2015 (6) TMI 774 - SC - Customs

Valuation of Jumbo rolls - Import from related party - Held that - CESTAT has rejected the valuation on following fronts - The original authority also found that the exporting Swiss Company charged the independent importers 20% extra on the basic list price of S-251, A-2 grade materials towards cutting and joining. This extra 20% has been into account and adjusted by the original authorities to compare the prices charged to the respondents and other independent importers. This method adopted by the original authority is perfectly in order to arrive at a valid comparison between goods of the same grade and identification code in the absence of any sale of belts in running length to other independent importers. - On comparison, the original authority found that the Swiss Company is allowing a 20% discount to independent buyers, whereas the respondents have been charged a lower price after allowing 33.3% discount - Once it is held that the supplier and the importer are related and the relationship has influenced the price, valuation cannot obviously be done under the Transaction value method accepting the declared value - The value established by the original authority adequately represents cost plus freight to the suppliers based on independent sales once the cutting and joining charges are adjusted. Fact arrived on the basis of material of record. - Decided against the assessee.

Summary

Issues: Valuation of imported goods in relation to related parties

Analysis:
The case involved the import of jumbo rolls for manufacturing "endless belts" from a Swiss company by the appellant. The customs authorities rejected the declared value due to the relationship between the Swiss company and the appellant, where the former held shares and appointed directors in the Indian company. The Customs, Excise and Service Tax Appellate Tribunal upheld this decision. The primary dispute centered around the valuation of the imported goods.

The appellant argued that despite the relationship, the transaction was at arm's length and the price paid was market-based. However, the CESTAT rejected this contention. They found that the goods were not sold to other unrelated importers in India, but similar goods were sold to independent importers with a 20% extra charge for cutting and joining. The Swiss company charged independent buyers 20% extra, while the appellant received a 33.3% discount, indicating an influence of the relationship on pricing.

The original authority rightly concluded that the price charged to the appellant was influenced by the relationship with the supplier. Consequently, the declared value was rejected, and assessment was ordered after disallowing the extra discounts to establish an arm's length price. Various valuation methods were considered to determine a fair price, taking into account the additional costs involved in cutting and joining the imported goods. The findings were based on factual evidence, leading to the dismissal of the appeal.

In conclusion, the judgment focused on the valuation of imported goods concerning related parties, emphasizing the need to establish an arm's length price in such relationships to prevent advantages being sought due to the connection between the parties. The decision highlighted the importance of fair pricing and the application of appropriate valuation methods to ensure compliance with customs regulations and prevent any undue influence on pricing due to relationships between parties involved in the transaction.