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2023 (6) TMI 856 - AAR - CustomsSeeking Advance Ruling on the basis of incomplete details - Valuation of imported goods for trading activity - applicant can be considered as Trader or Commission Agent? - trading margin of 3% earned by the applicant upon import of the subject goods is required to be added in the assessable for customs purposes? - Section 14 of the Customs Act, 1962 read with Customs Valuation (Determination of value of imported goods) Rules, 2007 (CVR, 2007), interpretative notes to the CVR, 2007 and the Special Valuation Branch related CBIC circular of February 2016. HELD THAT - The assessable value for payment of customs duties has been determined by the applicant as the sum of price at which the goods are sold by Ingrasys Singapore to the applicant and freight charges. It is noted that freight is directly met by ADSPL, a third party. In the value chain the price offered to the third party subsequent to import should have been higher than the assessable value declared but for direct freight payment by the third party to the supplier- exporter even if there is no value addition on account of manufacturing or processing - there are no role of the department or a legal framework under the Customs Act, 1962 in it. As stated earlier this accumulation is entirely attributable to the way the transaction is organized among the three transacting entities. Hence accumulation of IGST credit (ITC) is not a correct legal ground for seeking an advance ruling. Addition or otherwise of 3% amount earned by the applicant to the declared import transaction value - HELD THAT - It is on record that the applicant company is a subsidiary of Ingrasys (Singapore) PTE Ltd. which holds 99% of the share capital of the applicant company. They are related parties in terms of Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. In such a situation the import transactions will be subjected to the rigor of procedure laid down under the CBIC circular no. 5/2016-Customs dated 9.2.2016 related to the procedure to be followed in related party import cases and other cases by the Special Valuation Branch. It is found that here the questions remain as to (1) why the price agreement is entered into between the exporter supplier M/s Ingrasys, Singapore a third party buyer M/s ADSPL leaving aside the importer-applicant (claimed to be principal to the transaction), who claims to be an independent business entity. The copy of price agreement is necessary to examine the role of the applicant in the transaction, (2) why the principal (importer) in this transaction has not borne the burden of the freight that would have resolved the issue of accumulation of ITC, (3) whether 3% amount earned by the applicant is a profit margin or a business revenue' of the applicant. It is important to note that the business profit and business income are not same and interchangeable terms, (4) why there is no statement/submission on the grounds for payment of Customs duty and interest subsequent to DRI investigation when the applicant is of firm belief that the 3% margin earned by them is not a commission and hence not includible in transaction value of imported goods under section 14 of the Customs Act, 1962. Investigation closure report of the DRI, if any, is also not submitted by the applicant, (5) why the data sought from the applicant including the profit and loss account of the applicant, referred in para 5.1 earlier, was not submitted by the applicant. This data was essential to understand exact role of the applicant in the transaction, (6) Rule 10(1)(e) provides for inclusion of all other payments which are a condition of sale. In the absence of sufficient data this factor also cannot be conclusively verified. On the background of foregoing discussion, the applicant has not submitted requisite information sought by the advance ruling authority. This is a clear case of data insufficiency.
Issues Involved:
1. Whether the applicant can be considered as a Trader or Commission Agent. 2. Whether the trading margin of 3% earned by the applicant upon import of the subject goods is required to be added in the assessable value for customs purposes. 3. Accumulation of Input Tax Credit (IGST) due to the valuation method adopted by the applicant. Issue-wise Detailed Analysis: 1. Trader or Commission Agent: The applicant, M/s. Foxconn Technology (India) Private Limited (FTIPL), imports electronic products from its parent company Ingrasys (Singapore) PTE Ltd and sells them to Amazon Data Services Private Limited (ADSPL). The applicant claims to be a trader, not a commission agent. The Directorate of Revenue Intelligence (DRI) contends that the applicant acts as a commission agent, with the 3% margin being a commission that should be included in the assessable value for customs purposes. The applicant argues that the 3% margin is profit earned post-importation and not a commission. The ruling authority noted that the applicant did not provide sufficient data to substantiate their claim of being a trader, including the absence of a direct price agreement between ADSPL and Ingrasys Singapore and the payment of freight by ADSPL, which raises doubts about the principal-to-principal nature of the transaction. Therefore, the authority refrained from issuing a ruling due to data insufficiency. 2. Inclusion of Trading Margin in Assessable Value:The applicant asserts that the 3% trading margin earned upon the sale of imported goods should not be included in the assessable value for customs purposes. According to Rule 10(1)(a)(i) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, commissions and brokerage, except buying commissions, should be included in the transaction value. The applicant argues that the 3% margin is not a commission but profit earned after the sale of goods in India. The ruling authority found that the profit margin is income earned by the applicant and not an expense incurred by the buyer, and thus does not satisfy the definition of commission under Rule 10(1)(a)(i). The authority agreed with the applicant's contention that the margin is not includible in the assessable value under the Customs Valuation Rules. However, due to the lack of sufficient data, the authority refrained from issuing a definitive ruling. 3. Accumulation of Input Tax Credit (IGST):The applicant highlighted that the inclusion of the 3% trading margin in the assessable value leads to the accumulation of Input Tax Credit (IGST) paid on imports. The ruling authority observed that this accumulation is a result of the transaction structure, where the freight cost is included in the import transaction value but deducted from the resale price due to direct payment by ADSPL. The authority noted that this situation is not due to any legal infirmities but is attributable to how the transactions are organized among the three entities. Consequently, the accumulation of IGST credit is not a valid legal ground for seeking an advance ruling. Conclusion:The ruling authority refrained from issuing a ruling due to data insufficiency. The applicant did not provide essential information, such as the price agreement between Ingrasys Singapore and ADSPL, the rationale for freight payment by ADSPL, and the grounds for accepting DRI's liability determination. The authority emphasized the need for complete data to verify the applicant's claims and determine the correct valuation method under the Customs Act, 1962 and Customs Valuation Rules, 2007.
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