2022 (9) TMI 23 - AT - Customs

Valuation of imported goods - allegation of over-valuation of the goods that were imported for the purpose of setting up Transmission Lines and Substations in the State of Maharashtra - who is actual importer of goods? - MEGPTCL or PMC? - reliability of documents, admissible evidences or not - EPC contract - related parties or not - Whole effect of contract/effect of registration under PIR - rejection of value declared by PMC and MEGPTCL - goods liable to confiscation under sub-section (d) and (m) of section 111 of the Customs Act or not - levy of penalty under sections 112(a) and 112(b) of the Customs Act and section 114AA of the Customs Act on the noticees. Who is the importer? - While it is the case of the Department that MEGPTCL is the importer as it had declared itself to be owner of the goods, it is the case of both MEGPTCL and PMC that the importer is PMC - HELD THAT - As per Section 2 (26) of the Customs Act, an importer in relation to any goods includes any owner or any person holding himself out to be an importer. In the present case, it is not in dispute that the Bills of Entry were filed by PMC. It is also not in dispute that in respect of 26 consignments where benefit of Chapter Heading 98.01 of the Tariff Act was not available, duty has been paid by PMC on the tariff value at the time of assessment under section 14 of the Customs Act. For an assessee to fall within the term importer , it is necessary that an assessee, as the owner of goods, clears the goods for home consumption by filing a Bill of Entry. It is important to note that the definition of importer also includes any person who holds himself out as the importer vis- -vis the goods in question between the date of its importation until the time of its clearance for home consumption. MEGPTCL did not hold itself out to be the importer. Undisputedly, the Bills of Entry were filed by PMC and right from filing the Bill of Entry to the stage of investigation PMC held itself to be the importer. The document of title, on the basis of which ownership is determined, is the Bill of Lading. It is not the case of the department that the Bill of Lading was not in the name of PMC, for it is on the basis the said Bill of Lading that PMC had filed the Bills of Entry as an importer. Thus, MEGPTCL cannot be termed as an importer or de-facto importer as claimed by the Revenue. There is no difficulty in holding that PMC alone can be treated as the importer of goods as the Bills of Entry were filed by it and duty with respect to 26 consignments was also paid by it - the definition of term importer was amended w.e.f. 31.03.2017 wherein the term beneficial owner was for the first time, introduced. A person who would fall under the category of beneficial owner can also be treated as an importer w.e.f. 31.03.2017. The change in law w.e.f. 31.03.2017 would apply to all imports on or after that date and would not be applicable to imports made prior to the said date. In the instant case, the imports took place much prior to the said amendment. Documents admissible as evidences - It is the case of the Department that each document was authenticated and attested under the seal of Bank and was received under the letter head of the Bank - HELD THAT - A bare perusal of section 138C of the Customs Act reveals that a computer print-out is admissible as direct evidence under the Customs Act if the condition mentioned in sub-section (2) is satisfied. Section 138 C (4) deals with cases where any document is required to be produced as an evidence in proceedings under the Customs Act and the Rules framed thereunder - 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 Directorate 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 documents relied upon by the Department are inadmissible as evidence as the authenticity of the same have not been proved in terms of provisions of sections 138C(4) and 139(ii) of the Customs Act. Related parties or not - It is the case of Revenue that since Dharmesh Parekh, an employee of PMC, had signed the contract executed between EIF and the Original Equipment Manufactures as an authorized signatory of EIF, the distinction between PMC and EIF was obliterated - HELD THAT - Under the provisions of Customs Act, two parties can be termed and treated as related if they fall within any of the eight clauses of rule 2(2) of the Valuation Rules. It is no doubt true that Dharmesh Parekh was an employee of PMC and that PMC and EIF were part of the Consortium and had entered into an agreement for supply of Transmission Equipment, and that Dharmesh Parekh, being an employee of PMC, had signed the contract that was entered between EIF and Original Equipment Manufactures on behalf of EIF, but there is nothing which may prohibit and disqualify an employee of PMC to be authorized by EIF for signing a contract on its behalf. The said act of authorizing an employee of PMC to sign a contract on behalf of EIF cannot lead to a conclusion that EIF and PMC were related to each other under rule 2(2) of the Valuation Rule. There are no merit in the contention of the Department that PMC was only a contractor acting as a conduit on behalf of the buyer. EPC Contract - nature of the contract entered into between PMC and EIF - HELD THAT - The respondents are correct in their submission that the contract between PMC and EIF cannot be compared with contract executed between EIF and Original Equipment Manufactures. The submission advanced by the learned special counsel for the revenue that this was an afterthought cannot be accepted. The letter issued by the Engineering Firms states that the extended warranty of 10 years for critical equipment such as Transformers and Shunt Reactors would be somewhere in the range of 8% to 9% per annum and 80% to 90% for 10 years. This apart, other factors such as liquidated damages, type testing charges, stringent delivery schedule cannot also be overlooked. Due to a default on the part of EIF, PMC could charge liquidated damages to the extent of INR 700 Millions from EIF. There are no hesitation in holding that the contract between PMC and EIF and EIF and the Original Equipment Manufactures cannot be compared as there is a clear difference. The contract executed between PMC and EIF is, therefore, an EPL contract. Valuation of goods - Department has proposed to reject the value of imported goods declared by PMC and sought redetermination of the same, basis the transaction between the supplier namely, EIF and the Original Equipment Manufactures- whether the Department is justified in redetermining the value of the goods on the basis of the Valuation Rules? - HELD THAT - The provision of rule 12 of Valuation Rules read with section 14 of the Customs Act have been invoked and the redetermination of the value is sought to be made under rule 4 of the Valuation Rules read with section 14 of the Customs Act. - It has already been found that the documents, which form the basis for the proposed redetermination of value, are inadmissible in evidence. Therefore, they cannot be considered for seeking a redetermination of the value - Even otherwise, the value could not have been rejected and redetermined. In terms of General Exemption Notification dated 01.03.2002 at serial no. 424, High Voltage Power Transmission Project equipment was permitted to be cleared under concessional rate of customs duty. Thus, concessional rate of customs duty benefit was available for 765KV auto transformers, shunt reactors, isolators and surge arrestors, subject to fulfillment of the conditions specified therein - No objection was raised by the Department at the time of clearance of goods and the assessment was finalized under section 14 of the Customs Act. All other Bills of Entry, where the benefit under Chapter Heading 98.01 of the Tariff Act was availed, were assessed provisionally and subject to reconciliation under PIR. There is no dispute that all goods/items have been imported against the approved list of goods registered with Customs and the value as declared by PMC in the Bills of Entry have also been accepted by Customs. There is also no dispute that the goods imported are mentioned in the approved list. It is true that fraud would vitiate everything, but then fraud has not only to be alleged but also proved. In the present case, the documents that form the basis of the allegation of overvaluation cannot be relied upon by the Department as the same cannot be admitted as evidence under the Customs Act. The allegation of fraud, therefore, has not been proved - the proposition that despite finalization of assessment under section 14 of the Customs Act, the provisions of section 111(m) of the Customs Act can still be invoked cannot be accepted. While the Department has placed reliance on evidence which have been found to be inadmissible, the respondents have submitted contemporaneous data with evidence in the form of a letter stating that in case of extended warranty the premium on the product would be 8 to 9% per year. No error can, therefore, be found in the view taken by the adjudicating authority and it is also in accordance with the law laid down by the Supreme Court in COMMISSIONER OF CUSTOMS, CALCUTTA VERSUS SOUTH INDIA TELEVISION (P) LTD. 2007 (7) TMI 9 - SUPREME COURT wherein it was held that in the absence of contemporaneous imports, the transaction value cannot be discarded. The transaction value, therefore, has to be accepted and the question of redetermination of the value does not arise at all. No error can be attributed to the aforesaid finding of the adjudicating authority as undisputedly when the whole bidding process was ongoing and when PMC was awarded the contract, MSETCL was a part of the Joint Venture. In such circumstances, it is difficult to accept the submission regarding the alleged overvaluation - the documents which formed the basis of redetermination have also been held to be inadmissible in evidence - thus, there is absolutely no evidence available on record which can create a doubt on the correctness of the declared transaction value. Therefore, the declared transaction value is required to be accepted under rule 3 of the Valuation Rules read with section 14 of the Customs Act. Whole effect of contract/effect of registration under PIR - adjudicating authority concluded that the contract as a whole was required to be assessed and not individual consignments - HELD THAT - This issue was examined at length by this Bench in Adani Power Maharashtra Ltd. 2022 (7) TMI 837 - CESTAT MUMBAI and after examination of the provisions of Chapter 98 of the Tariff Act and regulations 2,4,5 and 7 of the PIR, the Bench observed that 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. In view of the detailed discussions on this issue in Adani Power Maharashtra Ltd., there is no difficulty in holding that the contract as a whole was required to be assessed and not individual consignment. Confiscation of goods - whether the goods can be held liable for confiscation under section 111 (d) and (m) of the Customs Act when there is no case of short levy of duty and assertion that the goods were prohibited in nature? - HELD THAT - As the allegation of over-valuation has not been established, it is not necessary to examine this aspect. Appeal dismissed.

Summary

Issues Involved:
1. Allegation of over-valuation of imported goods for setting up Transmission Lines and Substations.
2. Determination of the actual importer.
3. Admissibility of documents as evidence.
4. Relationship between the involved parties.
5. Nature of the contract between PMC and EIF.
6. Valuation of the imported goods.
7. Assessment of the contract as a whole or individual consignments.
8. Liability for confiscation under section 111(d) and (m) of the Customs Act.

Detailed Analysis:

1. Allegation of Over-Valuation:
The main issue revolves around the allegation that the goods imported by PMC for MEGPTCL were grossly over-valued. The Department alleged that the actual importer was MEGPTCL and that EIF acted as an intermediary invoicing agent to inflate the invoice values significantly.

2. Determination of the Actual Importer:
The adjudicating authority held that PMC, which filed the Bills of Entry and paid the customs duty, was the actual importer, not MEGPTCL. The definition of "importer" under section 2(26) of the Customs Act includes any person who holds himself out to be the importer. Since PMC filed the Bills of Entry and cleared the goods, it was considered the importer.

3. Admissibility of Documents as Evidence:
The documents obtained from foreign banks by the Directorate of Revenue Intelligence were deemed inadmissible as evidence. The documents did not meet the requirements of section 138C(4) and section 139(ii) of the Customs Act, which mandate proper certification and authentication.

4. Relationship Between the Involved Parties:
The adjudicating authority concluded that while EIF and MEGPTCL were related under rule 2(2)(iv) of the Valuation Rules, this relationship did not affect the transaction price. The relationship between PMC and EIF was not established under the Valuation Rules, and the mere fact that an employee of PMC signed contracts on behalf of EIF did not prove they were related.

5. Nature of the Contract Between PMC and EIF:
The contract between PMC and EIF was determined to be an EPC (Engineering, Procurement, and Construction) contract. The adjudicating authority accepted that additional factors such as extended warranty, type testing of equipment, and stringent delivery schedules justified the higher prices quoted by EIF.

6. Valuation of the Imported Goods:
The adjudicating authority found no merit in the Department's proposal to redetermine the value of the goods based on the invoices from the Original Equipment Manufactures to EIF. The declared transaction value was accepted as it was found to be at arm's length and comparable to similar projects executed by Power Grid Corporation of India Limited (PGCIL).

7. Assessment of the Contract as a Whole or Individual Consignments:
The adjudicating authority held that the contract as a whole should be assessed and not individual consignments. This is in line with the provisions of the Project Import Regulation (PIR), which recognizes the contract as a whole for large infrastructure projects.

8. Liability for Confiscation:
The adjudicating authority concluded that the goods were not liable for confiscation under section 111(d) and (m) of the Customs Act. The allegations of over-valuation were not substantiated, and the declared transaction value was accepted.

Conclusion:
The adjudicating authority dropped the proceedings initiated by the show cause notice, finding that the declared transaction value was correct and proper. The appeal by the Commissioner of Customs was dismissed, and the order dated 17.10.2017 was upheld. The declared transaction value was accepted, and the allegations of over-valuation were not proved.