Customs, Excise and Gold Tribunal - Tamil Nadu
Xpress Computers And Shri Alex Mammen vs Commissioner Of Customs on 5 December, 2007
Equivalent citations: 2008(126)ECC14, 2008(152)ECR14(TRI.-CHENNAI), 2008(225)ELT78(TRI-CHENNAI)
ORDER P. Karthikeyan, Member (T)
1. M/s. Xpress Computers (XC) filed Bill of Entry No. 528744 dated 8.9.2003 for import of Computers and parts. On examination, it was found that the importer had not declared the brand and model of the computers and parts and suppressed the import of 'processors' with an intention to undervalue the goods. The goods were seized. The value declared was Rs. 10,75,715/- and the supplier M/s. Focus Technology International, USA, a trader. The invoice and other documents did not show the brand and model of the imported goods. During investigation, in his statement dated 15.10.2003, Shri Alex Mammen, power of attorney holder and husband of the Propriterix Smt. Juliet Mammen stated that he had negotiated the price with the supplier and placed orders through internet and that they had not mentioned the brand "Sun Computers" in the import documents and that the imported goods were of international standard. On comparing prices of similar goods as the imported ones, it was observed by the authorities that the prices declared were much lower than the corresponding prices declared by Sun Micro Systems, Bangalore, First Computers, Chennai and Wipro Infotech, Chennai. Prices were also lower than the corresponding international prices. In view of the misdeclaration of value and suppression of brand and model of the imported goods as well as suppression of import of certain goods, declared prices appeared to be not acceptable as transaction value. As prices of contemporary imports of similar/identical goods were not available, the assessable value could not be determined under Rules 5 and 6 of the Customs Valuation (Determination of Prices of Imported Goods) Rules, 1988 (CVR). As the relevant data were not available, the values could not also be determined under Rule 7 and 7 A of the CVR. It appeared that the assessable value could be determined only by resorting to Rule 8 of CVR.
2. In respect of Sl. Nos. 1, 6, 7, 10, 11 and 12, the lowest of the contemporaneous import prices of such goods were those of M/s. First Computers, Chennai. These were adopted for appraisement. For the remaining items, Rule 8 of CVR was proposed to be resorted to for valuation. The appraised value is given in the last column of the Table B. Table B S. No Discription of the imported goods identified during examination Unit price to be adopted under Rule 8 (in USD) (FOB) Unit price appraised (in Rs.
1Sun Brand cabinet with power supply & mother board Ultra spare driven Ultra 60 elite 3D 1000 2 Sun brand server E 450 cabinet with power supply and mother board & CD rom (ultra Enterprise-450) 115000/-
3Sun brand Enterprises 4500 cabinet with power supply, 2x mother board, CPU and I/O board, CD rom 138000/-
4Rackmounted (7 No. x D1000 Hardrive cabinets with power supplies) and (2 No. x A300 Array controllers with metal 72" 5 cabinet Rack enclosures StorEdge D1000) (7 racks), StorEdge A 3000 (2 Nos.) 380000/-
521" colour monitors (IBM) Model 6552-63 N P260 monitor (Flat screen) 9000/-
621" colour monitors (SUN) Model No. GDM5410 Made in Japan (Flat screen) 275
-
717" colour monitors (SUN) Model CHB 7727 L 100 8 StorEdge D1000 Hard disk Cabinet with power supply
-
45000/-
932 X CD Rom Drive Model No. XM 62018 -TOSHIBA
-
1200/-
10Ultra 10 cabinet (creator) with power supply, Mother board, CD Rom with "Processor" (processor not declared 539 11 Keyboards and Mouse 44
-
12Enterprise 250 Cabinet with power supply and Motherboard 700 13 Enterprise 6500 Ultra spare driven Cabinet with Power Supply modules.
-
460000/-
The assessable value of goods covered by the impugned Bill of Entry No. 528744 dated 8.9.2003 thus worked out to Rs. 45,38,642/- as against the declared value Rs. 10,75,715/-. Duty payable worked out to Rs. 17,58,088/-as against Rs. 4,12,391/- In reply to a show cause notice issued for adjudicating the misdeclaration and determining the value and duty, the importer submitted as follows.
3. The Department had erred in relying upon the price of the goods in India; it was not certain whether the price of imported goods or of indigenous goods were being compared for assessment of impugned goods. Had the goods compared been imported goods, the importers were not furnished the related documents to establish its comparability. Even in respect of goods set out in the table there were wide differences in price. The goods tabulated had been taken piecemeal. It was unclear how they were comparable. The price of complete system was adopted for appraising imported goods which were parts. Wipro Infotech and First Computers being their competitors their evidence could not be relied upon. It was already found that no price of contemporary imports of similar or identical goods were available. Therefore the comparison attempted was arbitrary. The shipping documents had shown brand names of the goods and declared value could not be rejected on the charge of suppression of brand name. The Department had failed to establish that the transaction value was declared incorrectly. The shipping documents had carried the brand names and statement to the contrary was obtained from Alex Mammen under coercion. Shri Alex Mammen had submitted that the supplier had sourced obsolete models and supplied to developing countries at cheap prices. Such components may not carry a particular brand name and could be used in any system. The consignment was only parts and not complete systems. The importer explained the difference between ULTRA 10 imported by First Computers and the impugned goods imported by showing the different configurations of the CPU, RAM and Hard Disk Drive. It was shown that the price of First Computers was higher because of higher configuration and additional items. Even First Computers had imported a system with higher configuration sold at US $ 200 to 275, almost akin to model Spark Ultra Trend 300 MHZ CPU with Linux imported by XC. As regards E-250 as seen from Bill of Entry No. 536454 dated 22.5.03, of First Computers, the configuration tallied with their import. However, they had imported five pieces as against one by First Computers. They had negotiated price with the dealers in the US who were keen to dispose their obsolete inventory. The product covered by the Bill of Entry of First Computers did not show details as to exact capacity and configuration to enable comparison. Therefore, the price paid for E-250 was only US $350 per piece. The price list of First Computers referred to for comparison had not been furnished to the importer despite request. 'Ultra 60' and 'Ultra 10' brands were declared which were exclusive for Sun Micro Systems. Therefore, the allegation of suppression of brand had no basis. In Bill of Entry No. 536454 dated. 22.5.03, First Computers had declared the same item without declaring the brand name. This had not been objected to by the department. Therefore, this was the trade practice. Items manufactured usually for companies of repute like Sun/IBM were available in the US market without any brand name. It was a world wide practice in computer trade. M/s. Focus Technology was a dealer like the supplier of First Computers, M/s MEM-X. Therefore, the purchase prices of First Computers were not particularly reliable for comparison. Certain items were valued adopting international price declared by First Computers. These pricelists had not been furnished to them. Therefore, they were not in a position to know whether the prices were comparable. The invoice against which M/s. First Computers imported similar/identical goods and also the price list price or international prices quoted by M/s. First Computers were not furnished to them to enable them ascertain the exact product configuration and the nature of parts; that the basis on which the declared value had been rejected was erroneous and opposed to the basic tenets of valuation. The value declared was transaction value paid for the goods. No evidence showing receipt of extra commercial consideration was available with the department.
4. The 'processors' had been supplied as compliment as there was no market for "Spark II processors" which had become obsolete. They were not aware of the supply of processors, as they had been supplied without their ordering for them. The current value of these processors was US $ 30-40 each and they accepted this liability. They had only imported parts and not complete systems. First Computers had furnished a quotation and not a record of concluded transaction. The proposed appraisement following the price list, in the absence of technical characteristics of those items was opposed to principles of valuation contained in Customs Valuation Rules. They relied on various case law to argue that no penalty could be imposed on them and that the goods were not liable to confiscation.
5. The Commissioner found that unlike the declaration in the Bill of Entry, the imported goods were branded, that 21" colour monitors (Sun/IBM) were of flat screen and the goods declared as ULTRA 10 cabinet with power supply, motherboard, CD-Rom, 9 GB HDD, contained one 'Processor" in each of the cabinet in addition to the declared goods. The Commissioner found and identified the discrepancies between the declaration and the actual declaration as follows.
Table C S. No. Description of the imported goods declared Description of the imported goods identified during examination 1 ATX cabinet with power supply & mother board(U60) Sun Brand cabinet with power supply & mother board Ultra spare driven Ultra 60 elite 3D 2 ATX server E 450 cabinet with power supply and mother board & CD Rom Sun brand server E 450 cabinet with power supply and mother board & CD rom (Ultra Enterprise-450) 3 E4.5K cabinet with power supply, 2x mother board, CPU and I/O board, CD rom Sun brand Enterprises 4500 cabinet with power supply, 2x mother board, CPU and I/O board, CD rom
4. Rackmounted (7 No. x D1000 Hardrive cabinets with power supplies) and (2 No. x A300 Array controllers with metal 72" cabinet Rack enclosures Rackmounted (7 No. x D1000 Hardrive cabinets with power supplies) and (2 No. x A300 Array controllers with metal 72" cabinet Rack enclosures StorEdge D1000) (7 racks), StorEdge A 3000 (2 Nos.) 5 21" colour monitors Black (IBM) 21" colour monitors (IBM) Model 6552-63 N P260 monitor (Flat screen) 6 21" colour monitors (SUN) 21" colour monitors (SUN) Model No. GDM5410 Made in Japan (Flat screen) 7 17" colour monitors (SUN) 17" colour monitors (SUN) Model CHB 7727 L 8 D1000 Hard disk Cabinet with power supply StorEdge D1000 Hard disk Cabinet with power supply 9 32 X CD Rom Drive 32 X CD Rom Drive Model No. XM 62018-TOSHIBA 10 Ultra 10 cabinet with power supply, Mother board, CD Rom and 9GB HDD Ultra 10 cabinet (creator) with power supply, Mother board, CD Rom with "Processor" (processor not declared) 11 Keyboards and Mouse Keyboards and Mouse 12 ATX E 250 Cabinet with power supply and Motherboard Enterprise 250 Cabinet with power supply and Motherboard 13 6.5K Cabinet with Power Supply modules Enterprise 6500 Ultra spare driven Cabinet with Power Supply modules.
He found that the importer had not declared the brand and model of the goods imported. He found that M/s. Wipro Infotech, Chennai and First Computers Chennai had imported the following items and their prices were as follows:
Table D S. No Prices of M/s. First Computers, Chennai.
Prices of M/s. Wipro Computers, Chennai (in US$) Discription of the imported goods identified during examination Prices of Sun Micro systems, Bangalore (in US$) Import prices as per B/E No. / date (in US$) (FOB) International Price (in US$) (FOB) 1 Sun Brand cabinet with power supply & mother board Ultra spare driven Ultra 60 elite 3D 100 1000 (536454/22.5.03) 2 Sun brand server E 450 cabinet with power supply and mother board & CD rom (ultra Enterprise-450) 500 2500 3 Sun brand Enterprises 4500 cabinet with power supply, 2x mother board, CPU and I/O board, CD rom 800
-3000
-
4Rackmounted (7 No. x D1000 Hardrive cabinets with power supplies) and (2 No. x A300 Array controllers with metal 72" 5 cabinet Rack enclosures StorEdge D1000) (7 racks), StorEdge A 3000 (2 Nos.) 2000 8295 2828 5 21"
colour monitors (IBM) Model 6552-63 N P260 monitor (Flat screen) 200
-200 1148 6
21"
colour monitors (SUN) Model No. GDM5410 Made in Japan (Flat screen) 200 275 (556920/17.7.03)
-
1148 717"
colour monitors (SUN) Mode CHB 7727 L I 100 100 (556920/17.7.03)
-406 8
StorEdge D1000 Hard disk Cabinet with power supply 200
-1000
-9 32
X CD Rom Drive Model No. XM 62018 -TOSHIBA 16
-28 460 10
Ultra 10 cabinet (creator) with power supply, Mother board, CD Rom with "Processor" (processor not declared 125 539 (571222/27.08.03)
-2920 11
Keyboards and Mouse 15 44 (544077/11.6.03)
-
-12
Enterprise 250 Cabinet with power supply and Motherboard 350 700 (536454/22.5.03)
-2670 13
Enterprise 6500 Ultra spare driven Cabinet with Power Supply modules.1600
10,000 He found on comparison that prices of many goods had been declared lower than prices noticed for identical goods and that brand and model of the impugned goods were suppressed to facilitate misdeclaration of value. They did not declare processors. For these reasons he rejected the declared value as transaction value. He found that there were no contemporaneous imports of similar/identical goods. So Valuation Rules 5 & 6 could not be resorted to. For want of relevant data Rule 7 & 7A also could not be resorted to. Therefore, value had to be determined under Rule 8 of CVR. He found that in respect of items at Sl No. 1, 6, 7, 10, 11 & 12 of the tables, prices of Sun brand computers and parts imported by M/s. First computers, Chennai or M/s. Wipro Infotech Chennai, were the least. He observed that "Even though the goods covered in the relied upon Bills of Entry are not fit to be considered as identical/similar goods for determining the value under Rules 5 & 6 of CVR, 1988 on account of the fact that the goods were procured/supplied in assorted manner without revealing the source of procurement of supply, since the brand and technical parameters of the goods were found to be comparable with the goods under import, I get guided by the value of the goods in the Bills of Entry relied upon in the show cause notice while determining the value using reasonable means under Rule 8 of the CVR, 1988." Moreover, the Bills of Entry relied upon were contemporaneous with subject import warranting no adjustment owing to time gap in imports. He accordingly affirmed the proposal in the show cause notice and adopted the value relied upon in the show cause notice for assessment. For the remaining items in the table he rejected the proposal as the same was based on international prices obtained in quotations. Accordingly, he accepted the declared value of items at Sl. No 2, 3, 4, 5, 8, 9 & 13 of the tables as assessable value. Thus the assessable value of the consignment was revised to Rs. 30,67,453/- from Rs. 10,75,715/- and the duty payable to Rs. 11,84,273/- from Rs. 4,12,391/-. The importer had not declared the brand, capacity and such other technical characteristics despite the Public Notice No. 243/2002 dt. 8.7.02, requiring such declaration with the object of under valuing and evade the correct duty. Existence of processors in the consignment was suppressed. Misdeclaration and under declaration of goods totally valued above Rs. 25.6 lakhs rendered them liable for confiscation under Section 111 (l) & (m). He rejected the explanation for not declaring the processors and took it to be deliberate. The item under assessment was not processor but Ultra 10 cabinet with power supply, motherboard, CD-Rom, 9GB HDD etc., as appearing in the importer's invoice and packing list. Presence of processor was suppressed. The Commissioner justified his finding on the basis that the importer had been furnished all material relied upon by him. He had considered the submissions made by the importer and quotations given by M/s. First Computers, Chennai were discarded and not relied upon. There was nothing to suggest that the statement given by Mr. Alex Mammen was involuntary. There was no retraction. Accordingly, he determined the value of the impugned goods including the processors not declared at Rs. 30,67,453/- under Rule 8 of CVR. He confiscated goods at S. No. 1, 6, 7, 10, 11 & 12 valued Rs. 25.6 lakhs under Section 111 (l) & (m). He offered redemption of these goods on payment of fine of Rs. 4 lakhs. He imposed a penalty of Rs. 2 lakhs on Xpress Computers and Rs. 1 lakh on Alex Mammen under Section 112 (a) of the Act. Remaining goods at Sl No. 2, 3, 4, 5, 8, 9, & 13 valued Rs. 5,07,389/- were allowed to be cleared on payment of appropriate duty.
6. In the appeal, the following major grounds have been taken against the impugned order.
The charge of suppression of brandname of the imported goods was incorrect as the internationally accepted codes for the systems manufactured by multinational companies such as ULTRA of Sun Micro Systems and P270 for IBM were declared. The Commissioner allowed himself to be guided by the opinion of the competitors of the importer namely Wipro Infotech and First Computers. Examination of the goods by the representatives of the competitors was conducted in the absence of a representative of XC. The request of the importer to cross examine the experts of Wipro and First Computers had been turned down. The Commissioner had accepted the value of items at Sl. No. 2, 3, 4, 8, 9 and 13 even though brand and model of these goods were not declared. At the same time goods at Sl. No. 1, 5, 6, 7, 10 and 11 were treated as offending goods and their declared value rejected for non declaration of brandname. Non declaration of "flat screen" in respect of Sl. No. 5, 6 and 7(monitors) did not constitute a serious omission/suppression to warrant rejection of transaction value. Whereas monitors had to carry brandname, the international practice was not to affix brandname on mother board, CD ROM, power supply etc. embedded inside the cabinet. This position was suppressed from the Department by the Wipro Technologist wantonly. The supplier M/s. Focus Technology, USA had procured obsolete components and had sold in semiassembled form for convenience of packing. Though these were functionally sound, were available cheaply as they were being sold in the international market without any brandname. This was the practice in vogue in computer trade. The Commissioner had observed that no prices of identical goods were available in respect of items at Sl. No. 1, 6, 7, 10, 11 and 12. The Commissioner had adopted the prices declared by other importers for these items which he later described as identical. Discarding transaction value on the ground of non declaration of brand was not sustainable. Commissioner had appraised the value adopting the price list price which was not correct. The technical characteristics were not available to ascertain if the prices were comparable. They had imported assorted parts and not complete systems. Several parts were needed to form complete system; this was the reason why the Commissioner did not find the goods to be identical or similar in order to invoke Rule 5 or 6 of CVR. There was no evidence to show repatriation of any amount in excess of declared value. There was no evidence of mutuality of interest between the importer and the supplier. The Commissioner had not established the undervaluation and adopted the prices of the imports of First Computers or their price list price without establishing their comparability. Their invoice was accepted as correct in part. Partial acceptance of an invoice was not permissible. There could be no such pricelists as the impugned goods were not complete systems. It was prayed that the impugned order may be set aside.
7. We have studied the case records and the submissions by both sides. We find that the Commissioner has resorted to valuation under Rule 8 of some of the goods covered by invoices while accepting the declared value in respect of the remaining items. We find substance in the submission by the importer that internal components of computer systems do not bear brandname and that these are sold in the international market at cheap prices when they become outmoded. Major manufacturers of computers source these components from manufacturers who also sell the same goods in the spare market. Commissioner has found that the imported goods are assorted items. They are not complete systems. These lack parts required to make complete systems and would be sold after cannibalising. Or missing parts would be fitted in the incomplete systems. For these reasons the Commissioner could not find the impugned goods to be identical or similar to those imported contemporaneously or otherwise. However, he described the same as identical and adopted prices of items imported by some other importers. This we find is not consistent with the valuation provisions.
8. The Commissioner rejected the transaction value of a few items on the ground that the importer had not declared the brandname of the computer parts in the Bill of Entry. On examination it was found that the brandname 'SUN' was not declared in respect of the items cabinet with power supply and motherboard. However, it is the importer's contention that it had declared the description as U 60 and that Ultra 60 was known in the Computer trade to be 'SUN' brand. The next two items mentioned at Sl. No. 6 and 7 of the table in respect of which the transaction value has been rejected were declared as SUN brand 21" colour monitor and SUN brand 17" colour monitor. Item No. 10 was declared as Ultra 10 Cabinet with power supply, motherboard, CD Rom and 9GB HDD. Ultra 10 is a well known SUN brand item. Sl. No. 11 namely key boards and mouse are unbranded. Sl. No. 12 was declared as ATX E 250 Cabinet with power supply and mother board. As per the examination the item was found to be Enterprise 250 cabinet with power supply and mother board. As regards other items Sl. No. 5 had been declared as IBM Monitors. Sl. No. 13 was declared as 6.5 K cabinet with power supply modules whereas the actual description was Enterprise 6500 Ultra spare driven cabinet with power supply modules.
8.1 We find from the above that effectively the importer had not made incorrect declaration of the description of the items imported. As claimed by the importer computers of different brands are known by model codes such as Ultra 10, Ultra 60 and E-250 standing for SUN brand and P270 for IBM products. The finding of suppression of the correct brands is not well founded. Therefore, the transaction value could not have been rejected on that ground. However, the importer had not declared a processor each imported along with the SUN brand cabinet declared at Sl. No. 1 of the tables. As regards this discrepancy the importer had explained that processors were supplied without their ordering for the same and as a compliment. Moreover, these were of no use to the supplier being an obsolete component.
9. The Commissioner has assessed the goods at Sl. No. 1, 6, 7, 10, 11 and 12 resorting to the method laid down in Rule 5 of CVR. Rule 5 applies to assessment based on value of identical goods already accepted for assessment. The Commissioner entered a categorical finding that Rule 5 could not be resorted to as the impugned goods are assorted parts. The consignment covers items of SUN brand, Toshiba and IBM. The assessee's averments that the supplier had procured these goods from different sources and could procure them at low prices in the international market appears plausible and acceptable.
9.1 The importer had challenged the comparison as arbitrary on the basis that there were discrepancies in technical characteristics between the goods compared. It was claimed that item at Sl. No. 1 had a different configuration inasmuch as the imported goods were of 296 MH3 capacity and the item compared was of 400 MH3 capacity. Such claim was not limited this item. The Commissioner rejected these claims as not backed by documentary evidence. However, the appellants had sought cross-examination of the representatives of First Computers, Chennai and Wipro Infotech, Chennai who were consulted on the comparability of the impugned goods to those imported by First Computers and also as regards valuation. We find that it was not proper that the Commissioner denied cross examination of these technical personnel. The importer had also expressed their grievance that the technical characteristics of the goods whose prices were referred to assess the impugned goods were not disclosed to them. The findings of the Commissioner are considerably weakened by these infirmities. In fine we find that the Commissioner rejected the transaction value without adequate and acceptable legal justification. Presence of P2 and P3 processors along with the Ultra 60 computer parts, we find, is insufficient to consider that description of this item was misdeclared. We find the argument of the appellants that these were components of outmoded systems which apparently did not have any demand were supplied as compliment not totally unacceptable. The invoice or the packing list or the purchase order did not show this item. We are inclined to grant benefit of doubt in this regard to the importer.
10. There is no allegation that the supplier and the importer are related. There is no evidence of any remittance of consideration to the supplier in excess of the price declared in the Bill of Entry. It is settled that to reject the transaction value the burden is on the department to establish that declared value is different and lower than the consideration exchanged for the goods. We also find that once the adjudicating authority gave a categorical finding that the impugned goods could not be considered to be identical to any other goods already imported, the Commissioner is barred from resorting to assessment following method under Rule 5 treating the goods under assessment as identical to goods already imported. We are not convinced that the impugned goods could not be considered to be identical to the goods already imported (but compared for valuation by the Commissioner) not just because the impugned goods were procured from diverse sources by the supplier as found.
10.1 The method of valuation prescribed under Rule 8 of CVR enables the assessing officer to determine the value of the imported goods enjoying a reasonable flexibility. The Rule provides a certain amount of discretion to the assessing officer to be exercised in tune with the valuation provisions contained in Section 14 of the Act and Valuation Rules 4 to 7A. In the instant case the Commissioner has not established convincingly that value of goods of technically comparable characteristics was adopted to assess the impugned goods. We find it essential that while employing principles of Valuation Rule 5 to determine the value of the electronic goods, the appraising authority does not adopt value of goods not shown to be of identical technical characteristics and brand. It has to be held that the valuation adopted by the Commissioner is arbitrary.
11. In the circumstances we set aside the impugned order as not sustainable. We make it clear, however, that Xpress Computers shall pay duty on the processors imported by it at the price rate of 40 US $ as accepted.
12. The appeal is disposed of on the above terms.
(Order pronounced in open Court on 5.12.07)