2020 (8) TMI 702 - AT - Customs

Principles of Natural Justice - Mutuality of interest - holding subsidiary relationship - related party or not - Valuation - clearances of goods, by the holding company to the subsidiary company - inclusion of marketing expenses incurred by the subsidiary, in the assessable value of finished goods - time limitation - HELD THAT - The impugned orders are silent as to how the appellants claim of valuation under Rule 7 was legally tenable and how Rules preceding the same are not applicable. The respective authorities have only disputed the fact that certain expenses incurred by the subsidiary on account of Marketing and Advertisement were not included and that they are related - Revenue has not considered the provisions of Section 3 of CETA as it is seen that they have accepted the costing method applied by the appellants. Moreover, if Rule 7A of the Rules is applied, no proper reasoning has been given in the impugned orders. The issue needs to go back to the original authority to consider the Rules of valuation and to give clear findings on the conclusions arrived thereof. Moreover, we find that the initial SCN was adjudicated by the Commissioner and the subsequent SCNs were adjudicated by lower authorities. In the interest of Justice, we hold that all the SCNs be adjudicated now by Commissioner who is competent to adjudicate the case involving highest duty. Applicability of the extended period - HELD THAT - The appellants have taken the plea that earlier provisional assessment was made and was finalised and even under circumstances, Department has invoked extended period. We find that the submissions of the appellant that they have submitted all the details at the time of provisional assessment and the department has gone through their submissions and finalised the assessments - the submissions of the appellants have not been considered in detail in as much as the manner in which the provisional assessments were finalised have not been discussed at all. Whether M/s. HSL and M/s.HWPL are related entities? - HELD THAT - The impugned order has not considered the submissions of the appellants on this account. It was also alleged in the SCNs and affirmed in the OIO that marketing and advertisement expenses borne by the subsidiary were on behalf of the appellants and therefore, are includable in the assessable value - HELD THAT - The impugned order has not given any findings after going through the submissions of the appellants and balance sheets of different companies. Appeals are allowed by way of remand to Commissioner of Customs in the interest of Justice.

Summary

Issues Involved:

1. Valuation of clearances of goods from the holding company to the subsidiary company.
2. Inclusion of marketing and promotional expenses incurred by the subsidiary in the assessable value.
3. Mutuality of interest between the holding company and the subsidiary.
4. Applicability of the extended period for demand.
5. Rejection of declared value and invocation of Rule 7/8 of Customs Valuation Rules (CVR).

Detailed Analysis:

Valuation of Clearances:

The primary issue revolves around the valuation of goods cleared by the holding company (HSL) to its subsidiary (HWPL). The department argued that the marketing expenses incurred by HWPL should be included in the value of the finished goods for duty purposes. However, the orders did not provide a clear rationale for invoking Rule 7/8 of CVR, 1988/2007, nor did they sequentially address preceding rules under Rule 3. The Tribunal found that the impugned orders lacked proper reasoning and failed to justify the application of Rule 7/8.

Inclusion of Marketing and Promotional Expenses:

The department's position was that the marketing and promotional expenses incurred by HWPL should be included in the assessable value of the goods cleared by HSL. The appellant contended that these expenses were independent of HSL's operations and were reflected in HWPL's financial statements. The Tribunal noted that the consolidated financial statements, prepared as per Indian Accounting Standards and the Companies Act, 2013, do not imply that expenses of one entity are incurred at the behest of another. The Tribunal cited several precedents, including Lakme Ltd and TVS Motors, to support the view that such expenses should not be included in the assessable value.

Mutuality of Interest:

The department argued that HSL and HWPL were related entities, citing mutual financial interests, common directors, and loans provided by HSL to HWPL. The appellant countered that mere financial transactions, such as loans, do not establish mutuality of interest. The Tribunal referenced several cases, including Agarwal Rubber Pvt Ltd and Goodyear South Asia Tyres, to conclude that mutuality of interest requires interdependence and reciprocity beyond mere financial transactions. The Tribunal found that the department had not established mutuality of interest between HSL and HWPL.

Applicability of Extended Period:

The department invoked the extended period for demand, alleging suppression of facts by the appellant. The appellant argued that all relevant details were provided during the provisional assessment, which was finalized without any challenge from the department. The Tribunal noted that the provisional assessments were finalized based on the appellant's submissions, and the department had not adequately considered these submissions in invoking the extended period. The Tribunal cited cases like Future Techno Designs and ITC Ltd to support its view that the extended period was not justifiable.

Rejection of Declared Value and Invocation of Rule 7/8 of CVR:

The Tribunal found that the orders did not provide a clear rationale for rejecting the declared value and invoking Rule 7/8 of CVR. The department failed to sequentially address preceding rules under Rule 3 before applying Rule 7/8. The Tribunal emphasized the need for proper reasoning and adherence to the provisions of the Customs Valuation Rules.

Conclusion:

The Tribunal set aside all impugned orders and remanded the case to the Commissioner of Customs for a fresh adjudication. The Commissioner was directed to consider all facts, submissions, and relevant case laws, and to pass a reasoned order within four months. The Tribunal stressed the importance of a thorough and reasoned approach to ensure justice.

(Operative portion of the Order was pronounced in Open Court on 03/03/2020)