2013 (10) TMI 1000 - AT - Customs

Valuation - Related party transaction - Relationship with supplier - Influence on price - Held that - relationship of the appellant to the supplier influence the price of the imported spares. The refurbishable spares were found to have been exported through courier from January to May 2006. The courier who handled the export shipments confirmed that there was no foreign exchange involved in the shipments. The appellant s bankers also confirmed this. The officials of the appellant, who were incharge of bank-related works also stated that they had not received any remittance towards export of re-furbishable spares. Though some FIRCs were produced by the appellant during the course of DRI investigations, no connection was found between the FIRCs and the export of refurbishable spares. The values shown in the invoices produced by the appellant at the time of export were found to be very minimal. As against these invoices, the appellant claimed before the adjudicating authority that these were not correct invoices and that there were other invoices available which carried the actual values of the exported spares. However, such other invoices were not submitted to the Customs authorities at the time of exports. They were not even produced before the DRI. The learned Commissioner also found that the set of invoices filed with Bills of Entry in Singapore for clearance of the spares was the same as those produced by the appellant before the Indian Customs authorities at the time of export. It was also found that, in the financial statements of the appellant, the sale of refurbishable spares was not mentioned towards foreign exchange income. On the basis of all these findings, it was concluded that the defective spares were exported free-of-cost by the appellant. Prima facie, there is no reason to doubt the correctness of the learned Commissioner s finding that such exports were made as a contractual obligation amounting to a condition of sale of the spares by Sun (Sing.) to the appellant. The monetary benefit of the export of refurbishable spares apparently accrued to Sun (Sing.) thereby constituting a flow-back. We have also examined the findings recorded by the learned Commissioner with regard to ALC charges, AEC charges, unbilled/underbilled amounts, professional charges etc. and have found such findings to be, prima facie, cogent. The declared prices of the imported spares have not been shown to be negotiated prices. Indeed, under the so called global pricing policy of the Group Company, there was hardly any scope for negotiations between the Sun entities. Though the PWC reports cited by the learned counsel indicate sale of spares by Sun(Sing.) to independent unrelated buyers in the Asia Pacific Region at similar deeply discounted prices, the learned counsel has not been able to cite any corroborative documentary evidence to support the PWC reports. M/s. PWC are the private accountants/auditors of the appellant and their reports, without independent corroborative evidence, cannot be accepted as conclusive proof of sale of spares at equally discounted prices by Sun(Sing.) to unrelated buyers in the same region. In the result, the Revenue appears to have made out a prima facie case for rejecting the declared value on the ground that such value was substantially influenced by direct and indirect flow-backs between the importer and the supplier being related Sun entities. The grant of discount to the extent of 61-70% on US Price List was also not disclosed to SVB. The learned special consultant submitted that the appellant had obtained SVB order fraudulently by suppressing material facts having a bearing on valuation of the goods. In the circumstances, it was argued, the Department could lawfully invoke Section 28 of the Customs Act as had been done in this case. Prima facie, these arguments of the learned special consultant for the respondent are acceptable on the facts and circumstances of this case and in view of the Hon ble Supreme Court s ruling in UOI Vs. Jain Sudh Vanaspati 1996 (8) TMI 108 - SUPREME COURT OF INDIA . - Stay granted partly.

Summary

Issues Involved:

1. Direct or indirect flow-backs to the supplier attributable to the supply of spares.
2. Whether the declared values represent true transaction values in an ordinary course of sale between non-related parties.
3. Misrepresentations and suppressions in obtaining the Special Valuation Branch (SVB) orders.
4. Adoption of the US list price for the valuation of the subject goods.
5. Jurisdictional objection regarding the issuance of show-cause notices by the Additional Director-General of DRI.
6. Invocation of the extended period of limitation under the proviso to Section 28(1) of the Customs Act.

Issue-wise Detailed Analysis:

1. Direct or Indirect Flow-backs to the Supplier:

The Tribunal examined whether the declared price of the goods was the sole consideration for the sale and found substantial evidence of direct and indirect flow-backs. The appellant made additional payments in the form of freight, ALC charges, AEC charges, and other expenses which were not billed or under-billed. The refurbishable spares were exported free-of-cost, benefiting Sun (Singapore), thereby constituting a flow-back. The Tribunal concluded that the relationship between the appellant and the supplier influenced the price of the imported spares.

2. True Transaction Values:

The Tribunal noted that the declared prices were not negotiated and were influenced by the global pricing policy of the Group Company. The discounts offered to the appellant were also extended to other Sun entities, but no corroborative documentary evidence was provided to support the PWC reports. The Tribunal held that the declared value was not the true transaction value due to the influence of direct and indirect flow-backs.

3. Misrepresentations and Suppressions in Obtaining SVB Orders:

The appellant did not disclose several agreements, the quantum of discounts, and the export of refurbishable spares free-of-cost to the SVB. The Tribunal found that the SVB order was obtained fraudulently by suppressing material facts, allowing the Department to invoke Section 28 of the Customs Act to demand duty on the imports covered by the finalized assessments of Bills of Entry.

4. Adoption of US List Price for Valuation:

The adjudicating authority rejected the declared value and adopted the US List Price as the basis for assessment. The Tribunal found that the heavy discounts were offered for administrative convenience rather than commercial factors. The flow-backs were roughly equal to the discounts in monetary terms, justifying the adoption of the US List Price for valuation.

5. Jurisdictional Objection:

The appellant's jurisdictional objection was overruled based on Notification No.17/2002 and amendments to Section 28 of the Customs Act with retrospective effect by the Customs (Amendment and Validation) Act, 2011. The appellant did not revive this issue during the hearing before the Tribunal.

6. Invocation of Extended Period of Limitation:

The Tribunal upheld the invocation of the extended period of limitation under the proviso to Section 28(1) of the Customs Act. The appellant's failure to disclose crucial agreements and facts to the SVB constituted suppression of facts with intent to evade payment of appropriate duty. The plea of limitation was not sustainable on the facts of the case.

Conclusion:

The Tribunal directed the appellant to predeposit an amount of Rs.75 crores under Section 129E of the Customs Act within six weeks, with the balance dues waived and stayed upon compliance. The Tribunal's decision was based on a prima facie view that the declared value was influenced by the relationship between the appellant and the supplier, justifying the adoption of the US List Price for valuation and the invocation of the extended period of limitation.