2020 (2) TMI 1134 - AT - Customs

Valuation of imported goods - rejection of declared value - purchase of urea by the Appellant from the Government of India on High Sea Sale - inclusion of miscellaneous charges of 17/- per MT paid by the Government of India to STE in assessable value - inclusion of notional 2% High Sea Sale Commission in assessable value - invocation of extended period of limitation - confiscation - penalty. Whether for the purchase of urea by the Appellant from the Government of India on High Sea Sale miscellaneous charges of 17/- per MT paid by the Government of India to STE is required to be included in the assessable value and consequently duty payable on it? - HELD THAT - The STE buys urea on behalf of the Government of India. The STE in fact represents the Government of India abroad and the foreign sellers know that the urea will be ultimately purchased by the Government of India. It is the Government of India that ultimately sells urea to the Appellant and the Appellant sells urea to the farmers - The Principal Commissioner has also placed reliance upon Rule 10(1) (e) to contend that 17/- per MT paid by the Government of India to STE should be included in the transaction value. This rule provides that in determining the transaction value there shall be added to the price actually paid or payable for the imported goods all other payments actually made or to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. This rule speaks of payment made or to be made by the buyer to the seller or by the buyer to a third party. The seller in the instant case is the Government of India and the buyer is the Appellant. This amount of 17/- per MT has neither been paid by the Appellant to the Government of India nor the Appellant paid this amount to a third party. This amount of 17/- per MT therefore could not have been included in the transaction value under rule 10(1) (e) of the 2007 Valuation Rules. Also since the aforesaid payment of 17/- per MT has not been made as a condition of sale of urea by the Government of India to the Appellant to satisfy an obligation of the Government of India this amount cannot be added to the transaction value under rule 10 (1) (e) of the 2007 Rules. Whether in regard to the aforesaid purchase of urea by the Appellant from the Government of India on High Sea Sale notional 2% High Sea Sale Commission is required to be included in the assessable value of goods and consequential duty is payable? - HELD THAT - What has to be seen under section 14(1) of the Customs Act as amended in 2007 is the transaction value of the goods imported or exported for the purpose of customs duty and transaction value is stated to be the price actually paid or payable for the goods when sold for export to India for delivery at that time and place of importation. Sub-section (1) of section 14 also makes it clear that the price actually paid or payable for the goods will not be treated as transactional value where the buyer and the seller are related to each other. As per the first proviso to the amended section 14 (1) certain charges are to be added in the transaction value of the imported goods - It needs to be noted that the Circular dated 11 May 2004 was issued during the period the unamended section 14 of the Customs Act was in force. Thus while there was scope for addition of notional charges in the assessable value under the unamended section 14 of the Customs Act but after the actual sale price concept was introduced in the year 2007 on the basis of GATT guidelines and section 14 of the Customs Act was amended in 2007 any inclusion of notional charges seems to have lost its relevance and only actual cost incurred by the buyer is required to be considered. Thus 2% Notional High Sea Sale Commission could not have been added to the assessable value - neither the amount of 17/- per MT paid by the Government of India to the STE could have been added to the assessable value on which the Appellant was required to pay duty nor 2% Notional High Seal Sale could have been added in the assessable value. The confirmation of demand under these two heads therefore cannot be sustained. The order passed for confiscation of urea under section 111(m) of the Customs Act and the imposition of penalty are also liable to be set aside and is set aside. It is therefore not necessary to examine the contention raised by the learned counsel for the Appellant that the extended period of limitation could not have been invoked in the fact and circumstances of the case. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Inclusion of miscellaneous charges of ?17/- per MT in the assessable value.
2. Inclusion of 2% notional High Sea Sale Commission in the assessable value.
3. Invocation of the extended period of limitation.
4. Liability of urea for confiscation under section 111(m) of the Customs Act.
5. Imposition of penalty under section 112(a) and section 114A of the Customs Act.

Detailed Analysis:

1. Inclusion of Miscellaneous Charges of ?17/- per MT:
The Principal Commissioner concluded that the ?17/- per MT paid by the Government of India to the State Trading Enterprises (STEs) should be included in the assessable value under rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The Appellant argued that these charges were agency charges paid by the Government of India to STEs for services rendered in identifying and importing urea, and not paid by the Appellant. The Tribunal found that the ?17/- per MT was indeed a commission paid by the Government to the STEs for representing it abroad, thus qualifying as "buying commissions" which should not be included in the transaction value as per rule 10(1)(a)(i) and the interpretative note to rule 10. The Tribunal also noted that TDS was deducted on these charges, indicating they were treated as commission by the Government. Consequently, the ?17/- per MT should not have been included in the assessable value.

2. Inclusion of 2% Notional High Sea Sale Commission:
The Principal Commissioner included a 2% notional High Sea Sale Commission in the assessable value, relying on the Circular dated 11 May 2004. The Appellant contended that this notional commission was not added at other ports and for other importers. The Tribunal noted that the Circular allowed for the actual High Sea Sale Contract price to be taken as the transaction value if it constituted an international transfer of goods. The Tribunal emphasized that section 14 of the Customs Act, as amended in 2007, bases the transaction value on the price actually paid or payable, not on notional charges. Therefore, the 2% notional High Sea Sale Commission could not be added to the assessable value.

3. Invocation of the Extended Period of Limitation:
Given the Tribunal's findings that neither the ?17/- per MT nor the 2% notional High Sea Sale Commission should be included in the assessable value, it was unnecessary to address the issue of the extended period of limitation.

4. Liability of Urea for Confiscation under Section 111(m) of the Customs Act:
The confiscation of urea under section 111(m) was based on the inclusion of the ?17/- per MT and the 2% notional High Sea Sale Commission in the assessable value. Since the Tribunal found these inclusions to be incorrect, the order for confiscation was set aside.

5. Imposition of Penalty under Section 112(a) and Section 114A of the Customs Act:
Similarly, the imposition of penalties under sections 112(a) and 114A was predicated on the same incorrect inclusions in the assessable value. Hence, the penalties were also set aside.

Conclusion:
The Tribunal set aside the order dated 30 March 2016 passed by the Principal Commissioner, concluding that neither the ?17/- per MT nor the 2% notional High Sea Sale Commission should be included in the assessable value. Consequently, the demand for differential customs duty, the order for confiscation of urea, and the imposition of penalties were all overturned. The appeal was allowed.