ORDER
K.K. Usha (J), President
1. The appeal is at the instance of the assessee. The issue raised in this appeal relates to the valuation of goods imported by the assessee for original equipment manufacturing (assembly) and goods imported as spare parts.
2. The appellant is a 100% subsidiary of M/s. New Holland Mauritius Pvt. Ltd. which is part of New Holland N.V. Group of Companies. The appellant is engaged in the manufacture of 70HP and 50HP tractors under the brand name “New Holland”. For the above purpose the appellant imports component parts from New Holland Group of Companies. They also imported spare parts from unrelated companies. Since the two companies are related in terms of Explanation II to Rule 2(2) of the Customs Valuation Rules, 1988, pending examination of influence of relationship on the price of goods imported by them provisional assessment was made after issue of investigation circular dated 12-12-96 by depositing 5% extra duty deposit. In reply to the questionnaire the appellant declared that the basis of invoicing from supplier was on quotation. Appellant contended that M/s. New Holland U.K. and New Holland Mexico had no other customer other than the appellant for the parts imported by the appellant and, therefore, invoice to other parties could not be furnished. It was also pointed out that the above-mentioned companies had agreed to supply to the appellant during its start up, components for assembly at the price (manufacturing cost plus 10%) and spare parts at the price (manufacturing cost plus 20%). The adjudicating authority rejecting the contention raised by the appellant ordered that all the goods imported by the appellant from the foreign supplier and their associates shall be assessed after adding 40% to the declared value. Aggrieved by this order the appellant filed an appeal before the Commissioner (Appeals). Commissioner (Appeals) found that the assessing authority had failed to show as to how the figure of 40% loading has been arrived at. While rejecting the above view the appellate authority directed assessment for supply of components for assembly by loading 9.09%. It had accepted the invoice value for the purpose of assessment of spare parts. The finding of the appellate authority rejecting the invoice value of the supply of components for assembly is under challenge in this appeal.
3. It is contended on behalf of the appellant that the transaction value is not influenced by relationship between the parties and the same cannot be discarded. Reference is made to Rule 4(3)(a) of Customs Valuation Rules which provides 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 relation did not influence the price. The appellant also placed reliance on the Interpretative Notes to Rule 4(3) of the Rules which provides the guidelines for the applicability of Sub-rule 3(a), relevant portion of which reads as follows :
“3 …..Where it can be shown that the buyer and seller, although related
under the provisions of Rule 2(a), buy from and sell to each other as if they were not related, this would demonstrate that the price had not been influenced by the relationship. As an example of this, if the price had been settled
in a manner consistent with the normal pricing practices of the industry in question or with the way the seller settles prices for sales to buyers who are not related to him, this would demonstrate that the price had not been influenced by the relationship.”
4. Appellant would contend that foreign suppliers are procuring the components from their local manufacturers/sellers and the same were in turn resold by them to the appellant after adding their margin at 10% or 20% as the case may be. Appellant further contends that as per Rule 4(3)(b) in a sale between related persons, the transaction value shall be accepted if the importer demonstrates that the declared value of the goods closely approximates to one of the following values :
(a) transaction value of identical or similar goods;
(b) deductive value for identical or similar goods; or
(c) computed value of identical or similar goods.
According to the appellant declared value of the components should be accepted as if closely approximates to the computed value of identical goods. In support of the above contention reliance was placed on the certificates issued by the foreign suppliers.
5. Appellant would submit that supplies for original equipment manufacturing (assembly) and supplies for spares constitute two different levels of trade and different class of buyers. This is a well accepted concept. Once the learned Commissioner has accepted that the relationship has not influenced the price and the pricing methodology adopted by the exporters is reasonable, it is not open to the Commissioner to further contend that the price of the components for the original equipment manufacturing (assembly) market and spare market should be the same. In support of the above contention learned Counsel for the appellant placed reliance on two decisions of this Tribunal in CCE v. Ashok Leyland Ltd., 2000 (116) E.L.T. 630 and CCE y. Hodak Engineering Pvt. Ltd., 2001 (127) E.L.T. 720. Learned Counsel also referred to Customs Valuation Commentary on the GATT Customs Valuation Code by Saul L. Sherman and Hinrich Glashoff (page 205) where there is a discussion about ‘commercial level.’ Relevant portion is quoted below :
“What is the same commercial level? Sometimes this will be easy to answer, other times not. Neither the Code, the Notes, nor the publications of the Technical Committee on Customs Valuation offer any definition or enlightenment. The commercial level of the importer may be reflected both by his seller (manufacturer, sole exporter, or other trader) and by his customers (manufactures, sole distributors for a continent, sub-continent, customs union, country, part of a country, local distributors, retailers or final consumers or users). The place of the importer in the chain of sellers and buyers defines also his functions. For example, the following pairs are not on the same commercial level :
an importing manufacturer or user, and an importing trader (distributor); or
a sole distributor for Europe reselling to national sole distributors, and a national sole distributor reselling to local distributors.”
6. Learned Departmental Representative on the other hand would contend that this is not a case where the Commissioner (Appeals) has accepted the method adopted by the supplier to arrive at the deductive value of the goods imported. He submits that it is not correct to contend that the appellate authority has accepted the position that the transaction value has not been affected by the relationship between the parties. Under these circumstances there is no justification for adopting the transaction value in respect of supply for assembly.
7. It is not in dispute that the parties are related in terms of the provisions contained under Explanation II to Rule 2(2) of the Customs Valuation Rules, 1988. Appellate authority has accepted the inability of the appellant to furnish invoices of other parties as genuine. Commissioner (Appeals) further observed that the concept of supplying assembly at the price (manufacturing cost plus 10%) and spares at the price (manufacturing cost plus 20%) is reasonable but he proposed to deviate from the transaction value thus arrived at for the reason that there is no mechanisms in place to distinguish components for assembly and spare parts, and the cost of components should have been the same irrespective of their end-use. On the above basis he comes to the conclusion that the price of components taken as manufacturing cost plus 10% has consideration other than price. It is on the above basis the normal price was fixed as manufacturing cost plus 20% for the spare parts also.
8. We find that the Commissioner (Appeals) has erred in his above finding. The import for supply of components for assembly and supply of spare parts are at different commercial levels. Authorities relied on by the learned Counsel for the appellant are clear on this principle. In Commissioner of Central Excise & Customs v. Hodak Engineering Pvt. Ltd., 2001 (127) E.L.T. 720 the facts are similar even though the proceedings are under Central Excise Act, 1944. The respondent is engaged in the manufacture of vibration dampers, a component of motor vehicles and sold it to Kirloskar Cummins Ltd. One of the prices was for supply to the buyer as a dealer and the other was for supply to it as a manufacturer of original equipment. Rejecting the contention raised by the Department that the same buyer cannot be in more than one class of buyers at the same time, the Tribunal had accepted the case put forward by the respondent.
9. The appellant has an answer to the observation made by the Commissioner (Appeals) that there is no mechanism in place to distinguish components for assembly and spare parts. Appellant points out that it maintains spare sales as a separate profit centre which operates from New Delhi. The spare parts department issues orders directly to overseas suppliers and the order number begins with the number ‘3’. Import of components for assembly is undertaken by the manufacturing plant in Greater Noida. This plant orders all components for assembly directly and the purchase orders begins with the number ‘5’. Copies of purchase orders are produced by the appellant before this Tribunal and it is contended that since no opportunity was given to it by the lower authorities these documents could not be made available at that time.
10. Apart from observing that the price of components taken as manufacturing cost plus 10% has consideration other than price, there is no material relied on by Commissioner (Appeals) to show that any additional consideration was flowing in respect of supply of components for assembly. Since the import by the manufacturer and the import by the trader are accepted as two different commercial levels there is no merit in the observation
of the Commissioner (Appeals) that the cost of components should have been the same irrespective of their end-use.
11. For the above reasons we find that the Commissioner (Appeals)
has erred in rejecting the transaction value of the supply of components for
assembly. In the result the order impugned is set aside and the appeal stands
allowed.