ORDER
V.K. Ashtana, Member (T)
1. This is an appeal filed by revenue against the Order-in-Appeal No. C3/702/96, dated 22-9-1997 of Commissioner of Customs (Appeals) and the issue involved is the valuation of components for the manufacture of test and measurement equipment as also components for the manufacture of computers.
2. Briefly, the facts of the case are that the Special Valuation Branch (SVB) of the Chennai Custom House had during July, 1991 enquired into the valuation of imports made by Hewlett Packard India Ltd. (HPI) as 40% of their equity was held by M/s. Hewlett Packard USA (HP USA) and its subsidiaries. Vide circular of February, 1992 the issue was finalised. This was not disputed by HPI. The holding of HP USA in HPI changed to 100% shares being held by HP USA. In view of the liberalisation ordered by the Government of India, HPI now, therefore, is a 100% fully held subsidiary of HP USA. This fact is not disputed. After a periodical three year review of the earlier order by the Custom House, a fresh Order No. S 50/23/91 SVB, dated 5-8-1996 was passed by Assistant Commissioner, SVB. In the said order it was held that the invoice price of components imported for the manufacture of test and measuring equipments as well as for the components for manufacture of computers were accepted under Rule 8 of the Customs Valuation Rules. However, for finished goods imported for stock and sale (mainly Computer Peripherals), the loading factor as per Annexure-2 of the order was prescribed on the ground that HPI was being sold these goods at a lower price i.e. exclusive of selling commission.
3. Aggrieved by this order, the respondents went in appeal before the Commissioner (Appeals), who vide impugned Order-in-Appeal dated 22-9-1997 bearing No. C.CUS. 1066/97 allowed their appeal and set aside the Order-in-Original mentioned above with respect to the import of such computer peripherals. This decision was on the following grounds;
(a) In view of the Judgment of the Supreme Court in the case of Basant Industries as reported in 1996 (81) E.L.T. 195 (S.C.), there is no bar to the existence of two different sets of prices in the course of international trade for different class of buyers as HPI was a different class of buyer from other importers, therefore, he accepted the invoice price being the number and value of transactions on the basis of which the loading has been resorted to are too insignificant in comparison to the volume of goods imported by HPI.
(b) The existence of an agreement between the HPI and HP USA, wherein, HPI would have to undertake services including voluntary services etc., on these peripherals marketed in India, would not affect the transaction value in the absence of any evidence of mutuality of interest through flow back.
(c) This was supported by interpretative note to Rule 4 of the Valuation Rules that activities undertaken by the buyer on his own account, other than those for which an adjustment is provided in Rule 9, are not to be considered to be an indirect payment and, therefore, was not to be added to the price actually paid.
(d) He further found that in view of no evidence having been led to prove mutuality of interest in the absence of HPI and HP USA, the transaction value of these imports could not be interfered with.
(e) He found that the decision in the case of Maruti Udhyog as reported in 1989 (28) E.L.T. 390 (Tribunal) was on all fours with the facts of this case.
4. Heard learned SDR, Shri Victor Thyagaraj. He outlined the chronological events as narrated above and submitted that Paras 10 and 11 of the Order-in-original gives 9 reasons for the conclusions reached thereunder, Revenue supports each of these grounds. He further submitted that revenue was aggrieved against the impugned Order-in-Appeal on the following grounds:
(a) The case law of Maruti Udhyog can be distinguished on facts because, M/s. Suzuki Motor Corporation held only 26% shares in Maruti Udhyag, whereas, HPI is a wholly owned subsidiary of HP USA.
(b) HP USA have their published price. However, they sell to HPI on a much lower value by giving deductions on grounds of selling commission. These deductions are not correct in law and are to be added to the invoice price.
(c) Learned SDR referred to Para 19 of the impugned Order-in-Appeal, wherein, it has been held that there is no evidence of flow back and wherein the learned Commissioner (Appeals) has applied interpretative note to Rule 4. He submitted in this connection that this conclusion was not correct and was not available to the learned Commissioner as he has not considered Rule 9(1)(a)(i) as per this note.
(d) Because HPI and HPU were related persons, therefore, there is mutuality of interest. The profits earned by HPI flow back to enrich HP USA. Therefore, it “is not correct to hold that there is no mutuality of interest and the Order-in-Original has correctly loaded the invoice values.
(e) He cited the following case laws :-
(i) 1988 (37) E.L.T. 70 (Cal.) – wherein – it has been held that the value under Section 14 is a deemed value and not necessarily the actual transaction value.
(ii) 1989 (42) E.L.T. 693 (Tribunal) – Calcutta Motor Dealers Association, wherein, it has been held that the words “normally sold” would mean the normal price and not the negotiated price even though as the negotiated price may be a perfectly genuine one.
(iii) 1991 (51) E.L.T. 481 (Tribunal) – Radiation Technologies (India) Pvt. Ltd. – wherein, it has been held that if one company holds 75% or more shares then they become related persons.
On these grounds he prayed that the impugned Order-in-Appeal be set aside and revenue’s appeal allowed.
5. Heard Advocate Shri Sridharan for the respondents. He submitted that HPI had not appealed against the Assistant Commissioner’s Circular of 11-2-1992 because of commercial circumstances existing at that time when HPU through HPI was making strenuous efforts to establish itself in this country. The circumstances have since changed leading to their appeal against the learned Assistant Commissioner’s Order-in-original. In this connection he argued that there is no lack of jurisdiction created simply because they accepted the Assistant Commissioner’s order of 11-2-1992. He, therefore, contended that because they were aggrieved by the order of 5-8-1996 and he had filed his appeal in time, to approach the doors of the first appellate authority was under his right under the statute and there was no lack of jurisdiction. He supported this argument by citing the decision in the case of West Coast Paper Mills as reported in 1984 (16) E.L.T. 91, wherein, it was held that the principles of res judicata does not apply in taxation matters. He also refers to the decision in the case of Swaraj Mazda reported in 1995 (77) E.L.T. 505, wherein, again it was held that there is no res judicata in tax matters. Therefore, he concluded that he has every right to challenge the Order-in-original dated 5-8-1996.
6. With respect to the allegation that M/s. HPI and HP USA were related persons, he conceded that under Rule 2(2) of the Customs Valuation Rules, both these companies were related persons. However, he further contended that Section 14(1) talks of mutuality of interest and not merely of relationships per se. In this connection he argued that the relationship between HP USA and HPI is only uni-directional i.e. HPU has interest in HPI being a 100% share-holder. But, the vice versa position, thereof, is not true, because HPI has no interest in HP USA, particularly in view of there being no evidence led to show that there was any flow back of the profits of HPI sent to HP USA back to HPI from HP USA.
7. Learned Advocate stressed that the decision in the case of Maruti Udhyog, applies to the facts of this case squarely because in the first place the quantum of shareholding is not important or even relevant As long as even 26% of the shares were held by Suzuki Motor Corporation in Maruti Udhyog Ltd., the two were related persons on the law as per Rule 2(2) of Customs Valuation Rules. Secondly, this decision decides the issue of what constitutes mutuality of interest, and holds that mere holding of shares or being the related persons under the Customs Valuation Rules per se, does not constitute mutuality of interest. What is required to be proved is that each company has a clear interest in the business of the others i.e. to say the interest should be both ways. Learned Advocate also cited the case of Atic Industries in this connection, wherein, a similar decision has been taken.
8. Explaining their marketing strategy/learned Advocate used an example. HP USA was a worldwide organisation having business dealings with a number of countries in Latin America, Europe,, Asia and Australia. Therefore, their strategy was to have a uniform price list applicable to the whole world for all its products. An individual buyer would be sold as per this price list. However, the subsidiaries of HP USA in any country including HPI would be sold these goods at a discounted price. The reductions from the price list would be to compensate for the operations of these subsidiaries connected with the stocking, marketing, sale and post sale services including warranty services on the products which were exported into the country from HP USA. He contended that this pricing policy was totally transparent because firstly it was applied worldwide. Secondly, the deduction was for reasons for which are commercially recongised and accepted by all the Customs Organisations which were under the GATT CODE for the purpose of import valuation. For HP India, this policy was operated by first computing the list price under the local currency (local currency price), then deducting HPI’s cost of the aforesaid operations which they termed as selling cost and then adding 10% of this selling cost as HPI’s reasonable margin of profit. Since 10% margin of profit was recongnised as a very reasonable level of profit all over the world including even under Central Excise law in India and since the above parameters were objective and applied uniformly, therefore, the entire transaction was at arms length. The nature of these discounts were known before hand to both the parties. Illustrating the operation of this policy, learned Advocate gave the example that if the list price was for a particular item at the rate of Rs. 104/- then HPI was billed Rs. 100/- because the difference of Rs. 4/- constituted HPI’s cost of these operations plus 10% thereof as margin of profit.
9. As against this, it is the case of revenue, learned Advocate contended that since an actual consumer can import the same goods only at the list price of Rs. 1Q4/-, whereas, HPI was allowed the same goods for stock and sale etc., at Rs. 100/-, therefore, the value of such imports should be raised to Rs. 104/-. The reason given by revenue for this proposed loading is that when there are two prices on record, then only one can prevail under 9(a)(ii). It is also the allegation by revenue that this reduction of Rs. 4/- is not a valid discount in law as it is merely “selling commission” and in view of these circumstances, since HPI gets the goods at a rate cheaper by Rs. 4/- per unit, so this price is tained.
10. Learned Advocate argued that this assertion of revenue is not correct in law because of the following reasons :-
(a) The difference of Rs. 4/- is not selling commission. It is a regular trade discount based on the fact that whereas an individual consumer does not have to incur any expenditure in stock and sale trade as also for post sale services, HPI has to undertake all these operations. Naturally the cost thereof has to be considered as is the normal practice in international trade.
(b) Merely because HPI gets at Rs. 4/- cheaper, this does not make the price tainted. He submitted that an actual user importer who directly consumes goods which are imported in only few numbers is a different class of buyer from HPI which imports large quantities of these goods for stock and sale. Section 14 as well as the rules recognised different class of buyers.
(c) To illustrate the submissions at (a) and (b) above, he submitted that the total imports by HPI of these items during the last 3 years was for a value of Rs. 276 Crores and the average number of Bills of Entry per month filed in the Custom House varies between 300 to 400 Bills of Entry per month. As against this, the department wants to impose the price on the basis of mere 5 imports in 1994 valued at only Rs. 7.5 Lakhs i.e. hardly .03 percent of the above. Out of these 5 imports, two are by M/s. IIT, under duty exemption, two are by EPCG Licence holders and one piece has been imported by M/s. HCL for demonstrating purposes, In each case only one piece has been imported per Bill of Entry. Therefore, the value of one piece of import cannot be compared with the value under which thousands of pieces are imported. In this connection, he cited the case of Atco Industries as reported in 1992 (57) E.L.T. 654.
(d) The said pricing policy as described above is one for the purpose of stock and sale and is based on local currency price minus the import company’s cost of selling plus 10% selling cost. As mentioned earlier, he submitted that the relationship between the foreign exporter and HPI has not influenced the price in view of the said pricing policy being applied world-wide and the transaction is at arms length. Learned Advocate further submitted that this fact has been accepted by other Customs organisations including that of USA, Canada and Germany.
11. Learned Advocate further continued that under Section 14(1) of the Customs Act, 1962, the material point for discarding the transaction value is that there should be no interest in the business of each other. He cited the case of Atic Industries as reported in 1984 (17) E.L.T. 323 (S.C.); Pepsi Foods -1993 (64) E.L.T. 426 (Paras 38.2 and 38.3), wherein, it has been held that a sole marketeer does not introduce mutuality of interest by itself (Para 34); ICL -1989 (41) E.L.T. 287, wherein, it is held that two subsidiary companies are not held as related even though they are held by a single holding company. He also cited the CBEC’s circular dated 8-8-1975, wherein, in Para 13, it has been prescribed that the words “interest in business of each other” does not refer to the sale of goods. He submitted that this circular is on the same lines as the decision in the case of Pepsi Foods supra. He further cited the case as reported in 1992 (59) E.L.T. 220 (Bom. H.C.), wherein, it has been held that holding in subsidiary companies as not having mutuality of interest even though they are related, this relationship specifically being provided for by the statute. In this connection, he also cited the decision in the case of Elecon as reported in 1989 (41) E.L.T. 589 (Tribunal), wherein, it has been held that sales by subsidiary to even holding companies can be on the assessable value declared unless it is shown that the price is affected by this relationship.
12. Since the aforesaid citations are basically mainly on Section 4 of the Central Excise Act, 1944, the question arises whether the Central Excise law can apply to the Customs Section. Learned Advocate submitted that this question has been considered in the case of Maruti Udhyog, supra, wherein, it is held that on material points i.e. on mutuality of interest, Section 14 of Customs Act is similar to Section 4 of Central Excise Act and, therefore, the case law can apply to Customs also. Accordingly, the Hon’ble Supreme Court dismissed the department’s appeal vide their judgment as reported in 1989 (22) ECR 482 (S.C.).
13. Learned Advocate submitted that the construction of Section 14(1)(a) clearly shows that the assessable value can only be determined by reading the said section along with the Customs Valuation Rules. Therefore, he proceeded to make his submissions with respect to the Customs Valuation Rules as applicable to his case. He submitted that as per Rule 2(2), HPI and HP USA were related persons in view of the provisions of Sub-rule (iv), (v) and Explanation 2 thereof, this was conceded. He further submitted that Rule 3(a) talked of relationship and, therefore, went on to proceed to Rule 3(a), wherein, the test laid down is whether the relationship influenced the price or not. On this aspect he again reiterated his argument that the entire policy was transparent and at arms length, and the discount on the price list was on the basis of commercial levels involved by a different class of buyer. Therefore, there was no evidence available to show that this relationship influenced the price.
14. Thereafter, he proceeded to mention Rule 8 read with Rule 9(1)(a)(i). He said this was being used by the department to sustain the allegations. He submitted that this rule could not be applied and was uncalled for when identical goods were available under Rule 4 read with Rule 5. Secondly, the concept of accepting the price of the two values proposed by the department is hit by the provisions of Rule 8(2)(ii). He also submitted that under Rule 9(4) no other additions were allowed and under Rule 12 it was laid down that interpretative notes were to apply. He, therefore, next proceeded to examine the interpretative notes to these rules and submitted that Note to Rule 4 concerned the price actually paid or payable. He further referred to Note to Rule 4(2)(b) at page 2.15 of the Manual, wherein, it was clearly laid down that the marketing of imported goods cannot be a ground for rejecting the transaction value. In his case, the goods were imported for marketing and, therefore, solely on this ground the transaction value declared cannot be rejected. He further reiterated the provisions in Notes 1, 2 and 3 to Rule 4(3)(a) and submitted that Note 3 shall be most relevant. A plain reading thereof showed that a price structure in which the selling cost was deducted from the list price and a 10% profit added was acceptable under this note. He also cited the view of distinguished authors who have written a book entitled “Customs Valuation -Commentary on the GATT Customs Valuation CODE” viz., M/s. Saul L. Sherman and Hinrich Glashoff and referred to the example in Para 588, where the mark-up of 18% on the landed cost which contained a profit of about 18% was found acceptable as these expenses for the marketing of the imported goods was found to be containing nothing unusual.
15. Learned Advocate submitted that the basis of the pricing policy involved has been certified by one of the leading Consultants and Chartered Accountants in America M/s. Price-Waterhouse, is contained in the paper book.
16. Learned Advocate thus concluded his argument and prayed that the prices actually declared should be accepted in view of these arguments and the case law cited. He, therefore, prayed that the revenue’s appeal had no merits and needs to be dismissed, thus upholding the Order-in-Appeal of the Commissioner of Customs (Appeals), which was absolutely correct in law.
17. Heard learned SDR, Shri Victor Thyagaraj, who pointed out that in view of the fact that HP USA and HPI were related persons, therefore, the transaction value and acceptance thereof, is ruled out under Rule 4 and referred to the argument contained in Para 12 of the Order-in-Original, therefore, Rule 3(2) is to be resorted to. While doing so, there was no import of identical similar goods on comparable levels available and, therefore, Rules 5 to 7A were not applicable, hence, Rule 8 was used in the Order-in-original. Since the price declared was not at arms length being between related persons, therefore, the value of 3rd party imports was taken as this is the deemed value under Section 14A. He, therefore, prayed that the impugned Order-in-Appeal may be set aside and the appeal allowed.
18. On this point, the Bench raised a query to the learned SDR as to why Rule 5(1)(c) could not be applied. There was no answer to this query.
19. The learned SDR again reiterated the grounds contained in the Order-in-original and strenuously prayed that the same should be applied.
20. We have carefully considered the arguments on both sides and the records of the case. The grounds on which the learned Commissioner (Appeals) have allowed the appeal of the present appellants at the first appeal stage have already been enumerated in Paras 3(a) & (b) above. The grievance of revenue against the impugned Order-in-Appeal can be summarised to exist on the following points :-
(a) As HP USA is a 100% shareholder of HPI, therefore, they are related persons. Being so, the transaction value under Rule 4 does not apply because the price at which the goods are being imported by HPI are lower than the price at which independent importers (non-related) have imported similar -goods during the same time period.
(b) In view of the said relationship and the above contemporaneous imports illustrating that the price at which HPI imported the said goods was not in the course of normal business and was an influenced price. Therefore, Rules 5 to 7 would not apply.
(c) The decision of the Hon’ble Tribunal in the case of Maruti Udhyog (supra) is distinguishable on facts.
(d) The impugned Order-in-Appeal is wrong in holding that there is no flow-back because the learned Commissioner has not considered Rule 9(1)(a)(i) and also because HPI being held by HP USA, the profits earned by HPI would directly enrich HP USA, thus intro-ducting mutuality of interest.
(e) Since the appellants had accepted the earlier SVB Circular for number of years, it is not open in law for them to now appeal against this circular after passage of long time.
21. We proceed to examine these grounds as follows :-
(i) It is fairly conceded by learned Advocate for the appellants that as HP USA holds 100% shares in HPI, therefore, they are related persons. We find that the provisions of Rule 2(iv) as also Explanation 1 to Rule 2 of the Customs Valuations Rules are clearly attracted to the facts of this case, therefore, it is now an undisputed position that the buyer and the seller herein are related persons in law.
(ii) However, we cannot accept the contention of learned SDR that by merely because they are related persons, this relationship introduces a mutuality of interest between the two in view of the 100% shareholding involved. This is because Rule 4B(a) of the Customs Valuation Rules clearly lays down that “where the 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”. Therefore, instead of accepting the position that the said relationship ipso facto leads to discarding the transaction value declared in these imports, we have necessarily to examine whether this relationship did or did not influence the price i.e. to say whether this remains a transaction at arms length or on the contrary, there exists a mutuality of interest between the buyer and the seller, whereby, the price becomes affected.
Learned Advocate has named the basic point in this connection viz., that there is no evidence led by the department to show any flow-back of profits from HPU to HPI. Therefore, while it is no doubt true that HPU as 100% shareholder of HPI has interest in the prosperity of HPI, the reverse proposition is not true. We find that this submission is well taken because there is not an iota of evidence to show that the profits earned by M/s. HP USA in any way flow back to HPI and that HPI has benefitted from them. Mutuality of interest means that there should be a two way traffic in this regard. Secondly, we find that the case law of Maruti Udhyog (Supra) cannot be distinguished from the facts of this case only on the ground that the quantum of shares held in Maruti Udhyog Ltd. by M/s. Suzuki Motor Corporation was only 26% at that time, whereas, here HPU holds 100% of the shares. This is because Rule 4(2)(iv) clearly lays down that even if 5% or more of the shares are held by one in another, the two become related and in the said, decision, it was also held that though Suzuki Motor Corporation . and Maruti Udhyog were related persons, because there was no mutuality of interest, therefore, relationship by itself would not preclude the acceptance of the transaction value. We, therefore, find that the ratio of the decision in that case clearly applies to the facts of the present case also.
(iii) We proceed to consider the provisions of Rule 4(3)(b) which reads as follows:-
In a sale between related persons, the transaction value 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 or about the same time –
(i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;
(ii) the deductive value for identical goods or similar goods;
(iii) the computed value for indentical goods or similar goods.
Provided 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;
A Plain reading of the above provisions shows that when the value of contemporaneous imports are to be considered vis-a-vis imports by related persons, then in view of the proviso to Sub-rule 3(b), due account has to, be taken of demonstrated difference in commercial levels, quantity levels and adjustments in accordance with the . provisions of Rule 9. Now the facts of this case are undisputed regarding the contemporaneous imports at higher price cited by revenue. However, learned Advocate for the appellant has seriously contended that the levels, both commercial and of quantity, in the two imports are very widely different. We find great merit in this argument, because it would be totally illogical to compare the value of 5 pieces of goods imported directly by consumers for actual use whose cumulative value is only Rs. 7.5 Lakhs with imports, of similar goods running into hundreds of Crores on 300 or more Pills of Entry per month by HPI. We find that this issue is clearly decided in the case of Atco Industries as reported in 1992 (57) E.L.T. 654, wherein, it has been held that higher discounts due to big order of 104 sets is not unreasonable and, therefore, undervaluation has not been established. Learned Advocate for appellants has further argued in this context that the differing levels of quantity are also connected with the commercial level between these two imports being compared by the revenue. This is because HPI as the sole dealers of HP USA in India are a different class of buyers than an actual consumer importing one or few pieces for his own actual use. We find great merit in this argument because, whereas, an individual consumer imports one or few pieces of the goods for his actual use, the imports made by HPI are not for their actual use but for stock and sale. It is well settled law that an actual user buyer is a different class of buyer from a buyer buying for the purpose of stock and sale. We, therefore, find that as per the said proviso, one cannot brush away the difference in levels on both these counts i.e. quantity as well as commercial, between the imports cited by the revenue and the merits by HPI. The learned Advocate has clearly explained the marketing policy of HP USA for this class of buyers worldwide i.e. to say, that every fully owned subsidiary of HP USA in any country in the world where it is present, is regarded by them as a different class of buyer when compared with an individual importer who imports for his own consumption as an actual user. The logic underlying this marketing policy is simple and transparent. This logic is that when such a subsidiary (like HPI) imports for stock and sale, they incur a certain amount of expenditure in this process of trading which would include items like maintaining their sales team, advertising, and above all rendering free of cost warranty service during the warranty period. It is a salient fact that the last of these activities also requires that HPI would have to always maintain a basic minimum level of spares and consumables which are required to service these products during the warranty period, which also involves additional cost. None of these costs are incurred by the individual importer who imports for his own consumption or actual use. It is, therefore, clear that the commercial levels between the two imports is as distinct as North Pole is to South Pole. Learned Advocate for the appellants further submits that the marketing policy of HP USA, applicable worldwide, in consideration of these costs involved at this commercial level, and any further consideration of the much higher quantity levels involved in these transactions over a period of time as compared to solitary imports of a few pieces by individual importers for own use, gives these stock and sale buyers two kinds of deductions on their list price. It is not disputed even by revenue that these deductions are not uniformly available globally to all such subsidiaries, throughout the world. It is also not disputed that the level of these deductions are not known in advance. Hence, on these two counts, clearly this price reduction is given during the ordinary course of international trade and is clearly at arms length, in fact totally transparent. This we accept. Having done so, we further proceed to examine the reasonability of the quantum of this price reduction made available by HP USA through this marketing policy. It is not disputed that the total reduction available is on account of the Indian Companies cost of selling as discussed above plus a meagre 10% of this selling cost as margin of profit for them. The cost of selling incurred by HPI has been quantified and certified by Chartered Accountants and has been submitted by the appellants at the original stage itself. Reacting to this, the revenue has not led any evidence to show that there is any manipulation or factual inaccuracy involved in this. They are, therefore, to be accepted to be good and fair evidence. A further addition of 10% to this cost as their profits in India, we most humbly consider to be a very fair proposition and totally in line with both international business considerations as well as domestic business considerations in India. While coming to this conclusion, we are also guided by the fact that many a times the Tribunal has upheld adding of 10% national profit while considering the valuation of the goods captively consumed. In this connection, we also take note of the decision of this Tribunal on the case of Pepsi Foods as reported in 1990 (64) E.L.T. 426, wherein, it has been held that a sole marketeer does not introduce mutuality of interest. In a similar vein, an earlier judgment of the Hon’ble Apex Court is also noted in the case of Atic Industries -1984 (17) E.L.T. 323 (S.C.). Similarly, in 1992 (59) E.L.T. 220 (Bom.), it was again held that holding and subsidiary companies, though related, this relationship being specifically provided for by statute, do not ipso facto introduce the mutuality of interest. We also note that in the case of Elecon as reported in 1989 (41) E.L.T. 589, the Hon’ble Tribunal had held that sales by subsidiary companies to holding companies on declared assessable value are acceptable unless it is shown clearly that the said price has been affected by this relationship. We also note that the Hon’ble Supreme Court had dismissed the department’s appeal in the case of Maruti Udhyog discussed earlier, as reported in 1989 (22) ECR 482 (S.C.). Since what we are considering as mutuality is “mutuality of interest in the business of each other”, we agree with the contention of the learned Advocate for the appellants that decisions by various Hon’ble Courts and the Tribunal under the Central Excise Act, for the limited purpose of interpretation of these words and phrases would normally apply in customs cases.
(iv) In view of the fore-going discussions, we find that the price at which the goods have been imported under this marketing policy, are in conformity with the provisions of Rule 4(3)(a). We do not agree with the Revenue’s contention that Rule 4 does not apply.
(v) On this point, we also considered learned SDR’s contention that the impugned Order-in-Appeal has not correctly applied the provisions of Rule 9(1)(a)(i). This provision reads as follows :
9. Cost and services. – (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, –
(a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely :-
(i) commissions and brokerage, except buying commissions;
On a plain reading of the above, provides that commissions and brokerage are includable if they are incurred by the buyers. Perhaps, the learned SDR was of the opinion that the aforesaid discussed price reduction is covered by the words and phrases “commissions and brokerage” as contained therein and therefore, was to be added to the declared value, of these goods. We cannot agree to this proposition. Brokerage is paid either by the buyer or, by the seller or both to a third party viz., the broker. There is no evidence in this case that any third party is .involved in these imports, excepts the foreign exporter and the Indian importer. Similarly, commissions, which are clearly distinct from discounts, are again payable only to a third party, which in this case does not exist on facts. Therefore, there is no question of the learned Commissioner in the impugned Order -in- Appeal, haying not considered the provisions of the aforesaid sub-rule as affecting the transaction value. The impugned Order-in Appeal does not suffer from any infirmity on this, count.
(vi) At this stage, we now proceed to consider the interpretative, notes to these Valuation Rules.
22. Since we have held above Rule 4 is applicable in this case, therefore, it is but correct to also examine whether the interpretative notes to Rule 4 support this decision or otherwise. The explanation of the words and phrases “price actually paid or payable” includes the following:-
Activities undertaken by the buyer on his own account, other than those for which an adjustment is provided in Rule 9, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller. The costs of such activities shall not, therefore, be added to. the price actually paid or payable in determining the value of imported goods”.
On a plain reading of these notes, it is clear that activities of stock and sale which are undertaken by HPI on its own account, are not to be considered to be an indirect payment to the seller, even though they might be regarded as constituting some benefit to the seller. In other words, by undertaking sales promotion activities and by rendering customer services with respect to the goods imported, even if HPI are rendering benefit to HP USA, inasmuch as they satisfy customers and the good-will obtained therefrom leads to increase sales of these products in India and, therefore, it is beneficial both to HPI and HP USA, the same is not to be considered as an indirect payment by HPI to HP USA. The note clearly lays down that, therefore, the cost of such activities shall not be added to the price actually paid or payable in determining the value of imported goods. But this is precisely what the department wants to do and they want to load the transaction value declared by HPI with the reduction given by HP USA therein, taking into account these post importation activities of HPI. Clearly this kind of loading the transaction value is, therefore, hit by above note to Rule 4. It also sets at rest any doubt on the conclusion that merely because both HPI and HP USA prosper and share this prosperity, therefore, this introduces a mutuality of interest of atleast an indirect method of payment by HPI to HP USA. As per the aforesaid notes, this is not considered as correct legal proposition.
23. We also note that it is clearly provided in the notes to Rule 4(2) (b) that the activities relating to the marketing of the imported goods by the buyer on his own account shall not result in reduction of the transaction value. Therefore, in this case also merely because HPI aggressively markets the goods imported from HP USA, on this ground alone the transaction value declared by HPI cannot be rejected. Note 1 to Rule 4(3) explains that Rule 4(3)(a) and 4(3)(b) provides different means of establishing the acceptability of a transaction value. It further provides that under Rule 4(3)(a) where the proper officer of customs carries a doubt that the price declared may have been affected the relationship between the importer and exporter, he should examine all relevant aspects of the transaction including the way in which the buyer and seller organise their commercial relations and the way in which the price in question was arrived at in order to determine whether the relationship influenced the price. In the discussions above, we have carefully considered the marketing policy adopted by HP USA vis-a-vis HPI in view of these explanatory notes. And doing so, we have found that since in this case the price is declared to ensure recovery of all the cost incurred by HPI plus a profit, therefore, we have found that the price has not been influenced. This approach is clearly consistent with the following explanatory note to Rule 4(3)(a) :-
“As a further example, where it is shown that the price is adequate to ensure recovery of all costs plus a profit which is representative of the firm’s overall profit realized over a representative period of time (e.g., on a annual basis) in sales of goods of the same class or kind, this would demonstrate that the price had not been influenced.”
Therefore, we find that our discussions above are clearly supported by these explanatory notes because we have held that the actual cost of stock and sale activities of HPI on its own account plus 10% margin of profit thereon does not constitute an unfair practise.
24. In view of the fact that Rule 4(3) (a) applies in this case, therefore, there is no question of going further to Rules 5, 6, 7 or 8. The revenue’s contention, therefore, that Rule 4 to 7 would not apply is, in view of the above discussions, not acceptable.
25. This leaves us to consider the last ground on which the revenue based their appeal viz., that since the appellant had accepted the earlier SVB Circular for a number of years, it is not open in law for them to now appeal against the loading of the assessable value after a passage of some time. We are not in a position to accept this contention at all because it is very clear that the principle of res judicata normally does not apply in taxation matters in such cases. This has been laid down in the case of West Coast Paper Mills as reported in 1984 (16) E.L.T. 91 as also in the case of Swaraj Mazda reported in 1995 (77) E.L.T. 505. Therefore, we are of the view that merely because the appellants did not appeal against the Assistant Commissioner’s Order dated 11-2-1992, their-right to come-up in appeal against a subsequent order dated 5-8-1996 is not in any way blocked, particularly because it is nobody’s case that the appeal is not in time or that there is a lack of jurisdiction. The order dated 11-2-1992 which they had not contested was based under a different set of circumstances. The order currently under dispute is on different set of circumstances and one of them is that the quantum of shareholding has changed between HP USA and HPI. In view of these discussions, we cannot accept this ground of appeal also.
26. We have carefully considered the impugned Order-in-Appeal. We find that the decisions contained therein are parallel to our own’.-findings as discussed and enumerated above. Therefore, we do not find any infirmity in the impugned Order-in-Appeal which compels us to interfere with it. Under these circumstances, the revenue’s appeal does not succeed.