Customs, Excise and Gold Tribunal - Delhi
Daewoo Motors India Ltd. vs Commissioner Of Customs on 9 November, 1999
Equivalent citations: 2000(115)ELT489(TRI-DEL)
ORDER
K. Sreedharan, J. (President)
1. This appeal is by M/s. Daewoo Motors India Ltd. They are engaged in the manufacture of Ceilo brand cars in India. Earlier, to begin with, the appellant was known as DCM Daewoo Motors Ltd. With effect from 5-5-1997 this name was changed as shown in the appeal. Appellant is a joint venture between M/s. Daewoo Corporation of Korea and M/s. DCM Toyota Ltd., New Delhi. Manufacture of passenger cars was taken up with Technical and Financial Collaboration of M/s. Daewoo Motors Korea. Joint Venture Agreement dated 9-7-1994 was concluded whereby Daewoo Corporation was to purchase shares to become majority equity holder of 51% paid in capital of DCM Toyota Ltd. On 10-5-1994, a Technical Assistance Agreement was entered into between the two whereunder 11.8 million US $ was payable to Daewoo in consideration of the licences granted to appellant. Over and above this lump sum payment, royalty at 3% was also payable to Daewoo on the Vehicles and Spares for a period of five years. Royalty on wholesale price of spare parts and components either manufactured or assembled by the appellant or purchased from local suppliers at the rate of 3% was also payable to Daewoo Motor Co. Agreement further provided for supply of knocked down parts to the appellant and the price and other terms of such purchases; which was subject to review from time to time on condition that annual price increase shall be less than 10%. Appellants imported various consignments of components from April, 1995. Customs had to decide on the value of the capital goods and components imported pursuant to the above mentioned agreements. Assistant Commissioner of Customs (SVB) by Order-in-Original No. 20/95, dated 26-12-1995 adjudicated the issue in the following terms: -
"On the basis of the above facts, I hereby order that gross invoice value of the said goods imported from foreign collaborator or its subsidiaries may be accepted in terms of Rule 4 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 on merit subject, of course to usual check and scrutiny at the appraising group level."
2. In arriving at the above order, the Assistant Commissioner examined the question of nexus between price of imported goods to payment of lump sum on transfer of know-how as well as on running royalty. On this issue the finding was that there is no nexus between lump sum payment which was for getting licences to use the information and royalty was payable on the value of end-product manufactured in India using the information. Influence on the prices of imported goods on account of relationship between the appellant and foreign collaborator was also examined. It was found that records do not establish any such influence relying on the decision of CEGAT in Maruti Udyog Ltd. v. C.C., Bombay.
3. On 16-12-1996, Commissioner of Customs reviewed the order of Assistant Commissioner under Section 129D of the Customs Act, 1962 and directed to file appeal before Commissioner (Appeals). An appeal was accordingly filed on 9-1-1997. Appellant herein contested the appeal on merits as also on the ground that review was beyond the record of proceedings. That appeal was disposed of by Order-in-Appeal No. 172/SVB /98, dated 27-10-1998. As per this order, the case was remanded for de novo adjudication after carrying out proper investigation keeping in mind all the issues raised in appeal. This order passed by the appellate authority is under challenge.
4. Learned Counsel representing the appellant submitted before us that the order of remand passed by the appellate authority is not a simple order directing the subordinate adjudicating authority to go into the entire issues on the basis of the records in the case. The Commissioner had specifically found mutuality of interest between the appellant and foreign collaborator and that royalty has been paid on imported components as per the agreement. These findings have the effect of loading the dice and the adjudicating authority will be bound by these findings. We find force in this argument. In the light of the conclusions reached by the appellate authority, the de novo proceedings can only lead to an order against the appellant. So we are going into the correctness or otherwise of the conclusions arrived at by the appellate authority.
5. On the question of mutuality between the appellant and foreign collaborator, the Commissioner came to the finding "A close look at the various articles of Technical Assistance Agreement belies the hypothesis that there is no mutuality of interest." Circumstances relied on for coming to this finding were that the foreign collaborator had 51% equity participation which was subsequently increased to 87.31% and that eight directors were nominated by them to the board of Directors of the appellant.
6. As far as relevant for this case, Section 14(1) of the Customs Act, inter alia, provides that for the purpose of Customs Tariff Act whereunder duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold in the course of international trade where the seller and buyer have no interest in the business of each other. So it is to be seen whether the appellant and their foreign collaborator have interest in the business of each other. Interest of one in the business of the other is not sufficient to discard the price at which the goods are sold for finding out the assessable value. There must be mutuality of interest. Nothing is in evidence to show that the appellant has any interest in the business of the foreign collaborator. No submission was made before us on behalf of the respondent that the appellant has any participation in the equity of Daewoo Motor or that the appellant could nominate any one to the Board of Directors of the foreign collaborator. In the absence of even an allegation of mutuality of interest, the Commissioner was clearly in error in coming to the finding quoted above. The law on this point was clearly stated by this Tribunal in Collector of Customs v. Maruti Udyog Ltd., 1987 (28) E.L.T. 390 following the decision of the Supreme Court in Union of India and Ors. v. Atic Industries Ltd., 1984 (17) E.L.T. 323 as one sided interest is not enough, there should be mutuality of interest. This view has been upheld by Supreme Court in Collector of Customs, Bombay v. Maruti Udyog Ltd., 1989 (22) ECR 482. Mutuality of interest between appellant and Daewoo Motors does not exist, as seen from the facts of this case. So the price of the goods imported as shown in the documents of import, as held by the adjudicating authority, should be taken as the assessable value for the purpose of computation of duty under Customs Tariff Act.
7. Learned Departmental representative vehemently advanced an argument that the decision of the Supreme Court in the case of Commissioner of Customs v. Essar Gujarat Ltd., 1996 (88) E.L.T. 609 applies to the facts of this case and 11.8 million US $ should be added to the value of the goods imported for assessment of customs duty. Though this point was not dealt with by the appellate authority in the impugned order, since this point took considerable time in the course of the argument, we think it necessary to refer to it. In the case before the Supreme Court contract was entered into between seller and purchaser for the sale of a Direct Reduction Iron Plant. One of the conditions was that purchaser should obtain licence from M/s. Midrex USA for use of midrex process and patent which was necessary to operate the plant. Without getting the licence from M/s. Midrex the plant could not be operated. So the purchase of the plant alone would not have given the purchaser any right to operate the same. In this situation, the Court held that the amount paid to M/s. Midrex to secure the right to operate the machinery should be added to the value of the machinery. In the instant case the payment for the licensed information and patent is to manufacture and assemble vehicles and other components in India. Payment had nothing to do with the working of the plant. The lump sum payment had no connection whatsoever on the working of the capital goods imported. This circumstance distinguishes the facts of Essar Gujarat Ltd. from the present one. So the lump sump payment cannot be loaded to the value of imported parts, components or spares.
8. Next question to be dealt with is whether the Commissioner was justified in holding that a presumption might arise that imported components have been sold as spares in the market and royalty has been paid to foreign collaborator warranting loading the royalty to the declared assessable value. Article 7 in the Technical Assistance Agreement dated 10-5-1994 deals with Royalties. Over and above lump sum royalty amounting to 11.8 million US $, the appellant has to pay 3% running royalty on parts manufactured locally using the foreign collaborator's know-how and sold as spare parts. No provision in the agreement requires the appellant to pay royalty on imported parts which are sold as spares. When the foreign collaborator allowed the appellant to use its know-how to manufacture spares in India and those were sold as spare parts they insisted on payment of royalty. This payment of royalty has been judicially recognised as well. Imported parts of the vehicle sold as spares were not subjected to payment of royalty. So the price of parts imported which are sold as spares cannot be loaded to any extent on the premise that royalty was payable by the appellant.
9. In view of what has been stated above, we hold that the appellate order passed by the Commissioner is clearly unsustainable. It is accordingly set aside. Appeal is allowed.