- (1.) Two appeals have been filed against the impugned judgment dated 3.8.2007 passed by CESTAT. The appeal filed by the assessee M/s GMR Energy Ltd. concerns itself with the proper valuation of the import of parts of the Gas Turbine Hot Section of a naphtha based power plant which have to be replaced after 12,500 fired hours of use under a Long Term Assured Parts Supply Agreement (hereinafter referred to as "LTAPSA") dated 20th December, 2000 entered into with GE, USA. The appeal of revenue concerns itself with whether the assessee is entitled to avail itself of the benefit of the exemption notification No.21 of 2002 dated 1.3.2002 in respect of the goods imported under two bills of entry dated 25.6.2003. Assessee's Appeal
(2.) The appellant had imported a naphtha based power plant with five gas turbines which was mounted on a barge which floated in a river at a Tanir Bavi Village near Mangalore for purposes of power generation. The capacity of the said power plant is 220 MW and the entire power generated is uploaded into the grid of the Karnataka Power Transmission Corporation Limited. The power plant had to be kept in good running condition as the contract with KPTCL is to supply power to them continuously. For this purpose, the appellant entered into an agreement for service and supply of parts with GE, USA being a Long Term Assured Parts Supply Agreement dated 12.12.2000, (hereinafter referred to as "LTAPSA"). In terms of the said agreement, the appellant was to make payments based on either fired hour charges or maintenance charges. Various parts of the Gas Turbine Hot Section of the said plant, which had to be imported under the LTAPSA were imported under two bills of entry dated 25.6.2003 after 12,500 fired hours had come to an end. The parts that were identified as having to be replaced were re-exported back to GE, USA under cover of shipping bills of the month of May, 2003 before the two bills of entry dated 25.6.2003 were presented for import of the replaced parts to the customs authorities. The appellant paid customs duty based on the value declared in the said bills of entry but did not make any payment to GE based on these invoices since their payments had already been made based on fired hour charges. The assessment of the said import was completed by the customs department after due verification of the documents produced at the time of import.
(3.) Subsequently, by a show cause notice dated 12.8.2004, the customs department sought the aid of Rule 4(2)(g) and Rule 9(1)(d) and 9(1)(e) as they stood at the relevant time in order that 1/3rd of the value of the imported items be added to the invoice value as that was said to represent the amount of the parts that were replaced and re-exported back to GE, USA. The show cause notice essentially based itself on statements made by one Shri Naresh Manchanda, Finance Manager of the appellant and Shri Siddharth Deb, Associate General Manager of the Company. It stated: "29. From the investigation conducted the following facts appear to emerge: (i) M/s GEL, Bangalore entered in to three agreements with M/s GE, USA which included a Long Term Assured Parts Supply Agreement(LTAPSA), for the maintenance and upkeep of the Gas Turbines of the barge mounted power plant. (ii) This agreement envisaged a rotable exchange programme for the hot path parts, which are parts of an essential nature, requiring replacement after a scheduled period of 12,500 hours of use or earlier in case they are found not usable. (iii) These hot path parts, after their use, are removed from the gas turbines. Under the rotable exchange programme of the agreement, once removed, the hot path parts become the property of M/s GE, USA and the Indian firm M/s GEL are required to export them to M/s GE. On receipt of these parts, M/s GE verifies their condition and accordingly they are refurbished. Such refurbished parts bear no difference to the new parts and are identical in all respects. M/s GE, USA supplies these parts to their customers. Customers like M/s GEL do not know whether the parts supplied to them are new or refurbished. (iv) When M/s GEL exports these used parts, for the exports made, no export sale proceeds are realized and M/s GE, USA makes no payment to M/s GEL. However, when M/s GEL imports the hot path parts, the price fixed is based on the rotable exchange programme. The cost of the returned used hot path parts by M/s GEL is taken care, and an abatement is given and thereafter, the price is arrived at. (v) Thus the invoice furnished by M/s GE, USA, to M/s GEL, Bangalore is a discounted price based on the rotable exchange programme. The prices under the rotable exchange programme though are discounted prices, the same are widely in use and are popularly called catalogue prices or published price lists. (vi) The invoice produced to the Customs along with the Bill of Entry is only the rotable exchange price. The abatement given towards the cost of the exported used hot path part is not reflected in the invoice. Therefore, for the purpose of Customs assessment, the declared price requires an adjustment by way of addition equal to the cost of returned hot path part, which was discounted. (vii) This abatement / discount is to the extent of 1/3rd of the catalogue price under the rotable exchange programme. M/s GE, USA wanted M/s GEL to declare this price at the time of export from India. (viii) M/s GEL have not submitted the agreements entered into with M/s GE, USA to the Customs. They suppressed the vital information as regards the payments made under the rotable exchange programme and the agreements. (ix) The removed parts become the property of M/s GE, USA and M/s GEL has no option but to export / return to M/s GE. The import of Hot Path parts by M/s GE, USA. The cost of returned parts is adjusted against the imported parts. Thus the very import is a conditional sale and the cost of returned parts accrues to the seller. This situation is covered by Rule 9(1)(d) and (e) of the Customs Valuation Rules, 1988. (x) In view of the evidences discussed in this notice, the declared values require to be rejected; and the same cannot be accepted as representing the true transaction values under Rule 4 of the Customs Valuation Rules, 1988.";