2022 (7) TMI 837 - AT - Customs

Over-valuation of imported goods - goods imported for setting up power projects - case of Revenue is that though the power sector projects carry NIL rate of duty and the goods were imported directly to India, but the documents were routed through an intermediary entity created by APML and APRL for the purpose of raising invoices with inflated prices - related parties or not - validity of invoices - validity of EPC contract - transactions between APRL/APML and EIF were at arm s length as per the assessment orders or not - tangible data or valid basis to justify gross over-valuation at the hands of an intermediary or not - whether relevant time/date for determining the relationship between the parties was the date of contract and not the actual date of import? Related parties or not - HELD THAT - Merely because M V Rabade signed the contract both on behalf of APML and EIF will not have any bearing on the relationship aspect. It is not in dispute that M V Rabade signed the contract on behalf of APML in the capacity of a Director and he signed the contract on behalf of EIF as an authorised representative. The authorization given to M V Rabade by EIF has not been challenged in the show cause notice and as such this will not advance the case of the department on the relationship aspect between APML/APRL and EIF. Even otherwise, there is no variation in the ultimate price paid by APML/APRL to EIF from the agreed contractual price and these contracts were arrived at through international competitive bidding process - Learned senior counsel for the respondent also submitted that when clause (v) of rule 2 (2) was not mentioned in the show cause notice for establishing the relationship, it is not open to the appellant to place reliance on this rule to establish that the relationship stood established - there is substance in this submission made by the learned senior counsel for the respondent. Tender Process - Scope of SCN - HELD THAT - The adjudicating authority correctly appreciated that the letter of credit was opened by APML and APRL in favour of EIF in terms of Annexure-2 of the contract dated 05.11.2009 and was in relation to the payments to be made to EIF for purchase of BTG. The submission that the letters of credit were opened as EIF was an intermediary invoicing agent is without any basis as the amount mentioned in the letters of credit were payable only on submission of shipping documents showing clearance of BTG consignments - There is also force in the submission of the learned senior counsel for the respondent that a belated challenge to the genuineness of the ICB process at the stage of appeal should not be entertained as this was not even a charge in the show cause notice. It is seen that the department had not at the stage of show cause notice questioned the ICB process followed by the respondent before awarding the contract to consortium led by SME/EIF - In the case of COMMISSIONER OF CENTRAL EXCISE, NAGPUR VERSUS M/S BALLARPUR INDUSTRIES LTD 2007 (8) TMI 10 - SUPREME COURT , the Supreme Court held that show cause notice is the foundation of a matter and the department cannot travel beyond its contents. Documents not available as evidence - HELD THAT - As the provisions of section 138C (4) of the Customs Act have not been satisfied for the reason that the certificate prescribed therein has not been furnished, the documents obtained by Department of Revenue Intelligence from various banks outside India cannot be admitted as evidence. Reliance cannot, therefore, be placed on these documents for this reason. The Supreme Court in COLLECTOR OF CUSTOMS, BOMBAY VERSUS EAST PUNJAB TRADERS 1996 (11) TMI 75 - SUPREME COURT wherein it was held that presumption under section 139 (ii) of the Customs Act cannot be raised because the document did not bear any signature. The Supreme Court held that when the authenticity of the photocopies of the documents itself is suspected, the presumption under section 139(ii) of the Customs Act is not available - thus, the documents relied upon by the department are, therefore, inadmissible as evidence as the authenticity of the same has not proved in terms of the provisions of sections 138C (4) and 139 (ii) of the Customs Act. Whether the contract was EPC? - HELD THAT - The scope of work mentioned in the EPC contract clarifies beyond doubt that what was awarded by APML and APRL to SME/EIF was a complete EPC contract which included supply and service components. The entire contract was awarded on a turnkey basis and a lumpsum price was fixed for the entire contract as a whole. The execution of another contract by EIF or any of the consortium partners would, therefore, have no relevance so far as APML and APRL are concerned. It is also not the case of the department that APML and APRL paid any amount over and above the agreed contract value. The said contract was for design, engineering, manufacturing, procurements, packing forwarding, supply, transportation, receipt, unloading, installation, erection, testing, commission and performance guarantee test and it was not merely a supply contract - The amount received by each consortium member or the amount paid by the consortium members to the vendors or service providers would not be relevant for APML or APRL. Even if it is assumed that the service and/or testing was to be done by the Original Equipment Manufacturers, as has been pointed out, the same will not change the nature of the contract awarded by APML and APRL to SME/EIF in as much as the responsibility to execute the contract would be that of SME/EIF only. It can, therefore, safely be concluded that APML and APRL had awarded contracts to EIF/SME which were in the nature of EPC. Whole effect of contract/effect of registration under PIR - appellant submitted that even if the imports are covered by a single contract, the assessment thereof is required to be carried out against individual imports, with the only difference being that all the imports are housed under Tariff Heading 98.01 of the Tariff Act - HELD THAT - Heading 98.01 of the Tariff Act shall be available to the goods which are imported under a specific contract registered with the appropriate Customs House under PIR. What is evident from the provisions and requirements of PIR is that it recognises contracts of the nature that APML/APRL had executed with EIF and the other consortium members. Infact, PIR ensures that large infrastructure projects benefit from the duty exemption. As such, it is clear that what is registered is the contract as a whole. When considered in this light, the goods imported for the project become a subject matter of assessment as whole and individual consignments are not required to be separately assessed. It is, therefore, clear that PIR does not deal with import of individual consignment and the assessment of the goods imported for the project have to be dealt with together. Valuation - whether the value declared by APML and APRL is required to be rejected in terms of rule 12 of the Valuation Rules read with section 14 of the Customs Act and the same is required to be redetermined under rules 4/9 of the Valuation Rules read with section 14 of the Customs Act? - HELD THAT - There is absolutely no evidence available on record which can doubt the correctness of the transaction value declared by APML/APRL. Therefore, the declared value is required to be accepted under rule 3 of the Valuation Rules read with section 14 of the Customs Act. Even otherwise, the value has to be redetermined under rule 4 by relying upon the value of identical goods. A plain reading of rule 4 would show that it speaks of identical goods imported at or about the same time as the goods being valued, which necessarily means that the identical goods should be goods other than the goods being valued and which are imported at or about the same time as the goods being valued. The contract between APML/APRL and EIF is for entire gamut of goods and services and hence cannot be compared with stand alone supply contract with Original Equipment Manufacturers. Invoices issued under two different sets of contractual obligation cannot be compared and relied upon to determine the value. Rule 11, therefore, has no application to the facts of the present case - the revenue has sought to invoke rule 9 by placing reliance on payments made by EIF to different vendors and/or manufacturers of the goods. The said evidence has been held to be not conclusive, as the revenue has considered the payment made through Axis Bank and Bank of Baroda only. The redetermination of the value of the goods under rule 4/9 of the Valuation Rules, cannot, therefore, be sustained and the adjudicating authority committed no illegality in rejecting this allegation made in the show cause notice. Incomplete Investigation - HELD THAT - While the documents were received from Axis Bank and Bank of Baroda, the relied upon document at page 689 shows the name of Standard Chartered Bank as one of the other banks used by EIF. The same therefore, belies the case of the department that ORTTs and back-to-back invoices received from Bank of Baroda and Axis Bank are complete remittances made by EIF to Original Equipment Manufacturers. Merely because the department could not interrogate or make the Standard Chartered Bank join the investigation cannot be a reason to ignore the possibility of it acting as an active banker on behalf of EIF for the purpose of remitting the amount of Original Equipment Manufacturers. The burden was on the department to prove why the total remittance amount was only through these two banks and no other bank. It, therefore, follows that the investigation carried out by the revenue was incomplete. Confiscation of goods - prohibited goods or not - HELD THAT - As the allegation of over-valuation has not been established, it is not necessary to examine this aspect. Thus, as none of the contention advanced by the learned special counsel for the appellant have any force, the order dated 22.08.2017 passed by the adjudicating authority dropping the proceedings that were initiated by issuance of a show cause notice dated 15.05.2014 does not call for any interference in this appeal - Appeal dismissed.

Summary

Issues Involved:
1. Allegation of over-valuation of imported goods by APML and APRL.
2. Relationship between APML/APRL and EIF.
3. Validity of the International Competitive Bidding (ICB) process.
4. Admissibility of documents obtained from banks as evidence.
5. Nature of the contracts (EPC vs. supply contracts).
6. Assessment under Project Import Regulations (PIR).
7. Valuation of imported goods under Customs Valuation Rules.
8. Confiscation of goods under Section 111 of the Customs Act.

Issue-wise Detailed Analysis:

1. Allegation of Over-valuation of Imported Goods by APML and APRL:
The department alleged that APML and APRL over-valued goods imported for setting up power projects to siphon off foreign exchange. The adjudicating authority found that the contracts were awarded through a legitimate International Competitive Bidding (ICB) process and were EPC contracts, encompassing a wide scope of work beyond mere supply of goods. The project cost per MW was found to be within the benchmark set by the Central Electricity Regulatory Commission (CERC), and comparable to other similar projects. Thus, the allegation of over-valuation was not substantiated.

2. Relationship Between APML/APRL and EIF:
The adjudicating authority examined whether APML/APRL and EIF were related parties under Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. It was found that APML and EIF were not related at the time of signing the contract. Although APRL and EIF were related when the contract was signed, the relationship did not influence the price due to the ICB process. The adjudicating authority concluded that the relationship did not affect the transaction value.

3. Validity of the International Competitive Bidding (ICB) Process:
The ICB process followed by APML and APRL was found to be legitimate and transparent. The contracts were awarded to the lowest bidder, EIF, after a thorough evaluation. The department's claim that the ICB process was a sham was not supported by evidence. The adjudicating authority noted that the project cost was comparable to other similar projects and within the benchmark set by CERC.

4. Admissibility of Documents Obtained from Banks as Evidence:
The documents obtained from banks were found to be inadmissible as evidence. The adjudicating authority noted that the documents did not comply with the requirements of Section 138C(4) of the Customs Act, which mandates a certificate identifying the document and describing the manner of production. Additionally, the documents were not authenticated or signed, making them unreliable.

5. Nature of the Contracts (EPC vs. Supply Contracts):
The contracts between APML/APRL and EIF were found to be EPC contracts, covering design, engineering, manufacturing, procurement, supply, transportation, installation, testing, commissioning, and performance guarantee tests. The adjudicating authority rejected the department's claim that the contracts were merely supply contracts. The contracts were registered under the Project Import Regulations (PIR) and assessed as a whole.

6. Assessment Under Project Import Regulations (PIR):
The adjudicating authority concluded that the entire contract registered under PIR should be assessed as a whole, not individual consignments. The assessment was based on the contract's overall value, and the department's attempt to assess individual consignments was found to be impermissible and unjustified.

7. Valuation of Imported Goods Under Customs Valuation Rules:
The adjudicating authority found no evidence to doubt the transaction value declared by APML/APRL. The declared value was accepted under Rule 3 of the Customs Valuation Rules read with Section 14 of the Customs Act. The department's attempt to redetermine the value under Rules 4 and 9 was rejected, as the contracts were EPC contracts, and the terms and conditions were more stringent than those between EIF and the Original Equipment Manufacturers.

8. Confiscation of Goods Under Section 111 of the Customs Act:
The adjudicating authority found no basis for confiscation under Section 111(d) and (m) of the Customs Act, as there was no short levy of duty or assertion that the goods were prohibited. The decision in Knowledge Infrastructure Systems Private Limited vs. Additional Director General, D.R.I., which held that goods cannot be confiscated without a nexus to duty collection or enforcement of prohibitions, was applied.

Conclusion:
The adjudicating authority's order dropping the proceedings initiated by the show cause notice was upheld. The appeal was dismissed, and the findings of the adjudicating authority were affirmed.