V.K. Ashtana, Member (T)
1. This is an appeal against order-in-ap-peal No. C. Cus. 1315/98, dt. 6.1.1999 wherein the Ld. Commissioner (Appeals) has upheld the loading of assessable value by 10.58% in case of goods imported by the appellants prescribed by order-in-original F. No. 850/32/96-SVB dt. 8.10.1998.
2. Briefly, the issue concerns assessment of imports by the appellants in whom 80% of their shares are held by their foreign technical collaborating company namely M/s. Hitachi Koki Company Ltd., Tokyo, Japan. Appellant mostly imports various items from this company for the purposes of manufacture of their final products in their factory in India. The order-in-original has noted that agreement between the appellants and the foreign supplier includes two other payments to be made by the appellants to the foreign company over a period of time. The agreement between these two companies is for a period of 7 years starting from 9.4.1996. The first item on which the payments are to be made to the said foreign company by the appellants is in the form of technical lumpsum know-how fees which, according to the said agreement between the two, is to be paid back in three instalments in three years after receipt of technical drawings. The second item on which certain sums are payable to the said foreign company is royalty on the sales turn over of the final products produced using the said imported goods. There is no dispute that on the date of passing of the order-in-original, no sums were paid on this account. Therefore, the question in dispute is whether these two payments alongwith 80% share holding by the foreign company in capital of the importing company would render the value declared on each of the said Bill of Entry as not the correct transaction value and therefore whether it would have to be determined as what would constitute the correct tansaction value?
3. Heard Shri K.S. Ravishankar, Ld. Advocate for appellants and Shri S. Sankaravadivelu, Ld. DR for Revenue.
4. Ld. Advocate submits that merely because the foreign supplier holds 80% of the shares of the appellants, that by itself does not taint the transaction value of the goods imported under Section 14 of the Customs Act, 1962. It has to be ascertained whether this relationship has involved any mutuality of interest between the two parties before Revenue can discard this transaction value. He further submits that it is not well laid down law that mutuality of interest involves a two way mutuality between (or traffic between) the two parties. He submits that in this case there is no such mutuality of interest because while the foreign company may have interest in the Indian Company because it holds 80% of their shares, however reverse of this does not exist because neither Indian company holds any shares in the foreign company or any of its related subsidiaries nor does Indian company any right in law to represent itself in the Board of foreign company or in any other way interfere in the financial and managerial affairs of that company. In the absence of this two-way traffic of mutuality of interest, mere relationship in view of 80% shares held, would not lead to discarding the transaction value as declared on each Bill of Entry concerned. Ld. Advocate further adds that if this be so, then the issue of payment of know-how fees or royalty on sales of turn over of final goods produced in this country would have no nexus to the assessable value at all as the transaction value declared would have to be accepted by Revenue in terms of Section 14. He further submits that the only ground on which order-in-appeal impugned upholds the order-in-original is that the quantum of shares held by the foreign company in the appellants company is very high. He submits that when any amounts of share holding by itself cannot lead in law to discarding the transaction value, then Ld. Commissioner (Appeals) has clearly erred in merely upholding the order-in-original on this ground. He therefore submits that there is great merit in this appeal and same should be allowed.
5. Ld. DR on the other hand submits that in the first place, the transaction value declared cannot be accepted to represent the full consideration of the goods imported because it is not disputed that certains sums are to be additionally paid to the foreign supplier in terms of the agreement and is an obligatory condition to the import of these goods. Therefore, it is clear that the goods have been imported only subject to the condition of further payments of sums on the two items noted above namely lumpsum know-how fees, and the royalties on sales turn over. Since it is not disputed that the goods have been imported subject to these conditions, therefore clearly the transaction value does not represent the full and final consideration to be paid for the import of these goods. Secondly, Ld. DR submits that while the lumpsum technical know-how fees is to be paid over a period of three year instalments, the payments of royalty is to be continued till currency of this agreement between the two parties which is going to be in currency for 7 years from 9.4.1996. On the date of passing of the Order-in-original, this period has not expired. Also the goods continue to be imported under this agreement and will continue to be imported in future also. He therefore submits that it may not be possible to accurately compute at this stage the total amount of royalty payable during the entire period of currency of this agreement and hence any quantification of the sums at this stage could involve the risk of loss of Revenue. However, he submits that because these two payments constitute additional consideration to be paid to the foreign supplier, therefore the order-in-original loading the value of these imports is correct in law.
6. We have carefully considered the rival submissions and facts of the case as on record. We find that the goods have been/are to be bought in future subject to all the conditions of the composite agreement between the foreign supplier and the appellant company. Under the said agreement, it is incumbent upon the appellants to repatriate certain sums of monies on account of lumpsup technical know-how fees spread over three annual instalments as noted above as also royalty on sales turn over of finished good at specified rate which are produced using these imported goods during the currency of this agreement. Thus, we find that there is a nexus between the sale of the final goods produced from the use of the imported goods. We also find that in view of these two considerations not being reflected in the invoices under which the goods have been imported, and since the goods have been imported subject to the payment of these additional sums to the foreign supplier as per this agreement, therefore there is great force in the Revenue contention that the value declared in the Bills of Entry concerned do not represent the correct transaction value under Section 14 of the Act. However, we also find great merit in the submissions of Ld. DR that at this stage any attempt to finalise the assessment while loading the assessable value may result in serious inaccuracies in as much as the royalty payments cannot be quantified at this stage as they depend on the turn over of sales of finished products produced during the currency of this agreement. The agreement has still many years to expire. Therefore any attempt to compute the loading factor would still be an exercise of approximation and not an exercise of actuality. While this observation may not be true with respect to the fixed amounts of lumpsum technical know-how fees which are to be paid in three annual instalments, it is certainly true in the case of royalty payments.
7. In view of the aforesaid findings and analysis, we are of the considered opinion that on the one hand since the order-in-appeal impugned has upheld the order-in-original only on the ground of quantum of shares held, and has not gone into the question of how the transaction value cannot be accepted, the said order impugned is not a fully considered order, and therefore needs to be set aside, on the other hand, the attendant order-in-original itself has been passed prematurely, and the formula indicated therein to load the assessable value is only at best an approximation and cannot lead to an accurate decision on the loading factor. To that extent, the order-in-original appears to be passed prematurely. Therefore, we have no other alternative but to set aside the order-in-appeal impugned alongwith attendant order-in-original and to remand back the matter to the original authority for de novo consideration at a time when, in his opinion, it would be possible for him to compute the loading factor, if attractable, with full degree of accuracy.
8. It is made clear that in these de novo proceedings, the appellants shall be informed by notice of the grounds on which such loading, if any, is proposed on the assessable value and after hearing them, a considered speaking order shall be passed. Ordered accordingly. Till then, all assessments which had been sought to be finalised by the order-in-original would continue to remain provisional and therefore the Bonds, Guarantees, Securities on such Bills of Entry given by the appellants would continue to be kept alive by them. The appeal is allowed by way of remand.
(Pronounced and dictated in open Court).