2019 (1) TMI 192 - AT - Customs

Valuation - rejection of transaction value - related party transaction - whether the relationship between the parent company i.e. the supplier from abroad and their subsidiary company i.e. the respondent herein has influenced the import price or not? - Revenue also argued that the margin of profit is more than 11% and therefore a further loading of 5% has to be allowed by the authorities below. Held that - There is no specific reason for the revenue for disregarding the transaction value other than the suspicion that the profit margin is more than 11%. The Revenue failed to produce any evidence before any of the authorities below in support of its contention. Nor they produced any evidence in that regard. They also did not produce any document about contemporaneous import at a higher price. Whereas the respondent had submitted documents such as the Contract Agreement between the respondent and the foreign supplier which provides a basic idea about the terms of sale and payment copies of invoices etc. The Adjudicating Authority analysed these documents and accepted the declared value as the transaction value. The Revenue has not brought out any evidence in its appeal to cast any doubt on the genuineness of the documents produced by the respondent before the Adjudicating Authority or first Appellate Authority nor provided any contrary information to about sale/purchase of identical/similar goods at higher prices or any evidence of payment over and above the invoice value. Thus although the supplier and the respondent were related persons for the purpose of Customs Valuation Rules but the relationship between them had not influenced the price - The allegation of the revenue that the margin of profit is more than 11% is without any basis and therefore rejection of transaction value by the revenue cannot be approved. Allegations of mis-declaration of value also cannot be sustained. Appeal dismissed - decided against Revenue.

Summary

Issues:
Determining if the relationship between the parent company and the subsidiary influenced the import price; Justification for rejecting the transaction value.

Analysis:
The appeal was filed by Revenue against the Order-in-Appeal rejecting the department's appeal and upholding the Order-In-Original passed by the Deputy Commissioner of Customs. The main issue revolved around whether the relationship between the parent company (supplier) and the subsidiary company (respondent) influenced the import price and if the department was justified in rejecting the transaction value.

The respondent provided documents showing the parent company added 11% profit to the cost price, with invoices demonstrating that the purchase price of goods supplied was less than the price sold to the respondent. The Revenue argued that various additional costs were not accounted for, such as technical know-how, machinery contracts, and sea freight, leading them to reject the transaction value. The General Manager for the respondent defended the findings and urged the dismissal of the Revenue's appeal.

A contract was entered between the parent company and the respondent for the supply of Toolings, with fixed pricing terms and conditions. The goods supplied were capital goods used in manufacturing, and the parent company added 11% profit to the cost price. The Customs Valuation Rules dictate that if the relationship between the buyer and seller influences the price, the invoice price can be discarded. The Commissioner (Appeals) found that the relationship did not influence the price, and the transaction value had to be accepted, as per Rule 3(3) of the Customs Valuation Rules.

The Tribunal dismissed the Revenue's application for stay, as they failed to provide evidence supporting their claim that the profit margin exceeded 11%. The Revenue's rejection of the transaction value was based on suspicion rather than concrete evidence. The respondent had submitted relevant documents, and the Adjudicating Authority accepted the declared value as the transaction value. The Tribunal found no basis for the Revenue's allegations and upheld the Commissioner's decision, dismissing the Revenue's appeal.

In conclusion, the Tribunal found no fault in the Commissioner's order, as the relationship between the parent company and the respondent did not influence the price. The Revenue's allegations lacked evidence, and the rejection of the transaction value was unfounded. Therefore, the Appeal filed by Revenue was dismissed.