2012 (11) TMI 81 - AT - Customs

Transaction value - Related person alleged that supplier and the respondents related in terms of Rule 2(2)(iv) of the Customs Valuation Rules Held that - In terms of Rule 2(2)(iv) persons can be deemed to be related only if any person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stocks or shares of both of them - only if a third person directly or indirectly owns, controls voting stocks or shares of both the supplier and the importer, then the supplier and the importer can be deemed to be related - supplier and the respondents are not related - whether the relationship has influenced the price and whether the price approximates any of the test values as provided under Rule 4(3) do not arise in the absence of relationship itself not being established. Such examination is envisaged only where relationship is first established. The interpretation given by the original authority would amount to re-writing of Rule 2(2)(iv) to read that if the supplier has more than 5% of the shares in the importing company, then both would be deemed to be related. There is no warrant in law to do so. As regards the question of dealing with the royalties, licence fee etc., there are adequate provisions in the Customs Valuation Rules for example, Rule 9(1)(c) to deal with the same. - It cannot also uphold arbitrary enhancement of value by 20% without there being any basis for it.

Summary

Issues Involved:
1. Determination of whether the importer and the foreign supplier are "related" under Rule 2(2)(iv) of the Customs Valuation Rules, 1988.
2. Justification for the loading of the assessable value by 20%.
3. Jurisdiction and procedural propriety in the appeal process.

Detailed Analysis:

1. Relationship Under Rule 2(2)(iv) of the Customs Valuation Rules, 1988:
The primary issue revolves around whether the importer and the foreign supplier are related under Rule 2(2)(iv) of the Customs Valuation Rules, 1988. The Deputy Commissioner of Customs initially concluded that the foreign supplier holding 35% share capital in the Indian importer company made them related. However, the lower appellate authority found this interpretation incorrect, stating:
> "It has not been shown in the instant case that any person is holding 5% or more of the voting stock in both the appellant and the supplier companies."

The Tribunal upheld this view, emphasizing that Rule 2(2)(iv) requires a third person to hold 5% or more of the voting stock in both entities for them to be deemed related. The Tribunal cited the case of Modi Senator (I) Pvt. Ltd. v. Commissioner of Customs, New Delhi, where a similar interpretation was upheld by the Supreme Court.

2. Justification for Loading of Assessable Value by 20%:
The Deputy Commissioner justified a 20% increase in the assessable value due to the lack of submission of license fee and royalty details by the importers. However, the Tribunal found this arbitrary, noting:
> "The original authority has not made use of such provisions and has wrongly proceeded on the basis that the supplier and the respondents are related in terms of Rule 2(2)(iv) of the Customs Valuation Rules and the Department did not challenge his order."

The Tribunal concluded that the enhancement of value by 20% lacked a legal basis and was therefore unjustified.

3. Jurisdiction and Procedural Propriety:
The Tribunal noted that the Commissioner of Customs filed an appeal to the Madras High Court instead of the Supreme Court, which was the appropriate forum under Section 130E of the Customs Act, 1962. The High Court remanded the matter for fresh consideration. During the fresh hearing, the Department reiterated its stance but failed to provide new evidence or arguments to alter the findings of the lower appellate authority.

The Tribunal also addressed the procedural issue raised by the Department regarding the opportunity to examine/cross-examine submissions made before the lower appellate authority. The Tribunal dismissed this ground, stating:
> "It is the standard practice that the lower appellate authorities in the rank of Commissioners do send notices to both the appellants and the respondents fixing the dates of hearing."

Conclusion:
The Tribunal affirmed the lower appellate authority's decision, concluding that the importer and the foreign supplier were not related under Rule 2(2)(iv). The arbitrary 20% loading of the assessable value was also dismissed. The Tribunal found no merit in the procedural objections raised by the Department. Consequently, the Department's appeal was dismissed, and the cross-objection filed by the respondents was disposed of.