2014 (10) TMI 186 - AT - Customs

Valuation - Import from related parties - loading of overhead and profit margin - STPI unit for development of software and Information Technology Enabled Software and export thereof - Held that - For the shipments made from April 2006 to April 2008, the appellants have admitted that their supplier has not made any addition of overheads in the invoice price. - in terms of Valuation Rules, for determining the correct transaction value of the goods supplied by the related person, addition of overheads and other charges are essential to arrive at the transaction value. The lower authority by taking into various factors has ordered for loading only a nominal 10% which appears to be well within the provisions of the Rules. Considering the fact that for the post-2008 imports, the percentage of overheads as arrived by the supplier from 5% to a maximum of 38%, whereas the lower authorities has ordered for only 10% which is just and reasonable. Accordingly, we are of the considered view that addition of 10% under overheads on the imports made from April 2006 to April 2008 is justified. Loading of profit margin - Held that - As regards loading of 10% profit in the invoice price, on perusal of records and the findings of the adjudicating authority, we find that the lower authority has not brought out any reasons for arriving the quantum at 10% towards profit margin. - although there is no dispute on the fact that both the supplier and the appellants are related persons in terms of Rule 2 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, M/s.Google Inc. USA are not selling the goods and buying for trading purpose but being a principal company of the appellant, they have procured the goods on the global basis for supply to their own affiliated group companies located across the world. In terms of the Valuation Rules, notional profit element shall be added to the invoice price for arriving at the transaction value - the loading of 10% profit margin on the invoice value appears to be on the higher side. - since the appellant is a STPA unit and also taking into the fact that the imports made by the appellant from the supplier i.e. Google Inc. is only for the purpose of development of software and export and also taking into consideration the principal supplier has not sold these goods to any third party but supplied to their affiliated companies only, loading of a nominal profit of 1% (one percent) on the declared value would be suffice. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Relationship and valuation of imports between the appellant and M/s. Google Inc., USA.
2. Loading of invoice price by 41.125% on various heads (Freight, Insurance, Overheads, and Profit).
3. Contesting the loading of 10% Overheads and 10% Profit on the invoice price.

Issue-wise Detailed Analysis:

1. Relationship and Valuation:
The Customs Special Valuation Branch, Chennai, determined that the appellant and M/s. Google Inc., USA, are related parties under Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. This determination led to the rejection of the declared invoice price and an order to load the price by 20% for freight, 1.125% for insurance, 10% for overheads, and 10% for profit. The Commissioner (Appeals) upheld this decision, leading to the current appeal.

2. Loading of Invoice Price:
The appellant did not contest the loading of freight and insurance elements. However, they contested the loading of 10% overheads and 10% profit on the invoice price. The lower authority had uniformly ordered loading of these percentages for imports from 2006 to 2009.

3. Loading of Overheads:
The appellant argued that for imports post-2008, the supplier had already included overheads ranging from 5% to 33% in the invoice price. Therefore, an additional 10% loading on overheads would result in double counting. The Tribunal found that for imports after April 2008, the supplier had indeed computed and included overheads in the invoice price. Thus, further addition of 10% overheads was deemed unjustified and set aside for imports post-2008. However, for imports from April 2006 to April 2008, where no overheads were added by the supplier, the Tribunal upheld the 10% loading as reasonable under the Valuation Rules.

4. Loading of Profit:
The appellant contended that M/s. Google Inc., USA, was not a commercial entity making a profit on the supplies but acted as a facilitator for internal consumption within the group. The Tribunal noted that the lower authority did not provide specific reasons for the 10% profit margin. It was established that M/s. Google Inc., USA, procured goods centrally for its affiliated companies without selling to third parties. Therefore, the Tribunal found the 10% profit margin excessive and reduced it to a nominal 1%, considering the non-commercial nature of the transactions and the appellant's status as a Software Technology Park (STPI) unit.

Conclusion:
The Tribunal modified the impugned order as follows:
- Upheld the 10% loading of overheads for imports made before April 2008.
- Set aside the 10% loading of overheads for imports made post-2008.
- Reduced the 10% loading of profit margin to 1% for all imports.

The appeal was partly allowed in these terms, providing a balanced resolution to the contested issues.

Pronouncement:
The judgment was pronounced in open court on 29/9/2014.