2005 (3) TMI 225 - AT - Customs

Valuation (Customs) - Import of sim cards - Related person - Whether the relationship has affected the price of the imported goods - foreign supplier are related as per the Customs Act/Customs Valuation Rules 1998 - HELD THAT - Our supplier invoices us on FOB/CIF basis after deducting the necessary margin sales tax/octroi and duty. The pricing methodology adopted is based on OECD transfer price Guidelines. Gemplus India takes risk of exchange variation customs duty risk receivable risk direct expenses of salesmen/operations (including Travel and Communication) and other risk of local tax variations on its own account . They have also stated in the questionnaire submitted to the DC Customs the methodology of transfer price in the case of the imported products. This method is indicated as Transfer pricing-Priceless method. It is stated that as per this method the price taken into account is the customer s sales price negotiated by the sales person with the external (non group) customer. A specific margin is fixed by the Tax Department for each range of products. Therefore there is not any basis to come to the conclusion that the relationship between the foreign supplier and the appellant has influenced the price of the imported goods. It is very difficult to compare the prices of the cards imported by the appellants and the other independent buyers. The appellant who has a Product Supply Agreement with the supplier is a regular importer whereas the imports of others are very negligible. We cannot expect the same prices in both the cases by reason of difference in commercial level and quantity of imports. Moreover in order to apply Rule 5 of the Customs Valuation Rules we have to take into account the commercial level and the quantity of goods being valued. As rightly contended by the appellant the transaction value of the imports made by them as traders/dealers cannot be compared with the transaction value of the imports made by the actual users. In summing up we observe that - 1.Though the appellant and the foreign supplier are related the price of the imported goods is fixed based on market driven prices leading to the conclusion that the relationship has not influenced the price. 2.The appellants regularly import the goods in huge quantities for testing the market conditions. In doing so they function as traders of the goods imported. But the independent buyers who imported goods directly are actual users. The trader and the actual user are not at the same commercial level. 3.The quantity of import by independent buyers is quite negligible compared to the quantity of imports by the appellant. Imports of independent buyers are sporadic in nature. Imports of the Appellant are regular. 4.With regard to the direct imports by the independent buyers the personalization has been done by the foreign supplier. Hence the price in respect of direct import is higher than that of the appellants. Thus there are no grounds to reject the transaction value. We allow the appeal with consequential relief.

Issues Involved:
1. Whether the relationship between the appellant and the foreign supplier influenced the price of the imported goods.
2. Whether the Commissioner (Appeals) correctly applied Rule 4(3) of the Customs Valuation Rules, 1988.
3. Whether the lower authority correctly compared the transaction value of the imports by the appellant with those by unrelated buyers.
4. Whether the personalization cost and other factors were adequately considered in determining the value of the imported goods.
5. Whether Rule 5 of the Customs Valuation Rules was correctly applied in re-determining the assessable value.

Issue-wise Detailed Analysis:

1. Influence of Relationship on Price:
The appellants, M/s. Gemplus India Private Ltd. (GIPL), imported sim cards from their holding company and other related units. The fact that the appellants and the foreign suppliers are related is not in dispute. Revenue concluded that the relationship influenced the price, with a variation in price ranging from 21% to 51%. The Adjudicating Authority proposed loading the invoice value by 20% of the average actual difference. However, the appellants contended that the price was mutually agreed upon based on market conditions and not influenced by their relationship.

2. Application of Rule 4(3) of the Customs Valuation Rules, 1988:
The Commissioner (Appeals) upheld the loading of the value but reduced the loading factor from 20% to 17.83% due to an arithmetical mistake. The appellants argued that the Commissioner (Appeals) did not follow Rule 4(3) correctly, as she relied on data from the OIO rather than the records and documents submitted before her.

3. Comparison of Transaction Value:
The appellants argued that the lower authority incorrectly compared the transaction value of their imports with those by unrelated buyers. The lower authority considered only a specific quantity and variety of sim cards imported by the appellants on particular dates, while the appellants contended that the total imports over a financial year should be compared. The appellants also highlighted that the quantity of imports by unrelated buyers was negligible compared to their imports.

4. Consideration of Personalization Cost and Other Factors:
The appellants stated that the personalization of sim cards was done by the overseas supplier for unrelated buyers, which increased the price of their imports. Other reasons for price differences included sales tax/exchange rate advantages, bulk order discounts, and urgent order negotiations. The lower authority did not adequately consider these factors in re-determining the assessable value.

5. Application of Rule 5 of the Customs Valuation Rules:
The appellants argued that the lower authority did not correctly apply Rule 5 of the Valuation Rules. They cited several judgments to support their claim that the transaction value of imports by traders/dealers cannot be compared with those by actual users. The Tribunal agreed, noting that the commercial levels and quantities of imports by the appellants and unrelated buyers were not comparable.

Conclusion:
The Tribunal concluded that the relationship between the appellant and the foreign supplier did not influence the price, as the prices were based on market-driven conditions. The appellants regularly imported goods in large quantities as traders, while the imports by unrelated buyers were sporadic and for actual use. The personalization cost and other factors justified the price differences. Therefore, the conditions for applying Rule 5 of the Valuation Rules were not satisfied. The appeal was allowed, and the transaction value was accepted without any loading.

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