Custom, Excise & Service Tax Tribunal
M/S. General Motors India Pvt. Ltd vs Commissioner Of Customs (Imports) ... on 16 July, 2008
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I APPEAL NO. C/617/2007 (Arising out of Order-in-Appeal No. 160/2007/MCH/DC/Gr.VB/06 dt.30.5.07 passed by the Commissioner of Customs (Appeals) Mumbai-I For approval and signature: Honble Ms. Jyoti Balasundaram, Vice President And Honble Mr. A.K. Srivastava, Member (Technical) ============================================================
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M/s. General Motors India Pvt. Ltd.
:
Appellant
VS
Commissioner of Customs (Imports) Mumbai
Respondent
Appearance
Shri V. Sridharan Advocate with
Shri T. Vishwanathan, Advocate for Appellant
Shri B.K. Singh, Authorized Representative (Jt.CDR)
CORAM:
Honble Ms. Jyoti Balasundaram, Vice President
And
Honble Mr. A.K. Srivastava ,Member (Technical)
Date of hearing : 16/7/2008
Date of decision.
ORDER NO.
Per : Ms. Jyoti Balasundaram, Vice President
The case of imports by the appellant from M/s. G.M.Daewoo Auto & Technology Company, Korea (hereinafter referred to supplier) was registered with the Customs department as related persons in terms of Rule 2(2) of the Customs Valuation (Determination of price of imported goods )Rules, 1988. The case was referred for the clearance of Seat A1-Front for Chevrolet Aveo (T-Car) covered by a Bill of Entry dt.28.01.2005. The questionnaire was issued to the importers whereby they were asked to submit various documents along with their reply; the importers submitted Memorandum and Articles of Association of the Company, Annual Report for the last three years, Commercial Invoices, Statement of import of capital goods, raw material and components/spares right from the first import till date. In their reply to the questionnaire they stated inter alia that no royalty/technical service fee has been paid so far on import of supplier of T-Car of the components. They also submitted T-Car CKD supply agreement and technology licence agreement. The Assistant Commissioner of Customs ordered loading of 25% on the invoice value of the imported goods, under Rule 8 of the Customs Valuation Rules, 1988 and in addition, proportionate loading by including technical assistance fee, in terms of Rule 9 (1) ( c ) of the Customs Valuation Rules, 1988. The adjudication order was upheld by the Commissioner (Appeals); hence this appeal.
2. We have heard both sides.
3. We find that vide order dt. 7.7.2005 the Additional Commissioner of Customs had ordered loading invoice value by 12.5% in respect of components imported by the appellants from the same supplier for the manufacture of another model, J-Car, on the ground that the relationship between the importers and their suppliers had influenced the price. The enhancement was upheld by the Commissioner (Appeals); such order was challenged before the Tribunal which vide final Order No. A/290/WZB/06/C-II dt. 30.3.2006 set aside the enhancement and accepted the transaction value, holding that the relationship between the appellants and JMDAT (foreign supplier) had not influenced the price of the imported goods. The relevant finding of the Tribunals order reproduced herein below.
As regards enhancement of value of component by 12.5% ordered by the Additional Commissioner under Rule 8 of the Customs Valuation Rules, 1988 the appellants submissions are as under:
(a) It is submitted that for the manufacture of J-200 types of vehicles in India, the appellants import the components of motor vehicles in CKD kits (referred to as KD parts). The KD parts consist of CSO part, part by part (PBP) part and PRD part.
(b) CSO part i.e. Component Set Order consists of about 281 components approximately. These are supplied in set of 24 cars.
(c) PBP part consists of approximately 766 components.
(d) PRD part means Parts Rush Delivery of parts ordered by the appellants in certain circumstances as provided in clause l(r) of the CKD supply agreement.
(e) While ordering the CSO parts, the appellants take into account the production programme of the J-200 vehicles to be manufactured in India depending upon the Indian market needs. The purchase order for CSO parts placed on GMDAT takes into account the appellants' requirement to manufacture :
a) Base / Premium / Luxury types of J-200 vehicle ;
b) 1.6 CC, Manual Transmission, 1.8 CC Manual Transmission and 1.8 CC Automatic Transmission
(f) As per the CKD supply agreement, the appellants have to order the KD parts in multiple of minimum order quantities only. GMDAT supply the KD parts to the appellants after a period of 3 weeks from the date of placement of order by the appellants.
(g) However, in the case of supply of PRD parts separately in the circumstances specified in clause l(r), GMDAT supply the same on immediate basis. PRD parts are ordered under following condition:
1. KD parts damaged in the course of GMI's manufacturing operation. OR
2. KD parts required by GMI to meet other emergency requirements due to change in production schedule.
(h) The appellants import the parts on the following basis:
a) CSO parts (comprising of kits & PBP parts); and
b) PRD parts.
(i) For supply of CSO parts, there is an agreed time period and production lead times. CSO parts are imported as a complete kits. Further, CSO parts are ordered on a pre-agreed advance basis, giving M/s GMDAT sufficient notice to plan and organize their production and supply schedule.
(j) On the other hand, in the event of supply of parts as PRD, such parts are delivered to the appellants on an immediate basis to facilitate continued and uninterrupted production in India.
(k)In other words, when the appellants place order on M/s GMDAT for supply of parts as PRD, it is treated as spot sales and M/s GMDAT supply the same immediately without adhering to the usual production/delivery schedule.
(k)While the appellants and GMDAT have agreed and arrived that the value of the parts and components to be supplied by GMDAT to the appellants, in respect of PRD parts supplied by GMDAT, GMDAT charges a premium of 12.5%. Kindly refer to clause 4 of the agreement.
(l) The reason for charging 12.5% premium on PRD parts is because supply of PRD parts involve additional Costs at GMDAT as they have to
1. Re-schedule their production which involves set-up time
2. Overtime
3. Special Packaging: Regular CSO/PBP parts ordering has well defined ordering as well as packaging processes at GMDAT. In case of PRD GMDAT has to work on special packaging as well as documentation efforts outside their normal course of operation
(m) It is submitted that the premium charged by GMDAT for supply of PRD parts is essentially for re-arranging the production schedule of GMDAT and for meeting the urgent requirements of the appellants. In fact, the premium can be treated as a penalty charged by GMDAT from the appellants for upsetting their schedule of production.
(n) M/s GMDAT have also vide letter dated 16.11.05 have explained in detail why they are charging more for the components supplied as PRD.
(o) It is therefore submitted that the premium charged by GMDAT in respect of PRD parts supplied cannot be treated as a special discount extended in respect of supply of CSO part and PBP part.
(p) PRD supply is like spot supply i.e. components as PRD have to be supplied immediately by M/s GMDAT i.e. without 24 hrs. and that too through air-freight. Whereas, the components supplied as CSO/PBP are regular supplies, supplied after 3 or 4 weeks of placement of order.
(q) In this context, circular dated 8.8.75 of the CBEC may be referred to. This circular was issued in the context of Section 4 of the Central Excise Act, 1944 as introduced in 1975. Explaining the scope of the expression "ordinarily sold", in para 3(b)(iv), it was stated as under:
"(iv) In a price list published by an assessee, the prices are indicated for the same goods as follows:
a) For spot sale - Rs. 100/- per unit
b) For delivery two months after the date of contract - Rs. 98/- per unit Either of the two prices will be the price at which the goods are "ordinarily sold".
(r) In fact, the import of parts/components as PRD supply is negligible when compared to the import of components as CSO and PBP supplies. For the period Feb. 2004 to April 2005, the value of components imported as CSO/PBP was around Rs. 457 crores approximately. For the same period, import of components as PRD was around Rs. 2.81 crores. Thus, imports as PRD constituted 0.61% of the total imports from M/s GMDAT. Hence, based on the value of PRD parts, the value of CSO part and PBP part cannot be determined. Further, on the basis of few components imported under PRD basis, all components under CSO part and PBP part cannot be valued.
& Commissioner (Appeals) not rebutting the same or giving a finding have to be accepted as unchallenged to arrive at a conclusion that 12.5% cannot be added.
4. The above order has attained finality inasmuch as it has been accepted by the department. The supply agreement considered in the above order in respect of J-Car is identical in all respect to the supply agreement in the present case. Further, as per Rule 4(2) (h) of the Customs Valuation Rules, 1988, the transaction value between the related persons is acceptable under Rule 4(3) (a) or 4(3) (c). The Interpretative Notes to Rule 4(3) provide as under:-
Rule 4(3)
1. Rule (3) (a) and Rule 4(3) (b) provide different means of establishing the acceptability of a transaction value.
2. Rule (3) (a) provides that where the buyer and the seller are related, the circumstances surrounding the sale shall be examined and the transaction value shall be accepted as the value of imported goods provided that the relationship did not influence the price. It is not intended that there should be an examination of the circumstances in all cases where the buyer and the seller an examination of the circumstances in all cases where the buyer and the seller are related. Such examination will only by required where there are doubts about the acceptability of the price. Where the proper officer of customs has no doubts about the acceptability of the price, it should be accepted without requesting further information form the importer. For example, the proper officer of customs may have previously examined the relationship, or he may already have detailed information concerning the buyer and the seller, and may already be satisfied from such examination or information that the relationship did not influence the price.
5. In the past the department has examined the relationship between the appellant and the supplier and accepted the transaction value and this itself shows that the relationship has not influenced the value of the imported goods.
6. In the light of the above, we hold that the onus to prove that the relationship between the importer and the exporter has influenced the price of the imported goods has not been discharged by the Revenue while on the other hand, the appellants have established that the relationship has not influenced the price. We, therefore, set aside the loading of value and accepted the declared value of the goods.
7. As regards the inclusion of licence fee in the value of the capital goods/components imported, we note that the Appendix E of the licence agreement gives the break up for US $ 9.40 Million. Appendix D contains form in which the data has to be provided by the supplier to the appellants in terms of the technology agreement. The services rendered by the supplier to the appellant are as under:-
(a) Power Train, up-gradation and calibration
(b) Localisation Support
(c) Onsite Support
(d) Enging Management System (EMS) Calibration
(e) Future Engg. Fees.
As per Article 2 of the technology licence agreement, a supplier has granted exclusive licence to the appellants to use the data for the purpose of
(a) Sourcing, manufacturing and distributing licensed parts for installation in vehicles distributed in the territory, provided, however, that in the event that GMI identifies an opportunity to source a licensed part outside India, GMI will only pursue such opportunity after discussing it with GMDAT:
(b) Manufacturing vehicles at GMIs facilities in India and distributing those vehicles in the territory, and
(c) Unless otherwise agreed to by GMDAT in writing, the license granted in this agreement does not include the right to (i) sub-license, or (ii) manufacture engines or transmissions for such vehicles, or (iii) distribute production of service parts relating to the vehicles outside the territory.
8. Data has been defined in Article 1(c) of the agreement as product engineering or business information related to the assembly of Vehicles and licensed parts or which is required to conduct ancillary functions, operations and activities, as specified in Appendix D. Article 7 of the agreement sets out the terms of payment. The services rendered by the foreign supplier essentially related to manufacture and assembly of the components in India. Technology was imparted to the appellants by way of training the appellants personnel and also by way of supply of technical documents and technical drawings relating to manufacture/assembly of Aveo cars in India and does relate to components or capital goods imported from the supplier or from others. There is no condition in the agreement to the effect that capital goods will be sold to the appellant by the foreign supplier only when the licence fees are paid. In other words, the appellants are not under compulsion to import capital goods or components from GMDAT. This is further borne out by the fact the appellants have also procured capital goods from others. Therefore the payment of licence fees is not a condition of sale of the imported goods. Similar is the position in the case of components imported from GMDAT, namely that the appellants are free to procure components from other sources and in fact have also imported components from other sources or obtained them indigenously. Rule (1) (c) of the Customs Valuation Rules, provides that in determining the transaction value, there shall be added to the actually paid or payable for the imported goods, royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable. The Rule is attracted only if both the following conditions are satisfied (1) licence fee is relatable to the imported goods (2) the licence fee is a condition of the sale of the imported goods. In the present case, the licence fee paid by the appellant to GMDAT is for the Aveo motor vehicles assembly/manufacture out of the imported components, as well as from components procured by the appellants indigenously . The licence fee is not paid for manufacture of the components or the capital goods themselves and therefore the fee cannot be related to imported goods. The licensce fee is also not a condition of sale of the imported goods for the reason that the appellants are at liberty to procure the components from other sources also and in fact indigenously procured a high percentage of the components required for the manufacture of the car.
9. The Tribunal and the Apex Court have held that licence fee which is not related to the imported goods cannot be included in the value of the imported capital goods/components, in the cases of Daewoo Motors India Ltd. Vs. Commissioner of Customs, New Delhi [2000 (115) E.L.T. 489 (Tribunal)], Panalfa Dongwon India Ltd. [2003 (155) E.L.T.287 (Tri.LB)], Polar Marmo Agglomerates Ltd. Vs. Commissioner of Customs, New Delhi [2003 (155) E.L.T. 283 (Tri.LB)], S.D. Technical Service Vs. Commissioner of Customs, New Delhi [2003 (155) E.L.T. 274 (Tri.LB)], Toyota Kirloskar Motor Pvt. Ltd. Vs. CC [2007 TIOL 94 SC)]. We notice that in order to overcome the above decision of the Tribunal and the Apex Court, an explanation has been provided to Rule 10 (1) ( c) of the Customs Valuation Rules 2007 providing that :-
Where the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods.
In its Circular No. 37/07 dt. 9.10.2007 the CBEC has clarified in Para 2(iv) that the explanation to Rule 10(1) (c) was added in the context of the Apex Court judgment in the case of CC Vs. J.K. Corporation Ltd. [2007 (208) ELT 485 SC so as to clarify that such royalty, licence fee etc., if otherwise includible in terms of clause ( c) or clause (e) of Rule 10, will be includible in the value of the goods irrespective of the fact that such royalty, licence fee etc. relates to a process which is made operational during the running of the machines, i.e, after importation of the goods. This clearly establishes that Rule 9(1) (c) as it stood at the relevant point of time, cannot be invoked for the purpose of including the royalty and licence fees in the value of the imported goods.
10. The reliance placed by the Ld. Jt.CDR, on the Tribunals decision in the case of Matsushita Television & Audi (I) Ltd. [2001 (136) E.L.T. 1093] which has been upheld by the Apex Court as seen from 2007 (211) E.L.T. 200 (S.C.) does not advance the case of the Revenue for the reason that the Tribunal in its final order dt. 30.3.2006 in the case of the same appellant has already expressed the view that the Matsushita Television & Audio (I) Ltd. decision cited supra is not applicable to the imports made by the appellants. The relevant extract from the Tribunals order on this decision is reproduced herein below:-
The reliance of the Additional Commissioner on the decision of Matushita Television & Audio India Ltd vs CCE 2001 (46) RLT 506 to add the royalty is misplaced since in that case the Tribunal had come to a conclusion that Royalty payment was related to the imported components as the supplier of know-how was to approve the imports from other sources than the Technical know-how provider. That is not the case herein. There is no 100% prior mandatory approval from M/s GMDAT to procure components. The approval of Indian sourced spares by M/s GMDAT as per the finding in the order of the Additional Commissioner and the scope of clause 5.2 (c) of the agreement cannot be read as a clause for procurement & after approval from M/s GMDAT spares from abroad. The Commissioner (Appeals) has observed about the appellants being free to import but precluded by the agreement is not an interpretation which we can uphold.
Even though the finding was in the context of addition of running royalty, it is applicable with equal force to the addition of technical know-how fee/licence fee. On the same reasoning the Apex court decision in [2007 (211) ELT 200 (S.C.)] will not apply in the facts of the present case.
11. In the light of the above discussion, we hold that the enhancement of value is not sustainable, accept the declared value and set aside the impugned order and allow the appeal.
(Pronounced in court on .) A.K. Srivastava Member (Technical) Ms. Jyoti Balasundaram Vice President Sm 2