Customs, Excise and Gold Tribunal - Mumbai
Sadiq A. Futehally And Ors. vs Collector Of Customs on 12 January, 1995
Equivalent citations: 1995(57)ECR302(TRI.-MUMBAI)
ORDER K.S. Venkataramani, Member (T)
1. These appeals have been filed against the order dated 11.5.1990 passed by the Collector of Customs, Nhava Sheva, Bombay. The facts briefly are that M/s Ashiya Motors, a proprietory concern owned by appellant Sadiq A. Futehally was appointed as distributors of Audi Cars manufactured by M/s Volkswagen A.G., West Germany from 1987 for Bombay and Maharashtra. As per agreement, they were to promote the sale of cars, supply price list and other information to the buyers, set up a workshop to provide service facilities and carry out pre-delivery inspection. For these services, they were to be paid a commission of 3% which was in the nature of overriding commission. A number of motor vehicles were imported under this agreement. The appellant Shri H.C. Fernandes along with other importers Shri Ashwin Shah and Mukesh Agarwal imported one Audi car each at the Jawaharlal Nehru Port, Nhava Sheva and filed Bills of Entry for their clearance. Meanwhile, the Directorate of Revenue Intelligence pursuing an information that Audi cars were being misdeclared with regard to their real value and also in some cases, there was misdeclaration of cubic capacity of the engines of the cars to avoid payment of appropriate custom duty thereon, the Directorate of Revenue Intelligence conducted examination of all motor vehicles imported at the port and during the course of investigation they also searched the office and residence premises of M/s Ashiya Motors and its proprietor appellant Shri Section Futehally resulting in the seizure of certain documents. The enquiries made by the Directorate of Revenue Intelligence led them to conclude that some cars with 1781 c.c. engines were declared as cars of engine capacity below 1600 c.c. and that the said cars were cleared on lower rates of duty. The Department's case further rested on the recovery of certain documents which included ex-factory tourist price for the cars which the Department found was much higher than the export price list for the car. Also found was a letter dated 10.8.1988 from the manufacturer to the Collector of Customs giving the price of the cars. The Department's view was that it was strange that the real value of the car could be suppressed by the manufacturers in their transaction with their franchise holder for a value of far below the ex-factory price. One of the seized documents was also gave indication of existence of instructions passed on to the manufacturer by Futehally not to put invoice copies in the cars imported into India under any circumstances. The Department believed that this means that either the real invoices are not being produced to the Custom or two types of invoices are being prepared and, therefore, according to the Department, the value declared of the cars in the Bills of Entry do not reflect the real commercial transaction in the ordinary course of business and as such the value declared cannot be accepted for the purposes of assessment of the cars in question. The Directorate of Revenue Intelligence, therefore, alleged that the assessable value of the car should be based on the ex-factory tourist price list. The Department was also not prepared to accept the explanation of A. Futehally that the tourist price list related to price of the cars which is meant for tourist buying them in Germany because the Department felt that the price of the cars listed in the seized price list are ex-factory prices which cannot be different for a tourist and non-tourist. Show cause notice was accordingly issued to the importers of the cars on these lines and by an addendum to the show cause notice, it was further alleged that contrary to the claim that the importers of the cars had remitted the amounts directly to the manufacturer in Germany, the Bills of lading under which the car was shipped also indicated that against a letter of credit from Japan to the manufacturers suggesting further payment for the same car which according to the show cause notice confirmed that the invoice value does not represent the correct and full value of the car and, therefore, the invoice value cannot be accepted. The charge of under valuation was further based inter alia on a slip given to one Shri Nazeer Athania by appellant Shri Futehally in a diary seized from his premises. The Department also relied upon the evidence of the stickers found in the motor vehicles at the time of examination which according to the Department indicated the extra fittings and accessories supplied which were at variance with the actual fittings and their values declared. Appellant Futehally charged in the show cause notice as the person concerned in the unauthorised various imports of the cars for penalty under Section 112 of the Customs Act, 1962 and Appellant Iqbal Ahmed for abetment. The charge of additional payment as evidence by letter of credit quoted in the Bills of Lading in respect of the present appeal related to imports by appellant Fernandes and the other importers Shri Ashwin Shah. The Collector considered the replies to the show cause notice and also gave an opportunity of hearing and as well as cross-examination. The appellants pleaded that the letter of 10.8.1988 from Volkswagen was the correct price for imports of the cars to India. The Collector did not accept the defence of the appellant. He found that the tourist price list cannot be accepted as a price list applicable to purchase of cars only where a tourist went to Germany and bought a car there. The Collector found that the Tourist Car Delivery Programme had two columns, the first showed the buyers name and address and the second showed the person through whom the order is placed. The Collector found as per wording in these columns, the order could be placed directly on the manufacturers or through an Audi car importer. The Collector observed that the proforma makes it clear that it is not at all necessary for a person to be a tourist and go to Germany to place an order under the Tourist Car Delivery Programme. Therefore, he held that the tourist price list can be valid basis for arriving at the assessable value of the car. As regards the evidence of the Bills of Lading indicating additional payment, the Collector found that the Bills of Lading show that the goods were shipped on the orders of the Bank of India. The first person to be intimated was M/s Futehally Ltd., Osaka, Japan. The two Indian importers were shown as the second person to be notified on the two Bills of Lading. The Collector inferred on a perusal of the Bills of Lading that for the cars imported by appellants Fernandes and the other importers Ashwin Shah, some payments were made by a Company in Japan to M/s Volkswagen through the Bank of India by way of opening letters of credit. He did not accept the explanation of the appellant Futehally that the Japanese firm of M/s Futehally Ltd., was founded by the grandfather of appellant Futehally and that this appellants still owns 21% of the shares of the Company and that further due to the time lag between payments for the cars by Indian importers and the actual importation thereof, the German manufacturer of the cars had permitted the use of the accumulated funds by M/s Futehally Ltd., Japan for the vehicles and the delivery thereof, and that as each car was shipped the advance made by M/s Volkswagen to Futehally of Japan was refunded. The Collector found it difficult to accept this explanation when the appellants could not support it with documentary evidence and were told by the Japanese firm that no papers relating to the transaction were retained and that the agreement for temporary use of the fund by the Japanese firm was not in writing. The Collector observed, it is unthinkable that the German manufacture would enter into money agreement with a firm in Japan without any written agreement. Therefore, the Collector held that the Bills of lading showed evidence of additional payment for the cars/Ultimately, he adjudicated the case confiscating the cars imported under Sections 111(m) and (d) of the Customs Act, 1962 for mis-declaration of value and as an unauthorised import. In respect of appellant Fernandes an option to redeem the car was given on payment of a fine of Rs. 1,70,000/- in lieu of confiscation being in addition to the duty payable on the enhanced assessable value based on the tourist price list. In the case of Ashwin Shah, the redemption fine was Rs. 2 lakhs and it was Rs. 1 lakh in the case of importer Mukesh Agarwal. The Collector also imposed penalty of Rs. 10 lakhs on Futehally as the person concerned in the unauthorised imports of the cars and a penalty of Rs. 20,000/- was imposed on appellant Fernandes as well of the other two importers. The Collector found that the charge of abetment against the appellant Iqbal Ahmed was also established for which the Collector relied upon Shri Ahmed's statement indicating his awareness of the misdeclaration of the value at the instance of appellant Futehally. But the Collector observed that the role of Shri Iqbal Ahmed is relatively minor. He imposed penalty of Rs. 10,000/- only on appellant Iqbal Ahmed.
2. The learned Senior Counsel Shri Hidayatullah appeared for the appellants along with learned Counsel Shri M.P. Baxi and learned Counsel Shri Rajiv Dutta. It was submitted that tourist car price list including the price list of optional accessories cannot be made the basis of valuation of the present imports because the Tourist Car Delivery Programme shows that it is a price list which is relevant only to a purchaser, who as a tourist, orders the car for delivery to him personally in Germany and six other cities in Europe. Therefore, it was pleaded that it does not reflect the price in the course of international trade. In the tourist price list even accessories are shown separately whereas in Export Price List certain accessories are standard accessories and are included in the car price itself. The learned Senior Counsel submitted that export price list is generally lower than the price in the domestic market. The learned Senior Counsel explained that the tourist price list will hot be relevant for arriving its assessable value because it is issued under the Tourist Car Delivery Programme in Germany. As a tourist promotion measure and for the tourist to have a custom built car for use during the tour of Germany. The tourist price list is comparable with the price of the car in German domestic market which is always higher than the export price. There is an important notice in the tourist list which cautioned the purchaser that in his own country the Model equipment and features of the car as exported to his country may be different and he is requested to have his car as ordered for delivery in Germany according to his requirement as well as those prevailing in his country. The learned Senior Counsel further argued that the amount of monetary consideration covered under the letter of credit mentioned in the Bills of Lading does not reflect the value of the car because letter of credit is evidence only of an existing contract for making payment which constitutes a better security for guaranting payment than if the contract had been in writing. The learned Senior Counsel referred to the further evidence brought on record by the appellants of the exchange of correspondence between the Chairman of Volkswagen and the Additional Director (DRI) showing that the amount paid under the Letters of Credits were based on a separate transaction between the German manufacturer and the Japanese Company by way of loan which have no bearing on the price of the car. The learned Senior Counsel also in this context sought to rely upon an affidavit of Mr. H. Guedar, the Director Export Asia of Volkswagen Germany showing that they were made separate payment for transaction independent of the car. Since he has not been cross-examined by the Department his evidence should be accepted but the learned Senior Counsel submitted that this is a fresh evidence not permitted to be brought on record earlier. Further, there is evidence of the statement of the three importers of the cars saying that they themselves made payment for the cars from abroad and have given details of thereon. Subsequent adjudications by Collectors of the identical matters involving appellant Futehally and on the same charges have accepted the explanation in this regard relating to the Letter of Credit as not influencing the assessable value. Further, the learned Senior Counsel argued once the export price list has been accepted as assessable value under Section 14(1)(a) as has been done in the subsequent adjudication, no further hypothetical monetary consideration can be added to the values therein and reference to and reliance on the Letter of Credit will not arise. The Senior Counsel argued that even previously the Custom House made enquiries through the German Consulate regarding the price of the cars and it is also significant that in the subsequent adjudication different Collectors have accepted export price list and not tourist price list as the basis of an assessable value. On the question of valuation of accessories separately the learned Senior Counsel urged that price list for U.K., U.S.A. and India are differently packaged as regards the standard equipments which are included in the price of the car. The learned Senior Counsel pointed out that the export price list for various country are comparable and all of them are lower than the tourist price list for which he referred to a Chart prepared for the purposes. The further fact is that the price in different countries be different depending on economic market strategy for which the learned Counsel referred to the study by European Economic Community on this subject on car price dated 15.10.1989. It is observed therein that countries where regulation and industry intervention is least, and consequently competition is strongest consequently and, therefore, in those countries final prices are the most attractive. The study observed further where the tax systems distort final prices, cars are likely to cost more in those countries which restrict imports. Therefore, in such a context, the learned Senior Counsel pleaded that it will be unjust to adopt the tourist price list as assessable value. The learned Counsel thereafter referred further evidence brought on record by way of cross-examination of Assistant Director DRI Shri Y.R. Mahey and of Shri W. Bross from M/s Volkswagen during the subsequent adjudication proceedings before the Collector Shri Mahey's deposition showed that during 1987 clearances had been allowed on prices as declared based on Export Price List at a time when the Department was aware of the existence of the Tourist Price List which compares more with domestic price list and Shri Bross explained the rationale behind the formulation of Tourist Export Price List and regarding the pricing and packaging accessories and standard equipments of the price of the car, he had also explained the relevance and contents of the sticker found in the car. As regards the accessories, he has brought out the facts that car purchased under Tourist Price List had to be taken delivery in Germany itself cannot be shipped to the buyer. The Senior Counsel further submitted that there is no evidence to show that appellants Futehally had manipulated the invoice value. In this context, he again referred to the earlier correspondence between the DRI and M/s Volkswagen regarding the price of the car wherein the position has been explained by the German manufacturer. There was also explanation given by foreign manufacturer as regards the loan arrangement with Futehally of Japan. These explanations have been found acceptable by Collectors in their subsequent adjudication against the appellants on the same issue and they had found that the payment reflected in the Bills of Lading related to a totally different transaction and had nothing to do with the price of the cars imported. Therefore, it was wrong to conclude that the indication in the Letter of Credit is an additional consideration for the purchase of the car. The learned Senior Counsel in this context relied upon the case reported in All England Law Reports [1958] I All E.R. Malas and Anr. v. British Imex Industries Ltd. It was submitted that the Letter of Credit itself constitutes a contract even without the necessity of written agreement. In the subsequent order of the same Collector dated 29.1.1993, he has accepted its position regarding Letter of Credit payments. He had also further accepted that the Export Price List will be the valid basis of the assessable value and not to the Tourist Price List.
3. Shri A.K. Singhal, the learned Departmental Representative submitted that Collector has given in his order cogent reasons for not accepting the Export Price List as the basis for assessable value. The Departmental representative questioned the necessity for the foreign manufacturer to send the letter of 10.8.1988 containing Export Price of cars to the Collector when already their Franchise agreement was in existence with Ashiya Motors. The learned Departmental Representative pointed out that the invoice gave no details of the accessories. It had to be found out by de-coding the stickers which only appellant Futehally could do. The additional payment by way of Letter of Credit from Futehally of Japan to the German manufacturer is significant because therein the first party to be notified is not the importer of the cars. In this context, the fact that the appellant Futehally holds 21% shares in Japanese, is vital to the conclusion that the invoice value for the car is suspect. The learned Departmental Representative also relied upon the reasoning in the impugned order of the Collector wherein he had pointed out several aspects like disproportionate refund on certain accessories and changing of Code number and cubic capacity with the change models. The fact that the appellants could not produce any documentary evidence by way of agreement and papers relating to the transaction of the loan has been correctly highlighted by the Collector in his order. The Collector has also correctly rejected explanation for the differential in price as due to commercial expediency because the Indian market is so restricted and offers no scope for large scale marketing of foreign cars. As has been observed by the Collector in his order the Export Price List is not a reality but a myth generated by Ashiya Motors and sustained by the German manufacturer of Audi cars. The learned Departmental Representative pointed out that the model imported by Aswin Shah is not figuring in the Export Price List, though the model is shipped to India which shows that there has been manipulation by appellant Futehally in the import. The learned Departmental Representative further urged that the very fact that the accessories imported are not mentioned in the invoice would be sufficient ground for disregarding invoice value. The statement of appellant Iqbal Ahmed clearly shows that there was extra charges for accessories. He had retracted the statement only belatedly in his reply to the show cause notice. Further, it is only after thought. He also has such a position in the Company that he will be fully aware of the manipulation in prices. Therefore, when once the invoice value is discarded, the logical basis for assessable value has to be the factory price as found in the Tourist Price List + freight and insurance. The claim that the price list is meant for tourist coming to Germany is not relevant according to the learned Departmental Representative so long as it is ex-factory price. Regarding the evidence of Shri W. Bross of Volkswagen, the learned Departmental Representative questioned as to how Shri Bross could authoritatively explain the policy. It is seen from the records that Shri Bross is incharge of sales in Asia Region whereas the Export Price Policy would appear to be with their Finance Department. The learned Departmental Representative also referred to the additional evidence by way of correspondence brought on record and urged that most of the correspondence is after the show cause notice and some of them are subsequent to the passing of the adjudication order in this case by the Collector. The reliance placed upon the subsequent orders of the Collector will also not advance the appellants' case according to the learned Departmental Representative because the Department is in appeal against those orders which are pending. Further, the learned Departmental Representative pointed out that even in those orders the Collector has accepted the Export Price List only as a basic price and had concluded that there should be addition to those price by way of cost of the accessories. The Export Price List according to the Department is tailor-made document to suit the manipulation of appellant Futehally who has financial links as submitted above with the German manufacturer. The learned Departmental Representative relied upon the case in the case of Glaxo Laboratories (India) Private Ltd. v. A.V. Venkateswaran and Anr. to say that invoice price is not conclusive for assessment but cost of the goods is the criteria. He also relied upon the case of Satya Prakash Agnihotri v. Collector of Customs that assessable value of the car imported is to be based on World Car Catalogue price less depreciation and trade discount. For the proposition that the value of accessories is to be added to the assessable value of the car, the learned Departmental Representative relied upon the case of Poonam Plastic Industries v. Collector of Customs wherein it has also been observed that the Department need not prove valuation or the charge of under value with mathematical precision. The learned Departmental Representative also contended that the burden to prove under valuation shifts to the importers when the Department shows that invoice value is unreliable in the case of Macneill & Magor Ltd., Calcutta-I v. Collector of Customs, Calcutta.
4. The submissions made by both the sides have been carefully considered. In order to show that the price of the Audi cars are correctly as per invoice, and also to support the argument that the true value thereof is the one based on the Export Price List the appellants herein have heavily relied upon subsequent adjudication orders of the same Collector/Collector of Customs-II, Bombay and on the deposition in cross-examination of Mr. W. Bross, Area Manager, Asia, Volkswagen (VW). Their plea is that there was no under-valuation of the cars and also that the Letter of Credit payments by Futehally Japan to VW did not constitute additional monetary consideration towards the value of the cars/accessories. It is seen that during the present proceedings on an application by the appellants certain fresh evidence had been permitted to be brought on record and certain other evidence was not so allowed. In the subsequent order dated 8.7.1991 of the Collector of Customs, Nhava Sheva referring to his order herein impugned, the Collector has observed, "In the previous adjudication order three importers had been covered. I had found that the invoice value had no relationship with price shown in either price lists. The evidence which made up the mind of the Adjudicating Authority in that case was the finding that in the case of import of the car by two of the respondents some payments were made by a Company in Japan to M/s Volkswagen through Bank of India by way of opening of Letter of Credit. It was, therefore, held that the invoice value was not the value paid by the importers of the vehicles. This was one of the main grounds for rejecting the plea that the Export Price List was a valid document. But as has been mentioned by the learned Advocate for the defence this sort of evidence is not available in the present proceedings. While arguing the present matter before the Tribunal it has been submitted that the affidavit of H. Geuder, Export Manager, Asia dated 15.8.1990 is an evidence for basing the assessable value of the cars on the Export Price List dated 10.8.1988 sent by VM to the Collector of Customs, Bombay. So also in support of the claim that the Tourist Price List for the cars and price of accessories given therein cannot be made the basis of valuation, the affidavit of Mr. Geuder is relied upon as according to the appellants, it explains the irrelevance of the price given in the Tourist Price List. Similarly, Mr. Geuder's affidavit of 15.8.1990 has been referred to by appellants to advance the plea that the payment by Futehally Japan to VM by L/C were separate independent transactions and it has been further submitted that since he was not cross-examined by the Department his deposition must be accepted. However, it is found that in the Collector's subsequent adjudication order dated 8.7.1991, the Collector has not taken this affidavit into consideration. On an objection thereto by the learned Counsel for the DRI that Mr. Geuder was not made available for cross-examination the Collector observed, "I have not taken into account the affidavit of Shri Geuder except in passing". In the other adjudication dated 6.8.1992 by Collector of Customs II, Bombay, in order to clarify the position relating to the confusion created by the two price lists, VW had sent an affidavit dated 17.7.1990 by their Director-in-charge of Exports to Asia. But the Collector observed, "As the position stated in the affidavit was viewed with some degree of suspicion, as the signatory to the deed was not available for cross-examination", and the Collector had not taken it into consideration. The appellants had sought to bring the evidence of Mr. Gueder's affidavit on record in the present proceedings before the Tribunal without success. However, it is even now the appellants' contention that the affidavit of Mr. Gueder is of essence as an evidence to support their claim for basing the assessable value of the cars on their Export Price List of 10.8.1988 and also for urging the discarding of Tourist Price List for the purpose. From the Department's side it has also been argued before us that going by the sales portfolio in VW held by him as Manager Sales in Asia Region, Mr. Bross' deposition in cross-examination (on which appellants placed heavy reliance) could not really speak on the rationale of their export pricing policy which policy is shaped in their Finance Department. A further submission made by Shri A.K. Singhal learned Departmental Representative in this regard was that subsequent orders of the Collector accepting the Export Price List as the basis for assessable value have been challenged by the Department before the Tribunal. In such a context, we feel that this case where the Letter of Credit payment by Futehally Ltd. Japan to VW is very much an issue (and it was not so in the Collector's order dated 8.7.1991), and also having regard, further, to the fact that the fresh evidence brought on record have all become available/come into existence after the present impugned order was passed thereby the adjudicating authority having no opportunity to consider them, it will be more appropriate for the Collector to take such evidence into consideration and pass fresh order in this case. At that time, the appellants may also avail of the opportunity to press into service the affidavit of Mr. Gueder in a manner known to law. This course of action would appear preferable and pragmatic considering that the subsequent orders of the Collectors accepting Export Price List as a base for valuation (which also forms part of the fresh evidence) is under challenge before the Tribunal and are pending. Added to this is the further fact that the present appeal is one in a series of appeals relating to the import of about 70 cars to which appellant Futehally is made a party. In this view of the matter, therefore, the case is remanded to the Collector for adjudication afresh in accordance with law after hearing both the sides in the matter. Both the appellants and the Department may avail of the opportunity to advance further evidence during the de novo proceedings. The appeals are accordingly disposed of in the above terms.