2014 (9) TMI 948 - AT - Customs

Rejection of transaction value - Exclusion of over-riding commission - Held that - The appellant has submitted the evidences of such transactions wherein, if the over riding commission is excluded, the realization by the foreign supplier in both the transactions remains more or less identical. These evidences submitted by the appellant have not been considered or rebutted by the department in any meaningful way. Thus, the appellant has demonstrated that the price which he has paid for the imports undertaken from the related foreign buyer remains uninfluenced by the relationship and is the transaction value for the purpose of Section 14 of the Customs Act. Rule 3(3)(b) of CVR 2007, also provides that suitable adjustments has to be made for the difference in transaction levels, quantity levels and relevant facts and the comparison made between the prices to a independent buyer and the prices to a related party where the related party acts as a dealer/distributor. This provision of law has been completely ignored by the lower authorities. - acting as indenting agent and earning commission from foreign suppliers for their sales to third parties are entitled to a lower price for supply and merely because a lower price is charged, it cannot be held that the transaction value can be rejected unless there is evidence of additional consideration of flow back to the foreign supplier. - impugned order is clearly unsustainable in law and the value declared by the appellant has to be accepted as transaction value for the purpose of imports - Decided in favour of assessee.

Summary

Issues:
1. Appeal against Order-in-Appeal upholding assessment order based on related party pricing.
2. Interpretation of Customs Valuation Rules regarding transaction value in related party sales.
3. Consideration of overriding commission in determining transaction value.
4. Comparison of prices between related and unrelated party sales.
5. Application of legal precedents in related party pricing disputes.

Analysis:
1. The appeal challenges the Order-in-Appeal upholding an assessment order due to related party pricing concerns. The appellant, M/s. Strapex India Ltd., contests that the relationship with foreign suppliers did not influence prices, citing an International Distributorship agreement with M/s. Strapex GmbH Switzerland. The appellant emphasizes the Customs Valuation Rules, specifically Rule 3(3)(b), which requires adjustments for differences in commercial levels and costs incurred by the seller in unrelated sales. The appellant provided evidence of transactions where overriding commission did not impact net realization, indicating price independence.

2. The appellant relies on legal precedents, including Tribunal decisions such as Premnath Diesels Pvt. Ltd. v. CC, Calcutta, to support their argument that direct sales by foreign suppliers to independent buyers should not be compared with distributor sales without considering promotional costs. The Tribunal's past rulings emphasize the need for adjustments in related party pricing disputes, aligning with the appellant's position.

3. The Revenue, represented by the Additional Commissioner, argues that significant valuation differences justify rejecting the transaction value. However, the Tribunal finds that the distribution agreement obligates the appellant to promote the foreign supplier's business, implying incurred costs. The Tribunal notes that the appellant's evidence, showing consistent net realization with or without overriding commission, remained unchallenged by the Revenue.

4. Considering the legal and factual analysis, the Tribunal concludes that the impugned order is legally unsustainable. The Tribunal determines that the appellant's declared value should be accepted as the transaction value for import purposes. The decision highlights the necessity of considering adjustments for related party sales, in line with Customs Valuation Rules and established legal principles from previous Tribunal cases.

5. Ultimately, the appeal is allowed, granting consequential relief to the appellant. The judgment emphasizes the importance of properly applying Customs Valuation Rules and legal precedents in related party pricing disputes to ensure fair and accurate valuation of imported goods.