Custom, Excise & Service Tax Tribunal
Sun Microsystems India Pvt Ltd (Now M/S. ... vs Commissioner Of Customs - Bangalore on 12 December, 2013
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Application(s) Involved: C/Stay/1315/2012, C/Stay/1337/2012, C/Stay/1338/2012, C/Stay/1339/2012, C/Stay/1340/2012, C/Stay/1372/2012 in C/1841/2012-DB, C/1873/2012-DB, C/1874/2012-DB, C/1875/2012-DB, C/1876/2012-DB, C/1877/2012-DB, C/1922/2012-DB Appeal(s) involved: C/1841/2012-DB, C/1873/2012-DB, C/1874/2012-DB, C/1875/2012-DB, C/1876/2012-DB, C/1877/2012-DB, C/1922/2012-DB SUN MICROSYSTEMS INDIA PVT LTD (now M/s. Oracle India Pvt. Ltd.) NO.3, ORACLE TECHNOLOGY PARK, BANNERGUGHATTA ROAD, BANGALORE 560 029 Appellant(s) DHL EXPRESS INDIA PVT LTD NO.148 MYSORE ROAD, BANGALORE 560 026 Appellant(s) RAVI VISHWANATH 6TH FLOOR, BMTC COMMERCIA COMPLEX, 80 FEET ROAD, KORAMANGALA, BANGALORE 560 095 Appellant(s) BHASKAR PRAMANIK M/S. MICROSOFT CORPORATION I PVT LTD 9TH FLOOR, TOWER A , DLF CYBER GREENS DLF CYBER CITY, SECTOR 25A, GURGAON 122002 Appellant(s) REJI KUMAR 478, KUVEMPUR NAGAR, RAMAMURTHYNAGAR, BANGALORE -16 Appellant(s) ANAND KUMAR 478, KUVEMPUR NAGAR, RAMAMURTHYNAGAR, BANGALORE -16 Appellant(s) V. Radhakrishnan 370 D, Alexandra Road, Unit 02-09 The Anchorage, Singapore 159957 Appellant(s) Versus Commissioner of Customs - BANGALORE C.R. BUILDING, QUEENS ROAD, P.B.NO. 5400, BANGALORE, KARNATAKA 560001 Respondent(s)
Appearance:
Mr. Rohan Shah, Advocate, ECONOMIC LAWS PRACTICE ADVS 1502, DALAMAL TOWER , NARIMAN POINT, MUMBAI M.H 400021 For the Appellant Mr. P.R.V. Ramanan, Special Consultant For the Respondent CORAM:
HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER HON'BLE SHRI ASHOK JINDAL, JUDICIAL MEMBER Date of Hearing: 09/07/2013 & 10/07/2013 Date of Decision: ..
Order Per : B.S.V.MURTHY The miscellaneous applications filed by Revenue for early hearing and the stay applications filed by the appellants came up for hearing on 27/05/2013 and after hearing both sides, this Tribunal allowed the applications for early hearing and also adjourned the matter to 09/07/2013 and directed that the appeals also shall be heard. Since the appeals themselves have been taken up for final hearing, the requirement of predeposit in respect of the stay applications pending decision is waived and the appeals are taken up for final hearing today.
M/s. Sun Microsystems India Pvt. Ltd. (SI for short/appellant) imported spares from M/s. Sun Microsystems Pte. Ltd. (SunSGP) on payment of customs duty on US list price less discount. The Order-in-Original No.1/2013 dt. 29/03/2013 (order) has confirmed the demand of customs duty on the US list price without allowing any discount. The US list price has been adopted as assessable value in the order on the ground that various inter-company service agreements entered into by the appellants with SunSGP and M/s. Sun Microsystems Inc. (SunUS) has resulted in undervaluation of spares imported by the appellants.
2. The gist of challenge to Order-in-Original is as follows:-
Duty demand confirmed : Rs.146.01 crores (Bangalore) : Rs.9.13 crores (Chennai) Redemption fine : Rs.35 crores.
Penalty u/s 114A : Rs.155.13 crores.
Amount appropriated : Rs.5.65 crores.
Bank guarantee enforced against redemption fine : Rs.10.40 crores.
Further finalization of Bills of Entry provisionally assessed for the subsequent periods not covered by the order have been ordered to be finalized adopting the value as per the US List price.
3. The Order-in-Original arises from two show-cause notices issued by the DRI alleging large scale undervaluation in respect of imports of spares by SI. These spares were imported by SI either for fulfillment of warranty obligations or for meeting AMC obligations. The value adopted by the appellant has been rejected in the Order-in-Original on the ground that the declared value for the spares was not the sole consideration for sale and as mentioned above because of inter-company service agreements and several transactions there were direct and indirect flow-backs. The Commissioner also found that there were miss-representations and suppression of facts as regards valuation before Special Valuation Branch (SVB) which had considered the values adopted for importation warranting invocation of extended period of duty demand.
4. Before proceeding further, it would be appropriate to take note of some relevant facts and factual background. SI and SunSGP are 100% wholly owned subsidiaries of SunUS. SunUS and SunSGP exercise control over Managing Director of SI and he is on the pay roll of SunSGP. SunUS is the manufacturer of spares and also sources spares from various suppliers and decides the pricing policy including discount rates. SunSGP is the supplier of these spares from Singapore to different group companies in Asia Pacific Region including SI.
5. SI is engaged in providing research and development services (software development) for SunUS and this activity is taken care of by the STPI unit of SI. For this activity, there is an agreement viz. Research and Development Services Agreement between SI and SunUS. As per this agreement, SI exports software development to SunUS and is required to bill the charges on SunUS at cost+10% basis.
6. SunSGP is a buy/sell entity. It is engaged in selling and servicing of Sun products; has contracts with its channel partners (resellers/independent distributors) and end customers for sale of equipments and provision of related services and has contracts with Sun group entities in relation to sale of spares and provision of related services.
7. SI is a service entity within the group. It does not ordinarily buy and sell Sun products but does buy spare parts which are then used in the execution of services i.e. AMC and warranty services. It provides services to the buy/sell entities, under the aegis of a Marketing and Warranty Support Services Agreement, wherein the former is appointed as a service provider for which it is reimbursed, on a cost + arms length mark-up basis.
8. SI has entered into following agreements with SunSGP:
Logistics Services Agreement As per this agreement, Sun SGP (Asia Logistic Centre ALC) is required to provide replacement of spare parts ordered by SI at the unit price paid by them. Based on this agreement SI has paid Logistic charges (does not include freight for import of spares) to Sun SGP, and these payments are over and above the spares import invoice value raised by Sun, SGP.
Marketing and Warranty Support Services Agreement- As per this agreement, SI provides marketing, Pre-Sale support, Warranty and other services for Sun, SGP business in India. Based on this agreement, SI is required to bill the charges at cost plus 10% basis on Sun, SGP and collect the same.
Escalated Technical Support Agreement- As per this agreement, Sun, SGP is required to provide technical and other services to SI. Based on this agreement, SI has made payments of amounts billed (called AEC charges) by Sun, SGP.
All Sun group companies including Sun, US (holding company), Sun, SGP and SI are signatories to the Spare Parts Agreement. Relevant conditions of this agreement are:
(i) all spare parts would be delivered EXW (Incoterms 2000) supplying members facility,
(ii) purchasing member should pay all costs and expenses incurred including all shipping, freight, insurance, taxes, duty and other related shipping charges, and
(iii) supplying members should supply the spare parts to purchasing members at the prices listed in the manufacturers price list (Sun, US price list) less discount of fifty four percent (54%).
9. According to the Revenue, the investigation has unearthed the following facts:
This agreement allowed discount on Sun, US price list. Mail correspondences indicated that the said discount rate is averaged out considering different discounts extended to group companies. For example, Group company in Japan got a discount of 26% from the List Price that in Australia/New Zealand got 44%, while companies in India and some other countries got a much higher discount of 68-70 %. Conditions at Sl.No. (i) and (ii) are followed for import of spares by SI inasmuch as freight, insurance, duty etc are paid by SI for spares import.
10. Further facts that emerged from investigations according to Revenue were:
Transactions among Sun, US, Sun, SGP and SI indicate that SI makes payments to Sun, SGP mainly for import of spares based on invoice value and in the guise of service charges under agreements (Logistics service and Technical support).
SI was to receive substantial amounts from SunSGP and SunUS for the services provided to them and export of software to US.
Undervalued amounts for spares were compensated to the suppliers of spare parts (i.e. Sun, US and Sun, SGP) (1) by making additional payments in the form of freight, ALC chares, AEC charges etc., (2) by way of reduction in the amounts required to be received from them and (3) substantial benefit accrued to Sun, SGP in the form refurbishable parts sent to them from India.
11. Investigations conducted by the DRI revealed that there were six types of flow-back as discussed below, which had a bearing on the Customs value of the spares imported by SI for fulfillment of warranty obligations or for meeting AMC obligations.
(a) Export of refurbishable spares free of cost:
> SI had been exporting refurbishable spares collected during fulfillment of Warranty/AMC obligations on free of cost basis.
> These spares were of substantial value and were refurbished and supplied subsequently as spares to various Sun Group units.
> SI had no option but to export these spares as a contractual obligation.
> In the normal course, SI ought to have been reimbursed towards the value of these exported spares. This did not happen and the money value thereof accrued to Sun Singapore/ US.
> The above finding is supported by incriminating documentary evidence, such as e-mails and statements given by employees of SI and DHL.
> SI began exporting these spares on commercial basis after DRI investigation started.
> Appellants have stated that above consideration was recovered by SI from Sun Singapore. Evidence obtained from the Banks is to the contrary.
> During the period up to March 2008, the total value of such spares exported by SI amounted to Rs. 302 Crores and the duty liability thereon would be Rs. 78.61 Crores.
(b) Payment of Asia Logistics Centre (ALC) Charges > In terms of Logistics Services Agreement, SI paid Sun Singapore ALC charges amounting to Rs.63.76 Cr. up to 2007-08.
> These charges were paid out of the AMC income earned by SI and are relatable to imported spares. Documentary evidence and statement of concerned persons support these facts.
> E-mails indicate that discounts could be reduced to replace ALC cross-charges. This clearly shows that ALC charges relate to import of spares. These payments being in addition to the prices, at which SI obtained the said spares from Sun Singapore, should rightly form part of the Customs value of the subject imported spares.
> Duty involved on ALC charges works out to Rs. 16.58 Crores.
(c) Non-billing and under billing of expenses to Sun Singapore/US > SI carries out marketing, warranty and other professional services for Sun Singapore and SW development and export to Sun US.
> SI is required to bill the expenses relating to such services on cost plus reasonable return (10%) basis.
> SI has to provide services and spares to the customers (free of cost) who are under Warranty, on behalf of Sun, Singapore. While billing Warranty charges on Sun, Singapore, SI has to bill the full value of spares declared in the import invoice used for Warranty purposes with 10% markup, as SI had paid Sun Singapore for the spares imported for Warranty also. In actual fact, SI has not billed the full value of spares used for Warranty, resulting in under billing of Warranty charges.
> Investigations revealed that total expenses incurred on professional services, and certain portions of expenses relating to marketing, warranty and SW development were not billed to Sun Singapore/US.
> SI have admitted the underbilling Professional charges and Marketing & R&D charges but, claimed that this underbilling has no relation to import of spares. The said underbilling amounts was in lieu of charging Sun, SGP and Sun, US. SI has booked as expenses under AMC business, which is mainly earned from using spares since the channel partners render all the services connected with AMC. Thus, this underbilling has a relation to import of spares.
> Further, SI has transactions of providing services to Sun, US and SGP wherein SI has to raise bills on Sun, US and SGP. SI makes the payments only for import of spares, ALC (related to import) and AEC charges. Major transaction is import of spares. Therefore, the underbilling was to compensate under invoicing pertaining to spares imported.
> Up to March 2008, such non/under-billing amounted to Rs. 102.83 Cr. Duty involved thereon was Rs. 26.74 crores.
(d) Payments on account of Spares Re-balancing > Sun Singapore has billed SI an amount of Rs. 9.69 Crores for spares rebalancing. It has been explained by SI that Bill was on account of scrapping of exported defective spares, which could not be repaired and hence, to correct the overcharge, the bill was raised by Sun Singapore.
> Respondent has not accepted this argument on the ground that the amount related to imported spares and there could be a rebalancing charge only if there was remittance against export of spares.
> Duty involved on this score was Rs.2.52 Crores.
(e) Payment of AEC charges > In terms of the Escalated Technical Support Agreement dated 1/7/2003, SI has been paying AE Charges to Sun Singapore. For the period up to March, 31 2008, this amounted to Rs. 18.99 Crores.
> No proper explanation was provided by SI as to what were the services being provided to them by Sun Singapore and the basis for arriving at the amount.
> Duty involved on this score is Rs.4.94 Crores.
12. The sum and substance of the case made out as per the findings in the order are as follows:-
(a) The appellant has undertaken importation of the subject goods at abnormal discounts (61% to 70%) from the US list price from SunSGP during the period under investigation.
(b) The appellant paid various charges such as ALC charges and AEC charges out of the AMC income earned by it and such charges are to be included for the purposes of determining assessable value of the subject goods.
(c) The appellant has exported refurbishable spares collected in the course of warranty and AMC services free of cost to SunSGP, which has resulted in a benefit to SunSGP. Therefore, the price charged in the invoice for the subject goods is not an independent price nor is it in the ordinary course of trade as such export of the refurbishable spares free of cost has influenced the price charged for the subject goods, and, hence should form part of the assessable value of the subject goods.
(d) The appellant has undercharged/under-billed certain charges on SunSGP/SunUS in relation to professional services, research and development services and marketing and warranty support services, which has resulted in understatement of the value of the subject goods, and the underbilled charges should be added to the assessable value of the imported spares.
13. The past assessments have been reopened invoking extended period and grounds for the same are as follows:-
> SI had suppressed/not furnished Logistic Services Agreement, Spare Parts Agreement and Escalated Technical Support Agreement before the SVB.
> The fact of supply of spares on replacement basis by Sun Singapore and export of refurbishable spares, free of cost to them as a mandatory requirement were not disclosed to the SVB.
> SI declared to the SVB that there was no formal Agreement between SI and Sun Singapore.
> The quantum of discounts shown to have been given to SI was not declared to the SVB.
> SVB orders do not apply when the same are obtained by not disclosing vital material particulars having a bearing on valuation of the subject goods.
14. Now we take up the various submissions made by both the sides on each issue and draw our conclusions on each issue.
15. The first submission by the appellant was that the value adopted by them which is US list price for spares less discount is the correct globally accepted method for transaction of goods between different Sun entities. There is no denial of the fact that there is relationship between the entities and this was the reason why the matter had been placed before SVB. However, it was submitted that in this case transaction value could not have been rejected because the relationship has not influenced the price.
16. The learned counsel relied heavily upon the study undertaken by Price Waterhouse Coopers LLP (PWC) with regard to adherence to the statutory provisions relating to transfer pricing of materials between the entities. It was submitted that the basis for fulfillment of statutory obligations as regards transfer pricing is that the transaction should be at arms length between the entities. It was submitted that the PWC report clearly states that the pricing policy of the SunUS for sale of spares to other entities all over the world is at arms length.
17. The learned counsel made the following submissions on the basis of three reports prepared by PWC which are reproduced below:-
Report Finding Report I Analysed 63 invoices issued by SunUS to SunSGP, Sun Korea, Sun China, Sun Hong Kong and Sun Taiwan (page 440-451 of Vol. B) .. Discounts are offered by SunUS to SunSGP as well as to Sun entities;
.. Such discounts are in accordance with the transfer pricing reports and are at arms length;
.. There are varying discounts, which depend on various considerations such as geography, market conditions prevailing within the region;
.. Discounts higher than those offered to SunSGP have been offered to other countries Report II Analysed 12 invoices issued by SunSGP to independent third parties, in relation to equipments.
(page 691-694 of Vol.B) .. SunSGP offers deep discounts from the price list to independent third party customers across the world.
Report III Analysed 132 invoices for spares issued by SunSGP to various Sun entities in APAC Region including the appellant and entities such as Sun Malaysia, Sun Korea, Sun China, Sun Hong Kong and Sun Taiwan etc. in relation to the subject goods.
.. Similar discounts are being offered by SunSGP to other Sun entities in the APAC Region for the sale of spares;
.. The discounts offered to all such entities including to the appellant are in accordance with the transfer pricing report which have determined an arms length price for the spares.
PWC Reports provide that even sales to third party independent buyers of equipments, were given discounts of approximately 45%. The appellant has more volume and more consistent business to warrant higher discounts. Thus, the respondents assertion that the discount is unusually high is without any basis. In light of the aforesaid factual matrix and the evidence led during the course of the hearing (for detailed submissions, refer to pg 12-13 of the written submissions) it is clear that the discounts offered by SunSGP on the list price are uniform across the region and consistent with arms length principles.
18. The learned special consultant on behalf the respondent however submitted that the PWC report was prepared only in 2010 i.e. much after the registration of the offence case against the appellant and almost after completion of the investigation. Further he also submitted that the invoices which have been considered by the PWC all related to 2007 and thereafter whereas the investigation had started in 2006 itself.
19. We have considered the PWC report. The finding as per the Report I, only points out that the discounts are offered by SunUS to other entities all over the world and such discounts are in accordance with transfer pricing requirements and vary depending upon geography, market conditions etc. However, we take note of the fact that the transfer pricing report does not take note of the fact and does not also consider the relationship between various services provided by the entity in India to SunUS/SunSGP and payments that are to be received and the billing process for the same. The case of the Revenue is not merely based on the sale price from SunUS to SunSGP and from SunSGP to SI but is based on an analysis of various transactions such as provision of service, the fact that spare parts are received only by SI and only for providing AMC and warranty services. No sale of spares by SI has been found by the investigators. Further even AMC services are performed by channel partners and only spares are supplied by SI and that too SunSGP supplies such spares against specific request and on the basis of specific requirement. Therefore the PWC report which relies on only one type of sale from SunUS to SunSGP without considering all other factors and without considering the statutory provisions may not be exactly relevant and appropriate as submitted by the learned special consultant.
20. Report-II of PWC analysed 12 invoices raised by SunSGP to independent third party customers across the world. However, the report does not take note of the fact that these invoices are not exclusively for spares but the spares/components have been sold along with equipments and price has been separately indicated. It was submitted by the learned special consultant that there are no instances where spares have been sold only as spares to third parties and the learned special consultant also cited one instance where the price of the spares supplied along with equipment to a customer in India was much higher and in fact higher than the list price of the SunUS. Report-II is only confirming that discount has been offered by SunUS to third parties as well as SunSGP and compared and confirmed this by verification of the invoices specified by PWC. Once again the report does not analyse Customs valuation issues with reference to Customs Act.
21. Further even Report-III also, adopted the similar procedure and examined whether discounts have been offered by SunSGP to other Sun entities in APAC Region for sale of spares and found it to be in accordance with transfer pricing policy which have been determined at arms length price for spares. The observations made with regard to Report I would apply here also.
22. PWC at page 694 of Volume B of paper books submitted by the appellant have made the following observations: Our procedures, as stated in the contract, did not constitute an examination made in accordance with generally accepted auditing standards, the objective of which would be the expression of assurance on the contents of the schedule. Accordingly, we do not express such assurance. Had we performed additional procedures or had we performed an audit or review of the schedule in accordance with generally accepted auditing standards, other matters might have come to our attention that would have been reported to you. These observations show that PWC does not want to take any responsibility as regards the correctness of the schedule or they want to state clearly that no other maters have come to their notice because of the limited examination they have done.
23. Another interesting observation is reproduced below: This report is solely for your use in connection with the purpose specified above and as set out in the contract; it is not to be used for any other purpose or to be copied or distributed or otherwise made available or referred to, in whole or in part, to any other party without out prior written consent. We do not accept any liability or responsibility to any third party to whom our report is shown or into whose hands it may come.
24. By the time this report was prepared, the offence case had already been registered and show-cause notice had already been issued by DRI with regard to Bangalore imports on 27/02/2009. Therefore these observations have lot of significance.
25. The report takes care to ensure that the report relates to only transfer pricing mechanism and does not certify anything beyond the schedule and letter has been issued to the Director Operations which have been extracted above to ensure that PWC cannot be held responsible if anything wrong is found.
26. It was also submitted that one of the major requirements while examining transactions between related entities is to see whether the sale from one party to another results in loss and for this purpose the learned counsel for the appellant produced some invoices issued by spare parts suppliers to SunUS and those examples showed to us that even after extending more than 60% discount to SunSGP, the SunUS still made profit and therefore it cannot be said that the price was influenced by the relationship. However what has to be seen is whether the price reflects the real transaction value or not and not only whether the supplier makes a profit or not. For the purpose of Customs valuation, only when there are no evidences and no other facts to be considered, probably, the fact that SunUS still made a profit after extending discount would have been relevant. However, we have to examine other aspects on this issue before coming to any conclusion. PWC report and the fact that SunUS still made a profit may be relevant if there are other evidences to show that the transactions were not affected by the relationship or other agreements and transactions between the entities. It is also necessary to examine the facts and approach of the appellants and different entities which we would be proceeding to examine hereinafter.
27. The next submission was that in terms of Rule 3(3) of Valuation Rules, list price less discount is the correct assessable value. It was submitted that where the buyer and seller are related, assessable value of the imported goods is determined only in accordance with the provisions of Rule 3(3) of Customs Valuation Rules which mandatorily require that where the buyer and seller are related and where the circumstances of the sale indicated that the relationship has not influenced the price of the imported goods, the transaction value has to be accepted.
The first requirement according to the Rule is examination of circumstances surrounding the sale and examining whether the price is based on arms length principle. It is the claim of the appellants that sale is based on arms length principle based on PWC report and this has already been discussed. The question that arises is whether the appellants have been able to show that the buyer and seller, although related in this case, have transacted as if they were not related. If that be so, the transaction value would be the assessable value.
28. Sun US/SGP do not supply spares to any other third parties except in a few cases where supplies are made along with equipments. Spares for replacement are supplied only for use in the course of warranty and maintenance services. This would mean that there is no independent transaction with third parties other than Sun entities is available to examine the price. Nevertheless, the learned counsel for the appellant made a submission that there are instances of such sale where spares have been sold with equipments and in those cases also discounts have been extended from US list price varying from 1% to 20% even though it was submitted by the special counsel that this claim is only by comparing list price for spares arrived at by denial of discounts price charged in the supply of equipment supplied and not exactly based on list price since Sun US has not declared the list price and discount extended either for the equipment or for spares supplied along with equipment. Yet the submissions made by the learned special consultant with regard to supplies made to unrelated buyers by SUNSGP revealed some interesting information. Out of several transactions given in the form of a table, some instances where there were sales of spares at more than the list price were selected and it was found that in these cases the excess billing over and above the list price varied from 1% to 128%. As could be seen from the list submitted by the learned special consultant, majority of the items listed were supplied to Infosys Technology Ltd. which has to be necessarily amongst the biggest customers in India being No.2 Software Company in India. In addition, they were also other customers. The relevant information is extracted from the table and reproduced below.
Name of the Customer Invoice Item description Unit price in USD charged List price (as worked out on the basis of discount given to SI Excess % charged to the customer over list price Infosys Technologies Ltd.
307763 17 Flat CRT Monitor 365 1417 01 45.63 134 128% Infosys Technologies Ltd.
2895491-1 17 Flat CRT Monitor 365 1417 02 97.5 304.7 15% Infosys Technologies Ltd.
2804760-1-1 17 Flat CRT Monitor X7147A 365 1417 02 97.5 304.7 14% Infosys Technologies Ltd.
2953628-1-1 17 Flat CRT Monitor X7147A 365 1417 02 97.5 325 1% Infosys Technologies Ltd.
2511873 17 Flat CRT Monitor 365 1417 02 97.5 325 1% Infosys Technologies Ltd.
2639080 17 Flat CRT Monitor 365 1417 02 108.06 325 6% Infosys Technologies Ltd.
2642567 17 Flat CRT Monitor 365 1417 02 108.06 325 6% Infosys Technologies Ltd.
2663326 17 Flat CRT Monitor 365 1417 01 108.06 325 6% ST Microelectronics Pvt. Ltd.
387396 21 Flat AG CRT Monitor X7146A 365 1408 01 270 900 3% Infosys Technologies Ltd.
1936702 Tape Drive OEM SDLT 320 Drive Desktop 380 0826 01 1539 4527.353 21% Infosys Technologies Ltd.
2511420 Tape Drive OEM SDLT 320 Drive Desktop 380082602 1539 5131 9% Infosys Technologies Ltd.
2900061 Tape Drive NLA OEM SDLT 320 Drive Desktop EOLTB 380 0826 03 1260 4200 20% Tech Pacific (India) Ltd.
1752674 Hard Disk Drive NLA FRU 18GB 10K1 SCSI W/SPUD & PLT 540417801 195.5 575 1% Juniper Networks India Pvt. Ltd.
3432097 PPCB Parts of Computer RFB 512 MB Memory EOLTB370 4281 01 115.05 295 13%
29. On the one hand, we find that the basis for different prices for different markets and different US entities for giving discounts is not disclosed. The US list price is a figure arrived at based on the discount rates made available by the appellants to the department and not exactly based on any declared US list price. The invoices for supply of spares to Sun entities are generated by SOLEIL systems. The verification of SOLEIL generated invoices and invoices generated for supply of equipments clearly shows that the pricing pattern for supply of spares to Sun entities and others with equipment are quite different. Further, it is also not possible to arrive at the price based on the sale price in India, since there were no sale of spares by the Sun entity in India and supplies are made only to fulfill warranty obligations and AMC obligations.
30. Another aspect that has been a bone of contention between the department and the appellant is the return of parts which are removed during the course of fulfillment of AMC / warranty obligations. According to the system followed, every time a part is replaced, after replacing, the old part is sent back to the SunUS who refurbish the same and use the same for fulfillment of warranty/AMC obligations. The result is no one knows as to whether the part which is supplied by SunUS through SunSGP to different entities is in reality a newly manufactured one or a refurbished one. While supplying the same to Sun entities also Sun US/SGP do not indicate this aspect at all. As a result, the SI as well as the customers who receive AMC/warranty service have to treat the parts supplied as new one only. For charging purposes also, a price is charged to each entity and it is the claim of the appellant as well as their employees that the discount rates are fixed country-wise, market-wise and the discount is offered on the so-called US list price. As already observed US list price is not known to anyone and is a hypothetical figure arrived at by working back from the actual price paid and the discount fixed for the concerned country by SunUS.
31. According to the appellant, the appellant was receiving the same price for the old part sent back by them to SunUS which they were charged when a new one was supplied to them. This claim has not been accepted by the Revenue on the basis of following evidences.
a. The bankers have given the details of foreign exchange remittances received by the appellants during the period covered by the show-cause notice and till the investigations was taken up by DRI. There is not a single instance of remittance from abroad to the appellant as payments for exported parts. This conclusion was found to be correct on going through the letters from the bankers and the code given for remittances indicated by them which mostly related to software /intercompany settlement, etc. b. It was submitted by the learned counsel that this was not shown separately in the balance sheet also since what was paid for the new parts and what was received for the old parts were adjusted against each other. There is no such remark in the balance sheet and evidence received from the bankers are contrary to this claim.
c. SI had no option but to export these refurbishable spares as a contractual obligation since according to AMC /warranty terms as well as the agreements between the Sun entities, such parts have to be sent back when the order is placed for new parts.
d. To support this submission, learned special consultant relied upon sample copies of shipping bills up to 2005 wherein in the declaration, it was specifically mentioned no foreign exchange involved. M/s. DHL Express (I) Pvt. Ltd., the courier service provider stated that during the period from 1998 to December 2006, such declarations were made as per the intimation furnished by SI and therefore, such a declaration was made. This was confirmed by statement of Shri Anil Kumar, Clearing Supervisor.
e. Revenue also relied upon the email dated 15.7.2006 from Shri Anand Kumar, Global Service Finance Services Manger to Shri Radhakrishnan, Finance Controller, Sun SGP wherein he mentioned that DRI have sought details of import information and undervaluation issues may be raised.
f. In the month of June 2006, export documentation was changed from NFEI declaration to exports made as commercial shipments and the value declared was list price less discount applicable for importer of new spares. According to the learned special consultant, this clearly shows that prior to June 2006, by dispatches of refurbishable spares were on NFEI basis and therefore, there was no question of any payment from Sun US/SGP to SI. By this time investigation had already started.
g. Even though the system was changed in June 2006 but till April 2007, shipping bills were not submitted to the bankers which started only from April 2007. After the DRI started investigation, the appellants changed their bankers from Citibank to Bank of America.
h. M/s. Citibank, Bangalore clearly intimated on 12.8.2008 that there have been no remittances received in the name of SI under the heading of Defective Goods from the inception of account till the closure.
i. Shri Ashok Bhandarkar, Company Secretary admitted that he had not informed any bank that any of the inward remittances received by Sun entity were towards export of refurbishable spares during his tenure viz. February 2005 to July 2006.
j. Smt. Vidya Srinivasan in her statement dt. 18.12.2008 also admitted that during the period from 2001-2004, when she was Shared Financial Services Accounting Manager, she had not given any letters about receipt of foreign exchange towards refurbishable spares.
k. On 9.1.2008, SI requested Bank of America to consider one remittance towards export of defective spares. However, Shri V. Srinivasan, Vice President of Bank of America stated that this was received against intercompany settlement from Sun US.
l. It was submitted by the special consultant that the submissions made above show how the patch work was started by SI after investigation started. Further, it was also submitted by him that as of March 2006, Sun US was to pay SI Rs.67.46 crores which also supports the submission that the remittances cannot be adjusted towards dues of SunSGP. As of March 2007, the receivables from SunUS to SI had increased to 127.43 crores and as of March 2008 the receivable was Rs.105 crores.
32. It was claimed on behalf of the appellants that if the claim of Revenue that US list price should be adopted for the purposes of valuation of spares received by SI for fulfillment of AMC / warranty obligation is accepted, the appellants would be making huge losses. If US list price is adopted, appellants expenses towards spares would come to around Rs.719 crores, whereas the actual Revenue was only Rs.477 crores from AMC services. It was submitted that the AMC revenue of Rs.477 crores includes the cost of value of spares along with profit margin and therefore only a portion of Rs.477 crores could be considered as value of spares used for AMC. Certain figures were given to support the contention that the Revenues claims regarding defective spares cannot be accepted.
33. It is the Revenues contention that appellants should have been paid for refurbishable spares under the circumstances as discussed above and since they have not been paid for the same, this has to be treated as one of the considerations for charging lower price at the time of supply of spares by Sun US/SGP.
34. We find that there is sufficient evidence to show that during the period of dispute, refurbishable spares were not paid for by Sun US/SGP and apparently appellants have made efforts subsequently to make suitable adjustments. We have already taken note of the fact that even to PWC for conducting study of transfer pricing issue, appellants have not disclosed these facts and even the fact that defective parts were paid for and such payment was equal to the cost of new parts supplied by Sun US/SGP was also not brought to the notice of PWC. Therefore we really do not know the implications on this account on the PWC report. The analysis, evidences, annexures, documents and statements of officers of the company and information collected from bankers, courier services would clearly show that appellants have not been able to prove their claim of receiving payments in respect of refurbishable spares. Therefore, the claim of the Revenue that the price charged to SI by Sun SGP cannot be accepted since there were other circumstances besides the relationship between the entities has considerable force.
35. At this stage, it would also be worthwhile to note what would be the implication if the claim of the appellant that refurbishable spares were paid for by Sun US at the same price on which new ones were supplied. It is the appellants claim that at the end of 2008, a charge of about Rs.9.7 crores was made for spares rebalancing. According to them this charge is towards spares which could not be refurbished and consequently had to be destroyed and could not be used. As a result, it was charged to the appellants account. According to the appellants, if the US list price adopted minus discount, the value of refurbishable spares exported by them (they quote the order-in-original for this) may come to around Rs.302 crores. If this figure is accepted, over a period of 5 years or more, the total value of unrefurbishable spares would be roughly about 3% only. This means the Sun US was supplying parts for AMC / warranty services at 3% of the actual cost since they were paying back the same amount which they were charging for the new supplies. The question arises whether any manufacturer would give this facility even to a related person, by supplying the spare parts required for AMC / warranty free of cost. There is definitely a cost to Sun US to get the new parts manufactured or sourced and supplied and even refurbishing would involve some cost. It was the claim of the appellants that ALC charges (Asia Logistics charges) were towards this. There is no evidence to support this claim. The very fact that Sun US/SGP were taking back spare parts during the course of AMC / warranty services replaced by new parts and allowing the adjustment at the same price would clearly show that the price charged for the new item cannot be considered as the consideration for sale. Therefore, even if the Revenues claim that refurbishable parts were not paid for is assumed to be incorrect, the price charged by Sun US /SGP to SI becomes tainted price and not a price at arms length.
36. It is also strange that even for supplies to fulfill warranty obligations, appellant has been charged for the supply of parts. The price at which goods are supplied initially invariably includes the warranty period also and therefore when equipments are supplied, if parts are to be replaced during the warranty period, they are supplied free to the provider of warranty service. SI which provides warranty service does not get this benefit and according to the calculation made in the OIO, warranty service accounted for about 40% of the total supplies. SI has been charging to Sun US /SGP amortization charges in respect of parts used for warranty, even though according to their own submissions, they get back the entire amount when a part is replaced and refurbishable part is sent back to US. Charging amortization charges would look rational if the old parts are sent back without payment and new parts are not paid for. This would be towards the cost of storing the parts and warranty servicing.
37. Another issue that has to be taken into account is the fact that appellant has to be considered a buy/sale entity only. They do not store parts to fulfill warranty/AMC obligations. Therefore the appellant cannot be considered as different from other buyers of equipments since the parts are supplied against replacement and old parts are sent back and appellant is reimbursed on the basis of cost plus 10% for the services they render. In such a situation, the discount given to appellant has no meaning since appellant in any case, do not incur any extra cost and AMC / warranty charges do take into account the cost of spare parts that they may have to be replaced during the course of rendering such services. Therefore even if the refurbishable spare parts were being paid for to Sun US at the price of new parts, such a transaction would definitely affect the transaction value between the two entities.
38. The discussion above would clearly show from whatever angle we look at the transactions we find that the value adopted cannot be considered transaction value in terms of section 14 of Customs Act, 1962. Therefore US list price minus discount cannot be a basis for charging customs duty.
39. Even though, it was the contention of the learned special consultant that US list price should be the assessable value, the learned special consultant also submitted details of flow-back and also produced a worksheet according to which the duty involved on the flow-back amount would come to Rs.123.38 crores. The worksheet is as under:-
Sl. No. Form of flow-back Amount involved up to March 2008 Amount involved up to May 2007 Duty involved A B C=B * 26% 1 Export of defective spares (value as reported by SI) Rs.302,32,89,083 Rs.250,05,44,803 Rs.65,01,41,649
2.
Underbilled amount of spares used for warranty Rs.76,93,05,802 Rs.68,02,26,101 Rs.17,68,58,786
3. Asia Logistic Charges Rs.63,76,05,458 Rs.51,66,83,441 Rs.13,43,37,695
4. Professional service charges not billed on SunSGP Rs.20,94,53,347 Rs.16,26,14,204 Rs.4,22,79,693
5. Underbilled amount on SunSGP and SunUS Rs.81,88,85,686 Rs.61,14,32,234 Rs.15,89,72,381
6. Asia Escalated Charges Rs.18,99,47,899 Rs.17,69,49,109 Rs.4,60,06,768
7. Spares re-balancing Rs.9,69,36,067 Rs.9,69,36,067 Rs.2,52,03,377 Total Rs.574,54,23,342 Rs.474,53,85,959 Rs.123,38,00,349
40. Out of the above, the export of refurbishable spares and the cost of the same has been a subject of serious dispute between the two parties. There have been claims and counter claims which were examined and we find that appellants have not been able to show that there was indeed payment for refurbishable spares on a regular basis.
41. The second issue for proving flow-back is underbilled amount of spares used for warranty. While billing warranty charges on SunSGP, SI has to bill the full value of spares declared in the import invoice used for warranty purpose with 10% mark up. SI had paid for spares imported for warranty also. However SI did not bill the full value of spares used for warranty thereby underbilling of warranty charges has resulted. Shri Ravi Vishwanath in his statement dt. 06/01/2009 admitted that only amortized value of spares with 10% mark up had been billed and not the full value. Shri Anand Kumar, the then GFS Manager, SI furnished amortised value of spares from 2001-02 to 2007-08. Shri Anand Kumar in his statement dt. 19/09/2007 stated that during a particular year total cost of spares imported minus spares exported is amortized over a period of 36 months in line with accounting policy. It was admitted that only amortized cost was billed. Thus while the appellant paid at full cost for providing warranty services received only amortized charges.
42. Only call centre at Singapore and FSC at Singapore maintained the issue of spares located in India either for warranty or for AMC. The actual spares consumption towards AMC or warranty are available with SunSGP. The logistics provider, DHL, stated that all spare parts are delivered in India on the basis of delivery challans with the declaration not for sale and warranty replacement only. Logistics Manager of SI informed that they would provide the actual usage of spares for warranty and AMC subsequently which were not available with them. It was submitted that it was not made available. SunSGP was only aware of the actual usage of spares for warranty and AMC. The calculation of Rs.76.93 crores as underbilling is based on the percentage of spares used for warranty services by SI and not based on actuals.
43. E-mail dated 05.05.08 from Mr. Al Corelli to Shri Ravi Vishwanath would be relevant. Portion of the mail reads "...Sun Mail. Sun Singapore purchases spares from the US at US list price less a 68% discount and resells them to Sun India at the same price. The 68% has been effect since 2/29/08. This discount percentage was 61% from (1/27/07 - 2/29/08) and was 70% prior to 1/27/07. With regard to the justification for the change in discount % from time to time, it is to ensure that Sun India is earning an appropriate "arm's-length" level of profit given their functions and risks in operating as a commission agent. To explain further, Sun India operates as a commission agent for Sun Singapore and is compensated for its sales and marketing activities at cost + 100/0 markup. As a commission agent, Sun India does not purchase inventory for resale, but does purchase spares from Sun Singapore for Warranty and maintenance at US price list less a 68% discount. This intercompany pricing regime (cost +10% markup and list price less a 680% discount for spares) is intended to provide Sun India with an appropriate "arm's-length" level of profit on their overall operations, given their functions and risks in operating as a commission agent ..
44. The above mail is an evidence that the cost plus 10% billing for the services provided by SI to SunUS and SunSGP has a bearing on the supply of spares by SunSGP and SunUS to SI at list price less discount (68% or 70%). Hence, under billing in respect of services provided by SI to SunSGP and SunUS was to compensate the underbilling of spares systematically.
45. SunSGP supplies spares to SI under logistics services agreement dt. 01/07/1998 with a condition of only for replacement and at the unit price paid by SunSGP. SI imports new spares, used them for replacement and re-exported defective spares received. Asia Logistic Centre (ALC) charges amounted to Rs.63.76 crores during the period from 1998-99 to 2007-08. This was paid out of AMC income upon using the spares. The special consultant relied upon E-mail dt. 24/09/2007 between Shri Ravi Vishwanath and Mr. John McGovern (part of SunUS Customs team) to submit that ALC contract terms have additional elements of value that need to be declared on the imported goods. Corrective actions will probably require that other Sun contracts for merchandise or payments outside India be centrally reviewed for Customs valuation additions on SI imports. Shri Ravi Vishwanath also wrote to Mr. John McGovern that they must defend their position and there are some terms in the agreement that could cause pin pricks and they have a lot of work to do on the documentation. The e-mails show that even the companys officers believed that there were elements in the logistic contract which could have an impact on the valuation. Further in another mail, Mr. Toniel Lee wrote to Shri Ravi Vishwanath that he would further decrease the discount as a phase 2 project to replace some of the ALC cross charges to the countries. This shows that there were cross charges in the ALC related to cross transactions of spares. On this basis, the learned special consultant countered the claim of the appellant that ALC charges in fact related to repair, freight and other overhead charges towards refurbishable spares and therefore it was related to spares exported but not imported. In the light of evidence to show that no payment was made for refurbishable spares, the question of paying for logistic charges under ALC for the spares export would not arise. In any case, the very return of refurbishable spares and the same against as the new spares would itself affect the transaction value. Shri Bhaskar Pramanik, Managing Director, signatory to the Spare Parts Agreement and Logistics Service Agreement(LSA) in his statement 10/07/2008 admitted that SunSGP supplies spares to SI at the unit price paid by SunSGP and collects other overhead charges incurred at Singapore in terms of Logistics Service Agreement dt. 01/07/2008. Shri Ashok Bhandarkar, then secretary in his statement dt. 14/11/2008 also admitted that ALC charges paid under the LSA relate to supply of spares by SunSGP. Therefore submissions on behalf of Revenue that ALC charges related to the spares transaction has not been shown to be wrong.
46. As regards provisional charges and marketing & R&D charges, SI admitted the underbilling but claimed it had nothing to do with the import of spares. This becomes evident from the submissions made by the appellants in the paper books wherein they have given rebuttals point by point to the allegations in the show-cause notice. As regards underbilled professional charges, the appellants stated in any event the amounts have already been charged by SI on 26/05/2009 and paid for by SunUS. It has to be noted that this is much after the issue of show-cause notice and conducting of investigation. Therefore this allegation has to be held as proved. Other than stating that this had nothing to do with the import of spares, there is no other explanation. There is no explanation how this conclusion has been reached by them.
47. Thus underbilled marketing and R&D costs according to the appellant were subsequently billed and paid for. This, in our opinion, would prove the Departments case. After the investigation was started and statements were recorded if the amounts are charged and received without any basis as to why they were not billed earlier and collected, that cannot be taken into account at this stage.
48. As regards Asia Escalated Charges (AEC ) which according to the worksheet would come to Rs.19 crores, the appellants submitted that these charges are paid by the appellant to SunSGP towards provision of technical and other services. These charges are towards post-importation activity of provision of high-end technical services to customers which SI does not have the capability. The submission in this regard by the special consultant was that no proper explanation was provided as to what were the services being provided by SunSGP and how the amount was arrived at. We have to agree that Department also has not been able to show as to how exactly this related to import activity and why it should be added.
49. As regards spares rebalancing also, admittedly it has been charged for non-usable refurbishable spares exported by the appellants and therefore it may not be appropriate to consider the same.
50. The discussions above would show that on the one hand it becomes quite clear that the transaction value based on US list price minus discount cannot be accepted. At the same time, the flow-back worked out by the learned special consultant also cannot be said to be accurate and reliable. Appellants and other entities have created a web of systems which nobody can understand and nobody can decipher. The software industry in India enjoys returns of more than 20% whereas the appellant, a Sun entity is expected to work with a markup of 10% only. This itself would show that there is substantial underbilling from the Indian subsidiary or entity to their partners in US. SunSGP is expected to supply parts of SunUS at the same price and recover their costs by other means. We have also seen that the claim of the appellants that SunUS supplies parts along with equipments to unrelated third parties also at a discount which varies from 1% to 20% and therefore the discount of 61% to 70% allowed to SI is reasonable is also not correct. The analysis of the whole case would show that entire activity of SI is controlled by SunUS and SunSGP. Even their profit margin and activities are controlled. It has also been shown by the Revenue that the appellants are not exactly innocent as they claimed themselves to be in view of the fact that till the investigation started, they were not including the freight element at all and when the investigation started they paid up duty liability on freight element immediately.
51. The Department also has shown that there is no way one can ascertain the actual price or transaction value in this case. The value charged between the two entities cannot be accepted for the reasons we have already discussed. The only guidance available is the US list price worked out by working backwards using price paid for and discount rates claimed. For the reasons already discussed, the fact that SunUS makes profit is not relevant. To determine the transaction value, the question as to whether one of the entities makes a profit is not relevant but what is relevant is whether the relationship and other transactions between the two entities has affected the price. Our discussion above would show that it is so. Once the price becomes tainted or cannot be considered as transaction value as discussed by us above, the options left are to take the transaction value and add the flow-back. However, even the flow-back amount worked out by the Revenue has been disputed by the appellants and as already observed, it cannot be said with certainty that these reflected the correct position. For example, if we take export of defective spares, the question of amortization charges and whether there was underbilling in warranty would arise. Moreover, the export of defective spares value may include the value of spares used for warranty also. In such a case, figures given in sl.no.1 and 2 of the worksheet for including the flow-back may not be correct. Further we also do not know and no details have been furnished as to what exactly is AEC. If export of defective spares has been fully paid for by SunUS, the question of recovery of overheads and other expenses in respect of ALC services also raise questions since the very idea of defective spares getting the same value from the supplier is totally against any normal trade practice and such a transaction would normally show that it is not based on reality but some imaginary situation.
52. Under these circumstances, there is absolutely no alternative but to levy customs duty on the US list price as arrived at by the Revenue. There are several instances where no discount has been allowed or price has been in excess from 1% to 128% of the US list price (as arrived at). Even probably the biggest customer viz. Infosys also was charged 128% over the list price in respect of one item. The list price is the only price which has some relationship and some value as a reflection of independent transactions. Therefore we find ourselves in agreement with the logic adopted by the adjudicating authority to come to the conclusion that US list price as worked out by the Revenue should be the basis and duty demand confirmed on that basis and assessments should be finalized on that basis. Before we part, it is necessary to consider some of the decisions cited by the learned counsel in support of their case.
53. The discussion in relation to case law as well as clarifications issued by US Customs are as under:
53.1. In Procter & Gamble Home Products Ltd. Vs. CC, Chennai [2002(144) ELT 704 (Tri. Chennai)], it was held that merely because importer and its supplier are both 100% subsidiaries of another foreign company would not lead to rejection of transaction value when it is shown by evidence of contemporaneous supply made to subsidiaries of the foreign company in other countries that pricing has been uniform world-wide. In this case, first of all, the pricing is not uniform worldwide. No basis which is rational and logic has been provided to justify different discounts. In that case, the price at which the goods were sold inter se affiliates of P&G was cost of raw materials and packing materials, manufacture, overheads, logistic cost and uniform profit of 5%. Therefore this decision cannot be applied to the facts of this case.
53.2. In the case of Siemens Ltd. Vs. CC, New Delhi [2000(126) ELT 1134 (Tri.)], the Special Investigation Branch of the Customs itself had found that the invoice price was not affected by the holding company-subsidiary company relationship. That is not the case here. Therefore, this decision also cannot be applied.
53.3. In Stahl India Pvt. Ltd. Vs. CC, Chennai [2005(184) ELT 408 (Tri. Chennai)], there was evidence of contemporaneous supply of identical/similar goods at same price to other overseas subsidiary of supplier on record. It was also found that there was import in large quantities by the subsidiary when compared to unrelated consumers and it was also found that subsidiary was incurring expenses connected with marketing activities thereby justifying the transaction value. This decision cannot be applied to the facts of this case.
53.4. Two clarifications issued by US Customs have also been enclosed but we find that those clarifications are not relevant since facts are not comparable.
53.5. In the case of Gem plus India Pvt. Ltd. Vs. CC, Chennai [2005(185) ELT 269 (Tri. Bang.)], the prices of items were mutually agreed between the supplier and the importer depending prevailing market driven prices. The prices were for stock and sale. On the contrary, in this case, spares supplied by the supplier are for replacement both for warranty and AMC services which was only to and through Sun entities. Such sales were not in the nature of buy and sell transactions.
53.6. In the case of Anabond Essex India (P) Ltd. Vs. CC, Chennai [2007(216) ELT 557 (Tri. Chennai)], there were cotemporaneous imports by independent parties and prices were seen to be lower than the ones at which Anabond Essex imported. Therefore this decision is also not applicable to the facts of this case.
54. The last question that is required to be considered is whether the demand can be said to be time-barred and extended period could have been invoked. In this case, all the facts were not disclosed to SVB and therefore the fact that SVB had considered the case would not be relevant. They have not disclosed Logistic Service Agreement dt. 01/07/1998, Spare Parts Agreement, Escalated Technical Support Agreement, existence of discount policy before SVB. In fact Shri V. Radhakrishnan declared that there is no formal agreement with suppliers for import of goods. This was not contested even before us. The fact that even after investigation, the appellants got a study done by PWC without giving all the relevant details, inculpatory statements of various officers of the company and e-mails correspondence between officers of different entities involved and different agreements and the nature of transactions would show that there was a conscious effort on the part of the company to bring down the value for the purpose of levy of Customs duty. Therefore, the mandatory penalty imposed under Section 114A can be justified and is upheld and extended period is also invocable.
55. We find that the Commissioner has imposed a redemption fine of Rs.35 crores for release of seized computer spares valued at Rs.145 crores (re-determined). In view of the fact that the US list price is being adopted and mandatory penalty under Section 114A has been imposed we consider that redemption fine of 25% is not warranted in this case and accordingly the redemption fine is reduced from Rs.35 crores to Rs.10 crores (Rupees ten crores only).
56. As regards penalty on S/Sh. Bhaskar Pramanik, Ravi Vishwanath, V. Radhakrishnan, Anand Kumar and Reji Kumar, we find that all the officers have contributed in their own way towards undervaluation. There was discussion, exchange of e-mails and further statements which go to show that the officers were aware that there was an effort to undervalue the goods. However one fact which emerges is that there is no evidence to show that they individually benefitted by way of extra remuneration or extra benefits because of this contribution. Under such circumstances, when penalty has been imposed on the appellant-company under Section 114A and goods have been confiscated and revalued for the purpose of levy of duty, some relief in quantum of penalty is warranted. Accordingly, the penalties on individuals would be as under:
a. Shri Bhaskar Pramanik -- Rs.10 lakhs (Rupees ten lakhs only) b. Shri Ravi Vishwanath -- Rs.8 lakhs (Rupees eight lakhs only) c. Shri V. Radhakrishnan -- Rs.6 lakhs (Rupees six lakhs only) d. Shri Anand Kumar -- Rs.4 lakhs (Rupees four lakhs only) e. Shri Reji Kumar -- Rs.2 lakhs (Rupees two lakhs only)
57. Lastly, we have to consider whether penalty is imposable on M/s. DHL Express India Ltd., Bangalore under Section 112(a) of Customs Act, 1962. The learned counsel on behalf of the appellant argued that appellant was not at all involved in undervaluation. M/s. DHL was providing all logistic support including clearances of imported goods from Customs to SI. There were raising freight invoices. They were aware that the consignments were received on freight to collect basis. They have a unique system of identifying freight to collect consignments imported based on account number. Non-declaration of freight element and terms of import resulted in non-payment of duty on freight charges. DHL did not inform CHA to include the freight charges in the assessable value. Even though the learned counsel argued vehemently, and submitted that they had not filed any documents and therefore no penalty can be imposed on them, we find that facts go against DHL totally. DHL is in the business of logistics and for a professional organization which is engaged in the same business, it cannot be said that they were not aware of the legal position. The contention that all documents including GATT declaration were signed by the importer and handed over is also not acceptable. One of the major declarations is to declare whether the freight is paid or payable and how much freight is included. In the absence of such care being taken, the penalty is definitely imposable on DHL. The total evasion of duty that has occurred because of non-inclusion of freight element is about Rs.9 crores and having regard to the quantum of duty evaded and the role of DHL, we consider that penalty of Rs.10 lakhs would meet the ends of justice. Accordingly, the penalty imposed on DHL Express India Pvt. Ltd. is reduced to Rs.10 lakhs (Rupees ten lakhs only) from Rs.20 lakhs.
58. All the appeals are disposed of in the above terms.
(Pronounced on .) ASHOK JINDAL JUDICIAL MEMBER B.S.V.MURTHY TECHNICAL MEMBER Raja 27