1994 (1) TMI 135 - AT - Customs

Summary

Issues Involved:
1. Valuation of imports prior to 16-8-1988 under Customs Valuation Rules, 1963.
2. Valuation of imports on or after 16-8-1988 under Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
3. Special relationship between the importer and the foreign supplier.
4. Dual system of pricing.
5. Categories of imports and their valuation.
6. Applicability of relevant valuation rules.
7. Previous Tribunal decision and its relevance.

Detailed Analysis:

1. Valuation of Imports Prior to 16-8-1988 under Customs Valuation Rules, 1963:
The ld. Collector (Appeals) agreed with the Asstt. Collector's decision to add 8.3% to the value of imports prior to 16-8-1988. This was based on the Customs Valuation Rules, 1963, which did not recognize the concept of transaction value. The Asstt. Collector determined the loading factor of 8.3% based on the commission received by M/s. GMMCO from the foreign supplier, which was considered reasonable. The Tribunal upheld this decision, emphasizing that the method adopted by the Asstt. Collector was rational and legal.

2. Valuation of Imports on or After 16-8-1988 under Customs Valuation (Determination of Price of Imported Goods) Rules, 1988:
The ld. Collector (Appeals) held that the invoice price in respect of imports made by M/s. GMMCO on their account constituted the transaction value within the meaning of Rule 4 of the Customs Valuation Rules, 1988. Therefore, the loading of 8.3% to the CIF value by the lower authority was not sustainable and was set aside. However, the Department appealed against this decision, arguing that the special relationship between M/s. GMMCO and the foreign supplier influenced the pricing pattern, warranting the loading of 8.3%.

3. Special Relationship Between the Importer and the Foreign Supplier:
The Department argued that M/s. GMMCO had a special relationship with the foreign supplier, M/s. CFEL, which influenced the pricing pattern. Various clauses in the agreement indicated control exercised by the foreign company over the Indian company, such as restrictions on changes in management and ownership, and requirements for financial disclosures. The Tribunal agreed with the Department, finding that the foreign company exercised significant control over the Indian company, creating a special relationship under Rule 2(2)(v) of the Customs Valuation Rules, 1988.

4. Dual System of Pricing:
The dual pricing system involved a lower dealer's net price and a higher suggested consumer's price. M/s. GMMCO received administrative and diagnostic service charges, which were recorded as commissions. The Tribunal found that this dual pricing indicated mutuality of interest between the two companies. The difference between the dealer's net price and the suggested consumer's price (22-25%) and the commission (19.3%) were considered additional considerations due to the special relationship.

5. Categories of Imports and Their Valuation:
M/s. GMMCO imported goods under three categories: (i) on their account at dealer's net price, (ii) under letter of authority system for actual users, and (iii) direct imports by actual users. The Tribunal found that in all three categories, M/s. GMMCO benefited from either lower prices or commissions. This indicated that the dealer's net price did not include the selling commission, supporting the Department's view that the CIF value should be adjusted.

6. Applicability of Relevant Valuation Rules:
For imports prior to 16-8-1988, the Customs Valuation Rules, 1963 applied, while for imports on or after 16-8-1988, the Customs Valuation Rules, 1988 applied. The Tribunal held that due to the special relationship, Rule 8 of both sets of rules, which provides for a residual method of determining value, was applicable. The Asstt. Collector's determination of the loading factor at 8.3% was found to be reasonable and sustainable in law.

7. Previous Tribunal Decision and Its Relevance:
The previous Tribunal decision in the case of Collector Customs v. M/s. GMMCO was found to be relevant and largely applicable to the present case. The Tribunal in that case held that the invoice price did not meet the test of Section 14(1)(a) and that the price paid by others, which included a buying commission, was the correct price. The Tribunal in the present case found that similar conditions applied, and therefore, the CIF value should be loaded by 8.3%.

Conclusion:
The Tribunal allowed the Department's appeal against the order of the Collector (Appeals) for imports on or after 16-8-1988, holding that the CIF value should be loaded by 8.3%. The appeal of M/s. GMMCO against the order of the Collector (Appeals) for imports prior to 16-8-1988 was rejected, upholding the loading of 8.3% to the CIF value.