2018 (2) TMI 88 - AT - Customs

Valuation - related party transaction - identical/similar goods - Held that - it emerges that the appellants are 100% fully owned subsidiary of M/s. Biesse SPA, Italy, who is the supplier and seller. There is no doubt that the buyer and seller are related in view of Rule 2(2) of the CVR, 1988, for the purpose of Customs Act, 1962. The foreign supplier has procured the goods from third party suppliers and sold the same to the appellants at more or less the same price and in addition to ocean freight - we are not able to fathom, how in an international trade transaction, the freight cost incurred by the foreign supplier in procuring the goods within country of origin, or, for that matter, the margin of profit will not be added to local purchase cost to arrive at selling cost to Indian buyer, the appellant. This would certainly be the case if M/s.Biesse SPA, Italy would have sold the goods to any non-related buyer in India or in any other part of the world. Appellants have also not been able to establish that M/s. Biesse SPA, Italy sold identical or similar goods to other importers in India at the same price. They have themselves not able to satisfy the requirements of Rule 43 A & B of the CVR, 1988. Appeal dismissed - decided against appellant.

Summary

Issues: Valuation of imported goods based on relationship between buyer and seller; Application of Customs Valuation Rules, 1988; Influence of relationship on transaction value determination.

Analysis:
1. The case involved M/s. Biesse Manufacturing Company P. Ltd. engaged in manufacturing wood working machines, related to overseas supplier M/s. Biesse SPA, Italy. The original authority found that 80% components were sourced locally, 20% imported, and related suppliers sold goods at the same price bought from third parties. A 10% loading was imposed on transaction value due to the perceived influence of the relationship on pricing.

2. The Commissioner (Appeals) upheld the original authority's decision, leading to the appeal. The appellant's representative argued against the loading, citing lack of evidence for apportionment and failure to consider that the same price would have been paid even if goods were directly procured. The appellant also questioned the imposition of 10% loading without verifying facts regarding the import of raw materials.

3. The Tribunal highlighted the requirement for transactions between foreign suppliers and Indian buyers to be at arm's length for determining assessable value. Section 14(1) of the Customs Act, 1962 emphasizes accepting transaction value unless the buyer and seller are related, in which case the relationship should not influence the price. Rule 4(3) of the Customs Valuation Rules, 1988 outlines conditions for accepting transaction value in related party transactions.

4. The Tribunal noted that the appellants were a wholly owned subsidiary of the foreign supplier, establishing a related relationship. Despite the appellant's submission of import lists to show no deduction in sale value, the Tribunal reasoned that freight costs and profit margins should be added to the local purchase cost in international trade transactions. The appellants failed to demonstrate that identical goods were sold at the same price to other importers in India.

5. Ultimately, the Tribunal found no flaw in the lower authorities' decision, upholding that the appellants and the foreign supplier were related, and the relationship influenced the transaction value determination. The appeal was dismissed accordingly.

This detailed analysis of the judgment highlights the key issues of valuation of imported goods in related party transactions, the application of Customs Valuation Rules, 1988, and the impact of the relationship between the buyer and seller on determining the transaction value.