Customs, Excise and Gold Tribunal - Tamil Nadu
Saffire Lithographers And Adarsh ... vs Commissioner Of Customs on 18 June, 2007
Equivalent citations: 2007(120)ECC348, 2007ECR348(TRI.-CHENNAI), 2007(215)ELT210(TRI-CHENNAI)
ORDER P. Karthikeyan, Member (T)
1. M/s. Saffire Lithographers Limited, (henceforth also referred to as assessee, importer or appellant) Chennai, appellant in appeal No. C/191/2006 had imported a new "SHINOHARA 52 IV" heavy duty sheet fed four colour straight printing offset press with console cooling system and accessories through the Tuticorin Port and filed Bill of Entry dated 6.2.2006 declaring its value (FOB) as Japanese Yen 6000000 (Rs. 23.28 lakhs). The value declared did not appear to be genuine and proceedings were initiated to determine the correct value. On conclusion of the adjudication proceedings, the Commissioner of Customs rejected the declared value as transaction value in terms of Rule 4(2) and 10A of the Customs Valuation Rules, 1988 (CVR). He determined the FOB value of the impugned goods as Rs. 139.68 lakhs and confiscated the goods under Section 111(m) for misdeclaration of value with a view to evade payment of duty to the tune of Rs. 40 lakhs. An option was offered to redeem the goods on payment of a fine of Rs. 5 lakhs. A penalty of Rs. 2 lakhs was imposed on the importer under Section 112(a) of the Act. A penalty of Rs. 50,000/ was imposed under Section 112(a) of the Act on the CHA, M/s Adarsh Shipping and Services.
2. The captioned appeals are directed against the above order. Facts of the case in brief are that on intelligence of gross undervaluation, the four colour offset press imported by M/s. Saffire Lithographers was seized on the reasonable belief that the same was liable for confiscation. A Show Cause Notice was issued to reject the transaction value in terms of Rule 4(2)(a), (b), (c), (f) and (h) and 10(A) of the Customs Valuation Rules, 1988 (hence forth, CVR), proposing to fix the value at Rs. 164.512 lakhs in terms of Rule 8 of the CVR, to confiscate the machinery and to impose penalty on the importer and the CHA. Vide their letter dated 7.2.06 the importer had informed that they were the sole distributor of SHINOHARA machines, that the value declared was applicable only to them (distributor price) and offered to pay duty on based on FOB value of Rs. 38 lakhs. After unsuccessful efforts to stall the proceedings through Hon'ble High Court failed, they did not substantiate the declared value with supporting documents or a reply to the Show Cause Notice. Their representative appeared for hearing, when he denied allegation of undervaluation. He argued that enhancing the value on the basis of internet price was not proper in the absence of price of contemporaneous import. The importer was a distributor of the imported machine. The importer did not fit into the description given in Rule 2(2) of the CVR to become a related person. Six million Janpanese Yen was distributor's price and was a favourable inaugural offer to introduce the product in the Indian market. These factors had not been taken into account by the Chartered Engineer, who had estimated the FOB value at 36 million Japanese Yen. The vendors had the prerogative to allow any discount to the buyer and the counsel for the importer cited judgment of the apex Court in the case of Eicher Tractors 2000 (122) ELT 321 (SC) in support. The supplier himself was manufacturer and his invoice was adequate evidence and non-production of manufacturer's invoice could not be a ground to reject the transaction value (invoice value). There was nothing on record to reject transaction value as proposed in the Show Cause Notice. Commercial reasons justified the discount allowed. As the transaction could not be held as attracting special circumstances enumerated in Rule 4(2) of the CVR, the declared value had to be accepted. The Chartered Engineer had not inspected the machine in operation. The SGS, Japan had communicated the domestic price of the machine in Japan. Rule 8(2)(iii) of the CVR prohibited adoption of domestic price in the country of export for valuation.
3. The Commissioner found that the declared value was not for sale of the equipment in the ordinary course of international trade under fully competitive conditions. The internet data indicated the price of the imported machine as Rs. 174.79 lakhs (copy furnished to the importer). The importer did not furnish the normal sale price of the machine and the introductory discount. A similar machine of "Mitsubishi" brand was imported in March 2006 at a value of Rs. 275 lakhs (Bill of Entry copy furnished to the importer). There was a contemporaneous import on 10.2.2006 of a second hand four colour off set printing press with accessories which was more than 20 years old at a CIF value of Rs. 23.50 lakhs. The importer was furnished a copy of the Chartered Engineer's report on valuation of the imported machine. The Commissioner found that generally a machine more than 10 years old was valued at 1/10th of its original value by Chartered Engineers. The importer did not seek to cross-examine the SGS Engineer who had estimated the value of the machine and did not produce the load port Engineer's Certificate. The importer offered to pay duty on a value of Rs. 38 lakhs as against the declared value of Rs. 23.28 lakhs. Thus the Commissioner found adequate grounds to reject the declared value. A discount of 12.5% was allowed on the assessed value of Rs. 164.512 and FOB value of the impugned goods fixed at Rs. 139.68 lakhs under Rule 8 of CVR based on the certificate of the Chartered Engineer. As the importer was in the business of distribution of off set printing machines for several years, they had misdeclared the value with intent to evade customs duty to the tune of Rs. 40 lakhs and rendered it liable for confiscation under Section 111(m) of the Customs Act and themselves liable for penalty under Section 112(a).
4. The CHA had experience in clearing machinery items for the few previous years and knew that the price declared was paltry. Therefore, they abetted the misdeclaration and evasion. Therefore, they were liable for penalty under Section 112(a). Accordingly the Commissioner passed the above order. Hence the present appeals.
5. In the appeal before this Tribunal the importer has taken the following grounds to assail the impugned order. The order did not specify as per which particular sub-clause of Rule 4 (2), the transaction value had become not acceptable. The revision of the assessable value in terms of Rule 8 of CVR was incorrect. The Commissioner had not scrutinized the relationship against the terms of the agreement. The appeal reiterated the grounds taken before the adjudicating authority. They have reproduced the E.Mail dated 14.2.2006 from SGS, Japan to SGS India which reads as follows:
Dear Muthukrishnan, The Model 52 IV will be smaller than 55 IV. So 80% of the value will be reasonable.
Japanese Yen 53,000,000 - will be applicable. As we SGS Japanese is not the machine buyer, we cannot ask Shinohara several times.
They claimed that the letter assumed the subject model to be smaller than 55 IV model and assumed 80% of the value of the latter to be reasonable. The Chartered Engineer had estimated the value of the machine on the basis of estimated price. This had to be rejected. Therefore, the order itself deserved to be set aside. The Commissioner had relied on contemporaneous imports of a superior "Mitsubishi" model and a second hand machine. In respect of the "Mitsubishi" machine, it was not known if accessories had also been imported. The second hand machine was a 20 year old one and its price could not be adopted for comparison to determine the value of a new machine.
6. During the hearing ld. Counsel for the appellants submitted that the price did not attract the various provisos of Rule 4(2) of the CVR. It was stated that internet data was not reliable in determining the assessable value of the imported goods as decided by the Tribunal in the case of Shree Sagarmatha Distributors (P) Ltd. v. CC, Bangalore . The Counsel invited our attention to the E. Mail dated 27.2.06 from the supplier to the appellants communicating a copy of the E. Mail addressed to SGS India agent by his counter part in Japan. As per the communication between the SGS agents, the original E. Mail on the price of the machine was only for the reference of SGS India. He had found general price of "Shinohara" by phone from their sales office in Tokyo. He advised in the mail that for evaluating the equipment the SGS India had to investigate using comprehensive data. He had thought that the information was required to value used machine. The Counsel submitted that the SGS Japan must have reported the price on the basis of domestic market price in Japan. The comparison was attempted by the Commissioner in the case of new machine where the brand was different and the country of make was different and that the observation that the 10 year old machine was valued at 1/10th of the price of the new machine was without basis. He relied on the following case law.
i) L.M.L. Ltd. v. CC
ii) Mirah Exports Pvt. Ltd. v. CC
iii) CCE v. Himalayan Co-op Milk Products Union Ltd.
According to the ld. Counsel, the above judgments squarely covered their case. Burden of the counsel's pleas in brief is that settled law is that transaction value can be rejected only on the basis of reasonable and cogent evidence of contemporaneous import of identical/similar goods, having the same country of origin and import at the same commercial level.
7. Ld. Consultant for the Revenue submitted that the price was not fixed on the basis of internet data. The appellants had vide their letter dated 7.2.2006 stated that the value declared was exclusive to the appellants and the same was distributor price. "The value offered/declared is only applicable to us (Distributor price)". As per the letter, they were the sole distributor of the Shinohara machines in India. They had also submitted before the Hon'ble High Court of Madras (vide The judgment & order dated 22.3.06) that the lower price of Rs. 23.28 lakhs was charged for the purpose of developing future market and the import was for the purpose of exhibition. The party did not produce documents supporting the declared price as the sale price of the supplier. They produced a copy of the agreement. As per its Article 7, the procedure for placing orders is laid down. As per Article 11, the principal will decide the price of the product in Japanese Yen once in every year and submit the quotation to Agent which shall be valid for one year. The supplier will charge the agent on the basis of the above price. The invoice for the impugned transaction referred to "Sales Note NI.SN.4987'" as the supplier's reference pertaining to the transaction. This sale note had been withheld and not disclosed.
8. Ld. Counsel relied on the following case law in defence of the findings in the impugned order.
i) Rajkumar Knitting Mills (P) Ltd. v. CC, Bombay
ii) Mirah Enterprises v. CC, Ahmedabad 2006 (194) ELT 92 (Tri. Mumb)
iii) Sharp Business Machins Pvt. Ltd. v. CC
iv) Ispat Industries Ltd. v. CC, Mumbai He argued that in view of his submissions, Rule 4(2) Clause (a), (b) and (c) were applicable in the instant case. As per the decision in Atlas Casting & Metal Impregnation v. CC, Hyderabad once transaction value was rejected any reasonable method of arriving at the value could be adopted.
9. We have studied the records of the case and the submissions made by both sides. M/s. Saffire Lithographers were the sole distributor of the SHINOHARA products in India by their admission vide their letter dated 7.2.2006. They had been charged at the distributors' price for the impugned goods. The importer had admitted before the Hon'ble High Court of Madras that they were charged a lesser price as the supplier was introducing the impugned product to capture the Indian market and that the machine was intended for an exhibition. They had offered to pay duty computed on a FOB value of Rs. 38 lakhs as against Rs. 23.28 lakhs declared in the Bill of Entry. In their letter dated 27.2.2006, the supplier had informed the Commissioner that the regular price of the press imported was 9 million Japanese Yen whereas they had allowed a discount of 3 million Yen to M/s. Saffire Lithographers. We find that the importer was charged a specially low price for the product. The Distributorship Agreement between the supplier and the assessee described the assessee as an agent of SHINOHARA. The Commissioner had found that a four colour offset printing press of more than 20 years old was imported at Rs. 23.5 lakhs at about the same time as the subject machine. This showed roughly how much a four colour offset printing press costs after twenty years' use. The brand new machine with accessories imported by the assessee was declared to be of value Rs. 23.28 lakhs. The Commissioner had observed that normally Chartered Engineers valued a 10 year old machine at 1/10th of its value when new. Therefore, we observe that the price declared for the impugned machine was ridiculously low compared to its normal FOB value for sale in international trade.
As per Rule 4(1) of CVR, transaction value shall be accepted, provided that, among others,
(a) the sale is in the ordinary course of trade under fully competitive conditions;
(b) The sale does not involve any abnormal discount or reduction from the ordinary competitive price and
(c) the sale does not involve special discounts limited to exclusive agents.
In view of the above provisions we find that the Commissioner was right in rejecting the invoice value for the purpose of assessment and that the enquiry made as per Rule 10A of CVR was appropriate. As observed by the Tribunal in, CC, Bangalore v. H.M. Leisure cited by the Counsel for the revenue, even if the circumstances particularised in Rule 4(2) of CVR were not there, the Transaction Value could be rejected by the authorities in terms of Rule 10A of CVR. Rule 10A reads as follows:
10A. Rejection of declared value. - (1) When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any imported goods, he may ask the importer of such goods to furnish further information including documents or other evidence and if, after receiving such further information, or in the absence of a response of such importer, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that the value of such imported goods cannot be determined under the provisions of Sub-rule (1) of Rule 4.
(2) At the request of an importer, the proper officer, shall intimate the importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being heard, before taking a final decision under Sub-rule (1).
Once the invoice value is found to be false, the assessing authority can adopt any reasonable method in order to ascertain the assessable value as held by the Tribunal in the case of Atlas Castings & Metal Impregration v. CC, Hyderabad 2005 (151) ELT 575 (Tri.Bang).
10. The investigation into the transaction to arrive at the correct price of the impugned goods was initiated on finding a different and much higher price for the imported item displayed by the manufacturer on the internet. This information was conveyed to the importer as required under Rule 10A of CVR. In the entire proceedings the assessee has not questioned the veracity of this price of 2,20000 pounds sterling advertised by the manufacturer at its own site. As per Section 14 of the Customs Act, imported goods are to be assessed on a value at which such goods are ordinarily sold for export to India in the course of international trade. As the price gathered from internet could not solely be relied on to determine the assessable value, the Commissioner had got the goods inspected by the Chartered Engineer of an internationally reputed inspecting agency, the SGS. The Chartered Engineer had consulted his counterpart in Japan. In reply to enquiry regarding the price of the subject goods, SGS agent in Japan had informed the price to his Indian counterpart after enquiry with the manufacturer. He had furnished the information in the normal course of discharge of his regular functions as an inspecting agent of SGS. In these circumstances, we have no doubt that the estimate of price communicated was the price for sale for export of the impugned goods to India and not its price for sale in the Japanese market. Moreover usually he must be answering such queries from his counterparts in different parts of the world. This communication dated 14.02.06 reads as follows:
Dear Muthukrishnan, The Model 52 IV will be smaller than 55 IV. So 80% of the value will he reasonable.
Japanese Yen 53,000,000 - will be applicable. As we SGS Japanese is not the machine buyer, we cannot ask Shinohara several times.
In his communication addressed to SGS India dated 27.02.06 shown to us, he retracted his valuation estimate. This communication is impliedly to the effect that he had not intimated the initial valuation for any investigative purpose and that he had not known the history of the problem. He had reported the price thinking that it was for valuing a used machine. We find that knowledge of history of the problem has no bearing on the valuation of the machine. Absence of any such knowledge only lends credibility to the valuation as objective and reliable. This communication between the two SGS representatives was received by the importer from the supplier of the machine. It is a telltale circumstance which explains the retraction of the initial valuation by the Japanese representative of SGS. The information received from SGS Japan was one of the inputs that went into valuation of the impugned goods by the Chartered Engineer of SGS in India.
11. The Commissioner observed that a 20 year old machine of similar description was assessed at Rs. 23.5 lakhs. The Commissioner observed that normally Chartered Engineers estimated the value of a 10 year old machine at 1/10th of its value when new. If this is correct, the said machine when new, must have been of value higher than even Rs. 235 lakhs. The Chartered Engineer of SGS also deducted a discount of 12.5% from the sale price ascertained for determining the FOB value of the impugned machine). We do not find that the observation of the Commissioner is unreasonable. The erstwhile Rule 57S of Central Excise Rules 44, had provided for allowing depreciation to the tune of 10% per year of use of a new machine for reversing initially availed credit on its removal from the factory. The Commissioner also had found that a similar machine of Mitsubishi brand had been contemporaneously imported at Rs. 275 lakhs through Tuticorin Port. If Mitsubishi is a superior brand, the Commissioner had given due allowance for the difference in quality and had fixed the value of the impugned goods at Rs. 139.68 lakhs (FOB) following the views of the internationally recognized experts. As a rule, every major manufacturer of machines has a printed price list containing prices from which an agent or sole distributor of the supplier gets discount/commission. In the instant case, the assessee, a distributor of the manufacturer has withheld the said pricelist. As per contract the supplier notifies the price of its products to the assessee every year in a price list/proforma invoice/quotation and the supplier issues a sale note on receipt of order from the assessee. The invoice for the sale of impugned item refers to a sale note of the supplier. This is in tune with the terms of the contract. However, this document was not shown to the Department. No documents/ correspondence was disclosed to evidence negotiations leading to the declared price as mutually agreed. No reply was given to the proposals to determine the value and to penalize them. If the assessee had doubted the correctness of the Chartered Engineer's valuation or the method he adopted, it was open to the appellants to cross examine him and demonstrate how he was wrong. This was not done. If the claim of the importer was genuine, they would have produced the load port engineer's certificate. This was also not done. Taking into consideration all these facts and circumstances, we have no hesitation in upholding the impugned order rejecting the transaction value and determining the normal price in accordance with Section 14 of the Customs Act 62.
12. The Ld. Counsel for the appellants sought support for his plea regarding the acceptability of the declared value from the ratio of the decision of the Apex Court in the Eicher Tractors 2000 (122) ELT 321 (SC). We find that in this case the importer had refused to accept the goods made to its specifications. The supplier offered a huge discount as the imported goods had no other ready buyer. In that case, the Apex Court found that the transaction did not involve the special circumstances statutorily particularized in Valuation Rule 4(2) of the CVR and ordered that the transaction value had to be accepted for assessment. We find that CVR has under gone changes since the above judgment. In the impugned order, the Commissioner invoked provisos to CVR 4(2) and Rule 10A which were not in existence at the time when the material transactions considered in the Eicher Tractors case (supra) took place. Therefore, the ratio of the apex Court's judgment in Eicher Tractors case (supra) is not applicable to the facts of the subject case.
13. In Mirah Enterprises v. CC, Ahmedabad 2006 (194) ELT 92 (Tri. Mumbai) the Tribunal held as follows:
It is not the case of the appellants that the impugned goods are akin to the kind of goods dealt in the case of Eicher Tractors (supra) where 77% discount was allowed by the manufacturer on one time sale of five years old stock.... Moreover, the decision of the three Member Bench of the Hon'ble Supreme Court in the case of Rajkumar Knitting Mills (supra) interpreting Section 14(1) of the Customs Act, 1962 is binding on us in view of the fact that the relevant words of Section 14(1) have not undergone any change and there is no contrary decision of any Larger Bench of the Hon'ble Supreme Court. Section 14(1) of the Customs Act, 1962 requires customs valuation to correspond to ordinary competitive price in international trade. Transaction value method is one of the methods of valuation under the Customs Valuation Rules, 1988. The transaction value has been defined to be the actual price paid or payable. The declared value may not represent the transaction value in every case. When the declared value is ridiculously low compared to the ordinary competitive price of comparable goods contemporaneously imported, such declared values cannot be adopted as customs value. In such cases, the transaction value method is clearly inapplicable as the declared value does not conform to the requirement of the said Section 14(1).... On the other hand, where the declared value is ridiculously low and does not correspond to the ordinary competitive price in international trade, then the other methods of valuation under the Rules are to be used to arrive at the customs value....
We find that the above observations squarely apply to the instant case.
14. In the Ispat Industries Ltd. v. CC, Mumbai the apex Court recently made the following observations which also support the impugned order.
Section 14(1) states that the value of the imported goods shall be the deemed price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation in the course of international trade. The word "ordinarily" in Section 14(1) is of great importance. In Section 14(1) we are not to see the actual value of the goods, but the value at which such goods or like goods are ordinarily sold or offered for sale for delivery at the time of import. Similarly, the words "in the course of international trade" are also of great importance. We have to see the value of the goods not for each specific transaction, but the ordinary value which it would have in the course of international trade at the time of its import.
15. The view we are taking in this case is in accordance with the three-Judge Bench decision of this Court in Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs, Bombay .
In the light of the above observations of the apex Court the FOB value determined by the Commissioner as the basis for normal price for assessment in terms of Section 14(1) of the Act is appropriate. This is the first import of such machines into India. Therefore no relevant data is available to apply Rules 5, 6, 7 & 7A of CVR to value the impugned machine. Commissioner has therefore rightly applied Rule 8 of CVR. We affirm the value determined by the Commissioner. We are convinced that the assessee had misdeclared the value of the imported goods with intent to evade payment of full duty thereby rendering the impugned goods liable for confiscation and themselves liable for penalty. We find that the Commissioner has ordered a reasonable amount of fine to redeem the confiscated goods and imposed a very reasonable amount of penalty on the importer. We sustain the Commissioner's order as regards the fine and penalty also.
15. The Commissioner observed that the job of the CHA was to assist the department by ensuring that the value and other particulars declared in the Customs documents represented the true value/particulars as stipulated in the CHALR 2004 and various provisions of the Customs Act. A penalty of Rs. 50,000/- was imposed under Section 112(a) of the Act on M/s. Adarsh Shipping & Services for abetting undervaluation. We find that the Commissioner presumed that the CHA was aware of the undervaluation and the correct FOB value which the importer did not declare. On this basis he found that the CHA abetted evasion by the importer. We find that this finding is speculative and not based on evidence as claimed by the CHA. CHA had filed the Bill of Entry on the basis of documents furnished to it by the importer. CHA cannot be expected to know the customs value of all the goods it helps clear. Therefore, we set aside the penalty imposed on the CHA and allow appeal No. C/190/2006.
(Pronounced in open court on 18.06.07)