2019 (7) TMI 777 - AT - Customs

Valuation of imported goods - related party transaction - goods imported by M/s. Baxter India Pvt. Ltd. Gurgaon from their related suppliers M/s. Baxter USA and associated companies - Sub-Rule 3 (3) (a) of Rule 3 CVR for Determination of Value Rules ignored and jumping upon Rule 3 (3) (b) thereof - HELD THAT - In case of import by any person from an overseas related party the valuation of goods for the purpose of assessment of Customs duty is examined by Special Valuation Branch (SVB) in Custom House to find out the influence of relationship on import valuation and whether any addition in import value is required to bring it at par with third party independent prices, as is apparent from Rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The admitted fact of the present case is that the import of the appellant since the year 2002 has regularly been examined by SVB after every expiry of 3 years and based upon the declaration to the effect that there is no change in the terms of the agreement with the foreign related party, mode of invoicing etc. the said SVB s order is being successively reviewed after every 3 years since 2002 till 2015. From Rule 3 it is apparent that where the buyer and seller are related, transaction value is acceptable for the customs purposes under the provisions of Rule 3 (3) (a) - rule 3 (3) (a) provides that where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price. It is not intended that there should be an examination of the circumstances in all cases where the buyer and the seller are related. In this case the valuation of goods imported by M/s. Baxter from the related Companies has been examined number of times since 2002 and it was found that the relationship has not influenced the price, hence the declared value will be accepted under Rule 3 (3) (a). The examination of valuation of goods under subsequent Rules (4) to (9) is not applicable. Rule 3 (3) (a) 3 (3) (b) provide different means of establishing the acceptability of a transaction value - Rule 3 (3) (b) cannot be made applicable while deciding the transaction value in the present case - There is nothing on record nor even a finding that the relationship of importer and exporter has influenced the price. Thus, jumping to Rule 3 (3) (b) was not at all relevant. We are of the opinion that order to that extent is not sustainable. Commissioner (Appeals) has committed an error, while ignoring Sub-Rule 3 (3) (a) of Rule 3 CVR for Determination of Value Rules and while jumping upon Rule 3 (3) (b) thereof - appeal allowed - decided in favor of appellant.

Summary

Issues:
Valuation of imported goods for Customs Duty assessment by M/s. Baxter India Pvt. Ltd. from related suppliers M/s. Baxter USA and associated companies.

Analysis:

Issue 1: Valuation of Imported Goods
The case involves the valuation of goods imported by M/s. Baxter India Pvt. Ltd. from related suppliers to assess Customs duty. The Special Valuation Branch (SVB) examines the influence of the relationship on import valuation as per Rule 3 of Customs Valuation Rules. The appellant's imports have been regularly reviewed by SVB since 2002, confirming that the relationship did not influence the price, as per Rule 3(3)(a). The examination under subsequent rules (4) to (9) is deemed inapplicable once the relationship's non-influence on price is established under Rule 3(3)(a).

Issue 2: Application of Rule 3(3)(b)
The Commissioner (Appeals) emphasized Rule 3(3)(b) in the valuation, which requires demonstrating that the declared value closely approximates certain test values. However, the Tribunal clarified that Rule 3(3)(a) and Rule 3(3)(b) provide different means of establishing transaction value acceptability. The Tribunal cited a previous case to explain the importer's responsibility to prove the declared values' fairness, which was not met due to lack of data on transaction values of identical or similar goods from other importers. The Tribunal concluded that Rule 3(3)(b) was not applicable in the present case.

Issue 3: Rejection of Transaction Value
The Commissioner (Appeals) rejected the transaction value based on the appellant's profit margins and expenses without legal basis. The Tribunal disagreed, stating that profit margins should not be a factor if Rule 3(3)(a) conditions are met. The appellant fulfilled these conditions, and the data showed that Baxter's profit margin was lower than similar companies, indicating no influence of the relationship on imported goods' prices. The Tribunal held that the rejection of the transaction value on these grounds was erroneous.

In conclusion, the Tribunal set aside the Commissioner (Appeals) order, emphasizing the correct application of Rule 3(3)(a) for valuation purposes and rejecting the inappropriate reliance on Rule 3(3)(b) and profit margin considerations. The appeal was allowed based on these findings.