2021 (5) TMI 867 - AT - Customs

Valuation of imported goods - related persons - Subvention payments by a parent company to its loss making subsidiary - capital receipts - impugned order has been passed after an inordinate delay of more than one year after hearing - submissions made before the first appellate authority were not considered. Delay in passing the impugned order and allegations of pre- meditated order - HELD THAT - It is not a healthy practice to pass an order after such a long time. However, no legal provision has been brought on record to show that the delay renders the impugned order invalid. The delay, though, highly undesirable, does not invalidate the impugned order in the absence of any such legal provisions - appellant argues that the impugned order is pre-meditated. This is an allegation in the appeal but this imputation against the learned first appellate authority is not backed by any evidence and needs to be dismissed. Arguments that the earlier SVB order stops the department from opening up the issues in the second SVB order - HELD THAT - Legally speaking nothing stops the officer from examining each import made by an importer from a related person to see if the relationship affected the price. As it will be rather cumbersome to do so, the investigation done once and an SVB order issued is normally applied for imports for a period of three years assuming that in all these years, the price is not affected by the relationship. Both the SVB orders issued in this case clearly indicate that they are subject to occasional review and also a final review after three years - there are no no force in the argument of the appellant that since the first SVB order had found that their relationship with the foreign supplier had not affected the prices at that time, the department cannot examine if such is the case in all subsequent imports. True Up payments - HELD THAT - True Up is an arrangement between the appellant and the parent company. No law requires such a payment nor can it influence the transaction prices. Let us say, the appellant has suffered a loss of 10,000. The shareholders suffer this loss in proportion to the shares held by them. Since the parent company owns 99.99% of the shares of the appellant, it suffers a loss of 9,999 on their investment in the appellant. Alternatively, the parent company can transfer to the appellant to cover some or all of the loss as True Up payment to keep the appellant company afloat. The parent company need not pay as True Up any of this loss or may pay as True Up some or all of the loss. The losses incurred by the appellant have no bearing on the invoice value whether the losses are recouped by the parent company in the form of True Up payments or not. Expenses on marketing and advertisement, etc. - HELD THAT - Rule 10 (1) (e) requires that any payment made as a condition for sale to either the seller or to a third party to satisfy the obligations of the seller is to be included in the value. We find that if the appellant is responsible for certain activities such as customs, taxability, inventory costs, distribution and sales promotions including advertising and marketing for its entire business in India, it cannot be called a payment to their foreign supplier but would be managing affairs related to its own business. It would have been a different case, if the appellant was required, as per the agreement to promote, at its cost, the sales by the foreign suppliers to other customers in India or make some payment on behalf of the seller to a third party. In such a case, some expense would have been incurred by the appellant which could have been examined to see if it formed an additional consideration for the sale of the goods to the appellant - The appellant is a distributor and is in the business of selling the cars which necessarily requires them to deal with imports, pay taxes, promote sales, advertise, etc. These, in our considered view, cannot be termed as expenses incurred on behalf of the foreign supplier although the foreign supplier would also indirectly benefit if the appellant s business improves. The foreign supplier is also independently selling the goods (cars) to embassies, etc. and there is nothing on record to show that the appellant has incurred any expenses to promote such sales. Comparison with prices of sales to independent buyers - HELD THAT - The premium for the additional features and customisation is decided by the manufacturer and paid for by those independent customers. The difference between sale in retail and sale in bulk also must be accounted for. There is nothing in the impugned order that the Commissioner (Appeals) has come to prima facie conclusion based on some data that the additional features and the difference in quantities do not account for the price difference. It is not also indicated how the original authority is expected to achieve this quantification. We, therefore, find no substance in such a direction in the impugned order for re-examination. Another finding in the impugned order is that the adjudicating authority has not verified the balance sheets to conclude that no amount is paid or payable directly or indirectly to or on behalf of the supplier of the imported goods for engineering, development, art work, design work and plans and sketches undertaken elsewhere than in India - there are nothing in the order to show that some payments were noticed by the Commissioner (Appeals) towards engineering, development, art work, etc. If the Commissioner (Appeals) could not, after considering the department s appeal for one year after concluding the hearing, find that some payments were made towards these, it is not justifiable to brush aside the order of the original authority on some suspicion without any basis. The last of the findings in the impugned order is that the original authority had come to a conclusion that the relationship has not affected the price merely on the importer s statements. We find that original authority had given findings based on analysis. If the Commissioner (Appeals) found some reason to conclude otherwise, he could have so decided after pointing out how the relationship affected the invoice price and what elements should be added to the invoice price to arrive at the value but he did not. The order dated 12.04.2018 passed by the Commissioner (Appeals) allowing the appeal filed by the Department and setting aside the order-in-original cannot be sustained - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Validity of the impugned order due to delay in passing.
2. Allegations of pre-meditated order.
3. Impact of the first SVB order on subsequent SVB orders.
4. Nature and impact of True Up payments.
5. Expenses on marketing and advertisement.
6. Comparison of prices with sales to independent buyers.
7. Verification of balance sheets for additional payments.
8. Basis of the original authority’s conclusion on the relationship affecting the price.

Detailed Analysis:

1. Validity of the impugned order due to delay in passing:
The appellant argued that the impugned order was invalid due to a delay of more than one year after the hearing. The tribunal acknowledged that such delays are undesirable but found no legal provision invalidating the order solely based on this delay.

2. Allegations of pre-meditated order:
The appellant claimed the impugned order was pre-meditated. However, the tribunal dismissed this allegation due to lack of evidence supporting the claim.

3. Impact of the first SVB order on subsequent SVB orders:
The appellant contended that the first SVB order, which accepted their invoice values, should bind subsequent orders. The tribunal rejected this argument, stating that each Bill of Entry is an independent assessment and the principle of promissory estoppel does not apply to taxation. Thus, the department is not bound by the first SVB order for future imports.

4. Nature and impact of True Up payments:
The appellant argued that True Up payments were capital subventions from the parent company and unrelated to the invoice values of imported cars. The tribunal agreed, noting that True Up payments flowed from the parent company to the appellant and did not affect the transaction value of the imports.

5. Expenses on marketing and advertisement:
The department asserted that marketing and advertisement expenses should be included in the assessable value as per Rule 10(1)(e). The tribunal found that these expenses were incurred by the appellant for their own business and not on behalf of the foreign supplier. Therefore, they should not be added to the transaction value.

6. Comparison of prices with sales to independent buyers:
The department highlighted that cars sold to embassies had higher prices due to additional features. The tribunal noted that the cars sold to embassies had extra security features and were sold in retail, whereas the appellant bought in bulk. It found no basis for the Commissioner (Appeals) to require a re-examination of the price difference without concrete data.

7. Verification of balance sheets for additional payments:
The impugned order criticized the original authority for not verifying balance sheets for payments towards engineering, development, etc. The tribunal found no evidence of such payments and dismissed this finding as speculative.

8. Basis of the original authority’s conclusion on the relationship affecting the price:
The tribunal noted that the original authority had provided a reasoned analysis concluding that the relationship did not affect the price. The Commissioner (Appeals) did not provide a substantive basis for overturning this conclusion.

Conclusion:
The tribunal set aside the impugned order dated 12.04.2018 passed by the Commissioner (Appeals), allowing the appeal filed by the Department and reinstating the original order. The appellant was entitled to all consequential reliefs. The appeal was allowed, and the order was pronounced on 25.05.2021.