Customs, Excise and Gold Tribunal - Delhi
Radiation Technologies (India) Pvt. ... vs Collr. Of Customs on 12 February, 1990
Equivalent citations: 1991(51)ELT481(TRI-DEL)
ORDER Harish Chander, Member (J)
1. M/s. Radiation Technologies (India) Pvt. Ltd. has tiled an appeal being aggrieved from the order passed by the Collector of Customs, Air Cargo Complex, Bombay.
2. Briefly the facts of the case are that M/s. Radiation Technologies (India) Pvt. Ltd. had filed Bill of Entry No. 11480/6 dated 21st October, 1986 covering plastic tubings electrical insulating material (Heat Shrinkable plastic tubings) and had declared the value at Rs. 6,84 554/- equivalent to US $ 44,392.70 FOB. The GIF value at Rs. 6,84,554/-is inclusive of 20 1/8% freight and insurance. With the Bill of Entry the appellant had filed 3 invoices which are reproduced below :-
1. Invoice No. Y-33607 dt. 15-10-1986 for US $ 4236.00
2. Invoice No. Q-25680 dt. 15-10-1986 for US $ 2330.80
3. Invoice No. Y-33580 dt. 15-10-1986 for US $37925.90 In respect of 86 packages the net and gross weight of the goods declared in the Bill of Entry was 4,085 pounds (1853. 45 kgs) and 3884.2 kgs. respectively. For the number of packages declared in the Bill of Entry was 98. The number of packages as covered by the invoices filed with the Bill of Entry and their net/gross weight was as under :-
____________________________________________ Gross weight Net weight No. of packages 5167.79 4085 pounds 86 ____________________________________________ Since the number of packages in respect of which the invoices were filed by the importers and their net/gross weight differed from the number of packages and their net/gross weight declared in the Bill of Entry the importers were to explain the reasons for the variation. The importers thereupon submitted invoice No. Y-33759 dated 15th October, 1986 covering goods of additional value of US $12,443.05 which had been imported in 12 packages covered by the consignment. Thus by not filing the said invoice alongwith Bill of Entry. It appeared that the importers had attempted to evade payment of duty amounting to Rs. 3,40,456/-.
3. On the basis of the intelligence that the importers were connected with the foreign suppliers and were indulging in misdeclaration of value of the imported goods,, their office premises were searched on 26-11-1986 and 27-11-1986 by the officers of the Special Investigation Branch of the Customs House as a result of which several incriminating documents were seized. Amongst the seized documents were the following :-
(i) Telex No. CX by 2831456 dated 10th October, 1986 sent by Paresh Kapadia to one Phyllis Simon of Raychem Corporation, California stated that Radiation Technology (I) Pvt. Ltd. was a Raychem Corporation owned Indian Company and not a customer.
(ii) Telex No. 956 dated 24-7-1986 from one Martin Parry of Raychem Corporation addressed to T.R. Chandrasekhar of Radiation Technologies (1) Pvt. Ltd. which stated that in respect of WCSM 115/38, "Munich will drop ship material direct to you. Menlo will invoice you at previously agreed White Elephant List Low Price. Munich will invoice Menlo at Standard price List Thus Menlo takes the price variance". This telex further reads as "Note: It is essential that the paper work for shipment from Munich indicates only the low price otherwise you will be hit for excess duty." It has also been staled in this telex "Harry can potentially supply your needs with WCSM, EXCSM or MWTM. Please telex application details to him use range, installation, diameters, wall thickness requirements etc. We will look for the most suitable material that can be made available. 1 think these actions may solve the problem."
(iii) Telex No. Bom. 0032 dated 3-7-1986 for the supply of 5000 pieces of goods of description 'Raygel'. The suppliers were instructed to supply goods with elastomer and polyolefin loading but not use the words elastomer or polyolefin in any of the documents.
(iv) A number of price lists covering various types of goods that were being imported by M/s. Radiation Technologies (India) Pvt. Ltd. from M/s. Raychem Corporation Menlo Park, U.S.A. and subsidiaries in Europe and other countries were seized. These price lists mostly marked as 'Trade price lists' and 'Distributors price list' showed the prices at which goods listed therein were being offered for sale to buyers in all parts of the world.
4. On the basis of the declarations made by the importers in the Bill of Entry and the seized documents, a show cause notice dated 9th December, 1986 and the supplements were issued, and in the show cause notice it was stated that it appeared that :-
"(1) By suppressing and not filing Invoice No. Y-33759 dated 15-10-1986 covering goods valued at Rs. 1,93,441/-, the importers had knowingly misdeclared the value and goods/net weight of the imported goods and had thus attempted to evade duty amounting to Rs. 3,40,456/-.
(ii) The importers had deliberately misdeclared on the reverse of the Bill of Entry that they were not connected with the suppliers of the goods.
(iii) They had been instructing the foreign suppliers to make incorrect declarations in the documents in respect of imported goods in order to evade customs duty*.
(iv) Under an arrangement between M/s. Raychem Corporation Menlo Park, U.S.A. and the importers, the suppliers in Munich were to supply goods at a previously agreed low price. The Munich Suppliers were to be compensated and difference between the special low price and the standard price was to be paid by the Raychem Corporation, USA to Munich and the goods were to be invoiced to M/s. Radiation Technologies (I) Pvt. Ltd. at a lower price to enable them to evade duty. On basis of the printed price lists issued by M/s. Raychem Corpn. USA and their European subsidiaries, the values of the imported goods were worked out and indicated in the annexure to the show cause notice as Rs. 78,74,746/- as against the declared value of Rs. 6,84,554/-. It was pointed out that this misdeclaration would have resulted in loss of duty amounting to Rs. 1,26,54,737/-. It was alleged that in view of the evidence disclosed in the seized documents and also in view of the fact that the importers and the suppliers were related parties, the values as indicated in the relative invoices could not be deemed as representing the values at which similar goods were being sold or offered for sale in the ordinary course of business and as such the values indicated in the invoice did not appear to be assessable values of the goods under Section 14(1) (a) of the Customs Act, 1962. It was stated that in respect of items at Sr. Nos. 2 and 9 of the annexure whose prices were not available in the seized price lists and the price had been arrived at on prorata basis keeping in view the mis-declaration of value in-respect of other items.
In the supplement to the show cause notice dated 24-12-1986 it is further alleged that it appeared that the imported goods were finished products cut to shape and size and they did not require further fabrication and for this reason they could not be deemed as raw materials. It was further stated that the imported goods also did not appear to be components in terms of the definition in para 7(10) of the import policy. It was alleged that the goods being neither raw materials nor components/consumables they did not appear to be covered by the Open General Licence under appendix 6 of the Import Policy AM 85-88 and their importation without an Import Licence appeared to be in contravention of Section 3(2) of the Imports & Exports (Control) Act rendering them liable to confiscation under Section 111(d) of the Customs Act, 1962.
On these grounds the importers were asked to show cause why the goods should not be confiscated under Section 111(d), (1) and (m) of the Customs Act, 1962 and why penalty should not be imposed on them under Section 112 of the Customs Act, 1962.
Further in the supplementary show cause notice No. S/10-3154/86 ACC dated 24-2-1987 it was stated that it appeared that there were no other independent importers of the goods and the value of the goods was not determinable under Section 14(1)(a) of the Customs Act, 1962. For this reason it was stated that it was proposed to determine the value of the imported goods in terms of Section 14(1)(b) of the Customs Act, 1962 read with Rule 3(b) of the Customs Rules, 1963.
1. Vide their letter dated 16-12-1986 the importers sought permission to take copies of seized documents.
2. Subsequently vide their letter dt. 8-1-87 the importers sought extension of time limit upto 23-1-87 for submitting reply to show cause memo.
3. Again vide their letter dated 21-1-1987 the importers requested for fur- ther extension of time limit till 15-2-1987. By this office letter dated 29-1-1987 the importers were asked to appear for personal hearing on 4-2-1987."
5. In their letter dated 7th February, 1987, M/s. Radiation Technologies (India) Pvt. Ltd. submitted a reply to the show cause notice and supplements thereto. The importers denied all the allegations contained therein and stated that:
1. Declaration on Reverse of Bills of Entry:
While admitting that the appellants are FERA company and 74% of their capital is being held by Raychem Radiation Technologies Inc. (RRTI) and RRTI is a wholly owned subsidiary of Raychem Corporation USA, the importers submitted that the correct declaration had not been made since the Clearing Agent believed that Raychem Corporation and Radiation Technologies (I) Pvt. Ltd. were totally distinct and unrelated. Since the transaction between their suppliers and themselves was at arms length, no advantage had accrued on account of this error.
2. White Elephant List:
The revenue authorities have misinterpreted the correspondence relating to White Elephant List. Raychem GMBH, Munich had circulated a world wide offer as seen from the product new letter at annexure 2 to dispose of slow moving excess items under special terms and purchase order dated 29-4-1986 for 800 pieces of WCSM 115/38-900/42 was confirmed as accepted by Munich Company at DM 27.35 pc. of this 400 pieces were shipped against invoice No. 858318 dated 16-5-1986. Munich suppliers thereafter indicated their inability to supply the remaining goods at the committed price as the goods had been diverted by Raychem Corporation, Menlo Park to another customer (telex dated 17th July from M. Parry) and this was objected to by the importers through their telex of July 22 from Shri Chandrasekhar and after some exchanges, the suppliers at Munich finally agreed to meet the balance supplies at price committed. Since there was a concluded contract between importers and the Munich Co., the importers insisted that the goods be supplied at the agreed price and Raychem Corporation at Whose instance the goods had been diverted had, agreed to bear the loss of the Munich Company. The telexes seized by the department also indicate the same and there was no attempt to evade duty.
3. Raygel:
Raygel is a new high technology material of kaychem Corporation. The function of the backing strip is to hold the product in its place on application. The backing is made of Polyolefin or Elastomer. These materials vary from percentage by weight and value. Hence, mention of Polyolefin/Elastomer in the documents were not considered relevant to the description of the product/materials and there was no question of saving of any customs duty on this account.
4. Invoice Y-33579:
In regard to para 1 in the annexure to the show cause memo it. was stated that the department was aware that the Bill of Entry and Airway Bill correctly stated the number of packages, gross weight and freight and along with the Bill of Entry three invoices bearing Nos. Y-33607, 25680 and Y-33580 were filed. The total number of packages and gross weight were clearly mentioned in the invoices. Total of the invoices worked out to 86 packages. There could be no intention to evade duty since the Bill of Entry prepared by the Clearing Agent referred to 98 packages and gross weight of 5167 lbs as per airway bill. The fourth invoice was not erroneously submitted and there was no reason to interpret malafide intention. The discrepancy in the supporting documents as rectified and intention to pay applicable duty has been confirmed.
5. Manufacturing:
In regard to the allegation that the items which were the subject matter of the show cause notice were neither raw materials nor components and did not enter into any manufacturing processes it has been stated that the goods were raw materials, and components which enter into the manufacturing processes for the manufacture of the finished systems and kits as authorised under the Industrial Licence No. CIL 21.3(85) dated 1st July, 1985 issued by the Department of Industries and Company Affairs. The Industrial Licence permits them to manufacture low and high voltage power cable connection and termination system and accords approval for manufacture of system and kits which were built up from a combination of locally fabricated and imported components, each of which cannot function individually in the applications for which the systems and kits were sold. Plant and machinery valued 1.74 crores for the initial phase of the manufacturing programme had been installed, and the central excise authorities had confirmed that the activities carried out at their plant at Bassein were exempt from payment of excise duty. Cable connection and termination systems which were used mainly by the State Electricity Boards provide high voltage insulation, stress control, abrasion resistance, moisture barrier, corrosion protection etc. Manufacturing processes undertaken for moulded parts included quality control, check, blending, moulding, cutting, expansion, sizing and trimming coating etc. and turning manufacture includes checking, cutting, expansion sizing, trimming and coating. Out of the items listed in annexure 9 only CICM 34/12-380/U and CICM 63/22-345/U were components as defined in para 7(10) of the Import Policy and others were raw materials. Components were parts of sub-assemblies or assemblies of which a manufactured product is made up and into which it may be resolved and includes an accessory or attachment. The imported components were utilised in the systems and kits which were manufactured by the importers. The items which were the subject matter of the show cause notice had been imported under the list Attestation Procedure contained in para 94 of the Import Policy 1985-88 and in conformity with this procedure D.G.T.D. vide its letter dated 24-6-1986 had attested the aforesaid items as components/raw materials. Thus the importation of the above said goods under the OGL was legal, valid and authorised and the goods are not liable for confiscation.
6. Invoice Price :
The allegation that the invoice price could not be accepted as assessable value under Section 14(1) (a) of the Customs Act, 1962 is based on certain printed price lists beyond which no other material has been cited in support of the department's case that the values do not represent commercial price and the price at which such goods are ordinarily sold. The revenue authorities could not reject any invoice prices unless it was able to establish that the price was not the sole consideration and the transaction was not at arms length and there was some underhand compensation. If the department relied on certain price lists, it must establish that the goods were ordinarily sold at those prices. Raychem Corporation sell finished products (and not raw materials and components) to retail trade customers and distributors. In addition to this, they sell raw materials, and components as opposed to finished products to original equipment manufacturing companies or OEM. These manufacturing companies produce kits from such raw materials and components. The seized price lists on which the department was relying were totally irrelevant for the purpose of determining the price at which goods were ordinarily sold, since in almost all cases printed price lists were for different products than those which had been supplied. The following items referred to in the show cause notice do not appear in the price list:
SCTM-SPLD 1910 : SCTM 42/19- 1420-B : HVTM-SPLD 19/10 : HVTM 60/26-1410-B : SCTM 32/1450-BMD : HVTM 42/19-1420-B : BBIT 65/25-FAC-A/U. These were raw materials which require further processing for use in systems and kits. The following components required for production of systems and kits also do not occur in the seized price list CICM:34/12-380/ U and GICM 63/22-345/U. The printed price lists arc normally prices for sale of finished products to retail trade customers and distributors and, therefore, not applicable to importers. There are no sales by the supplier at the prices contained in the printed price lists 'to retail trade customers or distributors in India. The price lists indicate that they are applicable to U.S.A. and Europe. Assuming without admitting that the printed price lists arc applicable to India, the prices indicated therein are only an indication of the recommended prices and do not represent the prices at which such goods are ordinarily sold. The importers being original equipment manufacturers, printed price lists are not applicable to them. It is a normal practice to treat original equipment manufacturer (OEM) as a category by itself distinct from distributors and retail trade customers. Prices applicable to raw materials and components are lower than the prices of finished product. The suppliers had no printed price lists for goods sold to original equipment manufacturers. There are no other OEMS in India. According to Raychem USA, OEMs located in Argentina and Brazil are similarly situated as the importers and from the statement in the annexure it would be seen that the prices at which goods are sold to India are comparable to the prices at which comparable goods are sold to OEMS in Argentina and Brazil. There is no other Indian customer similarly situated as importers and there is no ground for not accepting the value under Section 14(1)(a) of the Customs Act.
As regards the allegation that the invoice value cannot be accepted on account of existence of relationship between the suppliers and importers it has been stated that 74% of equity in the importer's company is held by Raychem Radiation Technologies, Inc. The suppliers Raychem Corpn. USA does not directly hold any shares in the importing company. However, Raychem Radiation Technologies Inc. is a subsidiary of Raychem Corporation. Thus relationship between supplier and the importers is indirect and such indirect relationship is not contemplated under Section 14(1)(a).
6. The Collector did not accept the contentions of the appellants and had held that M/s. Radiation Technologies (India) Pvt. Ltd. were related to suppliers M/s. Raychem Corporation for the purposes of Section 14 of the Customs Act, 1962 and had further observed that from the price lists which were seized from the importers' premises it was evident that the prices at which the imported goods were being supplied by M/s. Raychem Corporation to Radiation Technologies (India) Pvt. Ltd. were vastly different from the prices at which the goods were sold and offered for sale by M/s. Raychem Corporation to unconnected buyers in different parts of the world. The Collector held that the value of the imported goods under Section 1.4(1) (b) read with the Customs Valuation Rules, 1963 shall be Rs. 74,78,870/-. He had further ordered the confiscation of the goods covered by invoice No. Y-33759 dated 15-10-1986 under Section 111(1) and (m) of the Customs Act, 1962. However, he had given an option to redeem the goods on payment of fine of Rs. 13,00,000/- (Rs. thirteen lacs only). He had also ordered the confiscation of the imported goods of declared value of Rs. 6,84,554/- and had ascertained the value at Rs. 74,78,870.00 whose value was misdeclared by the importers under Section 111(m) of the Customs Act, 1962. He also ordered the confiscation of the goods of ascertained value of Rs. 59,05,870.00 under Section 111(d) of the Customs Act, 1962. However, he had given an option to redeem the same on payment of Rs. 38,00,000/- (Rs. thirty eight lacs only). He had also imposed a penalty of Rs. 20,00,000/- (Rs. twenty lacs only) under Section 112 of the Customs Act, 1962.
7. Being aggrieved from the aforesaid order, the appellant has Come in appeal before the Tribunal.
8. Shri Ravinder Narain, the learned advocate, has appeared on behalf of the appellant. He has reiterated the facts. He has pleaded that the appellant was manufacturing cable connection, termination systems and kits for joints and the company was started in August, 1984. Foreign share-holding was 74% by Raychem Radiation Technology, USA and the 74% shares are equity shares. The goods were supplied by M/s. Raychem Corporation, Menlo Park, U.S.A. Shri Ravinder Narain, the learned advocate, has referred to the statements of facts appearing on pages 4,5 and 6 of the appeal memo and has referred to the manufacturing process. He has pleaded that the appellant was holding industrial licence which appears on page 36 of annexure 'C of the paper book. Shri Ravinder Narain has referred to the reply to the show cause notice which appears from pages 1 to 17 of annexure 'C of the paper book and in particular has referred to page 7. Para Nos. 22, 23, 24, 25, 26 and 27 deal with the nature of the components manufactured by the appellant and the application of the goods manufactured by the appellant. He has also referred to pages 54, 55 and 56 of the paper book and annexure on page 56 is in the nature of tabling form which explains how a particular item is being converted into fully manufactured and the processes it undergoes. The table shows that sequence of the manufacturing process in their factory for each item listed in the show cause memo. He has argued that all tubing listed as raw materials which undergo expansion are first subjected to a cutting process. They are matched to the sizes of mandrils selected for each expanded diameter (32 mm, 42 mm, 60 mm and 65 mm.) During this process, it is necessary to ensure burr-free ends in order to obtain a high yield during the next step. The tubing, at their original diameter (14 mm, 19 mm, 26 mm, 25 mm, respectively ) is then loaded into a heating chamber for elevation to specified process temperatures. It is then transferred at this temperature to an expansion machine. The expansion cycle enables the tubing to exhibit its heat shrinkable characteristics. The tubing cannot exhibit this characteristic in the form in which it is imported. Without this conversion the imported raw material is unusable for its intended application. The expanded tubing is now fed to a pneumatic slicer whose output is sized per batch to produce the full range of sizes for their cable connection systems. For tubing layers exposed directly to the environment, the expanded tubing is coated with irradiated, non-tracking sealants to enable total sealing against moisture ingress, contaminants and direct splash water at extreme ranges of temperatures. The tubing, now in a finished form are ready for system assembly together with all other moulded parts, proprietary accessories and other standard earthing components. Shri Ravinder Narain has referred to page 24 of the order-in-original which deals with the goods described in the bill of entry. Shri Ravinder Narain has pleaded that the revenue has compared the price of processed material with the price of raw material. Shri Ravinder Narain argued that the letter "B" stands for beaming or treated material and has argued that when in the description of the goods the word "B" is not there, this means the goods are unbeamed. The price lists on which the revenue authorities have relied are only meant for trade and not for the manufacture and the revenue's comparison with the same is a misconception. He has referred to page 38 of the order-in-original and has referred to Item 8 which is annexure to the order-in-original and has referred to serial No. 8 HVTM 42/19-1420B. Shri Ravinder Narain argued that the original equipment manufacturer always negotiates with the supplier of the raw material and the price on which the appellant has purchased is the correct price. He has referred to page 15 of the annexure 'B' which is the price list and pleaded that for item HVTM 42/19 the price is US $ 14.55 which is for the finished product. He has referred to internal page 27 of the order-in-original which relates to the findings whether the imported goods were raw materials or components or not: whether the same fall under OGL in terms of serial No. 1 of appendix 6 of the Import Policy AM 1985-88. He has also referred to the supplement to the show cause notice. He has pleaded that the impugned order proceeds on the basis that the value of the goods imported gets exceeded and there was ITC violation. He has referred to ground of appeal No. 80. Shri Ravinder Narain argued that the goods imported by the appellant are raw materials. He has also referred to para 80 of the Import Policy which appears on 24 of AM Policy 1985-88 which deals with raw materials and components and consumables which do not appear in appendix 2, 3, 5 and 8 of the Import Policy and will be allowed to be imported under OGL subject to conditions laid down.
9. Shri Ravinder Narain, the learned advocate, has referred to white elephant list and has referred to pages 20, 22,23 and 24 of the white elephant list. Shri Ravinder Narain has argued that as per white elephant list, the slow moving and excess items have been sold and the appellant has not paid any extra price and there is no evidence as to flow back and there is also no allegation in the show cause notice. Shri Ravinder Narain has further referred to the telexes which appear in annexure 'J4' and M5' of the paper book and since these telexes do not relate to the appellant, no reliance can be placed on the same and the price is only for Brazil and it is specially mentioned on page 5 that in Brazil duty rates are very high and the shipments are sent at corporate price only. He has also referred to the affidavit of Mr. Anthony Nicholas Gooden dated 6th March, 1987. The revenue has mainly relied on the telexes and these telexes relate to Raychem Corporation and not to the appellant and no reliance can be placed on them. He has also referred to page 71 of annexure 'C' of the paper book which relates to OEM price comparison. Shri Ravinder Narain, the learned advocate, has pleaded that the goods imported by the appellant are raw materials and are permissible under OGL in the AM 1985-88 Policy. There is no under-valuation. Provisions of Section 14(i)(b) of the Customs Act, 1962 cannot be resorted to by the revenue authorities. The invoice price under Section 14(1)(a) of the Customs Act, 1962 has to be accepted. He has pleaded that the value as declared may be accepted. The fines and penalties must be quashed. Shri Ravinder Narain has referred to the examination report and pleaded that in the first four items there was no explanation. Items 5 and 6 viz. BBIT 65/25 and PAC-/AU and CICM 34/12-38/U are components. The goods imported are raw materials. He has pleaded that the revenue's evidence is baseless and the price list relates to the finished product. "B" stands for beamed i.e. prior to the explanation. He has pleaded that US dollar price is irrelevant.
10. Shri V.M. Doiphode, the learned SDR who has appeared on behalf of the respondent, has relied on the ordcr-in-original and has pleaded that the documents had been recovered from Raychem and copies were endorsed to the appellants or their employees. He has referred to the order-in-original. He has pleaded that the appellant had declared the value at Rs. 6,84,554/-, whereas the revenue has assessed the same at Rs. 78,74,746/- and the duty evaded is more than rupees one crore. He has pleaded that the appellant is in regular business and is not an ignorant person. He has referred to page 20 of the order-in-original. Shri Doiphode has argued that telex No. 1794 dated 10th October, 1986 was seized from the importers' premises in which Shri Paresh Kapadia of M/s. Radiation Technologies (India) Pvt. Ltd. had informed Mr. Phyllis Simon that Radiation Technologies (India) Pvt. Ltd. was an inter company with customer No. 992344 assigned to it and it was Raychem Corporation owned Indian Company and not a customer and it, therefore, follows that M/s. Radiation Technologies (India) Pvt. Lid. are related to the suppliers M/s. Raychem Corporation for the purposes of Section 14 of the Customs Act, 1962 and from the price lists which were seized from the importers' premises it was evident that the prices at which the imported goods were being supplied by M/s. Raychem Corporation to this importer were vastly different from the prices at which such goods were sold or offered for sale by M/s. Raychem to unconnected buyers in different parts of the world. He has referred to the price list which appears on annexure B-20 of the paper book. Shri Doiphode has drawn attention to the affidavit of Mr. Paul Schnitz, Vice President of Raychem International Corporation which appears on page H-l of the paper book and in the affidavit he has described the goods imported as 'unexpanded'. He has referred to annexure 'C' page 67 which is a letter from DGTD addressed to the appellant. Shri Doiphode has argued that the description of the goods fully tallies with the printed price list. Shri V.M. Doiphode has again pleaded that Raychem has relation with the appellant. The importer is a subsidiary company of the foreign company and an inter company is one division of the other company. He has referred to the telexes. He has referred to para 21 of the reply to the show cause notice. He has referred to telexes which appear on pages J-4 and .J-5 of the paper book and he-has also referred to the affidavits of Subroto Chakravorty and Mr. Nicholas Godden. He has pleaded that Shri Chakravorty does not controvert the telexes. He has also referred to the telexes appearing on page C-29 and C-32 where it is mentioned that: "It is essential that the paper work for the shipment from Munich indicate only the low price otherwise you will be hit for excess duty," and also page 32 of the telex to Harry Ganzhorn where it is also mentioned that the appellant wants to save duty. It is mentioned in the telex that : "This is essential to ensure minimum duty. Invoice held at regular list price as agreed."
10A. Shri Doiphode, the learned SDR, pleaded that on the facts of the present case, Section 14(1)(a) is not applicable and the provisions of Section 14(1)(b) have to be resorted to. He has referred to page B-13 which is a telex which clearly shows that Raychem owns the Indian company. On page C-29 in the telex there is a reference to white elephant price list. White elephant goods were equivalent goods but not the same goods and there was difference of value. Shri Doiphode has argued that Menlo was paid the differential price outside India and it was a planned move to evade customs duty. He has again referred to the telexes which appears on J-4 and J-5 of the paper book. He has also referred to page C-14 of the reply to the show cause notice. Shri Doiphode has argued that the Indian company belongs to the foreign company. Shri Doiphode has argued that in para 51 of the reply to the show cause notice which appears on page C-14 of the paper book, the appellants have mentioned that Raychem Corporation, U.S.A., informed them that the OEMs located in Argentina and Brazil were similarly situated to them and that the prices at which goods were sold to India were comparable to the prices at which comparable goods were sold to OEMs in Argentina and Brazil. Differences in prices arise as a result of such factors as volume purchases and packaging methods. In support of his argument, Shri Doiphode has referred to the following judgments :-
(i) 1984 (15) ELT 137
(ii) 1984 (18) ELT 73
(iii) 1987 (31) ELT 356
(iv) 1983(14) ELT 21.77.
Shri Doiphode has referred to a judgment of the Tribunal in the case of O.E.N. (India) Ltd., Cochin v. Collector of Customs and Central Excise, Cochin reported in 1984 (15) ELT 137 and has laid special emphasis on paras 3 and 13 of the said judgment. Shri Doiphode has argued that OEN (India) Ltd., Cochin imported finished electronic products, equipments, machines, spares, raw materials etc. from M/s. OAK Industries Inc., Crystal Lake, USA. In that case the appellants had contended that OAK were an independent corporate body and their dealings with them were as a principal to principal only and the fact was not denied that OAK had equity participation with the appellants to the extent of 45% of the capital, but strongly refuted the charge that they had any special relationship. They maintained that their dealings with OAK were strictly based on commercial considerations, and both the parties had no interest in the business of each other except that OAK had financial stake in the appellants' company by virtue of being an equity holder. In that matter, the appellants had maintained that the expression 'Collaborators', 'Associates' etc. used in the documents or the annual reports of the company had been loosely applied and for all practical purposes they were two separate bodies, deal with each other as principal to principal and the prices charged by OAK from the appellants were correct prices within the purview of Section 14(1) of the Customs Act, 1962. He pleaded that in para No. 13 of the said judgment, the Tribunal had given its finding. The Tribunal had observed that Chairman of both the companies was common for many years and OAK were entitled to an over-riding commission of 7 1/2% on imports of goods by independent buyers in India from OAK. The right to get over-riding commission was generally enjoyed by a sole selling agent. The sole selling agent, in turn, is recognised as a 'special relationship' in trade and commercial world. The Tribunal had held that OEN (India) Ltd. and OAK had common commercial interests other than those arising from the OAK having a portion of the equity in the appellant company. In view of the factors stated above, the Tribunal had agreed with the Collector's findings to the effect that the goods imported had to be assessed under Section 14(1)(b) of the Customs Act, 1962. Shri Doiphode has also referred to another judgment in the case of Joy Foam Private Ltd. v. Coltr. of Cus., Madras, reported in 1984 (18) ELT 73 (Tri.) where the Tribunal had held that the Delhi party had full legal control by virtue of higher equity participation in the appellant company, inasmuch as 51% of the appellants equity capital was held by them, therefore, there was a clear and unmistakable nexus of financial interests between the Delhi party and the appellant company and hence, the appellants were not eligible to any comparable value adopted by the Bombay Customs in respect of the importation of allegedly similar machine by the Delhi party.
Shri Doiphode has also referred to a Bombay High Court judgment in the case of Satellite Engineering Ltd. and Ors. v. Union of India and Ors. reported in 1987 (31) ELT 356 (Bom.). He has referred to para Nos. 5 and 21 of the said judgment. Shri Doiphode has pleaded that in that case the invoice value was not accepted. He has also referred to a single Judge decision of the Bombay High Court in the case of Satellite Engineering Ltd. v. Union of India and Ors. reported in 1983 (14) ELT 2177. Shri Doiphode has argued that in view of the submissions made by him the invoice price viz. price under Section 14(1)(a) of the Customs Act, 1962 viz. the declared price under Section 14(1)(a) of the Customs Act, 1962 cannot be accepted. He has pleaded that the declared assessable value was at Rs. 6,84,554.00, and the amount mentioned in the show cause notice was Rs. 78,74,746.00, whereas the assessed figure was Rs. 74,78,870.00. Shri Doiphode has argued that there is a confusion. The differential duty works out approximately at Rs. 1,19,00,000.00. He has argued that the difference in the declared and assessed value is almost 11 times. He has argued that there are continuing imports and huge revenue is involved. He has also argued that the appellant has not placed any correspondence for the placing of the orders with the suppliers. He has also stated that DGTD had given a phased manufacturing programme. He has referred to the industrial licence which appears on page C-35 of the paper book and has also referred to the items to be manufactured by the appellant. He has pleaded that the industrial licence appears on pages C-36 and C-37 of the paper book and in the industrial licence there are complete details of the items to be manufactured by the appellants. Shri Doiphode has referred to page B-20 of the paper book which is the pricing extrusions SCTM-Tubing. Shri Doiphode has also referred to pages 40 and 41 of the appeal memo and has pleaded that there was violation of provisions of Section 111(d) of the Customs Act that as per list attested by DGTD vide letter dated 24th June, 1986 the appellants were permitted the imports of components and the list indicated the maximum and minimum sizes of the heat shrinkable tubings/sleeves which could be imported, the quantity permitted to be imported and its GIF value. He further argued that such a list could be only in respect of components and not raw materials. He has pleaded that the price list duly tallies with the DGTD list. Shri Doiphode during the course of arguments has also filed written arguments and has again argued that the price is the sole consideration. The printed price has to be accepted and the supplier is a related person. He has referred to the particulars and the descriptions given in the invoice as well as the price list. He has argued that words 'B' and 'BM' appears in the invoice as well as the price list and as such the goods imported ace finished goods and were not raw materials. He has also referred to the judgment of the Supreme Court in the case of Collector of Customs, Madras and Ors. v. D. Bhoonnull reported in 1983 (13) ELT 1546 (SC) where the Hon'ble Supreme Court had held that there can be no cannon for weighing evidence and drawing inferences therefrom and, therefore, each case has to be considered on its own facts. Since the function of weighing the evidence or considering its sufficiency was the business of the Collector or the appellate authority, there was no warrant for disturbing his findings under Article 226 of the Constitution. Only the Collector's appreciation of circumstantial evidence before him was not illegal, perverse or devoid of common sense, or contrary to the principles of natural justice. Shri Doiphode has argued that the evidence in the present matter is sufficient for the upholding of the findings of the adjudicating authority. He has also referred to the affidavit of Mr. Paul Schnitz, Vice President which appears on page H-l of the paper book. Shri Doiphode has argued that in the present matter Section 14(1)(a) of the Customs Act is not applicable and the provisions of Section 14(1)(b) of the Customs Act, 1962 have to be resorted to. Shri Doiphode has pleaded that there is no mention in the printed price list whether the price list pertains to expanded or unexpanded form of the commodities. Shri Doiphode has argued that the Collector had been very fair to the appellants. He has adopted the distributor price and not the trade price. Trade price is much higher than the distributor price. In support of the same, he has referred to page C-85 of the paper book. Shri Doiphode has pleaded for the dismissal of the appeal. Shri Doiphode has also referred to Customs Valuation Rule 4A(iii). Shri Doiphode further argued that in case the Bench is not inclined in dismissing the appeal, the matter may be remanded to the Collector of Customs. On merits again he has referred to ground of appeal (e) which appears on page 26 of the appeal memo. He has pleaded that the appellant is a related person of the supplier of the imported goods. He is having 74% shares. There is gross under-valuation and misdeclara-tion on the part of the appellant. The appellant has only filed three invoices declaring 86 packages, whereas in the bill of entry total packages were declared to be 98. He has referred to internal pages 26 and 37 of the order-in-original and has argued that the appellant had intentionally filed three invoices No. Y 33607, 025680 and Y 33580 and had omitted invoice No. Y 33579 dated 15th October, 1986 which covered goods valued at US $ 12,443.05 (fob) equivalent to Rs. 1,93,441.00 (c.i.f.). Shri Doiphode has argued that the Collector had confiscated the goods mentioned in the 4th invoice. However, he had given an option of redeeming the same on payment of Rs. 13,00,000.00 (Rs. thirteen lacs). Shri Doiphode also argued that it is not the duty of the customs authorities to ascertain whether the goods imported by the appellant were to result in profit or loss. The customs authorities are only concerned with the customs duty in accordance with law which works out on the imported goods.
11. Shri Ravinder Narain, the learned advocate, in reply has referred to page C-68 of the paper book which is the list of items to be imported under OGL. He has laid special emphasis on the word "irradiation". He has also referred to page 6 and para 8 of the appeal memo, which explains that the 'crosslinking' process is carried out on tubing material by on-line "irradiation" (exposure to a high energy electron beam) at the supplier's factory. Expansion is carried out on some materials at the appellant's factory and on some at the supplier's factory. Prior to expansion, the product is not capable of exhibiting its heat shrinkable properties. He has also referred to page C-68 of the paper book which is the letter from DGTD which is on the subject of attestation of list(s) of components/raw material under provisions of para 94 of Import Policy 1985-88 for the manufacture of oil heat tracing system, cable harness system, power cable connection etc. On page C-68 serial No. 05 there is item HVTM 12mm - 80mm. He has also referred to the price list at page C-85 of the paper book which is the price list for expanded. He has also referred to ground of appeal No. 83 appearing on page 41 of the appeal memo where the appellant has contended that the Collector had failed to appreciate that sizes of all the items as imported were within the size ranges specified in the DGTD attestation list. He has argued that US price cannot be adopted. He has also argued that the learned SDR cited the OEN judgment but has omitted para 13 of the said judgment and in the Satellite case para 21 of the said judgment. He has argued that the argument of the learned SDR that assessed value is 11 times the declared value is not correct. Shri Ravinder Narain has also filed written arguments and has read the same and has also filed reply to the written arguments filed by the SDR. He has pleaded for the acceptance of the appeal.
12. We have heard both the sides and have gone through the facts and circumstances of the case and have also considered the written arguments. The following issues have to be decided :-
1. Whether the goods imported are raw materials/components or finished products and whether they qualify importation under OGL?
2. Whether there was misdeclaration in respect of the 4th invoice. The appellant had filed 3 invoices for 86 packages and in the bill of entry the packages mentioned were 98 and there was justification of levy of fine in lieu of confiscation at Rs. 13,00,000.00?
3. Whether there was under-valuation and the goods imported have to be assessed in terms of provisions of Section 14(1)(a) of the Customs Act, 1962 or have to be assessed in terms of provisions of Section 14( 1) (b) of the Customs Act read with Customs Valuation Rules, 1963?
4. Whether there was justification of fine in lieu of confiscation and penalties under the Act?
13. We proceed to decide issue No. 1 i.e. whether the goods imported are raw materials/components or finished products and whether they qualify importation under OGL. Vide Misc. Order No. 41/88-A dated 3rd June, 1988 the Tribunal had ordered the physical examination of the goods that had been imported and which were lying in the customs control. The Tribunal had ordered joint inspection. Para Nos. 2 and 3 of the miscellaneous order are reproduced below :-
"2. Since there is a dispute between the parties as to whether the goods imported are really expanded or unexpanded and since this dispute can be resolved only by a physical examination of the goods that have been imported and which are lying in Customs Control, we order that joint inspection of the full consignment relevant to appeal No. C/3014/87-A should be carried out and a report submitted, in 5 sets, by the Asstt. Collector of Customs, Air Cargo Complex, Bombay. The inspection should be completed and the report submitted to the Tribunal by the Ld. SDR, with advance copy to the other side by 20-07-1988.
3. The appellants stated that the joint inspection should also undertake measurement of the diameter of the tubing, both before and after heating, as that would show whether the tube underwent shrinkage with application of heat or not. The learned SDR had no objection to this request of the appellants and he stated that this was so obvious."
In response to the directions of the bench, there was a joint inspection of the imported consignment. A copy of the same has been filed by the SDR vide covering letter dated 27th July, 1988. The same is attached with this order vide annexure 'A'. A simple perusal of the same shows that only seven carton numbers have been mentioned in the joint inspection report and package at serial No. 7 was not readily traceable and only six packages viz. carton Nos.'90, 70, 3, 26, 33 and 96 have been examined. The Tribunal in its miscellaneous order No. 41/88-A dated 3rd June, 1988 had ordered joint inspection of the full consignment relevant to appeal No. C/3014/87-A should be carried out and a report be submitted. We have already reproduced the relevant extract from the miscellaneous order No. 41/88-A dated 3rd June, 1988. Joint inspection report is only in respect of six cartons, whereas as per the description in the bill of entry there are 98 packages to be examined. Apparently the joint inspection report can be only relied upon for six numbers of cartons where actual joint inspection has been made. A close examination of the joint inspection report further reveals that ID and OD of HVTM 60/26-1410 B, HVTM 42/19-1420 B, SCTM 32/14-1650 BMD and SCTM 41/19-1420 B remains the same after the process of heating done with the electric blow gun. The appellants have all along contended that the goods imported are "beamed" and "unexpanded" and the appellants have to further process the same and have also attached the process of manufacturing pamphlets which appear on pages C-51, C-52 and C-53 of the paper book and the explanatory note which appears on page C-54 of the appellants' paper book clearly explains the sequence of the manufacturing processes. Page C-54 is reproduced below :-
"The tabulations shown as a part of this Annexure clearly bring out the sequence of manufacturing processes in our factory for each item listed in the Show Cause Memos.
All tubing listed as raw materials which undergo expansion are first subjected to a cutting process. They are matched to the sizes of mandrils selected for each expanded diameter (32mm, 42mm, 60mm and 65mm). During this process, it is necessary to ensure burr-free ends in order to obtain a high yield during the next step.
The tubing, at their original diameter (14mm, 19mm, 26mm, 25mm respectively) is then loaded into a Heating Chamber for elevation to specified process temperatures. It is then transferred at this temperature to an Expansion machine.
The Expansion cycle enables the tubing to exhibit its heat shrinkable characteristics (shape memory). The tubing cannot exhibit this characteristic in the form in which it is imported. Without this conversion the imported raw material is unusable for its intended application.
The Expanded tubing is now fed to a pneumatic sheer whose output is sized per batch to produce the full range of sizes for our cable connection systems.
For tubing layers exposed directly to the environment, the expanded tubing is coated with irradiated, non-tracking sealants to enable total sealing against moisture ingress, contaminants and direct splash water at extreme ranges of temperatures.
The tubing, now in a finished form arc ready for system assembly together with all other moulded parts, proprietary accessories and other standard earthing components."
Page C-51 of the paper book relates to manufacturing process at appellants' plant. A photo copy of the same is attached vide annexure 'B' of this order. Serial No. 5 of the joint inspection report pertains to invoice No. Y-33580 dated 15th October, 1986 and the description of the item is BB1T 65/25-PAC-A/U. Diameter before heating is ID 67, OD 70 and after heating ID 24 and OD 31. This reflects that this item is shrinkable. Shri Ravinder Narain, the learned advocate during the course of arguments had mentioned that in the invoice "B" stands for beamed and those are unexpanded and are raw materials. The Bench had ordered the complete examination of all the packages, whereas vide the joint inspection report only carton Nos. 90, 70, 3, 26, 33 and 96 were inspected and as such we can give our conclusion only in respect of the cartons inspected jointly. The manufacturing process has already been discussed above. Accordingly, we are of the view that item from serial Nos. 1 to 4 viz. HVTM 60/26-1410 B, HVTM 42/19-1420 B, SCTM 32/14-1650 BMD and SCTM 42/19-1420 B are finished raw materials. Only in respect of carton Nos. 33 and 96, we hold that the same are viz. BBIT 65/25-PAC-A/U and CICM 34/12-380/U are finished products and their import is not permitted under OGL. With these observations we direct the Collector to get the remaining cartons examined under his personal supervision in accordance with law and come to the conclusion for each carton whether it is a finished product or it is a raw material.
14. Now coming to invoice No. 33759 dated 15th October, 1986, we would like to observe that in the bill of entry the appellant had mentioned 98 packages and had not attached the said invoice with the bill of entry. The value of the goods is US $ 12,443.05 (fob) equivalent to Rs. 1,93,441.00. Bill of entry is a statutory document. The appellants cannot say that the same could not be filed unintentionally. The appellants' contention is that the total number of packages and the gross weight were clearly mentioned in the invoices and the total number of three invoices worked out at 86 packages and in the bill of entry 98 packages and the gross weight of 5167.79 lbs was mentioned. We confirm the findings of the Collector in this regard. However, we feel that the quantum of fine his highly excessive. To meet the ends of justice, we uphold the confiscation of the goods covered by invoice No.Y-33759 dated 15th October, 1986 under Section 111.(1) and (m) of the Customs Act, 1962. However, we reduce the redemption fine from Rs. 13,00,000.00 (Rs. thirteen lacs) to Rs. 3,50,000.00 (Rs. three lacs and fifty thousand only).
15. Now coming on the valuation aspect, we would like to observe that 74% of the equity shares of M/s. Radiation Technologies (India) Pvt. Ltd. are held by M/s. Raychem Radiation Technologies Inc. and M/s. Raychem Radiation Technologies Inc. is fully owned subsidiary of M/s. Raychem Corporation who are the suppliers of the goods in this case. Shri Ravinder Narain, the learned advocate, had referred to a judgment of the Supreme Court in the case of Collector of Customs, Bombay v. Maruti Udyog Ltd., Gurgaon in Civil Appeal Nos. 542-44 of 1988 order dated 26th April, 1989 where the revenue's appeal was dismissed and they had confirmed the findings of the Tribunal. The Tribunal had held that the supplier who owned equity shares in Maruti Udyog was not a related person. Shri Ravinder Narain has further argued that the revenue has heavily relied on the judgment in the case of OEN India Ltd. v. Collector of Customs, Cochin reported in 1984 (15) ELT 137 and Satellite Engineering Limited v. Union of India reported in 1987 (31) ELT 356. Shri Ravinder Narain had argued that all these judgments were before the pronouncement of the judgment in the case of Atic Industries reported in 1984 (17) ELT 323. Shri Ravinder Narain had argued that the mere fact that the foreign company had 74% equity shares holding with Radiation Technologies, an inference cannot be drawn that foreign company was a related company. He has also referred to Section 4(1)(a) of the Central Excises and Salt Act, 1944 and the same were pan materia with Section 14(1)(a) of the Customs Act, 1962. In the case of Maruti Udyog and Atic Industries, there was no incriminating evidence on record, whereas in the matters before us telexes are very much part of the record. Telex No. 1794 dated 10th October, 1986 which was seized from the importer's premises Shri Paresh Kapadia of M/s. Radiation Technologies (India) Pvt. Ltd. had informed one Mr. Phyllis Simon that Radiation Technologies (India) Pvt. Ltd. was an inter company with customer No. 992344 assigned to it and it was Raychem Corporation owned Indian Company and not a customer. From the price lists which were seized from the importer's premises it was evident that the prices at which the imported goods were being supplied by M/s. Raychem Corporation to the appellants were vastly different from the prices at which such goods were sold or offered for sale by M/s. Raychem Corporation to unconnected buyers in different parts of the world. In telex No. 956 dated 24th July, 1986 from Martin Parry addressed to Shri T.R. Chandrasekhar in respect of WCSM115/38, it was stated that: "Munich will drop ship material direct to you. Menlo will invoice you at the previously agreed white elephant list low price. Munich will invoice Menlo at the standard price list. Thus, Menlo takes the price variance." This telex further reads as under :-
"Note: It is essential that the paperwork for the shipment from Munich indicate only the low price otherwise you will be hit for excess duty."
It has also been stated in this telex that: "Harry can potentially supply your needs with WCSM, XCSM or MWTH. Please telex application details to him. Especially use range (installation diameter), wall thickness requirements, etc. He will look at the most suitable material that can be made available. I think these actions may solve the problem. Thank you for your help and understanding in this situation." Telex No. Bom. 0032 dated 3rd July, 1986 was for the supply of 5000 pieces of goods of description "Raygel". The suppliers were instructed to supply goods with elastomer and polyolefin loading but not to use the words "elastomer or polyolefin" in any of the documents. A number of price lists covering various types of goods were also seized. These price lists mostly marked as "Trade price lists" and "Distributor Price List" showed the prices at which goods listed therein were being offered for sale to buyers in all parts of the world. Shri Ravinder Narain, the learned advocate, pleaded that the price lists seized by the department pertained to the finished products. The word "B" which stands for "Beamed" and "BMD" is not there in the price list, whereas in the invoice the word "B"/beamed is there. The revenue, on the other side, has mentioned that there is no mention in the price lists whether the printed price list was in expanded form or unexpanded form. The revenue, on the other side, had contended that the appellants in their intimation to the DGTD had only mentioned the codes and diameters and the description given for the DGTD approved price list of imported components exactly tallies with the description given in the printed price list and if there was any difference in the product, the appellants would have accordingly intimated to DGTD. Shri Doiphode, the learned SDR argued that the stand taken by the appellants regarding code "B" was only "beamed" and not "expanded" goes contrary to the affidavit of the Vice-President which states the meaning of various codes and it is only the code AU-B which stands for being unexpanded, spooled, unquoted, whereas "B" and "BMD" stand for beamed. The conduct of the foreign suppliers to adopt any dubious method to grossly under-value the imported goods is very clear and in the background of such a conduct, the appellants' contention cannot be accepted. Hon'ble Supreme Court in the case of Collector of Customs, Madras and Ors. v. D. Bhoormull reported in 1983 (13) ELT 1546 had observed that the prosecution is not required to prove its case with mathematical precision to a demonstrable degree. Para No. 30 from the said judgment is reproduced below :-
"It cannot be disputed that in proceedings for imposing penalties under clause (8) of Section 167, to which Section 178-A does not apply, the burden of proving that the goods are smuggled goods, is on the Department. This is a fundamental rule relating to proof in all criminal or quasi-criminal proceedings, where there is no statutory provision to the contrary. But in appreciating its scope and the nature of the onus cast by it, we must pay due regard to other kindred principles, no less of fundamental, of universal application. One of them is that the prosecution or the Department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty is a myth, and as Prof. Brett felicitously puts it - "all exactness is a fake." El Dorado of absolute Proof being unattainable, the law, accepts for it, probability as a working substitute in this work-a-day world. The law does not require the prosecution to prove the impossible. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus legal proof is not necessarily perfect proof often it is nothing more than a prudent man's estimate as to the probabilities of the case."
The Tribunal had followed the judgment of the Supreme Court in the case of Collector of Customs, Madias and Ors. v. D. Bhoormull reported in AIR 1974 S.C. 859, in the case of Macneill & Magor Ltd. v. CC reported in 1987 (28) ELT 318. Relevant extract from para No. 4 from the said judgment is reproduced below :-
"Reverting to the quantum of proof required, if in an abstract case, it could be shown that a published list price of the goods was available, that the importers in general were importing the said goods at that listed price and that one particular importer declared on importation a price which was more than 100% lower than the listed price, there would indeed appear to be a very heavy onus shifted to that importer to explain how he got such a low price. While minor variations would not call for imposition of fine and penalty, a difference of more than 100% would appear to show the motive of the importer of which the authorities would be justified in taking a due notice. Under-invoicing and over-invoicing in the course of international trade are, like other present day white collar economic offences, sophisticated jobs. One does not get at direct and positive evidence like bogus invoices or documents relating to extra remittances just for the asking. Such evidence becomes available only rarely and that too when raids and searches are conducted on receipt of specific information. It is neither possible nor desirable to organise raids and searches in every case where the declared price is found to be appreciably low, particularly when other independent evidence, such as the published catalogue price coupled with the price actually charged in previous similar importations, can be adduced. The final conclusion, of course, must rest on the peculiar facts and circumstances of each case. We, therefore, do not accept the appellants' first proposition that just because no bogus invoice or other evidence of extra remittance had been discovered in their case, confiscation and penalty proceedings cannot be initiated against them."
In the case of OEN (India) Ltd. v. Collector of Customs, Cochin reported in 1984 (15) ELT 137, the Tribunal had held as under in paras 3 and 1.3 of the said judgment :-
"3. The main contention of the appellants is that OAK are an independent corporate body and their dealings with them are as a principal to principal only. They do not deny the fact that OAK have equity participation with the appellants to the extent of 45% of the capital (as per the agreement, the OAK was to supply their equity capital in the form of machinery and equipment) but strongly refute the charge that they have any special relationship. They maintain that their dealings with OAK are strictly based on commercial considerations. Further, both the parties have no interest in the business of each other except that OAK have financial stake in the appellants' company by virtue of being an equity holder. The appellants have maintained that the expression 'Collaborators', 'Associates' etc. used in the documents or the annual reports of the company have been loosely applied. For all practical purposes they are two separate bodies, deal with each other as principal to principal and the prices charged by OAK from the appellants are correct prices within the purview of Section 14(1) of the Act."
"13. We have given our deep thought to the various arguments advanced on behalf of the parties and have also gone through the voluminous record, including the additional evidence produced before us. We find that the most vital issue requiring our determination is about the exact nature of relationship between the appellants and OAK. The appellants' contention in this behalf is that their dealings with OAK are as principal to principal and they buy goods from them in the normal course of business on strictly commercial considerations. The case of the respondent, on the other hand, is that the appellants have special relationship with OAK and such relationship is reflected in financial and other spheres. In fact, Shri Nair went to the extent of stating that the appellants 'virtually belong to OAK'. We observe that the Collector has dealt with this issue in a very lucid manner in his order. It is seen that apart from the fact that OAK hold 45% of equity in the appellant company, there are other features which are a pointer that the two companies have interest in the business of each other. They have been having a common Chairman for several years. The appellants by virtue of an agreement with OAK, are entitled to an over-riding commission of 7 1/2% on imports of goods by independent buyers in India from OAK. The right to get over-riding commission is generally enjoyed by a sole selling agent. The sole selling agent, in turn, is recognised as a 'special relationship' in trade and commercial world. It is not quite clear to us as to why the appellant company was getting from OAK their inter-company price lists and other confidential price lists. An ordinary equity holder is not entitled to get such type of confidential information. Another intriguing feature in our view is as to why the appellants were supplying at periodical intervals to OAK financial and administrative statements pertaining to their functioning. The only plausible explanation for such a state of affairs is that OAK were monitoring the performance of the appellants. The right of a person or a corporate body having share holding in another company does not confer a right of this type. It may be difficult to go all along with Shri Nair's contention that the 'appellants belong to OAK'. Nevertheless, it is clear that the appellants and OAK have common commercial interests other than those arising from the OAK having a portion of the equity in the appellant company. In view of the factors stated above we concur with Collector's finding that imports made by the appellants had to be assessed under Section 14(1)(b) of the Act."
Para Nos. 5 and 21 from the judgment of the Bombay High Court in the case of Satellite Engineering Ltd. and Anr. v. Union of India and Ors. reported in 1987 (31) ELT 356 are reproduced below :-
"5. On 10th July, 1974 the appellants replied to the show cause notice. They stated that they were not the direct purchasers of the said tubing from Chance and as such, were not aware of the price at which Chance sold it. The appellants were in technical collaboration with Kupfer who had supplied and would be continuing to supply them with technical information and know-how. Under the collaboration agreement between the appellants and Kupfer, the appellants were committed to Kupfer to import from Kupfer alone the raw material required for the manufacture of starter switches. The appellants referred to letters written by Kupfer to Chance asking that Chance deal with them on a preferential basis."
"21. This brings us to consider the price at which the tubing was offered for sale. Mr. Talyarkhan submitted that the appropriate price in this regard was the price of £ 0.34 per Kg. that was quoted to the appellants by Chance. The appellants' reply dated 10th July, 1973 to the first show cause notice issued to them is relevant in this regard. The appellants there stated that they were "in technical collaboration with" Kupfer who were manufacturers of starter switches for fluorescent tubes. Kupfer had supplied to the appellants and would continue to supply to them technical knowhow and information for the manufacture of such switches. Under the collaboration agreement with Kupfer the appellants were committed to Kupfer for importing raw material from them alone for the manufacture of starter switches. Kupfer had written to Chance asking Chance to deal with the appellants "with preference". Because of their collaboration with Kupfer, Kupfer and other manufacturers in the United Kingdom protected the appellants' interests. It is clear from this letter that a price quoted to the appellants by Kupfer or Chance or any other manufacturer of raw material in the United Kingdom cannot be accepted, at least without corroboration, as the assessable value of the said tubing for the purposes of Customs duty. There is no corroboration of this price. In fact, the price quoted by Chance to the unnamed inquirer becomes the more credible by reason of the appellants' statements in the communication dated 10th July, 1973. It is obvious that by reason of Kupfer's interest in the appellants' business, Kupfer had prevailed upon Chance to deal preferentially even in the matter of price with the appellants. It is, therefore, not possible to accept the submission that the price of £ 0.340 per Kg., quoted by Kupfer to the appellants in the letter dated 7th November, 1973, should be accepted as the assessable value of the said tubing for the purposes of Section 14."
16. In view of the above discussion, we hold that there was under-valuation. The appellants' declaration to DGTD does not mention whether the goods are beamed or unexpanded. In view of the telexes and price lists seized from the appellants, we are of the view that there was under-valuation. We uphold the findings of the Collector. The invoices relied upon by the Collector also do not show the word "B" or "unexpanded". However, joint inspection of 7 packages cannot be denied. Valuation in respect of package No. BBIT 65/25-PAC-A/U stated in the earlier para, we have held it to be a finished product, has been enhanced by the Collector. There is also no discussion on this aspect. In view of the above discussion, we are of the view that in the instant matter, the invoice price cannot be accepted. Value has been adopted on the basis of the US price list. We observe that provisions of Section 14(1) (b) of the Customs Act, 1962 read with Customs Valuation Rules have to be resorted to. The appellants had declared the value of the goods at Rs. 6,84,554.00 and whereas the revenue had assessed the same at Rs. 74,78,870.00 and had also ordered the confiscation of the goods of the value of Rs. 59,05,870.00 under Section 111(d) of the Customs Act, 1962 and had further ordered for the redemption of the same on payment of fine of Rs. 38,00,000.00 (Rs. thirty eight lacs) and penalty of Rs. 20,00,000.00 (Rs. twenty lacs) was also imposed. In earlier paras we have ordered the examination of the remaining packages. We are of the view that the fine and penalties imposed are highly excessive. The Collector to refix the fine and penalty after taking into consideration the gravity of the offence. The revenue authorities are directed to give consequential effect to this order in view of our above observations. Except for this modification, the appeal is otherwise rejected.