2008 (10) TMI 546 - AT - Customs

Valuation of the goods (spare parts) imported by the appellants - Related persons - Rejection of transaction value - difference in price levels between the appellant and also the third parties - appellant is a subsidiary of the German company - third parties are mainly the EOUs - EOUs do not pay any Customs Duty - price mentioned in the International Price List was taken as the basis and a discount of 35% was given to the appellants - CIT (A) upheld the decision. HELD THAT - Appellants have given the expenditure incurred by their office in India. From this, it is very clear that the effective discount enjoyed by the appellants is only 59% in view of this administrative cost incurred by them. This point has not been taken into consideration by the learned Joint CIT and also the CIT(A). A similar case was the subject matter of the decision of the Tribunal in the case of CC, Chennai v. Hewlett Packard Ltd. 1998 (7) TMI 282 - CEGAT, MADRAS , wherein the valuation in respect of different classes of buyers have been elaborately dealt with. Related persons importing goods in bulk for stock and sale whereas individual consumers importing a small quantity of actual use, both constitute different classes of buyers especially when the relation between the buying company and the seller is not affecting the transaction. Here also, the transaction between the buyer and the seller is based on the Inter Company Price Agreement. It is not something very arbitrary. The appellants carry out stock and sale. They also undertake after sales service. All these factors have been taken into account while giving a discount of merely 76% to the appellant from the International Price List. We should not take that 76% as abnormal and fix an arbitrary discount. It has also been held that activities of stock and sale undertaken by subsidiary company should not be considered as indirect payment to seller as it is beneficial both to the subsidiary company and the seller. Cost of such activities should not be added to the price actually paid or payable in determining the value of the imported goods. In fact, the Interpretative Notes to Rule (4)(3)(b) of the Customs Valuation Rules had already been referred to. Therefore, we do not find any justification for rejecting the Transaction Value in this case. It is also to be borne in mind that the adjudicating authority has accepted the Transaction Value in respect of two items considering the quantum of imports made by the third parties and the appellants. The same logic should be applied in respect of the other two categories also. This has not been done. Hence, we do not find any justification for rejecting the Transaction Value. Thus the appeal is allowed with consequential relief.

Issues Involved:
1. Issuance of Show Cause Notice before finalizing provisional assessments.
2. Acceptance of declared values for specific categories of imported items.
3. Comparison of import quantities and valuation.
4. Determination of valuation considering different classes of buyers.
5. Use of International Price List and discounts for valuation.
6. Acceptance of Transaction Value based on inter-company transfer price.

Detailed Analysis:

1. Issuance of Show Cause Notice:
The appellants argued that the Department did not issue a Show Cause Notice before finalizing the provisional assessments. They relied on several case laws, including *Modipon Limited v. CCE, Ghaziabad* and *Star Wire (India) Ltd. v. CC, ICD, TKD, New Delhi*, which held that a Show Cause Notice should be issued even in provisional assessments. The absence of such notice and the failure to invoke any section of the Customs Act in the Order-in-Original were highlighted as procedural lapses.

2. Acceptance of Declared Values:
The appellants contended that the declared values for two categories, Special Precision Cutting Tools and Tool Holders, were accepted, whereas the declared values for Spare Parts and Consumables were not. They argued that there was no reason for this inconsistency, especially since the decision to accept invoice values for the two accepted categories was based on information they supplied.

3. Comparison of Import Quantities and Valuation:
The appellants provided comparative charts (Tables A and B) showing that the imports by third parties (EOUs) were significantly lesser (ranging from 1% to 10%) compared to their imports. They argued that the Joint Commissioner accepted declared prices for tool holders due to the lesser quantity imported by third parties but failed to extend the same benefit to Spare Parts and Consumables. They asserted that such huge differences in quantities make the transactions incomparable under Rule 5 of the Customs Valuation Rules, 1988.

4. Determination of Valuation Considering Different Classes of Buyers:
The appellants argued that their transactions, being bulk imports for stock and sale, were not comparable with individual consumers importing small quantities for actual use. They cited several case laws, including *CC, Chennai v. Hewlett Packard Ltd.* and *ATCO Industries Ltd. v. CC*, which established that transactions of different classes of buyers cannot be compared.

5. Use of International Price List and Discounts for Valuation:
The appellants contended that the valuation based on the International Price List and a 35% discount was unjustified. They argued that price lists are general quotations and do not preclude discounts for various reasons. They cited cases like *Insight Communications v. CC (Imports), Mumbai* and *Eicher Tractors Ltd. v. CC, Mumbai*, which held that price lists alone are not a basis for rejecting Transaction Value. They also provided a comparative analysis (Table C) showing that the effective cost of products for KOMET India was higher than for other subsidiaries and dealers.

6. Acceptance of Transaction Value Based on Inter-Company Transfer Price:
The appellants argued that the transaction between them and the exporter was at arm's length and based on an inter-company transfer price. They cited the Interpretative Note to Rule 4(3)(b) of the Customs Valuation Rules, emphasizing that various factors, including the nature of the industry and the season, must be considered in determining whether one value closely approximates another. They asserted that their administrative costs and post-import activities justified the discounts and that the Transaction Value should be accepted.

Tribunal's Decision:
The Tribunal noted that the appellant is a subsidiary of the German company, and therefore, the Transaction Value was initially not accepted due to the relationship. However, it found that the impugned orders did not adequately consider the significant differences in import quantities between the appellant and third parties. The Tribunal also acknowledged the administrative costs incurred by the appellant, which were not considered by the lower authorities. Citing the case of *CC, Chennai v. Hewlett Packard Ltd.*, the Tribunal emphasized that transactions between related parties importing in bulk for stock and sale should be treated differently from those of individual consumers. The Tribunal concluded that there was no justification for rejecting the Transaction Value and allowed the appeal with consequential relief.

Conclusion:
The appeal was allowed, and the Tribunal directed that the Transaction Value should be accepted, considering the factors presented by the appellants, including the significant differences in import quantities and the administrative costs incurred.

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