1996 (12) TMI 48 - SC - Customs

Whether the assessable value of machinery made to specifications and not purchased off the shelf can only be determined by the best judgment method and no other as reasoned by Tribunal? Held that - The Tribunal, apparently, failed to take notice of the fact that this was not a case where the invoices produced by the appellant had been rejected or, indeed, the agreement aforementioned. It was the case of the Revenue that to the value mentioned in those invoice 3% should be added by reason of the terms of the agreement. A best judgment assessment, therefore, was not called for and had not been made. As the agreement provides by which General was appointed the purchasing agent of the appellants in respect of such items of equipment for the tyre plant that the appellants opted to purchase through the agency of General. The provisions under it make it clear that the appellants would see the quotations submitted to General by the various suppliers and would approve the same. They provide that the purchases from the suppliers would be made by the appellants. They provide that what the appellants would pay to General was a commission or remuneration to be computed on the basis of 3% of the value of each of the items of equipment. These provisions show beyond any doubt that the value of the items of equipment was not enhanced thereby. We, therefore, cannot accept the reasoning of the Tribunal. Appeal is allowed, the order under appeal is set aside and the order of the Central Board of Excise and Customs is restored.

Issues:
1. Interpretation of procurement agreement for technical know-how and equipment.
2. Recalculation of assessable value of imported equipment.
3. Validity of adding procurement charges to the assessable value.
4. Determination of assessable value under Customs Valuation Rules.
5. Applicability of best judgment method for assessable value determination.
6. Role of purchasing agent in equipment procurement agreements.

Analysis:

Issue 1: Interpretation of procurement agreement for technical know-how and equipment
The appellants entered into an agreement for technical know-how and equipment procurement. The agreement specified that the appellants had the option to call for services for procurement of equipment through General Tyre International Company. General was to obtain quotations, submit them for approval, and make purchases in the name of the appellants. The appellants agreed to pay General a 3% commission on the F.O.B. value of the equipment procured. The Tribunal's reasoning that the value of equipment was not enhanced by this agreement was upheld by the Supreme Court.

Issue 2: Recalculation of assessable value of imported equipment
The Revenue served a notice to the appellants to show cause why the assessable value of imported equipment should not be increased by adding 3% of the F.O.B. value as procurement charges. The Tribunal set aside the order, stating that the assessable value should be determined under Rule 8 of the Customs Valuation Rules by best judgment method. The Supreme Court disagreed with the Tribunal, emphasizing that the invoices were not rejected, and the agreement clearly outlined the procurement process, thus not warranting a best judgment assessment.

Issue 3: Validity of adding procurement charges to the assessable value
The Tribunal's order was based on the argument that the commission paid to General Tyre was a relevant factor in determining the assessable value. However, the Supreme Court found that the procurement agreement did not enhance the value of the imported equipment and rejected the Tribunal's reasoning. The Court held that the value of equipment was not increased by the commission paid to General.

Issue 4: Determination of assessable value under Customs Valuation Rules
The Tribunal incorrectly applied Section 14(1)(a) of the Act for determining the assessable value of the imported machinery. The Supreme Court clarified that Rule 8 of the Customs Valuation Rules should be used for machinery made to specification. The assessable value should be determined by considering all relevant factors, including any commission paid, but in this case, the commission did not affect the value of the equipment.

Issue 5: Applicability of best judgment method for assessable value determination
The Tribunal's reliance on the best judgment method for determining the assessable value was deemed unnecessary by the Supreme Court. Since the procurement agreement was clear and invoices were not disputed, a best judgment assessment was not warranted. The Court emphasized that the agreement did not enhance the value of the imported equipment.

Issue 6: Role of purchasing agent in equipment procurement agreements
The agreement appointed General as the purchasing agent for the appellants, outlining the process for equipment procurement and payment of a commission. The Supreme Court highlighted that the agreement did not inflate the value of the equipment and affirmed that the Tribunal's decision was incorrect. The Court allowed the appeal, setting aside the Tribunal's order and restoring the Central Board of Excise and Customs' decision.

Conclusion:
The Supreme Court ruled in favor of the appellants, emphasizing that the procurement agreement did not increase the assessable value of the imported equipment. The Court rejected the Tribunal's reasoning and restored the decision of the Central Board of Excise and Customs.

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