Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs vs Modi Xerox Ltd. on 3 February, 1990
Equivalent citations: 1990(30)ECR226(TRI.-DELHI), 1990(48)ELT141(TRI-DEL)
ORDER Harish Chander, Member (J)
1. The Collector of Customs, Bombay, has filed an appeal being aggrieved from the order-in-appeal No. 3119/88 BCH, dated 23-8-1988 passed by the Collector of Customs (Appeals), Bombay.
2. Briefly, the facts of the case are that M/s. Modi Xerox Ltd., the respondents, are manufacturers of xerox machines and the company was promoted as a result of joint venture agreement entered between M/s. Indian Reprographics Systems and M/s. Rank Xerox U.K. for the manufacture of xerox machines. M/s. Rank Xerox hold 40% of the paid up capital of the company. There is also technical agreement between M/s. Rank Xerox and M/s. Modi Xerox and in terms of the agreement, M/s. Modi Xerox have to pay a lump sum fee of Rs. 87.87 lacs towards supply of knowhow and fee of Rs. 43.63 lacs as engineering fees for ancillary development. Modi Xerox had further agreed to pay royalty at the rate of 5% to M/s. Rank Xerox towards technical assistance, grant of licence and to furnish improvements during the tenure of the agreement. Modi Xerox are also importing raw material viz. components, consumables and capital equipment from M/s. Rank Xerox and its associates. Due to the financial and technical tie up with M/s. Rank Xerox, the revenue authorities were of the view that invoice value of such imports could not be assessed under Section 14(l)(a) of the Customs Act, 1962, but the same had to be determined under Section 14(l)(b) of the Customs Act, 1962 read with Customs Valuation Rules, 1963. No evidence under Rule 3(a) to 3(d) was available, as the respondent was the exclusive importer. Rules 4, 5,6 and 7 were not applicable and the value, therefore, had to be determined under Rule 8 of the Customs Valuation Rules, 1963. Article 4.1 of Technical Knowhow Agreement even grants, among other things, basic design and patent to Modi Xerox in the back drop of the lump sum payment of Rs. 87.87 lacs towards supply of knowhow fee and Rs. 43.63 lacs as engineering fee for ancillary development and 5% on account of royalty, the invoice value of components and consumables imported from M/s. Rank Xerox at the rate of 13% under Rule 8 of the Customs Valuation Rules, 1963. All capital equipments and machinery imported by M/s. Modi Xerox shall be loaded by 20% under Rule 8 of the Customs Valuation Rules, 1963 and the spares imported by third parties for repair purposes through M/s. Modi Xerox shall be valued under Section 14(l)(a) of the Customs Act, 1962. He has further observed that the decision will remain in force for three years and after that there will be a final review.
3. Being aggrieved from the aforesaid order, the respondent had filed an appeal before the Collector (Appeals) and the Collector (Appeals) had allowed the appeal vide order dated 4th December, 1986 and being aggrieved from the aforesaid order, an appeal was filed before the Tribunal and the Tribunal vide order No. 238/88-A, dated 13th April, 1988 had remanded the matter to the Collector (Appeals) for a fresh decision and in view of the directions of the Tribunal the Collector (Appeals) had allowed the appeal of M/s. Modi Xerox and being aggrieved from the aforesaid order, the revenue has come in appeal before the Tribunal.
4. Shri A.S.R. Nair, the learned Senior Departmental Representative who has appeared on behalf of the appellant, has reiterated the facts. He has stated that the respondent himself has accepted 1% loading in respect of components supplied by Fuji Xerox to M/s. Modi Xerox and the respondent is the manufacturer of Xerographic equipment systems, toners and developers. Rank Xerox U.K. holds 40% shares. Modi Group of Companies hold 40% and 20%; shares are held by the public. He further argued that Rank Xerox is a subsidiary of Xerox Corporation of United States of America. He fairly stated that there is no charge of under-invoicing and raising of duty. He also argued that there is a technical knowhow agreement between Modi Xerox and Rank Xerox. In terms of the agreement, Modi Xerox is to pay Rs. 87.85 lacs fee for technical knowhow and engineering fee for ancillary Rs. 43.6 lacs and 5% royalty on sales turnover for technical assistance and for grant of licence and the duration of the contract is five years. The items imported are capital goods, raw materials and components. Shri Nair pleaded that Modi Xerox is a related person of Rank Xerox. He further argued that for resorting to Section 14(1) (b) of the Customs Act, 1962, mutuality of interest was not necessary. The revenue authorities had fully observed the principles of natural justice. He fairly stated that there is no international price list. He has referred to technical agreement. He argued that for technical knowhow fee has been paid to Rank Xerox. He fairly stated that no detailed show cause notice was given to the respondent and full opportunity will be given. Mr. Nair has referred to the judgment of the Tribunal in the case of ollector of Customs, Bombay v. Intercom Engineers Pvt. Ltd. reported in 1987(28) ELT 458. He has pleaded for the acceptance of the appeal.
5. Shri Ravinder Narain, the learned advocate who has appeared on behalf of the respondent, has read out the provisions of Section 4 of the Central Excises and Salt Act and Section 14(l)(b) of the Customs Act, 1962 and further stated that pari materia of both the sections is the same. He has argued that the judgment of the Supreme Court in the case of Union of India and Ors. v. Atic International reported in 1984(17) ELT 323 is fully applicable. He has argued that there is no mutuality of interest. Modi Xerox has got no interest in Rank Xerox. In support of his argument he has referred to the judgment of the Tribunal in the case of Maruti Udyog Ltd. v. Collector of Central Excise reported in 1987(28) ELT 390 where the Tribunal had held that one sided interest will not mean mutual interest. There is no mutuality of interest and no nexus to imports. In the present matter Section 14(l)(a) is applicable. He has also referred to another judgment reported in 1986(24) ELT 429 in the case of Consolidated Coffee Ltd. v. Collector of Customs, Bombay. He had also referred to Collector (Appeals') order para 25 page 58. Shri Ravinder Narain has stated that the judgment cited by the learned SDR is not applicable. He has also referred to another judgment of the Tribunal in the case of Sun Ray Computers reported in 1988(33) ELT 787. He has pleaded for the dismissal of the revenue's appeal.
6. Shri A.S.R. Nair, the learned SDR has pleaded that the appeal may be allowed, and alternatively the matter may be remanded.
7. We have heard both the sides and have gone through the facts and circumstances of the case. The facts of the present appeal are similar to those of the Maruti Udyog Ltd. reported in 1987(28) ELT 390. We have perused the papers. In the matter before us, Rank Xerox has 40% shares of Modi Xerox, but Modi Xerox does not have any share of Rank Xerox and Rank Xerox has proportional representation on the Board of Directors of Modi Xerox. To rule out valuation under Section 14(l)(a) of the Cus-toms Act, 1962, there must be mutuality of interest. Seller and buyer should have the interest in the business of each other. One sided interest is not sufficient enough to lead us to a conclusion that there was mutuality of interest. Revenue has also not placed any evidence on record as to the price in the international market. The Tribunal in the case of Collector of Customs, Bombay v. Maruti Udyog Ltd., Gurgaon reported in 1987(28) ELT 390 (Tribunal) had held that mere holding of 26% equity shares by Suzuki in Maruti and proportional representation of Suzuki in Board of Directors of Maruti does not amount to mutuality of interest and the value of the goods imported from Suzuki to Maruti was assessable under Section 14(l)(a) of the Customs Act. Paras 1,3,4, 6 and 7 of the said judgment are reproduced below :-
"1. The respondents (hereinafter referred to as 'Maruti') are manufacturers of motor cars in India in collaboration with Suzuki Motor Company Ltd., Japan (hereinafter referred to as 'Suzuki'). The two parties have entered into three agreements:
(1) Joint Venture Agreement:
Under this agreement Suzuki acquired 26% equity shares in Maruti as also proportional representation on the Board of Directors of Maruti.
(2) Licence Agreement:
Under this Agreement, Maruti acquired the right and technical knowhow to manufacture cars and their components in India to the patents, designs and specification of Suzuki on payment of lumpsum royalty of $ 24/-lakhs plus 39% running royalty. (3) Purchase and Supply Agreement:
This Agreement related to import of SKD/CKD packs and complete vehicles from Suzuki Japan.
In the background of royalty payments, the Assistant Collector loaded the invoice prices of SKD/CKD packs and complete vehicles imported by Maruti from Suzuki by 1%, for the purpose of assessment of customs duty. In appeal, the Collector (Appeals) held that the loading was not called for and that the invoice price was acceptable as the basis for assessment under Section 14(l)(a) of the Customs Act, 1962. The department is now in appeal before us with the prayer to set aside the impugned order passed by the Collector (Appeals) and to restore the Assistant Collector's order of 1% loading.
3. The merits of the appeal were heard thereafter. The department's case, in brief, is that since Maruti had a complex and interwoven relationship with Suzuki, value under Section 14(l)(a) of the Act was not ascertainable and, therefore, best judgment assessment under Rule 8 of the Valuation Rules was the only alternative. It was a common ground between the department and Maruti that Rule 6 of the Valuation Rules was not applicable. Maruti countered the department's pleas stating that there was no mutuality of interest between Maruti and Suzuki, that the royalty payments were only for local manufacture of vehicles and parts under the indigenisation programme and had nothing to do with the price of the imported SKD/CKD packs and complete vehicles, that the invoice price paid by Maruti was a fully commerical price and that there was no other consideration for the sale of imported goods. We will examine the rival contentions in the succeeding paragraphs.
4. It is, no doubt, correct that Suzuki held 26% shares in Maruti and, for that reason, had a proportional representation on the Board of Directors of Maruti also. But Maruti had no share holding in Suzuki nor any representation on the Board of Directors of Suzuki. To rule out valuation under Section 14(l)(a), the seller and the buyer should have "interest in the business of each other". Onesided interest is, therefore, not enough; there has to be a mutuality of interest and Maruti is right in pleading that such mutuality of interest did not exist [1984 (17) ELT 323 (SC) - Union of India and Ors. v. Atic Industries Ltd.] Confronted with this situation, the learned representative of the department argued that Maruti had an indirect interest in the business of Suzuki since Maruti was interested in technical knowhow from Suzuki not only for the current models and their components but also for future models and their components. We do not agree with the department's plea. The transfer of technical knowhow from Suzuki to Maruti is a separate commercial transaction governed by the Licence Agreement and Suzuki charges a price for it. That does not create an interest of Maruti in the business of Suzuki, Japan.
6. Finally, the learned representative of the department contended that since Maruti was the only buyer of Suzuki SKD/CKD Packs and complete vehicles, the price charged could not be said to be the one at which the goods were "ordinarily sold or offered for sale". The respondents contended that the same models of Suzuki cars were marketed in Japan also, though not in very large numbers. The learned representative of the department stated that even so it was a fact that there was no multiplicity of international buyers for the goods. We put the following Supreme Court judgments to the learned representative of the department in which the brand name owner was the sole buyer of the goods and yet the manufacturer's price to the brand name owner was accepted as the basis for assessment so long as the price was a fully commercial and the dealings were at arm's length:
1. 1985 (22) ELT 302 (S.C.) - Cibatul Ltd.
2. 1985 (22) ELT 324 (S.C.) - Food Specialities Ltd.
3. 1986 (23) ELT 8 (S.C.) - Moped India Ltd.
The learned representative of the department stated that the above judgments, as also of the one in Atic Industries' case (paragraph-4 supra), were on valuation under Section 4 of the Central Excises and Salt Act, 1944 while in the present proceedings we are concerned with valuation under Section 14 of the Customs Act, 1962. We find, however, that on the material points :
(a) Whether there was mutuality of interest between the buyer and the seller;
(b) Whether the price was one at which the goods were ordinarily sold; and (c) Whether the price was the sole consideration for sale,
the provisions of Section 4 of the Central Excises and Salt Act, 1944 and Section 14 of the Customs Act, 1962 are similar. Both the Acts relate to commodity taxation. There is no reason why the interpretation placed by the Hon'ble Supreme Court on Section 4 of the Central Excises and Salt Act, 1944 should not apply to the materially identical provision of Section 14 of the Customs Act, 1962. For the price to be called the one at which the goods are ordinarily sold, it is not necessary that there should be more than one buyer, what is of essence is whether the dealings between the buyer and the seller are at arm's length and the price is fully commercial price or not. There is nothing on record to show that dealings between Maruti and Suzuki are not at arm's length or that the price charged by Suzuki from Maruti is not a fully commercial price. Clause 4.03 of the Supply and Purchase Agreement between the two parties states that:
"Price of PARTS shall be the export prices thereof established by SUZUKI, which are subject to such changes or variations as may be made by SUZUKI from time to time by SUZUKI's written notice to MARUTI."
The learned representative of the department stated that export prices were settled after negotiations between the two parties. Even so, it does not mean that negotiated prices cease to be commercial prices. Negotiations have been a part of commercial contracting since time immemorial. Since it has not been shown by the department that Maruti was given some extra-commercial treatment, the price charged has to be treated as the one at which the goods were ordinarily sold or offered for sale.
7. Summing up, we find that Suzuki's price to Maruti fulfilled all the tests laid down in Section 14(1) (a) of the Customs Act, 1962 and, therefore, resort to Section 14(1) (b) and Rule 8 of the Valuation Rules was uncalled for. The 1% loading on account of royalty payment was unjustified since the royalty had nexus with indigenous manufacture of goods not with the imported goods."
The facts of the present matter are similar. Being dissatisfied with the order passed by the Tribunal in the case of Maruti Udyog Ltd., the revenue had gone in appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court had confirmed the findings of the Tribunal and had rejected the appeal of the Revenue. judgment of the Supreme Court is reproduced below :-
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 42-44 OF 1988 Collector of Customs, Bombay ...Appellant v.
M/s. Maruti Udyog Ltd., Gurgaon...Respondent ORDER These are appeals under Section 130E(b) of the Customs Act, 1962 from the decision of the Tribunal. We have examined the provisions of the Act and the facts found by the Tribunal. The Tribunal was right in its conclusion. The appeals fail and are accordingly dismissed. There will be no order as to costs.
Sd/- (Sabyasachi Mukharji, J) New Delhi Sd/-
(S. Ranganathan, J) April 26,1989.
Sd/- (K.N. Saikia, J)"
During the course of the arguments, the learned SDR has pleaded for the remand of the matter. The matter had already been remanded once. We do not find any justification in remanding the matter.
8. In the result, we uphold the findings of the Collector of Customs (Appeals) and dismiss the appeal filed by the revenue.
V.P. Gulati, Member (T)
9. I agree with the conclusions in the order recorded by Brother Shri Harish Chander. I would like to add that the Collector (Appeals), after holding that there was no mutuality of interest between the Respondent and their collaborators, has dealt with the question of loading in respect of the spare parts imported from M/s. Fuji Xerox, Japan, as also the import of the capital goods by the Respondent from M/s. A.J.R. Machinery and Equipment and other capital goods. It is observed the learned Collector (Appeals) has given a very reasoned order in respect of these and the appellant-Collector has not made out any case against the findings given by the learned Collector (Appeals). The learned Departmental representative at the time of hearing before us has not adduced any evidence which would warrant any further loading in the case of imports from M/s. Fuji Xerox and any loading in respect of the capital goods imported.