2011 (5) TMI 832 - AAR - Customs

Maintainability of the applications for Advance Ruling - applicant submitted that it satisfies the requirement of being a wholly owned subsidiary Indian company of which the holding company is a foreign company. The applicant proposes to undertake a new business activity in India of selling, distributing and servicing Hardware Products and Oracle Hardware support and that the application for Advance Ruling is regarding the principles to be adopted for the purposes of determination and value of goods under the provision of the Customs Act, 1962 - applicant is already in the business of import of software and provides services to its clients in India. The applicant has also imported some kind of computer hardware for its own use; it has not been marketing any computer hardware in the country. Computer hardware refers to different kinds of computers and their parts and components which are classified under different entries of the Customs Tariff Schedule. The applicant proposes to import and sell computer hardware and also provide support services - Held that - activity of import has taken place but term activity should not be interpreted in a narrow sense, applicant is not eligible to seek a ruling on its proposed business activity. The applications are therefore not maintainable and are rejected

Summary

Issues Involved:
1. Eligibility of the applicant to seek an Advance Ruling under Section 28H of the Customs Act, 1962.
2. Interpretation of the term "activity" under Section 28E of the Customs Act, 1962.
3. Applicability of Section 28H(2)(c) regarding the principles for the determination of value of goods.

Issue-wise Detailed Analysis:

1. Eligibility of the applicant to seek an Advance Ruling under Section 28H of the Customs Act, 1962:

The applicant, a wholly owned subsidiary of a foreign company, sought an Advance Ruling on the principles for determining the value of imported goods under the Customs Act. The Customs Department contested the maintainability of the application, arguing that the applicant is not a valid applicant under Section 28E(c)(i)(c) of the Act, as it is already engaged in the business of import and export. The applicant contended that it proposes to undertake a new business activity of importing and selling hardware products, which qualifies it to seek an Advance Ruling.

The judgment concluded that the applicant is not eligible to seek an Advance Ruling because it is already engaged in the business of import. The term "proposes to undertake" implies that the business activity should be new and not an extension of an existing business. Therefore, the applications were not admitted and were rejected.

2. Interpretation of the term "activity" under Section 28E of the Customs Act, 1962:

The term "activity" is defined in Section 28E(a) as "import or export." The applicant argued that "activity" should be understood in a general sense to include any new business activity, while the Customs Department maintained that it should be confined to import or export.

The judgment emphasized that the definition of "activity" as "import or export" is restrictive and exclusionary. It is intended to exclude other meanings that the term might otherwise have. Therefore, "activity" in the context of Chapter VB of the Act must be understood as import or export only. The judgment also noted that the term "proposes to undertake" indicates a new business activity, not an ongoing one.

3. Applicability of Section 28H(2)(c) regarding the principles for the determination of value of goods:

The applicant sought a ruling on whether the deductive methodology for the proposed resale transactions and the constructed cost method for imports of spare parts were in consonance with Section 14 of the Customs Act and Rule 8 of the Customs Valuation Rules, 2007. The Customs Department argued that the applicant's questions pertained to the Customs Tariff Act, 1975, and not the Customs Act, 1962.

The judgment clarified that Section 28H(2)(c) allows for a ruling on the principles to be adopted for the determination of value under the Customs Act. The Customs Act and the Customs Tariff Act are interlinked, and the valuation principles under the Customs Act apply to the Customs Tariff Act as well. Therefore, the application was maintainable under Section 28H(2)(c), subject to the eligibility of the applicant.

Separate Judgment by Member J.K. Batra:

Member J.K. Batra disagreed with the majority opinion on the interpretation of "proposed to be undertaken." He argued that the term "activity" should not be interpreted narrowly and that the applicant should be eligible to seek an Advance Ruling even if it proposes to import a new item. He cited previous orders where the Authority admitted applications for new items to be imported by applicants already engaged in import activities. He also emphasized that the term "business activity" should be given its natural meaning and not be restricted to import or export.

Conclusion:

The majority opinion held that the applicant is not eligible to seek an Advance Ruling on its proposed business activity, and the applications were rejected. Member J.K. Batra, however, opined that the applications should be allowed and heard on merits.