2016 (12) TMI 963 - AT - Customs

Valuation - related party transaction - whether appellant M/s. Concept Pharmaceuticals Ltd. (India) is related to Concept Pharmaceuticals Ltd., Nepal? - Held that - it is observed from the facts recorded in para 8.4 of Order-in-Original dated 15/7/2002 that Concept Pharmaceuticals Ltd. holds 20% and 7.13% shares in both the sister concerns situated in Nepal and India. Ld. Advocate could not clarify as to how in spite of holding of more than 5% shares both the parties should not be considered as a related persons under Rule 2 (2) (iv) of the Customs Valuation Rules, 1988. It is observed from the provisions of Rule 2 (2) (iv) of the Customs Valuation Rules, 1988 that when any person directly or indirectly holds/owns 5% or more of the shares of both the companies then such concerns will be treated as related persons - supplier and the importer are related persons. Method of valuation - Held that - the valuation of the imported goods in the present proceedings should be done under Rule 7A of the Customs Valuation Rules, 1988 as both supplier and the importer are related persons. The appellant should furnish all the relevant data/cost of the imported goods to the Adjudicating authority, as prescribed under Rule 7A of the Customs Valuation Rules, 1988 read with the interpretative notes relied upon by the appellant. Needless to say that an opportunity of personal hearing should be extended to the appellant to explain their case. Appeal allowed by way of remand.

Issues involved:
1. Valuation of imported goods under Customs Valuation Rules, 1988 - Rule 8 (2) vs. Rule 7A
2. Determination of related persons under Rule 2 (2) (iv) of the Customs Valuation Rules, 1988
3. Applicability of Rule 7A for valuation in case of related persons
4. Compliance with data submission requirements under Rule 7A

Issue 1: Valuation of imported goods under Customs Valuation Rules, 1988 - Rule 8 (2) vs. Rule 7A:
The appellant contested the assessable value of imported goods determined by the first appellate authority under Rule 8 (2) of the Customs Valuation Rules, 1988. The appellant imported drug formulations from a sister concern in Nepal and argued that if the supplier and importer are related persons, valuation should be done under Rule 7A. The appellant provided certified data on the cost of production of the imported goods in Nepal. The first appellate authority, however, found the appellant reluctant to provide necessary information for valuation. The Tribunal observed that valuation should be done under Rule 7A as both supplier and importer are related persons, requiring the appellant to furnish all relevant data to the Adjudicating authority under Rule 7A.

Issue 2: Determination of related persons under Rule 2 (2) (iv) of the Customs Valuation Rules, 1988:
The key issue was whether the appellant and the supplier were related persons. The Tribunal noted that both entities held shares in sister concerns in Nepal and India, meeting the criteria of related persons under Rule 2 (2) (iv) of the Customs Valuation Rules, 1988. The appellant's argument that they were not related persons was deemed unconvincing due to the shareholding structure.

Issue 3: Applicability of Rule 7A for valuation in case of related persons:
The Tribunal referred to the interpretative notes under Rule 7A of the Customs Valuation Rules, 1988, which outline parameters and procedures for determining the value of imported goods in case of related persons. It emphasized the importance of providing necessary costings and information from outside India for valuation when buyer and seller are related, as in this case.

Issue 4: Compliance with data submission requirements under Rule 7A:
The appellant's failure to provide required data under Rule 7A was highlighted by the Revenue, leading to valuation under the residual method of Rule 8. The Tribunal upheld the need for the appellant to furnish all relevant data as prescribed under Rule 7A for proper valuation. The appeal was allowed for remand to the Adjudicating authority for compliance with data submission requirements.

In conclusion, the Tribunal's judgment focused on the correct application of valuation rules under the Customs Valuation Rules, 1988, in cases involving related persons and emphasized the importance of providing necessary data for accurate valuation of imported goods.

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