ORDER
S.L. Peeran, Member (J)
1. These appeals arise from common order-in-original passed by Additional Collector of Customs, Calcutta. By this order, he has ordered for confiscation of goods for having declared C&F Value DN 28,645.10 and ascertained value 462984.59 under Section lll(m) of the Customs Act, 1962. He has further ordered for debiting for full CIF value of the licence bearing No. P/S/1980889/CXX/131N/88, dated 20-9-1989, as ascertained in the order. He has held that if the licence does not fully cover the goods then the left over goods shall stands confiscated under Section lll(d) of the Customs Act. However, he has granted option to the importer to redeem the goods on payment of a fine of Rs. 3 lakhs. He has imposed penalty on the company of Rs. 20,000/- and Rs. 10,000/- on the Director of Company. Duty has been ordered to be paid on the ascertained value of Rs. 42984.59 and the differential duty of Rs. 389438.40, if the importer chooses to clear the goods on payment of redemption fine.
Aggrieved by this order, the company and its Director, have preferred these appeals.
2. The facts in these appeals are that the importers clearing agent filed a home consumption Bills of Entry No. 1792 dated 29-6-1990 on behalf of the importer for clearance of 14 packages said to contain Rubber Hoses. The detailed particulars of the consignment are as follows :
"1. Name of the Supplier : M/s. Techno Chemie Kessier & Co.,
G.M.B.H., P.O. Box 1227, D-6367, Karben 1
2. Country of origin : West Germany
3. Description of goods : 3420 Meter Rubber Hoses of different quality (4 SP DH
6,12,16,20,4 SPS DH 25, PL-7 DH 10 & PS - 8 DH 20)
4. Invoice No. & Date : NR 8363 - R - 18690, dated 23-4-1990
5. Name of the vessel : M.V. Tiger Sea
6. Rot No. & Line No. : 395/90, Line No. 5
7. Total CIF Value : Rs. 289425.12 (Insurance Rs. 1100/-)
8. Total Invoice value : DN 28645.10 C & F i.e. Rs. 288325.12 C & F
(DM 9.9350 = Rs. 100)
9. Total assessable value : 292319.37
10. Bill of lading No. & Date : AHR CC TT 8055 G, dated 27-5-1990
11. Bill of Entry No. & Date : 1792, dated 29-6-1990
12. Port of Shipment : Hamburg"
3. On the basis of an information that the Importer were about to clear a consignment of Rubber Hoses by misdeclaring the value on a low rate thereby evading huge amount of customs duty, the department officials searched the office premises of the Importer on 10-7-1990 and certain incriminating documents with regard to subject importation were recovered. From these documents, it revealed that the importer represents the foreign supplier M/s. Techno Chemie in India.
4. The goods were examined at the Docks on the original Bills of Entry in the presence of authorised clearing agent and the representative of the importer. It was found that the mark ‘TCH’ representing ‘Techno Chemie’ was written with ink on some of the hoses while on others, the marking ‘CONTY’ was embossed besides ‘TCH’ (written in ink). The labels attached with the hoses were found to show that goods were branded Techno Chemie-TCH. Therefore, the department presumed that the appearance of both ‘Conty’ and ‘TCH’ on the goods appeared to prove that there was relationship between these two German firms. The importer had declared under Rule 10 of Customs Valuation Rules, 1988 claiming business relationship with the seller and had claimed assessment under Rule 4 ibid on the basis of declared transaction value. The statement of the Director was recorded by the departmental officials. The enquiries are said to reveal the fact that there was relationship between M/s. Conti and M/s. TCH and between M/s. TCH and M/s. Hydro Krimp A.C. Pvt. Ltd. from the literature of M/s. Continental, it was gathered that M/s. Techno Chemie is their subsidiary company and delivery of hose assembly is made vide subsidiary company M/s. Techno Chemie. During the investigation, a letter bearing No. UE-SPP/W-181 dated. 8-5-1990 was also obtained from another importer M/s. Indo Industrial Services of 22, Raja Woodmunt Street, Calcutta-1, wherein it had been mentioned that M/s. Hydro Krimp A.C. Pvt Ltd. represented M/s. Technno Chemie in India and the said importer was advised by M/s. Techno Chemie to contact M/s. Hydro Krimp A.C. Pvt. Ltd. for their requirement of ‘TCH’ high pressure hoses. Further, a copy of invoice of latest shipment by ‘CONT was also obtained from the same importer wherein the name of the manufacturer/supplier was shown as ‘CONTI TECH’. Therefore, on physical examination of the goods in the dock, the department presumed that ‘CONTI’ as the original manufacturer of the goods since the wording ‘CONTI’ was found embossed on the rubber hoses. Thus, the importers were alleged that they had grossly undervalued the goods with an intention to evade huge amount of Customs duty. In view of special relationship between buyer and seller and the very high prices found in the price list of the manufacturers themselves the declared transactional value under Rule 4 of the Valuation Rules, 1988 was not accepted and it was alleged as to why the assessment should not be done under subsequent rules. In this regard, the comparative prices available for import of identical goods from M/s ‘CONTI’ which against the following invoices which was compared against declared value as given below was compared to show the extent of undervaluation:
———————————————————————————————
Quan- Type Declared Total Value Value as Actual Total
tity value decla- available per in- asctd. Asctd.
C & F red from voices of value value
value 'CONTI' 'CONTI'
C&F price list (C.I.F.)
(C.I.F.)
---------------------------------------------------------------------------------------------
200 M 4SP 7.40 DM DM - DM 11.50 DM
DN6 DM/Mtr. 1480.00 11.50 Mtr. 2300.00
Mtr.
200 M 4SP 8.20 DM DM DM DM 12.60 DM
DN12 DM/Mtr. 1640.00 14.00 12.60 Mtr. Mtr. 2520.00
Mtr.
200 M 4SP 9.10 DM DM DM DM 14.40 DM
DN16 DM/Mtr. 1820.00 16.00 14.40 Mtr. Mtr. 2880.00
1021 4SPS 13.35 DM DM DM DM 22.50 DM
M DN25 DM/Mtr. 13630.35 25.00 22.50 Mtr. Mtr. 22972.50
Mtr.
499 M 4SP 10.25 DM DM DM DM 17.10 DM
DN20 DM/Mtr. 5114.75 19.00 17.10 Mtr. Mtr. 8532.90
Mtr. _______
DM
39205.40
---------------------------------------------------------------------------------------------
Total Asset C.I.F.________________DM 39205.40 (for the above 5 types)
DM 9.9350 = Rs. 100/-
i.e. Rs. 394619.02
5. It was also alleged that in this consignment, the importer has also imported two types of rubber hoses PL-7DN 10 and PS-8 DN 20, the value of which were not available from ‘CONTI’ price list. However, a quotation of M/s. Samuel Moore Group of U.S.A. showing export price of identical goods were obtained during the process of investigation, wherein value of similar identical goods was said to be available. The price thus obtained relied upon by department is reproduced herein below :
Quantity Type Declared Declared Actual Total asctd.
value (C&F) total value value C.I.F.
(C & F)
available
from
M/s.
Sameul
Moore
Group
USA
(C.I.F.)
900 M PL-7DN 10 2.40 DM/Mtr. DM 2160.00 US $ 2.624 $ 2361.60
Mtr.
400 M PS-8DN20 7.00 DM/Mtr. DM2800.00 US$6.396 $ 2558.40
Mtr.
US $ 4920.00 ($ 5.7875 = Rs. 100/-) i.e. Rs. 85010.80
The importer had produced a specific licence No. P/S/1980889 dated. 20-10-1989 for clearance of the subject consignment of 600 metres of rubber hoses having C.I.F value of Rs. 2,89,425.12. Since the C.I.F. value of the goods as. ascertained was Rs. 4,79,629.82, the importers were alleged to have attempted deliberately under invoicing to clear goods with C.I.F. value Rs. 1,90,204.70 without any valid licence which was alleged to be unauthorised in terms of Section 3(1) of the Import & Export (Control) Act, 1947 and Clause 3(1) of the Import Control Order, 1955, rendering the goods liable to confiscation under Section lll(d) of the Customs Act and for penalty under Section lll(a) of the Act, and a demand for payment of full duty of Rs. 10,76,273.68 on the ascertained value as detailed above was demanded. Hence, a show-cause notice dated 26-10-1990 was issued to the appellants.
The importers vide their reply dated 11-3-1991 contesting the departments’ allegations and submitted as follows :
“1. That they are a registered SSI unit engaged in manufacture of Hose Assembly. They import bare hoses and sell those after adding suitable indigeneous fitments.
2. That the department has not been able to make out a case against them since mere doubt, a surmise or apprehension cannot take away the genuineness of the invoice which is well settled in view of several CEGAT judgments.
3. That there is no evidence of clandestine remittance of foreign exchange over and above the invoice price.
4. That the department has failed to make necessary investigations at the major ports to ascertain the prevailing price of identical goods and also ignored to follow the prescribed norms under Section 14 of Customs Act, 1962 read with Customs Valuation Rules.
5. That they are not aware of any relationship between CONTI & TCH. However, TCH may be marketing products of CONTI since these practices are adopted through out the world. For example Reckitt & Colman in India markets Dettol Soap which is manufactured by Godrej.
6. That their declared price is correct transaction price in terms of Rule 4 of Customs Valuation Rules, 1988 which have been negotiated through LC.
That there is no indication as to which period the price list belongs. The two invoices dated 16-9-1990 and 18-6-1990 quotes price on the basis of cut piece units according to specific requirement and still these are lower than the price list. It has also not been clarified why the department accepted price list of item 4 SPDN6 and invoice price for the other cases.
That the department has not taken into consideration the quantity of the goods while proposing the price in show-cause notice. Further, the department has relied solely on the documents belonging to other firms excepting TCH who are the suppliers of the subject consignments.
That they have no relationship with TCH except as buyer and seller.
That TCH never offered their representation in India to them and no such copy were recovered from their premises during search/seizures.
That the department had not disclosed the details of enquiry made by Mr. Ginodia of Indo Industrial Service dated 28-3-1990 to TCH.
That even after assuming without accepting that such a letter was written by TCH to” Indo Industrial Services, it might be that they did not want to disturb a regular buyer like them lest they switch over to some other supplier.
That they imported goods from TCH in usual course of normal business and the declared price was also accepted by A.C. of concerned Group after thorough scrutiny.
Under the circumstances, the goods should be released”.
6. The Additional Collector after giving the appellants due hearing rejected their pleas and passed the order as noted above. The Addl. Collector has held that from the documents enclosed with the show-cause notice, it is quite clear that M/s. Techno Chemie is a subsidiary company of M/s. Continental. The same is also reflected in the literature of M/s. Continental dated 17-8-1982, wherein it is written that “hose assemblies” can be obtained from subsidiary company, Techno Chemie-6367. Karben-1. The Addl. Collector has also relied on letter dated March 13, 1984, M/s. Continental had advised M/s. Indo Industrial Services to contact their subsidiary company, M/s. Techno Chemie for purchasing a crimping machine, letter dated 24-6-1985 was also relied which M/s. Techno Chemie wrote to M/s. Indo Industrial Services that they had received their letter dated 30-3-1985 through M/s. Continental Cummi-Werke Ag, Hanhover. On these correspondences, the ld. Addl. Collector has held that it clearly established that both Chemie which is raising invoices showing prices less than the prices of the parent company, M/s. Continental. He has also relied on the written reply dated 11-3-1991 and held that it showed that the technical comparison of products manufactured by M/s. Techno Chemie with that of M/s. Continental price to give a view that the product manufactured by M/s. Continental is superior product and that is why the word ‘CONTI’ is embossed on the hose alleged to be manufactured by M/s. Techno Chemie. He has observed that “Nowhere has it been proved that the present consignment is inferior as that it is not having the quantity the hoses manufactured and marketed by M/s. Continental. Therefore, he has ordered that the value indicated in the invoice be loaded to the extent to bring it to the level of the invoice value of M/s. Continental. He has also found that in respect of the item having type number 4SP DN, invoice of M/s. Continental is not available. Hence, the value available from Conti price list indicating the price of DM 11.50 per metre. He has found in respect of other items where both price list and invoice of M/s. Conti are available, 10% discount had been given over in the price mentioned in the price list(s). As such, the Addl. Collector has ordered to fix the price by giving discount DM 1.15 per mtr. so as to make C.I.F. price at DM 10.35 per mtr. Accordingly, he has held the total ascertained C.I.F. price for 200 mtrs. to come to DM 2070.00.
In respect of items PL-7, DN-10, PS-8, DN-20, the Addl. Collector has not found any contemporary imports from Germany. Therefore, he has compared these with importation from USA and held it to be underinvoiced in respect of these items as well. The Addl. Collector has held that comparison of C&F price of M/s. Techno Chemie and C.I.F. price of M/s. Continental shows the difference to be between 40% and 70% and thus he has adopted the same formula and has ordered for loading of price of 40% in respect of these two items. Thus, C.I.F. price for PL-7, DN-10, PS-8 & DN-20 has been fixed at 3.36 DM per mtr. and that of PS-8 DN to be 9.80 DM per mtr.
7. We have heard Shri V. Lakshmi Kumaran, ld. Advocate for the appellant and Shri T.R. Malik, ld. SDR for the Revenue.
8. Arguing for the importer, the ld. Advocate submitted that the appellants do not come within the meaning of ‘related persons’ as defined in Rule 2(2) of the Rules. They can be treated so only if they come within the Clauses (i) to (viii) of that section to treat them so to discard the transaction value. He submitted that the show-cause notice had not made a specific and clear allegation to the appellants being a related person of M/s. Techno Chemie or they being the sole distributor of that company. Referring to the term, ‘person’ appearing in the definition of the Act, ld. Advocate submitted that a sole distributor cannot also become a related person, until and unless he falls within the clauses (i) to (viii) of the Rule 2(2) of the Rules. He submitted that even if they are held to be related person even then valuation as per Rule 4 cannot be discarded and in that event Sub-rule (3) of Rule 4 is required to be applied. He submitted that transaction value is bound to be accepted and the exceptional cases fall within Rule 4(a)(b)(c)&(d). He submitted that Rule 4(d) had been invoked and Rule 4(d) deals about related person. As the appellants are not related person, in terms of Rule 2(2), the Transaction Value in terms of main Rule 4, cannot be rejected. He also submitted that the price lists relied were all irrelevant, for the reason, the invoice compared is that of the year 1988, while the present import is of 1990. The quantity imported also varies and so also the specification. He also submitted that the Addl. Collector cannot compare the imports of Germany with those of USA imports, which is not permissible as only contemporary imports of comparable goods, from same place are required to be relied and not of incomparable goods of different countries. He argued that the Addl. Collector has loaded the prices in respect of two items, despite no proof of undervaluation having been placed by department. He submitted that the price had gone down in 1990 compared to 1988 in view of competition from Japan and USA. He also submitted that the department has not explained under what provision of law they had order for overvaluation and that there is total non- application of mind in this case. Ld. Advocate relied on the judgment of Hon’ble Supreme Court of India as rendered in the case of Basant Industries Nunhai v. Addl. Collector of Customs in -Civil Appeal No. 3153/1985, dated 18th January,1993.
9. Ld. DR replying to the arguments of the id. Advocate submitted that the department has relied on Rule 2(2)(v) of Customs Valuation Rules. The department has also compared with contemporary invoice as per Rule 14 of the Rules. The invoice in question pertaining to 1990 had shown less price to those of 1988, which is not a normal feature, in view of normal increase of prices in trade. He justified the stand of the appellant being a related person and the transaction being not at arm’s length. He submitted that even if the transaction is considered as principal to principal basis even then, the commission charges are required-to be added in the transaction value. He therefore, submitted that if the Bench felt, otherwise, the matter could be remanded for de novo. Ld. Advocate opposed for de novo proceedings.
10. We have carefully considered the submissions made by both the sides and have perused the records. In this appeal, the question that arises for consideration is as to
(i) whether there is any nexus between the importer M/s. Hydro Krimp A.C. Pvt. Ltd. and the overseas supplier M/s. Techno Chemie or not?
(ii) if so what should be the value for the purpose of levy of duty and debiting of the import licence if the declared transaction value is not accepted?
In this case, the department is relying on the correspondence between M/s. Indo Industrial Services and M/s. Continental, to hold that M/s. Techno Chemie is a subsidiary company of M/s. Continental. There is no dispute on this point about the relationship between these two German companies. Does this fact alone sufficient to hold that the transaction value is not to be accepted and that it should be loaded into the price of M/s. Continental of 1988 & to be held as the prevailing price of 1990, and on the basis that there is a nexus between the importer and the supplier M/s. Techno Chemie? The answer is a simple no. The reason being that there is in the first place no allegation of the importer being a related person in terms of Rule 2(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. Further, the importers are an independent company incorporated under the Companies Act in India and carrying on independent business in India. The supplier M/s. Techno Chemie by their letter dated 8-5-1990 had advised M/s. Indo Indl. Services to contact M/s. Hydro Krimp A.C. Pvt. Ltd., Calcutta for Hoses as they represented them, on M/s. Indo Indl. making enquires of the product. This letter merely indicate that Hydro Krimp, the importer is merely an agent or a person dealing or selling in the goods manufactured by Techno Chemie. It does not imply that M/s. Techno Chemie and M/s. Hydro Krimp, the importer, are related persons or being one and the same. Therefore, the conclusion drawn by ld. Addl. Collector on this point is totally erroneous and without any application of mind and it deserves to be quashed as unsustainable.
Further, it has to be observed that even if for arguments sake, it is to be held so, even then the transaction value alone,has to be accepted. As Rule 2(f) defines, ‘transaction value’ to mean the value determined in accordance with Rule 4 of these Rules. Rule 2(2) defines a person to be a “related” person only if they fall within (i) to (viii) as stated therein. It refers to:
(i) Officers, Directors of one another’s business
(ii) legally recognised partners in business
(iii) employer and employee
(iv) any person directly or indirectly owns, controls or holds 5 percent or more of the outstanding voting stock or shares of both of them,
(v) one of them directly or indirectly controls the other,
(vi) both of them are directly or indirectly controlled by a third person,
(vii) together they directly or indirectly control a third person or
(viii) they are members of the same family.
The Expln. I states that the term “person” also includes legal person.
The Expln. II states that persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, however, discribed of the other shall be deemed to be related for the purpose of these rules, if they fall within the criteria of the sub-rule.
Therefore, on a reading of this Rule 2(2), the importer is not a related person. The Rule 4 states that 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) states that the transaction value of the imported goods under Sub-rule (1) above shall be accepted except as provided in 2(a) to (d). Rule 3(a) states that where buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price. Rule 3(b) states that in a sale between related persons, the transaction shall be accepted, whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at about the same time. –
(i) the transaction value of identical goods or similar goods.
The proviso states that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of Rule 9 of these Rules and cost incurred by the seller in sales in which he and the buyer are not related;
Sub-rule (c) of Rule 3 states that substitute values shall not be established under the provisions of clause (b) of this sub-rule. Therefore, it has to be held that in the first place the department has not proved that the appellant is a related person of the supplier and that the transaction value alone has to be accepted in this case.
Now we are required to look into the question of undervaluation. The supplier’s invoice is dated 23-4-1990. This is being compared with the invoice dated 16-6-1988 of Continental issued to M/s. Indo Industrial Services. 4 SP, DN 16’s unit price of the supplier in this case is 9.10 as against 14.40. The quantity is 200 m, as against 80 m. The 4 SP DN 20 quantity is 409 m and unit price of supplier is 10.25 as against Continentals 320 m at 17.10 DM. The allegation is that both the supplier and Continental being same and subsidiary company, the prices and goods being comparable, the price of 1988 should be taken as the price of 1990. This is a totally erroneous approach of the ld. Addl. Collector. Rule 5 states that the value of imported goods shall be the Transaction Value of identical goods sold for export to India and imported at or about the same time as the goods being valued. The provision being clear the comparison has to be between the goods imported at or about the same time and not of import preceding two years ago, as the market price keep fluctuating. It is not necessary that the price should always go up and it should not come down. There are further factors also like the extent of quantity imported, regular import being made, new competitors entering the fields, slashed in local duties etc. In this context, the department is required to show undervaluation by specific and cogent evidence of international price not having come down but having gone up and being steady as in 1988. The department having not established the cause of undervaluation, the charge fails.
11. The Additional Collector has compared the price of PL-7, DN-10, PS-8, DN-20 with that of the price of USA as there being no contemporary imports from West Germany. This is totally unsustainable and against the provision of the Customs Valuation Rules. Even the method adopted by ld. Addl. Collector to load the price is not sustainable as being not as per the provisions of Customs Valuation Rules.
12. The ruling cited by ld. Advocate of Hon’ble Supreme Court in the case of M/s. Basant Ind. Ltd. v. Addl. Collector of Customs (supra) is totally applicable to this case and the same is noted herein below :
“Ordinarily, this Court would not like to interfere in a matter of price fixation, but at the same time it seems necessary to impress upon the Department 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. In the instant case, we find from the correspondence that had ensued between the supplier and the appellant-importer that there was some bargaining before the price of U.S. $ 1.80 CIF per piece was finalised. The first is a letter of 18th June, 1984. In that letter the supplier has stated that
“We offer our last price at the rate of U.S. $ 1.80 CIF BBY, subject to your purchase of total quantity of 49670 Pcs and no rebate is allowed”.
It was also stated in that letter that their principals were supplying the said commodity to them at U.S. $ 1.69 per piece. That was to indicate the margin of profit for the supplier. To this, the importer responded by writing a letter dated 9th July, 1984 stating that they were not interested in purchasing the entire quantify of 49670 pieces and requested the supplier to offer the rates quantity-wise i.e. to indicate the price on the basis of quantity. In response to that letter, the supplier wrote a letter dated 23rd Julyl984 stating as under :
“Please note as you are our old and valuable (sic), we can supply you smaller quantities on the following price :
10,000 pcs. At the rate of US $ 2.20 each CIF Bombay
20,000 pcs. At the rate of US $ 2.00 each CIF Bombay
40,000 Pcs. At the rate of US $ 1.80 each CIF Bombay”.
It will, thus, be seen that the price of U.S. $ 1.80 each for 40,000 pieces was fixed after considerable negotiations and was fixed after keeping in view that the importers were old and valued customers. It is not known whether the other importer, namely, M/s. Ravi Agricultural Industries had the same relationship. There is also no reason why the instance pointed out by the importer that the very same commodity had been supplied by another supplier at the same price of U.S. $ 1.80 CIF per piece should have been totally ignored and instead the stray instance of Ravi Agricultural Industries should have been picked up for the purposes of fixation of price. It is essential to bear in mind the fact that in the business world considerations of relationship with the customer are also a relevant factor. In the circumstances, we are of the opinion that the Department was wrong in revising the price from U.S. $ 1.80 to U.S. $ 2.20 CIF per piece. We, therefore, allow this appeal, set aside the order of the Additional Collector as well as the Tribunal and discharge the show-cause notice. However, there will be no order as to costs”.
Taking note of the ruling of the Hon’ble Supreme Court and for the reasons set-forth, the impugned order of Addl. Collector of Customs is set aside and appeals allowed with consequential relief, if any.