ORDER
S.L. Peeran, Member (J)
1. This appeal arises from Order-in-Appeal No. C. Cus. No. 666/2000 dated 18.10.2000 by which the Commissioner (Appeals) has ordered for enhancing the value of assessable value by 25% on the invoice value declared by the importer on the ground that the importer is related with the supplier and the valuation has to be done in terms of Rule 2(2)(v) of Customs Valuation Rules, 1988. The invoice price has not been accepted on the ground that appellant and their supplier belong to Zeneca Group of Companies. The appellant set up their manufacturing facility for specialty chemicals in January 1998. Till their manufacturing started, they engaged in marketing Stahl’s products in India, by importing the same from their Group companies M/s. Stahl GB, UK. The lower authority found a difference of about 25% in the prices of goods sold to the appellant when compared to other unrelated buyers and, therefore, the prices declared in the invoices of the imported goods were not accepted. There was no contemporaneous imports or raw material by unrelated parties and, therefore, that matter was remanded for de novo consideration.
2. On de novo consideration, the original authority dropped the loading of price of 25% of raw material insofar as import of the final product is concerned. The Commissioner confirmed the lower authority’s order to load 25% on the invoice value. The Commissioner has noted that importer are 100% subsidiary of M/s. Zeneca of Netherlands which in turn, is a subsidiary of M/s. Zeneca, U.K. The supplier, M/s. Stahl GB, UK is a 100% subsidiary of M/s. Zeneca, UK. In view of the fact that both the supplier and the importer are directly owned 100% subsidies of M/s. Zeneca, UK, hence they were held to be related persons as per the definition under Customs Valuation Rules, 1988. He has noted that as the appellants are doing certain activities: (a) marketing efforts (b) laboratory facilities (c) sales team (d) conducting fairs (e) other overheads for maintaining the sales infrastructure on behalf of the supplier. Therefore, the price was influenced and being related person, the transaction value cannot be accepted. He has rejected the plea that the sales made to M/s. Manjunath Corporation was only to the extent of 15 tonnes and the sales made to the appellant was 80 tonnes and that there was no mutuality of interest between them. He also rejected the plea that the transaction value was at arm’s length and not in terms of the factor of appellants being marketing the goods. He also ignored the plea that Interpretative Notes to Rule 4 (2)(f) of Customs Valuation Rules clearly lays down that fact of appellants’ carrying on marketing on behalf of the supplier shall not be the cause to reject the transaction value. We also notice that the said provision was also incorporated in GATT Rules. He also ignored the fact that appellant’s import was on bulk basis and that the price of the seller was constant throughout and that of distribution to all other distributors throughout the world.
3. We have heard Ld. Chartered Accountant, Shri R. Muralidharan for the appellants and Ld. SDR Smt. R. Bhagya Devi for the Revenue.
4. Ld. Chartered Accountant submitted that the factor taken for enhancing the value was that appellant is related person and that they were carrying on the marketing activity of the supplier. He pointed out to Interpretative Notes to Rule 4{2)(f) of Customs Valuation Rules, 1988 wherein it is very clearly laid down as under:
“Rule 4(2)(f)
If the sale or price is subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued, the transaction value shall not be acceptable for customs purposes. Some examples of this include:
(a) The seller establishes the price of the imported goods on condition that the buyer will also buy other goods in specified quantities;
(b) The price of the imported goods is dependent upon the price or prices at which the buyer of the imported goods sells other goods to the seller of the imported goods;
(c) The price is established on the basis of a form of payment extraneous to the imported goods, such as where the imported goods are semi-finished goods which have been provided by the seller on condition that he will receive a specified quantity of the finished goods.
However, conditions or consideration relating to the production or marketing of the imported goods shall not result in rejection of the transaction value. For example, the fact that the buyer furnishes the seller with engineering and plans undertaken in India shall not result in rejection of the transaction value for the purposes of Rule 4. Likewise, if the buyer undertakes on his own account, even though by agreement with the seller, activities relating to the marketing of the imported goods, the value of these activities is not part of the value of imported goods nor shall such activities result in rejection of the transaction value”. The said rule has been incorporated in the GATT Rules and, therefore, the fact that appellant has undertaken the activity of marketing does not by itself is a reason to load the value by 25% of another importer. He submitted that the import was at arm’s length and there was no mutuality of interest. Furthermore, the import of the appellant was at bulk quantity of more than 80 tonnes wherein that of M/s. Manjunath Corporation was only 15 tonnes. He submitted that the ground taken up for enhancing the value with regard to final goods was same as regards import of raw material. In regard to raw material, the Commissioner had remanded the matter as there was no contemporaneous import. On de novo consideration, the lower authority after examining Interpretative Notes to Rule 4(2)(f) of CVR’88 dropped the matter. He submits that the same ratio would apply herein also. He relied on the judgment of the Apex Court in the matter of Mirah Exports Pvt. Ltd. v. Collector, 1998 (98) ELT 3(SC). He also relied on the judgment of Tribunal which has been confirmed by the apex court in the case of Basant Industries v. CC, 1993 (66) ELT 93 (T) wherein it has been held that when goods are imported in bulk, then that price cannot be compared to the price of a purchaser of a lower quantity. He also submitted that appellant’s payment terms was after 60 days on the Bill of Lading while in the case of comparable goods, the terms involved in payment was after 150 days from the date of lading. He relied on the judgment rendered in the case of CC, Chennai v. Hewlett Packard Ltd., 1999 (108) ELT 221 (T) wherein the Tribunal has laid down that even if there are related persons, the transaction value cannot be rejected. He strongly relied on the judgment rendered in the case of Basant Industries v. Additional Collector, 1996 (81) ELT 995 (SC) which would apply to the facts of this case.
5. Ld. SDR read out the orders of the Commissioner and the Additional Commissioner and submitted that the loading of the price by 25% is to be confirmed as appellants are related persons.
6. On a careful consideration of the submissions, we notice that the ground taken for the purpose of enhancing the value is on the basis of the fact that appellants are undertaking certain activity on behalf of the supplier and being a related person. However, the authorities have not proved that there was mutuality of interest between both the appellant and the supplier and that appellant had interest in the supplier’s industry besides supplier having interested in the purchaser’s unit. One sided connection will not be considered as mutuality of interest as held in large number of judgments. The appellant’s purchase was to the extent of 80 tonnes, while the compared bill of lading of M/s. Manjunath Corporation was only to the extent of 15 tonnes. They are not comparable sales. In the case of Basant Industries Ltd. (supra) it has been held that the transaction value should be comparable. In the present case, the invoices are not comparable and, therefore, the ground taken for enhancing the value on the basis that appellant were carrying on marketing activity is of no cause to enhance the value as laid down in the Interpretative Notes to Rule 4 (2)(f) of Customs Valuation Rules, 1988 which has been extracted above. The lower authority had remanded the matter on the same ground. Therefore, the enhancement was done with regard to raw material and he dropped the proceedings. Therefore, same ratio would apply in the present case also. It is now well settled that in the case of CC, Chennai v. Hewlett Packard Ltd. (supra) it has been held that merely because appellants are related persons by itself is no ground to enhance the value. Furthermore, we notice that supplier has been supplying to their other distributors in other parts of the world at the same rate at which it has been sold to appellant and the price has been constant. Copies of said invoices have been produced to show that the price has been constant and not varied. It is clear that the appellant has not received any benefit being a distributor or marketing agent of the supplier. The price being constant and the quantum of goods purchased by them being very high, they are not comparable with the lesser quantity of goods supplied to another party. In that view of the matter, the claim for accepting the transaction value has to be accepted. The impugned order is set aside and appeal is allowed. Ordered accordingly.
Per: Jeet Ram Kait (Oral)
7. I have perused the order proposed by my learned brother Shri S.L. Peeran, M. (J) and I am not able to persuade myself to agree with the view taken by him that the appeal is to be allowed by setting aside the impugned order.
8. The facts of the case have already been recorded by the learned brother in his order and I am not repeating the same. Learned brother has come to the conclusion vide para 6 of his order that the ground taken by the lower authority to enhance the value by 25% over the invoice value is that the appellants are undertaking certain activity on behalf of the supplier and hence both are related persons. He has also held that the Revenue has not proved that there was mutuality of interest between the appellants and the supplier. He has further held that the appellants’ purchase was to the extent of 80%, while the compared Bill of Lading of M/s. Manjunath Corporation was only to the extent of 15% and as such the sales are not comparable and when the prices are not comparable there was no ground for loading the invoice value by 25%. He has also relied upon the judgment in the case of Hewlett Packed Ltd., (Supra) in support of his reasoning that the transaction value cannot be rejected even if the supplier and the assessee are related person. In short the learned brother has held that inasmuch as the quantity imported by the appellants herein and M/s. Manjunath Corporation was not comparable and since mutuality of interest between the supplier and the appellants having not proved, there was no ground for loading the invoice price by 25% and on this ground he has allowed the appeal of the appellants. I have perused the order of the Tribunal in the case of CC, Chennai v. Hewlett Packard Ltd. (supra). It is held therein 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. It is thus clear that this decision relates to sale of goods to related persons importing goods in bulk for stock and sale vis-a-vis individual consumer importing a small quantity for actual use. The said decision also relates to activities for stock and sale undertaken by the subsidiary company holding that the cost of such activities are not to be added to the price actually paid/ whereas in the instant case, the activities done by the appellants are not confined to merely stock and sale but also activities such as laboratory facilities and conducting sales etc. No doubt, there are number of decisions that an importer importing large quantity of goods get higher quantum of discount compared to the smaller quantity imported by another importer and in such circumstances the two imports cannot be considered as comparable and when the imports are not comparable, the transaction value has to be accepted. But in the instant case, it is an admitted fact that the importers are a 100% subsidiary of M/s. Zeneca of Netherlands which in turn is a subsidiary of M/s. Zeneca, UK. The supplier M/s. Stahl GB, UK is a 100% subsidiary of M/s. Zeneca UK. Therefore, both the supplier and the importer indirectly own 100% subsidies of M/s. Zeneca, UK and hence they are to be deemed as related persons as per the definition under the Customs Valuation Rules. As rightly held by the lower appellate authority what has to be examined is whether the relationship did or did not influence the price and the importer has to demonstrate that the value closely approximates to the transaction value of identical/similar goods in sales to the unrelated buyers in India. The appellants has submitted that there is one price list which is common to all buyers of the subject goods. However, the price list indicates different prices for different quantities and for container loads, for any purchase of quantities of 5 tons and above, a discount of 0.02 p/kg is given. It also indicates a discount of 0.15P per kg container for distributors. It does not indicate two classes of buyers viz. distributor simpliciter and the appellant or that while the independent buyers and distributor simplicitor are covered by the price list, the appellant is covered by any inter-company pricing policy. In the present case, the appellants, admittedly has to do certain activities such as (i) marketing (ii) laboratory facilities (iii) sales team, (iv) conducting fairs, (e) other overheads for maintaining the sales infrastructure and they also undertake product and market development for M/s. Stahl’s products in India which is not done by other normal distributors. This means, the appellants are obliged to undertake certain activities on behalf of the supplier while there is no such obligation in the case of unrelated persons. Further, it has also been admitted by the appellants that they sell 50% through direct sales and the balance 50% through the existing distribution set up and they themselves have admitted that in order to accommodate further margins to the distributor, the pricing of the appellants will be different than to a normal distributor in India. Further, In this case, there is no denial that there was variation in prices charged to the appellants herein and the un-related persons, though the price list shows one single price for the quantities above 5 tons whether it is a sale of 15 tons as in the case of M/s Manjunath Corporation or 80 tons as in the case of the appellants herein. As regards the question of mutuality of interest, as noted above, the appellants herein are obliged to carry out certain functions and a discount in the prices is offered only to them and not to other distributors and thus it clearly proves that they have interest in the business of each other inasmuch as the appellants were not functioning merely as a distributor. In view of the above I am of the considered opinion that the order of the lower appellate authority for loading of 25% on the invoice value cannot be found fault with. I, therefore, uphold the impugned order and dismiss the appeal.
POINTS OF DIFFERENCE
In view of the difference of opinion between the Members the following points are referred to the third Member for determination as per law.
Whether the impugned order is required to be set aside by allowing the appeal for the reasons given by Member (Judicial) in the impugned order.
OR
Whether the appeal is required to be rejected by upholding the order of the lower appellate authority for loading of 25% of the invoice value as held by Member (Technical) in the impugned order.
Per: P.G. Chacko (as Third Member)
9. Heard both sides and considered their submissions.
10. The issue before me is whether the transaction value of the finished goods imported by the appellants from M/s. Stahl GB (U.K.) should be accepted as assessable value of the goods as held by Ld. Member (Judicial) or whether it should be loaded by 25% to arrive at the assessable value on the basis of the price of identical/similar goods imported from the same supplier by unrelated buyer as held by Ld. Member (Technical). On this issue, the Consultant for the appellants and the SDR for the respondent have reiterated their respective arguments.
11. The appellants and their supplier viz. M/s. Stahl GB (U.K.) are admittedly related persons and, therefore, Rule 4(3) of the Customs Valuation Rules, 1998 is relevant to this case. The sub-rule reads:
(3)(a) 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.
(b) 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 identical 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;
(c) substitute values shall not be established under the provisions of clause (b) of this sub-rule.
It was argued by the Consultant that the relationship between the appellants and their supplier did not influence the price of the goods supplied by the latter and also that the appellants had demonstrated that the declared value of the goods closely approximated to the transaction value [as adjusted in terms of the proviso to clause (b) of sub-rule (3) of Rule 4 ibid] of identical/similar goods imported by the unrelated buyer. This approximation was sought to be made in the following manner:
Statement of Import prices from Stahl GB to unrelated
distributor and to Stahl India
——————————————————————————–
Description % Price Remarks
Adjustment
--------------------------------------------------------------------------------
Prices of goods imported Rs. 100
by unrelated distributor
from Stahl GB
Deductions
Volume discount 10% -15% 15 84 tons by Stahl India, 15
tons Import by unrelated
distributor
Marketing expenses & 10% 10 Expenses only incurred by
other overhead costs Stahl India
Interest for shorter credit 4.5% 4.5 Credit period for Stahl India -
period 60 days
Credit period for Unrelated
distributor - 150 days (Inter-
est rate of 18%)
Inventory holding cost 5.5% 5.5 Inventory holding period for
Stahl India 4.8 months of
sales.
Inventory holding period for
unrelated distributor - 1
month of sales
Adjusted price for Stahl Rs. 65
India (as per CVR)
--------------------------------------------------------------------------------
The argument was that, if the price of identical/similar goods imported by the unrelated buyer was Rs. 100, the price for the appellants would, upon adjustments in terms of the proviso to Rule 4(3)(b), work out to Rs. 65. Here the difference of price is Rs. 35 which is 53.85% of Rs. 65 (Price for the appellants). But what was actually found in this case was that the price for the unrelated buyer was 25% higher than that for the appellants. Hence the 25% loading of the transaction value of the goods imported by the appellants. There is a big difference between 25% and 53.85%. In the circumstances, it is difficult to accept the argument that the appellants could prove that, upon adjustments in terms of the proviso ibid, their declared value would closely approximate to the transaction value of identical/similar goods imported by the unrelated buyer. In my view, the appellants cannot be held to have fulfilled the requirement of Rule 4(3)(b).
12. What remains to be ascertained is whether the relationship between the appellants and M/s. Stahl GB influenced the price of the goods imported by the former. It was argued on behalf of the appellants that the relationship did not influence the price. It was submitted that, as per the “inter-company pricing policy” of the Stahl Group, the prices were uniform for all companies of the Group on FOB basis and that, in the case of Stahl India Private Limited (appellants), the prices were indicated on GIF basis after including freight and insurance elements. Invoices evidencing contemporaneous supply of identical/similar goods at the same price to other overseas subsidiaries of the Stahl Group are available on record and this evidence has not been rebutted by the Revenue. In the circumstances, the reliance placed by Ld. Consultant on the Tribunal’s decision in Procter & Gamble Home Products Ltd. v. CC., Chennai, 2002 (144) ELT 704 appears to be apposite. In that case, it was held that the fact that both the importer and its foreign supplier were 100% subsidiaries of another foreign company would not lead to rejection of transaction value when it was shown through evidence of contemporaneous supply of identical/similar goods at the same price to other subsidiaries that the pricing was uniform worldwide. Such evidence was available in that case and the Revenue could not show that the transaction between the importer and the supplier was not at arms length. Hence, the transaction value was accepted in the above case. In similar circumstances, it can be safely held in the present case that the transaction value of the finished goods imported by the appellants not liable to be rejected on the ground of “relationship”. Ld. Consultant has also heavily relied on the Tribunal’s decision in C.C., Chennai v. Hewlett Packard Ltd., M/s. Hewlett Packard India Ltd. [HPI] were a 100% subsidiary of M/s. Hewlett Packard USA [HPU]. They imported goods in large quantity from HPU at a lower unit price than the one at which unrelated consumers directly imported similar goods in smaller quantities. Their imports were for stock and sale, whereas the unrelated parties imported the goods for their actual use. It was found that, in the process of trading of the goods imported by HPI, the importer incurred expenses for maintaining sales team, advertising rendering free warranty services etc. The unrelated importers did not have to incur any such expense in relation to the goods imported by them from HPU. In the circumstances, HPU’s sales of goods to their subsidiary (HPI) on the one hand and to unrelated buyers on the other were considered to be at different commercial levels, apart from the difference in quantity levels. It was also held that HPI and the other buyers belonged to different classes of buyers. The trading-related activities of HPI in India were held to be beneficial to both HPI and HPU and hence not to be indirect payment by the former to the latter. The price reduction allowed to the subsidiary company was found to be in ordinary course international trade and the transaction was held to be at arms length. Thus the Tribunal held that the price of goods imported by HPI from HPU was not influenced by the relationship between them. It is noticed that the circumstances of sale of goods by M/s. Stahl GB to the appellants in the instant case are similar to the circumstances of sale of goods by HPU to HPI in the above case as noted in the order recorded by learned Member (Judicial).
13. Therefore, I consider this as a fit case for following Procter & Gamble Home Products (supra) and Hewlett Packard (supra) to accept the transaction value in terms of Rule 4(3)(a) for assessment of duty.
14. In the result, I concur with the decision taken by Ld. Member (Judicial). Registry to follow up for pronouncement of the Majority order.
MAJORITY ORDER
In terms of the majority order the impugned order is set aside by allowing the appeal.