Decided on September 20,1991

Atco Industries Ltd. Appellant


P.C. Jain, Member (T) - (1.) BRIEF facts of the case are as follows : - 1.1 The appellants herein imported a consignment of 24 sets of Shimadzu Analytical Balance, Model AEU 210 from M/s. Shimadzu (Asia Pacific) Pvt. Ltd., Singapore. The declared invoice price is at the rate of Japanese Yen 1,20,000 per set FOB. The appellants filed the bill of entry and gave a declaration under Rule 10 of Customs Valuation Rules, 1988 that they are not related with the supplier. The importers vide their letter dated 16 -10 -1990, runs the allegation, stated that they are not an agent to the supplier. They also submitted indent, letter of credit and correspondence with the supplier stating that they have negotiated the price for 104 sets out of which part shipment of 24 sets has arrived. The price lists submitted by the appellants themselves indicated the price of the aforesaid model at Jap. Yen 2,60,000 per set FOB. It was also alleged that the said price list did not provide any discount schedule with reference to quantity but showed a discount schedule for the distributors. The appellants thereafter submitted distributorship certificate from the supplier which showed that the appellants are the distributors in India of the suppliers. The declared price at Jap. Yen 1,20,000 is even lower than the 40% discount price offered to distributors only, as the discounted price taking into account the 40% discount comes to Jap. Yen 1,56,000/ - per set FOB. It was, therefore, alleged that the aforesaid circumstances indicated that the relationship between the appellants and the supplier has influenced the price to a great extent. 1.2 A further evidence in support of the proposed price of Jap. Yen 2,60,000 was mentioned by the department in the show cause notice in the shape of two bills of entry with the relative invoices in the names of (i) Principal, L.E. College, Morbi and (ii) Gujarat Narmada Valley Fertilizers Co. Ltd. Both the aforesaid invoices under which the actual import was taken place indicated the price of an Analytical Balance at the rate of Jap. Yen 2,60,000 per set. The quantity imported in each of the aforesaid two bills of entry was one set. Invoices in the two cases were dated 15th Feb., 1990 and 19th October, 1990 as against dated 20 -1 -1990 in the case of import by the appellants. 1.3 After issuing the necessary show cause notice on the basis of the aforesaid material and allegations, it has been held by the adjudicating authority that there is a relationship between the buyer and the supplier and the price indicated in the invoice for the imported goods has been influenced by that relationship. The actual price of the goods is Jap. Yen 2,60,000 FOB per set leading to an undervaluation to the extent of Rs. 4,45,228/ -. There is a corresponding shortfall in the ITC licence as well. Hence the goods have been held to be liable to confiscation under Sections lll(d) and 111 (m) of the Customs Act and have been confiscated accordingly with an option to pay a fine of Rs. 2,00,000/ - only in lieu of confiscation. A penalty of Rs. 2,00,000/ - under Section 112(a) ibid has also been imposed by the adjudicating authority. Hence this appeal.
(2.) LEARNED Advocate, Shri Kantawala for the appellants has urged that the adjudicating authority's finding regarding relationship between the buyer and the supplier is without any basis in the face of the supplier's letter dated 17 -12 -1990 addressed to the Collector of Customs Airport, Sahar in which it is clearly stated that the relationship between the two parties is purely of importers and suppliers and there is no agreement of distributorship/indentorship as is generally executed between a distributor/indentor and supplier styled as distributorship agreement. In the absence of any such agreement between the importer and the supplier, the letter goes on to say, there is no relationship between the two. This letter also clarifies that their earlier letter dated Sept. 28,1990 was given by them to M/s. ATCO Industries Ltd. (appellants herein) "for establishing their genuinity in trading in our products". A certificate titled 'Distributorship Certificate' dated Sept. 28,1990 certifies that the appellants herein is distributor of the supplier for sales promotion and technical service of Shimadzu Analytical Instruments in the territory of India. As such, the appellants are entitled to submit offer in place of the suppliers and are responsible for maintenance and technical service necessary for the suppliers offered equipment. The certificate was valid until Sept. 02,1991. 2.1 Learned Advocate has further submitted that the invoices relied upon by the department for taking the price at Jap. Yen 2,60,000 is not tenable because that price is for one set only whereas the appellants have admittedly imported 24 sets. The learned Advocate has also relied upon two invoices, namely (i) dated 14th June, 1990 in the name, of Ganjan Surgical and Scientific Company, Bombay and (ii) dated Nov. 22,1990 in the name of M/s. S.J. Corporation which indicate that imports of 10 sets have been made by the aforesaid two parties of the aforesaid goods at the rate of Jap. Yen 1,43,000 FOB per set. The learned Advocate has thus submitted that the prices for import of 24 sets declared by the appellants is very much comparable to the prices of goods actually imported by the other importers. On a query from the Bench, the learned Advocate has fairly conceded that these two invoices were not before the lower adjudicating authority but he has submitted that these could not be produced before the said authority because they came into hands of the appellants subsequent to the adjudication proceedings. Nevertheless, he submits that these are important pieces of evidence and should be admitted in the interest of justice as showing their bona fides about the declaration of the price for the imported goods. Learned Advocate has submitted that transaction value cannot be discarded except under specific circumstances mentioned in the Customs Valuation Rules, 1988. The circumstances available here are not the circumstances spelt out in the Valuation Rules for discarding the transaction value. Even if the distributorship is assumed in view of the letters mentioned above, relationship cannot be assumed between the supplier and the appellants in view of Explanation to Rule 2(2) of the said Rules. 2.2 In the aforesaid facts and circumstances, the learned Advocate has urged that the impugned order is liable to be set aside and be set aside accordingly, since the department has not been able to prove any undervaluation, the burden of which is on the department in view of the settled position of law.
(3.) OPPOSING the contention of the learned Advocate, Shri Prabhat Kumar, learned JDR for the Revenue has stated that the Collector has rightly applied Rule 5 of the Valuation Rules in view of the clear distributorship certificate dated 28th Sept., 1990 produced by the appellants themselves. The prices declared by the appellants, therefore, are influenced by the relationship of principal -distributorship between the suppliers and the appellants respectively. The price list clearly indicates that 40% discount is only to the distributors and not to the ordinary importers. The price declared by the appellants is even less than level arrived at after excluding the element of discount, as observed by the adjudicating authority. It is, therefore, apparent that the prices have been greatly influenced in the present transaction by factors extraneous to sale of the goods. The price declared by the appellants, therefore, has been rightly discarded by the Collector. He has further submitted that price list of the manufacturers is a valid basis for determining the price of the imported goods, as held by the Tribunal in 1990 (48) ELT 421 [Wax and Wax Products]. 3.1 Rebutting the contention of the appellants to the effect that this low price is on account of substantial quantity of 24 sets imported by them, the learned DR submits that the Tribunal has observed in 1989 (40) ELT 207 (Para 4) [Metal and Alloys Industries v. CC] that the quantity discount normally ranges from 5 to 10%. He submits that a quantity discount of more than 40%, as is the case here, is a sheer make -believe and should not be accepted. 3.2 As regards the two invoices produced now before the Tribunal and relied upon by the appellants, the learned DR submits that these invoices do not indicate whether these prices were accepted by Customs; these invoices are not supported by any corresponding bill of entry. Therefore, these invoices cannot be relied upon in view of the incomplete information they give. In his support for this proposition, he relies upon Tribunal's judgment reported in 1988 (12) ETR 112 (Para 5) [Aarkeyess Imports Corporation, N. Delhi v. C.C., N. Delhi]. 3.3 As regards the learned Advocate's reliance on Glaxo Laboratories - 1985 (21) ELT 72 (Bom.) case for non -enhancement of value for the purpose of debit of an ITC licence, learned DR has submitted that the Glaxo's case should be confined to its peculiar facts. No principle of law can be drawn therefrom, as has been held by the Tribunal in Muddeereswara Mining Industries Co. v. CC [1988 (39) ELT 630]. 3.4 In his rejoinder, learned Advocate, Shri Kantawala, has submitted that after 40% discount difference is only Rs. 3000/ - per set. This is accounted for by the large number of sets i.e. 24 imported by the appellants. Hence there is no case of under -invoicing. We have carefully considered the pleas advanced on both sides. The main issue is whether the supplier and the importer are 'related persons' in such a manner so that the price of the goods paid by the appellants to the supplier is to be discarded. For the purposes of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (herein referred to as the Valuation Rules), the word 'related' has been defined in Sub -rule (2) of Rule 2 of the said Valuation Rules. Explanation II to the said Sub -rule states that "persons who are associated in the business of one and another in that one is the sole agent or sole distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purpose of these rules, if they fall within the criteria of this Sub -rule." Further in Sub -rule (2), it has been stated that two persons shall be deemed to be related only if they fall in one of the eight categories mentioned in that Sub -rule. Leave apart any finding, there is not even an allegation that the importer/appellant and supplier fall under any one of the 8 categories mentioned in Sub -rule (2). Further there is no indication in the said certificate that the appellants are sole agent or sole distributor or sole concessionaire of the appellants. Even if the certificate dated Sept. 28, 1990 is taken into account without the subsequent clarification of December, 1990, two persons, the appellants and the suppliers, cannot be treated as 'related persons' for the purposes of the Valuation Rules. Accordingly, we do not find any justification for discarding the transaction value, as held by the adjudicating authority in terms of Rule 4 of the Valuation Rules. 4.1 In view of our finding on the main issue above, other related issue, namely, determining the transaction value of identical goods under Rule 5 and enhancement of value for the purpose of debiting the licence do not arise once the transaction value is to be accepted in terms of Rule 3 read with Rule 4 of the Valuation Rules. Question of applying transaction value of identical goods under Rule 5 would apply only if the transaction value cannot be determined in terms of Rule 3(1), as is clear from Sub -rule 2(i) of Rule 3. Nevertheless, we may observe here that apart from we have said above, application of Rule 5 in the facts and circumstances of this case is also incorrect on the ground that the department is comparing the value not of the 'identical goods' with the goods in question under import here. 'Identical goods' in terms of Rule 2(l)(c) has been defined in a particular manner and that definition would be applicable for the purpose of application of Rule 5. The 'identical goods' in terms of the said definition means, inter alia, imported goods which are same in all respects...except for minor differences in appearance which do not affect the value of the goods. It has been rightly pointed out by the learned Advocate for the appellants that the adjudicating authority's reliance on two invoices in the names of Principal, L.E. College, Morbi and Gujarat Narmada Valley Fertilizers Co. Ltd. is not tenable inasmuch as the goods imported in those cases were only one set unlike 24 sets in the present case. Further, the goods were imported by actual users there whereas the goods are imported here by a dealer who will further resell the goods. These are the differences which cannot be ignored and in our view are vital for influencing the price of the goods. 4.2 There is one argument put forth by the parties relating to the price list available on record. The department contended that the price list dated July 1,1990 from the suppliers indicated a price of Jap.Yen 2,60,000 although the price list also indicates a discount schedule to the effect that for sale of one set to 35% discount and for sale of 20 sets or more 40% discount is also available on the Model AEU. The department states that this discount schedule is applicable only to the distributor. Since the appellants' case that he is not a distributor of the supplier, therefore, the discount given in the price list would not be available to them. It has also further been stated that even after allowing the discount of 40% as is applicable in this case, the prices declared are still less. The appellants' counsel, on the other hand, has stated that distributor here is in the sense of a person who purchases the goods on resale basis and not on sale to an actual user. In that sense the discount of 40% is clearly available to them. The appellants have sought for more discount because he has placed an order for large number of machines, namely, 104 sets out of which the present shipment relates only to 24 sets. It is for this reason the appellants have been able to get higher discount from the suppliers. He has submitted that it is a negotiated price and no relationship has been shown to exist between the supplier and the appellants and therefore, this price must be accepted in terms of Section 14. He submits that the declared price per piece after giving a discount of 40% as given in the price list shows a difference of only Rs. 3000 per machine which is only a marginal difference. 4.3 Giving our considered thought to the pleas made from both sides we are inclined to agree with the learned Advocate for the appellants that the price in the instant case has not been shown by the department to be in any way an influenced price where price is not the sole consideration for sale. Discounts on the listed price are a normal feature in the international trade and it is not unusual that a higher discount may be given by a supplier on the listed price if there is a big order. Having regard to the number of sets ordered by the supplier, the discount given by the supplier does not seem to be unreasonable. In any case there is no evidence from the side of the department about the unreasonableness or non -genuineness of the discount in this case. Accordingly, we are of the view that there is no case of undervaluation, as alleged by the department. ;

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