2017 (1) TMI 277 - AT - Customs

Valuation - enhancement of 20% of declared value - related party transaction - the foreign collaborator holds 50% share in the company of the appellant - Held that - foreign collaborator is holding 50% equity in the appellant s company. Except this there is no other evidence which shows that there is a control by the foreign company on the appellant company. As per the judgment relied in the case of MODI SENATOR (I) PVT. LTD. Versus CC. (IMPORTS & GENERAL), NEW DELHI 2009 (3) TMI 808 - CESTAT, NEW DELHI it was held that merely because Foreign and Indian company having 50-50 percent equity in the Indian entity. It does not fall under the definition of related person as provided under Rule 2(2) of the Customs Valuation Rules, 1988. In the absence of any other evidence it is not established that the appellant and foreign collaborator are related person. Therefore the impugned order is not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the enhancement of value by 20% over the declared value is justified based on the relationship between the appellant and the foreign supplier.

Analysis:
The case involved a dispute where the adjudicating authority had enhanced the value of imported goods by 20% over the declared value due to the foreign collaborator holding a 50% share in the appellant's company, considering them as related persons. The appellant challenged this enhancement through an appeal before the Commissioner (Appeals) and subsequently before the Appellate Tribunal.

The appellant's argument primarily revolved around the fact that the only basis for the enhancement was the alleged relationship between the appellant and the foreign supplier, based on their equal shareholding. The appellant contended that mere shareholding does not establish a relationship as per Customs Valuation Rules, citing relevant case laws to support their stance.

On the other hand, the Revenue, represented by the Assistant Commissioner, maintained that the 20% enhancement was justified due to the direct control exercised by the foreign company, as evidenced by the 50% equity holding in the appellant's company, making them related persons as per the Valuation Rules.

Upon careful consideration of the arguments from both sides, the Appellate Tribunal found that the sole basis for the 20% enhancement was the 50% equity holding by the foreign collaborator in the appellant's company. However, the Tribunal, relying on precedent judgments, emphasized the necessity of a two-way interest between the buyer and seller to disregard the transaction value. It was noted that the mere shareholding and presence of nominee directors did not establish a relationship as required by the Valuation Rules.

The Tribunal further highlighted that the absence of a third party controlling both the buyer and the seller, as well as the lack of mutual interest between the companies, led to the conclusion that the appellant and the foreign collaborator were not related persons. Consequently, the Tribunal allowed the appeal, setting aside the impugned order of enhancement and providing consequential relief to the appellant.

In conclusion, the judgment underscored the importance of establishing a two-way interest between parties to disregard transaction value and clarified that mere shareholding without mutual interest does not qualify as a relationship under the Customs Valuation Rules, ultimately leading to the allowance of the appeal against the enhanced value of imports.