Constitution of India enjoined upon the Government of India to give effect to international agreements. Our attention was also drawn by the appellants to Notes on Clauses of the Customs Bill, 1962. The said notes stated in relation to clause 14 that the said clause sought to implement the concept of transaction value of the GATT provided the seller and the buyer had no interest in the business of each other and price was the sole consideration. The appellants stated that though the GATT Rules on Valuation and the Notes on Clauses did not have a binding effect legally, they had nevertheless considerable persuasive value and they should be taken as an aid to interpretation of Section 14(1)(a) of the Customs Act, 1962.
3. The learned representative of the department stated that if one looked at the Agreement as a whole, it came out clearly that the appellants were an agent of M/s. General Motors. The Agreement required the appellants to aggressively develop the sales of TEREX products and parts in the whole of India including the States of Sikkim and Bhutaa The appellants had to advertise for the goods of M/s. General Motors at their own (appellant's) expense. They had to attend to the customer complaints to maintain the goodwill of the manufacturers, i.e. M/s. General Motors. In return, Genera Motors compensated the appellants by way of buying commission or overriding commission. Thus, argued the learned representative of the department, there was mutuality of interest between the two. The interest of M/s. General Motors was that they got aggressive development of their market in India and Bhutan. The appellants' interests, was the 18% commission which they got from other importers. This happened because General, Motors did not, in fact, deal with others in India. Every buyer in India and Bhutan had practically no option but to approach General Motors through the appellants and in the process the other buyer had to pay 18% more for importing the same goods into India. Relying on the Calcutta High Court judgment in the case of Bird & Company [ILR (1976) 2 Calcutta 202], the learned representative of the department argued that the price charged from the appellants exclusively could not be considered as the price at which the goods were ordinarily sold or offered for sale under Section 14(1)(a), it was the price paid by ail the others for importing the same goods which was the price ordinarily charged. Regarding the Delhi High Court judgment in the case of Jay Engineering Works (supra) he stated that it stood partially superseded by the subsequent judgment of the Supreme Court in the case of Bombay Tyre International 1983 ELT 1893 (SC), in which it was held that advertisement, publicity and after-sale service expenses formed a part of the assessable value under Section 4 of the Central Excises and Salt Act, 1944 which was analogous to section 14 of the Customs Act, 1962. Regarding GATT Rules on Valuation and the Notes on Clauses, he stated that the original clause 14 of the Bill underwent material changes in the course of enactment and the present Section 14(1)(a) emerged in a very different form. The present section was not based on transaction value but on the concept of deemed value. The deemed value was the price at which the goods were ordinarily sold or offered for sale. It was the provision as enacted with which we were concerned and there was no ambiguity in the provision
4. We have carefully considered the submissions of both the parties. It is common ground between them that value under Section 14(1)(a) is ascertainable in this case and as such, it is the construction of this section as well as appellants' Agreement with M/s. General Motors that would-decide the point at issue. While the appellants contend that the lower price paid by them meets all the tests of the section, the case of the department is that it does not and that it is the higher price (after adding the buying commission of 18%) paid by the other buyers which satisfies the conditions of the section. Let us have a look at the section It reads as under :
"Valuation of goods for purposes of assessment - (1) For the purposes of the Indian Tariff Act, 1934 (32 of 1.934), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value "of such goods shall be deemed to be -
(a) the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each 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);
(b) where such price is not ascertainable, the nearest ascertainable equivalent thereof determined in accordance with the rules made in this behalf."
xxx xxx xxx xxx The issues that require determination by us are :
(a) Which was the price at which the goods were ordinarily sold or offered for sale - the one paid by the appellants or the one paid by other?
(b) Was the price paid by the appellants the sole consideration for the sale?
5. The Agreement, no doubt, says that the appellants were a non-exclusive dealer and that they were not an agent or local representative of M/s. General Motors. The position on the ground was, however, quite different. With the sole exception of M/s. Hindustan Motors who were themselves a manufacturer of Earth Moving Machinery in India and who imported the parts as components for use in the manufacture of new machinery and whose case was, therefore, a category apart, so far as the import of the parts as spare parts for servicing of the machinery in use is concerned, the appellants were in fact the exclusive dealer appointed by General Motors for the whole of India and Bhutan. There was no one else given the privilege of importing TEREX Spare Parts at the same price as paid by the appellants The position in reality, as admitted before us by the appellants, was that all other buyers of Spare Parts had to place their indents on General Motors through the appellants only and the price paid by those all others was increased by 18% when the appellants added that much amount as their buying commision. In a nutshell, the actual position was that the lower import price was available only to the appellants. In a situation like this, when every other importer of Spare Part had to pay 18% higher price, the lower price available to the appellants along could not be said to be the price at which the goods were ordinarily sold or offered for sale. It is the character of the marketing pattern which determine as to which was the price ordinarily charged and not the fact whether there were more sales at the lower price and lesser sales at the higher price or vice versa. In other words, it is the nature of the transaction which is more important rather than the relative quantum of goods sold
6. Advertisement and publicity of his goods and maintaining his goodwill in the market are the functions which rightly belong to the manufacturer. Expenses incurred on them form a part of the assessable value of the goods [1983 ELT 1896 (SC) - Bombay Tyre International]. In the present case, expenses on these activities were borne by the appellants. The Agreement required them to actively and aggressively develop the market for TEREX Parts and Products in India and Bhutan at their expense. In regard to these activities, the inevitable conclusion is that the appellants worked as agents or local representatives of M/s. General Motors. In return, they got compensated by the 18% buying commission or overriding commission which other buyers of TEREX Spare Parts were, in fact, forced to pay to the appellants. In the facts and circumstances of the case, it cannot be said that the invoice price of the appellants was the sole consideration for the sale; in addition to this price, the appellants were to incur expenses on advertisement, publicity and market promotion of M/s. General Motors' products. The set up was such that a sort of mutuality of interest developed between M/s. General Motors and the appellants. The former got its market promoted and developed in India and Bhutan without paying for it, the latter got the expenses back by way of the buying commission which all other buyers of Spare Parts were obliged to pay. It may be that no part of the buying Commission flowed back to M/s. General Motors in cash but the flow back in kind was certainly there.
7. There is no subsance in the appellants' argument that the buying commission was a post-importation charge. The actual position was that no other buyer could land TEREX Spare Parts at the time and place of importation without having to pay the 18% buying commission to the appellants. The buying commission was, therefore, a part and parcel of the total import price paid for the goods by every other buyer. The fact that it was paid in rupees and not in foreign exchange does not make it any the less part of the import cost.
8. The learned representative of the department is right when he argues that in view of the clear provision of section 14(1)(a), there was no scope to look at the GATT Valuation Rules. It is for the Government of India to decide, in consultation with the GATT, as to when and how India should switch over to the GATT concept of transaction value. In any case, even the said transaction value concept is not satisfied in the present case as we have held that the invoice price to the appellants was not the sole consideration for the sale. As regards Notes on Clauses, we asked the appellants to tell us as to what was the ambiguity in the wording of Section 14(1)(a) for which we should look at the said notes. They, could not point out any. The said Notes were, in any case, on a clause which was differently worded as compared to the wording of Section 14(1)(a) finally enacted, as cited by the learned representative of the department. This is another reason why we must stick to the language of the section as enacted.
9. For the aforesaid reasons, we hold that the invoice price to the appellants did not meet the test of Section 14(1)(a). It was the total price paid for imports by others which did meet the said test. The price paid by the others and which included the buying commission of 18%, was, therefore, the price at which the goods were ordinarily sold or offered for sale and it was ascertainable. The lower authorities were correct in assessing the appellants' imports also on the basis of the said higher price paid by all others.
10. In the circumstances, we dismiss the appeal.