Customs, Excise and Gold Tribunal - Delhi
Tata Consultancy Services vs Collector Of Customs on 22 October, 1999
Equivalent citations: 2000(116)ELT213(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in this appeal filed by M/s. Tata Consultancy Services (TCS) is whether discount given to them by the Exporter is to be included in the assessable value of imported goods.
2. Briefly stated the facts are that the Appellants imported a consignment of Tandem Computers and Bill of Entry was filed on 3-3-1990 and goods were allowed to be cleared on payment of Customs Duty. However, subsequently the goods were seized on 16-3-1990 and a show cause notice dated 14-9-1990 was issued for confiscation of the goods and demanding duty amounting to Rs. 56,69,784/- on the ground of under valuation of the goods and import in excess of the licence. Another show cause notice dated 5-5-1991 was issued to them for demanding duty of Rs. 17,18,710/- on the same grounds by the Collector of Customs. The Collector, in the impugned order dated 30-7-1991, confirmed the demand of duty amounting to Rs. 17,18,710/-and confiscated the goods with an option to redeem the same on payment of fine of Rs. 4,50,000/- holding that a special discount of 28% had been given to the appellants by M/s. Tandem in view of the special relationship existing between them as the appellants had been entrusted with all software development projects for the exporter; that while all other importers in India could get their hardware through M/s. Wipro Information Technology, exclusive Indian representative of M/s. Tandem, the Appellants had been excluded from the purview of agreement by virtue of their special relationship with Tandem; that discount given to them was not a normal discount in the ordinary course of business and being a special discount based on special relationship it was to be added to the price; that they had misdeclared the value as they had not disclosed the special relationship, the goods were liable for confiscation under Section 111 (m) of the Customs Act and as the goods valued at Rs. 44.85 lakhs were not covered by licence, these were liable to confiscation under Section 111 (d) of the Act. The Collector, however, did not impose any penalty observing that the Appellants were under a bona fide impression that they were entitled to 28% discount.
3. Shri L.P. Asthana, ld. Advocate, submitted that the Appellants are engaged in the business of providing information technology and management consultancy services in India and abroad that for the development of software, they had imported a computer system in 1985 from M/s. Tandem Computer System; that with a view to augment the existing hardware system, they decided to import another computer system from M/s. Tandem in 1988; that M/s. Tandem issued a proforma invoice indicating a F.O.B. price of U.S.$ 7,63,560/- on the basis of which they obtained an import licence on 3-8-1989 and a duty Exemption certificate from the department of Electronics in terms of Notification No. 507/86-Cus.; that pursuant to negotiations M/s. Tandem issued a quotation dated 30-11-1998 reducing the price to US $ 7,16,420 F.O.B. The ld. Advocate, further, submitted that the declared value represents the transaction value and the same ought to have been accepted under Rule 4 of the Customs (Determination of Price of Imported Goods) Rules, 1988; that the transaction value can be rejected in situations where the supplier and the importer are held to be related persons; that there is no findings in the impugned order that the Appellants M/s. Tanden were related persons and that there was any extra commercial consideration; that there was no 'Special relationship' existing between them and Tandem; that the price was a genuine negotiated prices which had not been influenced by any extra commercial considerations; that even according to the statement dated 29-3-1990 of Shri Pheroze Vandrawala, Manager of Tandem, the relationship was special only on account of the fact that the two companies had several business dealings with each other in the past. Reliance was placed on the decision in the case of Basant Industries v. Additional Collector of Customs, 1996 (81) E.L.T. 195 (S.C.) wherein it was held that "by a mere comparison of two invoices without anything more, it may not be correct to proceed on the premise that there is undervaluation. The relationship between the supplier and importer has also to be kept in mind because it is a matter of common knowledge that a price which is offered by a supplier to an old customer may be different from a price which the same supplier offers to a totally new customer." He also relied upon the decision in the case of Mirah Exports P. Ltd. v. Collector of Customs -1998 (98) E.L.T. 3 (S.C.) wherein it was held that "ordinarily the court should proceed on the basis that the apparent terms of the agreement reflect the real state of affairs and what is to be examined is whether the Revenue has succeeded in showing that the apparant is not the real and that the price shown in the invoices does not reflect the true sale price. " The ld. Counsel contended that there is no evidence on record that M/s. Tandem had supplied some or similar equipments to other customers in India at a price higher than the one at which they were supplied to them; that according to Apex Court in Mirah Exports case there may be lower prices if the Customer generated additional volume of sales. The ld. Advocate also mentioned that there is no allegation in the notice that the supplier and the Appellants had any interest in the business of each other; that they had produced an affidavit of Shri Santha Kumar, Vice President of Tandem wherein he had affirmed that they entered into a negotiation for the price and configuration of the Computer System; that representatives of Tandem were deputed to carry out the negotiations with instruction not to accede to any reduction exceeding 25 to 28% of the price of the system which is in conformity with the normal export pricing policy of the Company; that only negotiated amount had been received by Tandem for the supply of the goods and the Company had not received any other amount whether in India, Singapore, or any other place directly or indirectly. The ld. Advocate also mentioned that Tandem had also made an offer to M/s. C.M.C. a discount of 25% on the list price; that they had also produced a catalogue of IBM showing discount upto 50% in certain cases which indicates that grant of such discount is a normal trade practice.
4. The ld. Counsel further mentioned that the reliance by the Department on the agreement between Tandem and Wipro is misplaced; that their negotiations with Tandem had started even before the Agreement with Wipro; that it has been erroneously assumed by the Department that Tandem was precluded from directly marketing their products in India and that the sales into India would have to be at the list price; that there is nothing on record to show that other customers would not have been eligible for similar discounts; that in any case the exclusion of the Appellant has not indicated any special relationship with Tandem as it merely shows that Tandem did not wish to give commission to WIPRO in respect of sale of goods to the Appellants. The ld. Counsel also submitted that demand is hit by time limit as the first notice was issued beyond a period of six months without invoking the provisions of proviso to Section 28 of the Customs Act and by the Assistant Director, D.R.I., who was not competent to issue a notice for demanding duty beyond six months. Reliance was placed on the decision in the case of Padmini Products v. C.C.E. - 1989 (43) E.L.T. 195 (S.C); and Tamil Nadu Housing Board v. C.C.E. -1994 (74) E.L.T. 9 (S.C). He also submitted in regard to second show cause notice that there was no misdeclaration on their part as they were not aware of agreement with Wipro; all the relevant information and documents were with the Department and above all, the Collector had himself accepted Appellants' bona fide and had refrained from imposing a penalty and accordingly larger period of limitation was not invokable. He relied upon the decision in the case of C.C.E. v. Union Carbide (I) Ltd. - 1989 (43) E.L.T. 152 (Tribunal) wherein it was held that suppression cannot be accepted "if the adjudicator under Central Excise Law does not administer the law's corrective to warn the trespassers for the future...." He also relied upon the following decisions.
(i) Wheelbrator Alloy Castings Ltd. v. C.C.E. - 1989 (39) E.L.T. 579 (Tribunal)
(ii) TELCO Ltd v. C.C.E. - 1990 (50) E.L.T. 644 (Tribunal)
(iii) Consolidated Hoists (P) Ltd. v. C.C.E. - 1992 (60) E.L.T. 317 (Tribunal)
(iv) Punjab Electricity Board v. C.C.E. - 1989 (44) E.L.T. 340 (Tribunal)
5. Finally the ld. Advocate contended that confiscation of goods under Section 111(d) was unwarranted as, firstly, the declared value was correct; secondly there was sufficient balance in the licence available to take care of the enhanced value; thirdly for the purpose of debiting a licence, it is the C.I.F. price and not the deemed value under Section 14 which is required to be debited. He relied upon the decision in U.O.I, v. Glaxo Laboratories (I) Ltd. -1984 (17) E.L.T. 284 (Bom) and Atul Products Ltd. v. C.C. -1997 (94) E.L.T. 621 (Tribunal). He also mentioned that confiscation under Section 111(m) of the Customs Act is not sustainable as there was no misdeclaration of value which position has been virtually conceded by the Collector while accepting their bona fides; that there was no proposal for confiscation of the impugned goods in notice dated 2-5-1991 issued by the Collector.
6. Countering the arguments, Shri Prabhat Kumar, ld. SDR reiterated all the findings of the Collector as "contained in the impugned order and emphasised that there was a special relationship between the Appellants and M/s. Tandem on account of which a special discount of 28% on the list price was given to them; that special discounts on special relationship were not normal discounts and were, therefore, required to be added to the assessable value; that special discount is not admissible and reliance was placed on the decision in the case of Oswal Woollen Mills Ltd. -1984 (18) E.L.T. 203 (Del.): that there was proposal to confiscate the goods under Customs Act in the notice dated 13-9-1990 which was also adjudicated upon by the Collector. He also submitted that the extended period of limitation was invokable as the Appellants had not disclosed to the Department about their special relationship with the supplier on account of which special discount was allowed to them; that special discount is not admissible under the Customs Valuation Rules, 1963 as held in Oswal Woollen Mills Ltd. v. Assistant Collector of Customs - 1984 (18) E.L.T. 203 (Del.); Tata Exports Ltd. v. C.C. -1993 (64) E.L.T. 282 (Tribunal) and Man's Press Tool Corporation v. C.C. [1990 (45) E.L.T. 328 (Tribunal)]. He finally submitted that the fact of suppression and misdeclaration cannot be taken away even if penalty is not imposed on the Appellants.
7. We have considered the submissions of both the sides. The Collector has disallowed the deduction of 28% discount, termed as Special discount, from the list price for the purpose of levy of customs duty on the ground that it is not a normal discount in the ordinary course of business and is a special discount based on special relationship. The Appellants have, on the other hand, shown that the price was arrived at after negotiating the same with the suppliers in the ordinary course of business; that Agreement between M/s. Tandem Computers International Incorporated and M/s. Wipro Information Technology Ltd. contained an Exclusion clause which empowered Tandem to execute an agreement with a value added reseller, original equipment manufacturer or multinational end user; that the Agreement also contained a clause about 'prices' according to which "Tandem may grant a price reduction to the particular end-user'. They have also mentioned that according to the terms of the Agreement Annual Minimum orders to be solicited by Wipro, no credit would be given to Wipro regarding the products that be delivered to end users pursuant to Exclusion clause and that may be delivered to Tata Consultancy Services for its own internal use. The perusal of Agreement does show that Tandem has the right to supply products directly or indirectly without routing the same through Wipro and it cannot be alleged that all other importers in India had to get their hardware through Wipro. We also observe that as per Rule 3 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, the value of imported goods shall be the transaction value. As per Rule 4, the Transaction Value of imported goods shall be the Price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these Rules. Sub-rule (2) to Rule 4 provides the restrictions when the transaction value shall not be acceptable. The Department has not adduced any evidence to prove that any of the restrictions contained in Sub-rule (2) is applicable to the facts of the present case except alleging that discount was a special discount based on special relationship. The transaction value will not be acceptable only if any of the situations specified in the proviso to Sub-rule (2) is present. The Department has not alleged that any part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer has accrued directly or indirectly to the seller. The Appellants have contended that the Department had not even alleged that the prices of softwares supplied by them to M/s. Tandem was depressed on account of discount granted by Tandem on computer system. No evidence has been brought on record to show that the appellants and Tandem are related as defined in Sub-rule (2) of Rule 2 of the Valuation Rules. The Supreme Court in Mirah Export case, supra, did not consider the foreign manufacturer as related person though the foreign manufacturer was holding 39.8% share capital in Indian importing company in absence of Indian Importer having any interest in the business of foreign manufacturer. In absence of any evidence M/s. Tandem cannot be regarded as related to the Appellants within the meaning of related as given in Rule 2(2) of the Valuation Rules. The ld. Advocate has rightly pointed out that the relationship with Tandem was only on account of the fact that the two companies had had several business dealings with each other in the past. The Supreme Court, in the case of Basant Industries, supra, has recognised the fact that the relationship between the supplier and importer has also to be kept in mind and that a price which is offered by a supplier to an old customer may be different from a price which the same supplier offers to a totally new customer. The ld. SDR has relied upon a number of decisions to show that special discount is not admissible. We find that all these decisions were referring to Old Customs Valuation Rules, 1963, i.e. before the introduction of concept of transaction value under the Customs Valuation Rules, 1988. We also observe that the Delhi High Court in Oswal Woollen Mills Ltd. case, relied upon by the ld. DR refused to interfere with the findings of the Adjudicating Authority in exercise of its extra-ordinary jurisdiction under Article 226 as the findings arrived at by the authorities were findings of fact and the view taken was a possible view'. The Appellants have also shown that Tandem had offered a discount of 25% to C.M.C. and IBM was offering discount upto 30% in certain cases. In view of these facts and circumstances, the discount of 28% is to be allowed to the appellants. As the appeal filed by the Appellants is being allowed on merits, the issue regarding invokability of extended period of limitation is not being considered by us. We, accordingly set aside the impugned order and allow the appeal filed by the Appellants.