Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs And Central Excise vs General Marketing And Mfg. Co. Ltd. on 21 December, 1993
Equivalent citations: 1994(52)ECR399(TRI.-DELHI)
ORDER G.R. Sharma, Member (T)
1. These are two appeals, one filed by the Collector of Customs, Madras and the second filed by M/s General Marketing & Mfg. Co. These two appeals arise out of the same order and therefore are being disposed of by common order.
2. These appeals have been filed by the appellants against the order of the learned Collector of Customs (Appeals). As the imports in this case took place between 1986 and 1991, the learned Collector divided the entire issue in two parts; (a) Imports prior to 16.8.1988 covered by Customs Valuation Rules, 1963 and (b) Imports on or after 16.8.1988 covered by Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
3. On the 1st issue namely Customs Valuation Rules. 1963f in his order, the learned Collector held that the position regarding the valuation of goods under Section 14 of the Customs Act, 1962 prior to 16th August, 1988 however, would be different since under the pre-amended Section 14, there was no legal recognition of the concept of transaction value. After consideration of the case law and other relevant material on record and the various submissions made by the appellant before the learned Collector (Appeals) he held that "while the method adopted by the Assistant Collector to arrive at the set percentage of loading is neither rational nor legal in as much as he has sought to determine the percentage of loading on the basis of amount of Commission received without taking into account the comparative description and value of goods imported by the third parties during the relevant period, I would like to consider the addition of 8.3% not unreasonable." Against this portion of the order passed by the learned Collector (Appeals), M/s. GMMCO have come, in appeal.
4. On the IInd issue, the learned Collector observed "Appellants have claimed that they have satisfied the conditions for acceptance of their invoice price representing transaction value envisaged under Rule 4 of the Customs Valuation Rules, 1988 which provides that the transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rules 9 of these rules. It however provides that such price actually paid or payable would be accepted as transaction value provided the conditions in the proviso to Sub-rule (2) of Rule 4 are satisfied. The appellant has been allowed to operate only in certain geographical territory which restriction is permissible under Sub-rules (2) Clause (a)(ii) of Rule 4. None of the conditions specified under the said proviso are applicable to the facts of this case for rejecting the invoice value as representing transaction value within the meaning of Rule 4." Discussing the interpretative notes on price actually paid or payable "Rule 4 clarifies that activities undertaken by the buyer on his own account other than those for which an adjustment is provided for under Rule 9 are not to be considered to be an indirect payment to the seller. Interpretative notes further clarify in the context of Rule 4(2)(b) of the Valuation Rules that conditions and considerations relating to production or marketing of the imported goods shall not result in rejection of the transaction value." The learned Collector (Appeals) held that "The invoice price in respect of imports made by the appellant company on their account would constitute ' transaction value within the meaning of Rule 4 of the Customs Valuation Rules, 1988. The loading of 8.3% to the CIF value of such goods by the lower authority therefore is not sustainable and is accordingly set aside." Against this part of the order, the Department has come up in appeal.
5. Briefly stated the facts of the case are that M/s. GMMCO entered into a sales and service agreement and distribution agreement for engines, parts and exchange components with M/s. Caterpillar Far East Ltd., Singapore for selling and supporting CFEL equipment by supply of imported spare parts to actual users. An intimation to this effect was sent to the Customs House in March 1986. In terms of the valuation circular issued by the Collector of Customs, Madras, M/s. GMMCO was directed to resort to provisional assessment with 20% extra duty deposit until the nature of transaction was gone into and the assessment finalised. Apart from the imports of attachment, parts and exchange components by M/s. GMMCO from M/s. CFEL for re-sale in their service territory M/s. GMMCO also imported these parts on the strength of letter of authority for certain actual users like OMGC, BEML. M/s. GMMCO maintained that the transaction relating to goods imported by them on their account for re-sale is on principle to. principle basis and as such invoice price alone should be the basis for levy of customs duty. M/s. GMMCO received certain amount as commission from the foreign supplier in respect of imports by actual users. In the absence of comparative price and total value of such imports, the Assistant Collector while adjudicating the case took into account value of imports during 1989-90 and Commission received by M/s. GMMCO. After allowing adjustment by way of commercial level of imports to the extent of six per cent and adjustment for diagnostic and after-sale service to the extent of five per cent of the said commission amount, the Assistant Collector loaded the CIF value of imports by 8.3% both under Customs Valuation Rules, 1963 for imports prior to 16.8.1988 and Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 for imports on or after 16.8.1988 holding the appellant as a related person by recourse to Rule 8 of both the Rules. M/s. GMMCO inter alia submitted that they were one of the very many dealers appointed by M/s. CFEL for buying and selling of various items manufactured by M/s. CFEL who had world-wide price list applicable universally in respect of dealers; that in India there were two other dealers namely, M/s. Tractors India Ltd. and M/s. Hindustan Motors Ltd.; that M/s. GMMCO was only one of the dealers in India; that the price applicable for the purchase by M/s. GMMCO was the same as one applicable to other dealers; that M/s. GMMCO were not sole selling agents and were not even a sole selling dealer.
6. Explaining the nature of business M/s. GMMCO submitted that they purchase, stock and re-sale various items relating to caterpillars, earthmovers and other allied items, that at any given time M/s. GMMCO have to maintain inventories of Rs. 4 to 5 crores worth of spare parts; that they maintain selling outlets in various parts of India; that in its capacity as a specialised agency in the field of diagnostic and servicing the needs of actual users; that they render services as required by such users; that in such cases the actual users are not required to import and stock the parts; that sales to actual users by M/s. CFEL were on retail basis which naturally has to be at a higher price than the wholesale price applicable to the commercial level of wholesale dealers; that in such Cases of direct retail sales by M/s. CFEL to actual users M/s. GMMCO who had rendered the diagnostic and other related services to the actual users is compensated by the foreign party and such compensation is paid to M/s. GMMCO by M/s. CFEL through bank channel; that the commercial level of wholesale purchases by the dealers in India from M/s. CFEL indicated a fair, standard and stable commercial price applicable to all dealers; that the price list of M/s. CFEL list out dual price, one captioned as dealers' price and the other as suggested consumer price; that the dealer's price is the price on which the goods are supplied to dealers while the suggested consumer price is the one applicable to third party customers other than the dealers; that M/s. GMMCO are stockists of Caterpillar products to be sold by them in Indian market; that M/s. GMMCO are not exclusive dealers; that M/s. GMMCO are rendering certain administrative and diagnostic after sales service to the actual users who purchase Caterpillar products directly from M/s. CFEL or locally from any one of the dealers; that M/s. GMMCO has in this connection undertaken to render diagnostic and after sale service to all actual users; that M/s. GMMCO are entitled to get a commission for having affected the third party import; that the commission payable to M/s. GMMCO is repatriated by credit notes issued by the suppliers.
7. On the question of special relationship between M/s. GMMCO and M/s. CFEL, the Department was of the view that M/s. GMMCO was definitely related to the foreign suppliers and their relationship influenced the pricing pattern of M/s. CFEL vis-a-vis those of third parties. In support of this relationship the department relied on various clauses of the agreement which provided for fully and adequately developing and promoting the sale to customers and for the servicing of all the products; that the agreement provided for that during the life of this agreement M/s. GMMCO will avoid any affiliation whether by way of capital investment source of capital, common management, common ownership or otherwise except to the extent that the company may otherwise agree in writing; that M/s. GMMCO agreed that such individuals will continue in the active management of dealer or still continue to own a substantial financial interest in dealer; that M/s. GMMCO agreed that no substantial change shall be made in the management position, ownership of voting control of such principals without prior approval of M/s. CFEL; that on dealers solicited users orders accepted by M/s. CFEL, M/s. CFEL will credit to dealer a commission equal to the amount, if any, by which the price (exclusive of additions) proposed by dealer for billing to the customer exceeds the price payable by dealer (after deducting any available discounts) on a purchase by dealer of the same products which are the subject of the dealers solicited user order; that in determining the adequacy of dealers sales efforts, it was agreed that primary consideration shall be given to a dealer's sales achieved in his service territory and as compared with the sales achieved by these dealers of the company selling the same product and dealers action with respect to improvements in his operations; that M/s. GMMCO agreed to render prompt competent, diagnostic and administrative services within the territory assigned to it; that M/s. GMMCO also agreed to render or provide for delivery services of inspection and warranty services on products; that M/s. GMMCO agreed to develop and execute the promotion and market development programmes to support sales of the product of M/s. CFEL; that M/s. GMMCO agreed to deliver to M/s. CFEL; reports as to machines and replacing engines and such information regarding the ownership, financial conditions and operations of M/s. GMMCO together with any subsidiary and related companies and also at the close of the fiscal year to deliver audited financial statement consisting of Balance Sheet and a statement of the result of operation.
8. On the basis of the above conditions in agreement the Department was of the view that though the importing concerns are not related to the suppliers by way of sole selling agency relationship, there were sufficient grounds in the form of various conditions imposed to infer controllability of the Indian company by the foreign suppliers. The Department also contested that if the conditions referred to in the preceding paragraphs are taken together, the foreign company namely M/s. CFEL exercised control over the Indian company namely M/s. GMMCO in token to mutuality of interest compensated it by paying commission, as a result of which there existed a relation within the meaning of Rule 2(2) of the Customs Valuation Rules, 1988. The department therefore was of the view that besides the existence of the dual pricing system whereby the dealers are shown a preferential treatment would go against the substance of. Section 14(1) of the Customs Act, 1962 which clearly lays down that the value of the imported goods would be deemed to be the price at which such or like goods are ordinarily sold or are 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 whereby seller and the buyer had no interest in the business of each other and the price is the sole consideration for the sale and offered for sale. In the light of the statutory provision acceptance of different values for different classes of importers would appear to be in accordance to the substance of the statute.
8A. Shri T.K. Rama Subramanian, the learned Advocate appeared for M/s. GMMCO Ltd., and submitted that the appellant is only one of the non-exclusive dealers and not the sole selling agent; that now the question of agency functioning does not subsist; that they are the stockist who hold stock for re-sale and carry large inventories; that there are two prices of M/s. CFEL which are applicable world-wide; that the first is the net dealers' price which is applicable to all dealers and the second is the suggested consumer price which is applicable to actual users; that the dealers' price is lower than the suggested consumer price; that any government agency like ONGC and BEML buying directly from M/s. CFEL would irrespective of the offtake be teated as retail buyers and would be invoiced at the suggested consumer price; that transaction value based on net dealers' price should alone be the assessable value under Section 14(1) of the Customs Act, 1962; that since all requirements for accepting the net dealers' price were fully satisfied and there was no scope to warrant the application of any provision of Rule 2(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 or for that matter Rule 8 of the Customs Valuation Rules, 1963; that Rule 2(2) or Rule 8 cited above can be invoked only if the transaction value is not supportable for the reason that the price is not the sole consideration in respect of the imported goods and more importantly, the importer and seller are related persons in terms of Rule 2(2) of the Customs Valuation Rules, 1988; that the learned Collector (Appeals) held that import on or after 16.8.1988 shall be covered by the invoice price in terms of Rule 4; that the Collector (Appeals) also held that for imports prior to 16.8.1988, the invoice price shall be loaded to the extent of 8.3%; that for loading of the invoice price to the extent of 8.3% the learned Collector (Appeals) relied on the Judgment of the Tribunal in their own case. Distinguishing the Judgment of the Tribunal in their own case on which the Collector relied for coming to the conclusion as indicated above, the earned Counsel for M/s. GMMCO submitted that in the present agreement, there is an express provision to the effect that the relationship between the two would be of an independent contractor and vendor/vendees; that M/s. GMMCO is only one of the nonexclusive dealer for the territory to which the agreement applies; that in the present case the question of agency functioning does not subsist; that M/s CFEL did not pay the commission to M/s. GMMCO based on fixed percentage; that in instances where the third parties like Government agencies purchase directly from M/s. CFEL consequent upon the diagnostic services being rendered to them by M/s. GMMCO, M/s. CFEL reimburse M/s. GMMCO by an amount that it estimated would cover M/s. GMMCO's cost; that such reimbursement were by way of credit to an account current of M/s. GMMCO with their principals; that these amounts by their very nature were not fixed percentage of invoice value but were direct reimbursement of cost not bearing any relationship to quantum or value of the goods purchased by third parties; that the above mentioned points were not considered by the Tribunal in passing its order for not accepting its invoice value and the same order was used by the learned Collector in the instant case; that there were overwhelming evidence to show that the facts in both the cases are distinguishable and that the points considered by the Tribunal do not apply to the instant case The earned Counsel for M/s. GMMCO prayed that in the circumstances the order of the learned Collector (Appeals) in so far as loading of the CIF value by 8.3% in respect of imports prior to 16.8.1988 is concerned was neither valid in law nor based on facts and therefore prayed that the order may be set aside.
9. Shri A.K. Singhal, the learned JDR appearing for the Department read copiously from the agreement between M/s. CFEL and M/s. GMMCO Ltd. In support of his contention that there was special relationship created by the agreement between M/s. CFEL and M/s. GMMCO, he referred to various sections of the agreement and submitted that there were conditions such as the foreign company has right to demand that no substantial change may be made in the management position, ownership or voting control without prior approval of M/s. CFEL; that the Indian company was responsible for fully and adequately developing and promoting sales and servicing of all products; that the Indian company agreed that during life-time of this agreement it will avoid any such affiliation whether by way of capital investment, source of capital, common management, common ownership or otherwise except to the extent that the foreign company may otherwise agree in writing; that the Indian company agreed that the foreign company relies upon the qualifications and abilities of the particular individuals named as principals; that such individuals will continue in the active management of the Indian company or will continue to own a substantial financial interest for the Indian company; that no substantial change shall be made in the management positions, ownership or voting control of such principals without prior approval of foreign company; that the Indian company agreed that location of any additional places of business and the relocation or abandonment of any existing places for business may only be made with the consent of the foreign company given in writing; that the Indian company had agreed to perform all product improvement programme announced by the company; that the Indian company was required to provide inspection service, warranty service; that the Indian company also agreed to give complete itemised inventory to the foreign company within 30 days of notice; that the Indian company agreed to furnish information respecting ownership, financial condition and operation to the foreign company; that the Indian company agreed to submit the audited financial statement to the foreign company at the close of the Indian company's fiscal year. The learned JDR submitted that though M/s. CFEL and M/s. GMMCO were not related by way of sole selling agency relationship, yet there were sufficient grounds in the form of various conditions imposed and cited above to infer that the Indian company was controlled by the foreign suppliers. The learned JDR therefore submitted that the learned Collector (Appeals) had erred in holding that there was no special relationship between the two companies, and therefore there was no question of loading the CIF value of imports by the Indian company by 8.3% after 16.8.1988. He, therefore, prayed that the order of the Collector (Appeals) to this effect namely accepting transactions value on or after 16.8.1988 may be set aside.
10. Heard the submissions made by both the sides. Perused the evidence on record, various provisions of the agreement referred to by the two sides as also earlier Judgment of the Tribunal and considered them.
11. As indicated earlier there are two issues involved in the appeal. One pertains to valuation of imports prior to 16.8.1988 covered by the Customs Valuation Rules, 1963 and the second pertains to Valuation (Determination of Price of Imported Goods) Rules, 1988.
12. As we have seen earlier that in respect to the first issue, the learned Collector (Appeals) agreed with the findings of the Assistant Collector directing addition of 8.3% to the value. Against this finding of the Assistant Collector confirmed by the learned Collector, M/s. GMMCO have filed the appeal. Against the 2nd issue pertaining to valuation of imports on 16.8.1988 or after covered by the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 in which the learned Collector (Appeals) did not agree with the findings of the Assistant Collector and held that the appellant has satisfied the condition for acceptance of their invoice price representing transaction value envisaged under Rule 4 of the Customs Valuation Rules, 1988. Against this finding of the learned Collector (Appeals), the Department has come in appeal.
13. Before examining the submissions and rendering the findings on each issue we have before us for consideration the following material:
(a) Various stipulations in the Sale & Service Agreement showing special relationship;
(b) Dual system of pricing, namely (i) dealer's net price, (ii) suggested consumer's price. Dealer's net price is always less than the suggested consumer's price;
(c) Categories of imports namely (i) imports as dealers by M/s. GMMCO, (ii) imports by M/s. GMMCO under L/A system for actual users at dealers' net price, (iii) direct imports by actual users at prices inclusive of commission payable to M/s. GMMCO;
(d) Relevant Valuation Rules namely Customs Valuation Rules, 1963 covering the imports prior to 16.8.1988 and Customs Valuation (Determination of Price of Imported Goods) Rules, 1988;
(e) The decision of the Tribunal in an earlier case of Collector of Customs v. M/s. GMMCO.
14. (a) SALE AND SERVICE AGREEMENT:
We find that the Department have referred to certain provisions in the agreement indicating control exercised by the foreign company on the Indian company in as much as there was a provision in the agreement that no substantial change could be made by the Indian company in the management position, ownership or voting control without prior approval of the foreign company; that the Indian company agreed to avoid any affiliation by way of capital investment, source of capital, common ownership or otherwise except to the extent the foreign company agreed in writing; that the agreement provided for furnishing all information on ownership, audited financial statement consisting of the balance sheet at the close of financial year and the result of such operations. On the other hand, M/s. GMMCO in their reply to the investigation circular submitted that they are not related with any local manufacturer of the product of the foreign supplier; that they did not have any foreign collaboration; that they have not paid any amount directly or indirectly to the foreign suppliers for the engineering development work, design work etc.; that there are no common directors in the two companies; that they are not partners; that they are not controlled directly or indirectly or hold equity shares worth 5% or more in the Indian company. Examining the above two views we find that the conditions of the sales and service agreement do indicate that the foreign company exercises sufficient control over the working of the Indian company. The manpower, the finance, the accounts, the inventories, the associates etc. are all decided in consultation or with the consent of the foreign company. This control cannot be termed as control in the normal course of business ordinarily exercised in international trade. But the control is such as can be termed that the foreign company directly and indirectly controls the Indian company. We are, therefore, of the view that these stipulations create special relationship between the two companies and clearly establish that the Indian company was controlled to a great measure by the foreign company. Examining thisin the light of the provisions of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, we find that the case falls under Rule 2(2)(v). In the interpretative notes in Rule 2(2)(v), it has been stated that for the purpose of these rules, one person shall be deemed to control another when the former is legally or operationally in a position to exercise restraint of direction over the latter. If we examine the stipulations for the sale and service agreement in the light of these interpretative notes under Rule 2(2)(v), we find that M/s. CFEL Ltd. controls legally and operationally the operations of M/s. GMMCO and exercises restraint or direction over M/s. GMMCO.
(b) DUAL SYSTEM OF PRICING:
We can also say that there is mutuality of interest between the two companies. This mutuality of interest on the one hand is exhibited by the special stipulations in the nature of restraints/control in the sale and service agreement, and compensated by dual pricing by having a lower price designated as dealer's net price in comparison to a higher price as suggested consumer's price. In addition whenever any purchases are made by actual consumers or third parties on the recommendations of M/s. GMMCO, they are reimbursed amounts in the name of administrative and diagnostic service charges but recorded in the balance sheets of the Indian company as commission. The contention of M/s. GMMCO is that it is not a fixed percentage of the price but is based on the services rendered and determined as such by the foreign company. However, from the stipulations in the agreement we find that the amount of the diagnostic and administrative services is indicated by the Indian company and reimbursed by the foreign company by debiting the amount in the personal account of M/s. GMMCO maintained with M/s. CFEL. Thus the amount even if not reimbursed as a percentage of the price, nevertheless this is an amount which is paid by the foreign supplier to M/s. GMMCO. This amount is very material for showing that the price charged from M/s. GMMCO by the foreign company is not the sole consideration but is over and above the amount of the transaction or invoice price. This amount may be given any name, nevertheless the fact remains that this amount is a compensation for the goods supplied to or through M/s. GMMCO for the special relationship that exists between the two companies. Dual pricing shows that the difference between the dealer's net price and the suggested consumers price is of the order of 22 to 25 per cent whereas the administrative and diagnostic service charges on an average come to 19.3% as calculated by the lower authorities.This amount was accounted for by M/s. GMMCO as commission. This dual pricing also shows that M/s. GMMCO controls pricing of 3rd parties.
(c) CATEGORIES OF IMPORTS:
It would be seen from the evidence on record that M/s. GMMCO import goods from M/s. CFEL on their own account on dealers' net price which is 22 to 25 per cent less than the suggested consumers price. Indian company's imports comprise of spare parts only and hence the investigation was taken up and limited to spare parts only. The second category of imports by M/s. GMMCO are under letter of authority system for which they charge for diagnostic and administrative services. Under this category, total amount of commission that they got worked out to 19.3%. The third category of imports form the foreign company was direct imports by actual users. If actual users approach M/s. GMMCO, they may sell such spares directly to the actual users out of their stocks or they recommend the actual users to place an order with M/s. CFEL. In this case also M/s. GMMCO was entitled to a commission for, effecting third party imports. Actual users are always billed at the suggested consumers price which is between 22 to 25 per cent higher than the dealers' net price. It is also seen that in all three categories of imports M/s. GMMCO get the advantage of purchasing either at lower price or they get compensated in the form of diagnostic or administrative service charges. Commission is always repatriated to M/s. GMMCO but no such commission was repatriated for dealers like M/s. Tractors India Ltd., and M/s. Hindustan Motors who are the other two dealers of the foreign company in India in as much as M/s. GMMCO is. and has been importing Caterpillar spare parts at dealer's net price and none others. In the normal course, the price of the dealer should be brought at par with the suggested consumers price to include the diagnostic and administrative service charges normally payable to the dealers. Dealers themselves have imported the goods, at dealers net price which is 22 to 25% less than the suggested consumers price. It may, therefore, be inferred that the dealers net price does not include the selling commission for the fact that there is special relationship between the foreign supplier and the Indian company.
(d) RELEVANT VALUATION RULES:
(i) Customs Valuation Rules, 1963 and Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 are applicable to present case as the imports covered the period from 1986 to 1989. The dividing line for the applicability of these two rules is 16.8.1988. For imports prior to 16.8.1988, Customs Valuation Rules of 1963 will apply. Value under Section 14(1)(a) was ascertainable. Section 14(1)(a) reads as under:
the price at which such or like goods are ordinarily sold, or offered for sale for delivery at the time & 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 of sale.
For imports on or after 16.8.1988, Customs Valuation Rules, 1988 will apply. We have already held in the preceding paragraphs that the case of the Indian company is covered by Customs Valuation Rule 2(2)(v) of the 1988 Rules for imports after 16.8.1988. As the sale and service agreement is common for the two periods and special relationship has been established, Rule 8 of the Valuation Rules shall be applicable for arriving at the value.
(ii) By process of elimination as examined by the Assistant Collector, Rule 8 of the Customs Valuation Rules will be applicable which lays down the residual method of determining the value. For the sake of convenience, Rule 8 of the Customs Valuation Rules, 1963 and Customs Valuation Rules, 1988 is reproduced:
(iii) Customs Valuation Rules. 1963 (Rule 81: "If the value of imported goods cannot be determined under the foregoing provisions, the proper officer shall, after taking into account all relevant material which he has gathered, determine the value to the best of his judgment." (iv) Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (Rule 8): Residual Method: "(1) Subject to the provisions of the Rule 3 of this rule, where the value of imported goods cannot be determined under the provisions of any of the preceding rules, the value shall be determined using reasonable means, consistent with the principles and general provisions of these Rules and Sub-section (1) of Section 14 of the Customs Act, 1962 (52 of 1962) and on the basis of data available in India.
(2) No value shall be determined under provisions of these Rules on the basis of--
(i) the selling price in India of the goods producedin India;
(ii) a system which provides of the acceptance for customs purposes of the highest of the two alternative values;
(iii) the price of the goods on the domestic market of the country of exportation;
(iv) the price of the goods for the export to a country other than India; (v) minimum customs values; or (vi) arbitrary or fictitious values.
Interpretative note on Rule 8 lays down that (1) Value of imported goods determined under the provision of Rule 8 should, the greatest extent possible, be based previously determined customs values.
(2) The methods of valuation to be employed under Rule 8 may be those laid down in Rules 4 to 7, inclusive, but a reasonable flexibility in the application of such methods would be in conformity with the aims and provisions of Rule 8.
(3) Some examples of reasonable flexibility are as follows:
(a) Identical goods:--The requirement that the identical goods should be imported at or about the same time as the goods being valued could be flexibly interpreted; identical imported goods produced in a country other than the country of exportation of the goods being valued could be the basis for customs valuation; customs values of identical imported goods already determined under the provisions of Rule 7 could be used.
(b) Similar goods:--The requirement that the similar goods should be imported at or about the same time as the goods being valued could be flexibly interpreted; imported goods produced in a country other than the country of exportation of the goods being valued could be the basis for customs valuation; customs values of similar imported goods already determined under the provisions of Rule 7 could be used.
(c) Deductive method:--The requirement that the goods shall have been sold in the "condition as imported" in Rule 7(1) could be flexibly interpreted; the 90 days requirement administered flexibly.
(v) We shall first deal with the question relating to valuation of goods in accordance with Customs Valuation Rules, 1963. It would be seen that Rule 8 is the Residuary Rule which inter alia lays down that if the value of the imported goods cannot be determined under the foregoing provisions, the proper officer shall after taking into account all relevant material which he has gathered, determine the value on the basis of his judgement.
(vi) On the question of computation to arrive at the loading/adjustment factor in terms of Section 14 of the Customs Act, 1962, we find that general principals of financial accounting will not be applicable, as we are neither concerned with the profit aspect nor with determination of assets and liabilities in the balance sheet. Here in this case, we are concerned with determination of assessable value. Further there is no uniform level nor a standard for determining the commercial level difference or for the post importation cost. These vary from case to case because of the particular nature of goods and facts and circumstances of the cases.
(vii) From the records placed before us we find that the Assistant Collector proceeded to determine the loading factor observed "that there is neither a uniform pattern nor a set standard for quantum of discount to be allowed which is mostly dependent upon the individual facts and circumstances and type of goods in question." He also observed that what is required to be considered is the individual facts and circumstances and merits of the case and to be viewed on the basis which is consistent with the values envisaged under the rules. He went on further to say that the importers in fact clearly admitted that they agreed to the mode of computing the loading/adjustment factor and then arrive at the decision that the value of imports made by M/s. GMMCO are liable for loading/adjustment by 8.3% of CIF value both under Customs Valuation Rules, 1963 and Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The learned Collector (Appeals) in his order has at one stage observed that by the loading of 8.3% to the CIF value of such goods by the lower authorities, therefore, is not sustainable and is accordingly set aside, in terms of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. At the other place, he observed that the Assistant Collector has allowed 8.3% to CIF value of imports by appellant to determine the value. While the method adopted by the Assistant Collector to arrive at the said percentage of loading, it is neither rational nor legal in as much as he has sought to determine the percentage of loading on the basis of amount of commission received without taking into account the comparative description and value of goods imported by the other parties during the relevant period.
(viii) On analysis of the dual pricing system, we find that the difference between the dealers net price and the suggested consumers -price is somewhere between 22 to 25%. We also observe that the commission received by M/s. GMMCO from the foreign company works out to 19.3%. As a matter of fact this 22-25% and 19.3% constitute additional consideration because of the special relationship and therefore should have been the loading factor. However, we find that the Assistant Collector has examined this aspect in greater detail and worked out the loading factor after taking into consideration all the aspects of the question and therefore we find that the observation of the learned Collector (Appeal) that this loading factor is neither rational nor legal, is neither based on facts nor the appreciation of the reasonable attitude that the Assistant Collector adopted in deciding the loading factor. There may be various opinions as to the quantum of various considerations that went into deciding the loading factor, we feel that the position was examined rightly in the facts and circumstances of the case by the Assistant Collector and his decision as quoted elsewhere in the preceding paragraph is more reasonable in the circumstances. We, therefore hold that the loading factor of 8.3% is sustainable in law also.
(E) DECISION OF THE TRIBUNAL:
M/s. GMMCO Ltd.'in their submissions submitted that the learned Collector (Appeals) was influenced by the Tribunal's decision in their own case in which the Tribunal had held that "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 price paid for imports by others which did meet the said test. The price paid by the others and which include the buying commission of 18% was therefore the price at which the goods were ordinarily sold or offered for sale and it was ascertained. The lower authorities were correct in assessing the appellants' imports also on the basis of the said higher price paid by all others." The main thrust of the arguments was that the decision of the Tribunal in this case is distinguishable from the facts of the present case in as much as (a) the sales and service agreement with M/s. CFEL clearly indicates that M/s. GMMCO was not functioning as an agency of the foreign supplier; (b) that there was a specific provision in the sales and service agreement covering the imports in the case before us clearly stated that relationship between the foreign supplier and the Indian company was that of a contractor/vendor/vendees; (c) that GMMCO was one of the non-exclusive dealers; (d) that there were two more dealers namely Tractors India Ltd. and Hindustan Motors who deal in the goods supplied by the foreign company. The Tribunal in the case had before it two issues namely (i) which was the price at which the goods were ordinarily sold or offered for sale--the one paid by the appellants or one paid by the other, (ii) was the price paid by the appellants the sole consideration for the sale?
15. On the 1st issue, the Tribunal held that when every other importer of spare parts had to pay 18% higher price, the lower price available to the appellants alone could not be said to be the price at which the goods were ordinarily sold or offered for sale. On the 2nd issue, the Tribunal held therefore it cannot be said that invoice price of the appellant was the sole consideration for the sale.
16. In the case before us we find that in addition to M/s. GMMCO, there are two other dealers in India. However, these three dealers work in specified service territories.There was a specific provision in the agreement that spare parts were imported at net dealers' price only by M/s. GMMCO. Whereas M/s. GMMCO were given administrative and diagnostic service charges for orders booked by them for import of attachments, parts and exchange components; others were not. The two other dealers had different contracts and were not extended the same facility. We also find that there are two prices. One is the dealers net price and the other is the suggested consumer price. The dealers net price is 22-25% less than suggested consumers price. This price is in respect of spare parts which are imported by M/s. GMMCO only. Every third party had to place its indents for purchase of these spare parts from M/s. GMMCO at the suggested consumer price. In a situation like this when every actual user of spare parts had to pay 22-25% higher price, the lower price available to the dealers could not be said to be the price at which the goods were ordinarily sold or offered for sale. The contention of M/s. GMMCO that they were not functioning as an agency is not supported by the facts on record in as much as the type of control exercised over them and the compensation given to them in the form of dual pricing and diagnostic charges in respect of third party orders indicated clearly that M/s. GMMCO had a special relationship with M/s. CFEL. Similarly though the sales and service agreement mentioned that M/s. GMMCO was a non-exclusive dealer and in addition to GMMCO there were two other dealers yet executing different agreements and giving the specific service territory to each dealer shows that M/s. GMMCO was an exclusive dealer. This observation is further supported by the fact that two other dealers never repatriated any commission paid by the foreign supplier.
17. Now coming to the case law cited by M/s. GMMCO in support of their contention, we observe as under:
(a) Case of M/s. Babcock Pvt. Ltd. v. Collector of Customs, Bombay: In this case the Tribunal had observed that the onus of proving mis-declaration regarding the price mentioned in the Bill of Entry is on the Department and that this onus can be discharged only on proof of proper factors which would discard the price mentioned in the Bill of Entry and not on the basis of mere suspicion and surmise. In the case before us, we find that the facts are very clear. There are two prices, one for dealers and the other for consumers. Secondly, M/s. GMMCO was getting a commission to the extent of 19.3% of the CIF value of imports and therefore the facts of the case before us are different from the facts of the case relied upon by M/s. GMMCO.
(b) Case of Janata Traders, Bombay v. Collector of Customs, Bombay reported in 1980 (34) ELT 65 : 1987 (13) ECR 685 (Cegat SB-A): The Tribunal in this case observed that the department has not produced sufficient evidence to show that the goods identical to those imported by the as-sessees were being ordinarily sold or offered for sale for delivery at the time and place of importation at the price adopted by the department. The ratio of the decision of the Tribunal in this case is not applicable to the case before us as the case is clearly distinguishable.
(c) Case of Collector of Customs v. Modi Xerox :
In this case the Tribunal had held that to rule out valuation under Section : 14(1)(a), there must be a mutuality of interest. Seller and buyer should have interest in the business of each other. One sided interest is not sufficient enough to lead to a conclusion that there was mutuality of interest. In the case before us we find that there was mutuality of interest for purpose of Section 14(1)(a) in as much as the foreign company exercised control over the Indian company in so far as their operations, direction, financial management, appointment of people at the management level etc. is concerned. For this control, the Indian company was compensated by lower prices at which the goods were sold to them and by payment of service charges as commission for administrative and diagnostic services. Thus mutuality of interest even for purpose of Section 14(1)(a) is fully proved in the instant case.
(d) Case of Collector of Customs v. Indian Photographic Company :
In this case again, the mutuality of interest has been emphasised. The distinguishing factors have been already discussed in the preceding case and are equally applicable to the instant case also.
18. Having regard to all the facts and circumstances and in the light of the discussions in the preceding paragraphs, we hold that the findings of the Tribunal in the case of M/s. GMMCO are relevant and by and large can be applicable to the present case also. We have already held that price was not the sole consideration and therefore, the CIF value has to be determined in terms of the Customs Valuation Rules, 1963 for imports prior to 16.8.1988 and under Customs Valuation Rules, 1988 for imports on or after 16.8.1988. We have also discussed in detail and rendered our findings on each of the issues. We, therefore, in the light of the findings rendered in the preceding paragraphs, hold that the CIF value shall be loaded by 8.3% for imports covered by the Customs Valuation Rules 1963 as well as imports covered by Customs Valuation Rules, 1988. In this view of the matter, we allow the appeal of the Department against the order of Collector (Appeal) in so far as the imports on or after 16.8.1988 are concerned. We reject the appeal of M/s. GMMCO against the order of Collector (Appeal) in which the Collector had held that the CIF value on imports prior to 16.8.1988 shall be loaded by 8.3 per cent.