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TMI Blog2008 (6) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... in brief, are as follows :- (a) The appellant imported concentrates of alcoholic beverages (herein after referred to as CAB) from M/s. Joseph Seagram and Sons Ltd., Scotland which is wholly owned subsidiary of Seagram Company Ltd., Canada. The strength of CAB imported was about 60%. The appellant is admittedly a related person to the supplier and the same fact was declared to the Customs authorities. The assessment was made provisional. (b) The appellant imported CAB in four varieties one each meant for bottling of the four specific brands of whiskies namely; "100 Pipers", "Passport", "Something Special" and "International Malt". (c) The appellant was importing the CAB in wooden barrels; they were declaring the wooden barrels and their value separately for assessment. (d) The appellant diluted the imported CAB by addition of demineralized water and reduced the strength to 42.8%; packed them in bottles meant for customers under the respective brands; paid State excise duty; sold to their dealers for ultimate sales to the customers. (e) In 1999, the Officers of Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the order dated 31-5-2002 of the Tribunal before the Hon'ble Supreme Court which was dismissed vide order dated 21-11-2003 [2004 (163) E.L.T. A205 (S.C.)]. 3.3 Second Order of the Commissioner and second Remand order of the Tribunal In pursuance of the order of the Tribunal dated 25-3-2003, [2003 (154) E.L.T. 610 (T)] the Commissioner passed order dated 29-8-2003; he held that Rule 6 is applicable and confirmed the demand of duty amounting to Rs. 39.96 crores. Against this order, the party filed appeal to the Tribunal. In the appeal before the Tribunal, the appellant canvassed that Rule 6 was not applicable; alternatively, it was submitted that even if application of Rule 6 was upheld, there were serious flaws in the manner of applying Rule 6. Tribunal vide its second order dated 29-6-2005 [2006 (197) E.L.T. 351 (T)] again remanded the matter with certain directions (scope of the remand order is also in dispute before us.) 3.4 Third Order of the Commissioner Commissioner in pursuance of the Tribunal's order dated 29-6-2005 [2006 (197) E.L.T. 351 (T)] has passed the impugned order dated 20-6-2006 confirming a total differential duty of Rs. 40.37 crores. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 6, and while passing the said order the directions of the Tribunal have not been followed. (g) Since the applicability of Rule 6 was left to the adjudicator to decide, and the Tribunal did not decide the applicability of Rule 6 in the first remand order. The issue of applicability of Rule 6 was also not decided by the Tribunal in the second remand order, the third order of the original authority passed in pursuance of such remand order being against the interest of the assessee, they are entitled to raise the issue relating to applicability of Rule 6 before the Tribunal in the present proceedings. (h) Application of Rule 6 involves first and foremost identification of similar goods. Such identification is a pre-requisite for applying the Rule 6. Rule 2(1)(e) gives the definition of 'similar goods'. The definition has two major components. Similar goods need not be alike in all respects; but the relevant factors like quality, reputation, existence of trade mark are required to be taken into account while choosing the similar goods. For consumer goods like perfumes or alcoholic beverages, the quality, reputation and trade mark are majo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 6, an adjustment for high quantity of import made by the appellant should be necessarily granted. The responsibility to grant such adjustment is on the officer. As the principles enshrined in Rule 5 are applicable to Rule 6 also, the officer has no choice but to give necessary adjustment. Such adjustment can be granted on the basis of demonstrated evidence. Valid price list of the supplier indicating the discount is only an illustrative document for grant of such adjustment. The appellant has demonstrated by providing the actual quantum of import by the appellant as well as the competitors, year wise and hence they are entitled to adjustment in view of their high volume of imports. If adjustments are not made available, the application of Rule 6 is ruled out. (l) While comparing the value of similar goods, it is mandatory that the Department should gather details of all contemporaneous imports and adopt the lowest of the available transaction value as Rule 6 price. The Department has not gathered all details and made available the same to the appellant as could be seen by very high overall volume of import of whisky into the country. (m) &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 8. The Tribunal in the first remand order, thus emphatically rejected the applicability of Rule 3 and Rule 4. The Tribunal took note of the grievance of the assessee that comparison was not made with imports made at or about the same time. (c) The first remand order was challenged by the appellant in the Supreme Court but without success and hence became final in so far as the issues decided in the said order are concerned. (d) The second remand order dated 29-6-2005 [2006 (197) E.L.T. 351 (T)] took note of the fact that Commissioner had applied Rule 6. The findings of the Tribunal in paras 7, 13, 16 and 20 of the order, read together would show that the Tribunal had agreed with the decision of the Commissioner fixing the prices under Rule 6. The finding that it was "not going into the submissions made by the appellant against valuation under Rule 6" should not be treated as not giving decision on applicability of Rule 6. Therefore, the second remand order which was not appealed against must be treated as final and the appellant can not be allowed to agitate the applicability of Rule 6. (e) If the appellant are held entitled to agitate the applicability of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second yardstick relating to quality, reputation and existence of trade mark stands on a lower pedestal as they are pre-fixed by words "having regard to", though they do mean that the same can not be ignored. The latter 'intangible' yardsticks should not be understood in the sense as understood by technically qualified people but as understood by the normal users. (j) The import of whisky was subject to licensing under the Exim Policy; license was issued only for a year and it can not be said with certainty that for the next year also license will be issued. Under the circumstances, the appellant's attempt to club the imports over the years and to claim that they had imported substantially higher quantities when compared to their competitors' brands and, therefore, they are entitled to substantial adjustment in value to arrive at assessable value in terms of Rule 6, is not correct. (k) If the applicant wanted Rule 7 to be applied, it should have produced evidence that the goods imported by them and the competitors' brands are not similar. (l) In pursuance of Tribunal's order entire data of imports on the comparable goods had been given to the appellant and they w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 to arrive at the value in this case. Thus the assessee was not put to notice in the show cause notice on the application of Rule 6. Therefore, if the Commissioner thought it fit to proceed under Rule 6 for fixing the value the assessee should have been given an opportunity to put forward its contention against the proposal to proceed under Rule 6. This is a requirement to satisfy the salutary principles of natural justice. On going through the decision of the Supreme Court in N.B. Sanjana v. Elphinstone Spinning and Wvg. Mills Co. Ltd. relied on by the Revenue we do not find any ratio laid down therein which would go against the above view. In the above case the Supreme Court took the view that if the Assistant Collector of Central Excise had power to issue notice either under Rule 10A or Rule 9(2) the fact that the notice refers specifically to a particular rule, which may not be applicable, will not make the notice invalid on that ground. In coming to the above conclusion the Apex Court placed reliance on its own earlier decision in J.K. Steel Ltd. v. Union of India - 1978 (2) E.L.T. (J355) (S.C.) = AIR 1970 S.C. 1173. There it was held that if the exercise of a power can be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fluenced the price. 19. Something we will now refer to the issue whether Special imported during the period 1995-96 has to be treated on a par with Passport and 100 Pipers as far as its value is concerned. It was alleged in the show cause notice that during the period the appellant had bottled Something Special as deluxe whisky and sold the same in Indian market at a price of Rs. 1200/- to Rs. 1300/- as against Rs. 650/- to Rs. 800/- of Passport and 100 Pipers. The Commissioner has held in the assessment order that Something Special imported during 1995-96 i.e., before September 1996 was of the same quality of Something Special imported after September 1996. It is the case of the appellant that Something Special was imported during the relevant period without any claim that it was 12 years old and that the age certificate would show that Something Special concentrates were only 4 years old and not 12 years. The contention of the appellant that this fact was confirmed during the investigation by H.M. Customs and Excise U.K. does not seem to be correct. The documents relied on by the appellant in support of the above contention only go to show that Something Special was priced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the two show cause notices, the prices of impugned scotch whiskeys imported by M/s. Seagram remained constant or static. On the other hand, the prices for comparable U.D. products were seen to be fluctuating in a particular range. However, the lowest in the price range for comparable products is required to be and should be adopted in the subject case. If this is done, no further objection will sustain unless it is proved by M/s. Seagram that there was a lower than the said lowest price available of the same product, which has not been disclosed by the Department. Such allegation has not been made by M/s. Seagram. It has also been alleged that the DRI ignored comparable product of whiskey marketed by others in India. It is not the case of the department that there were comparable products of whiskey marketed by companies other than M/s. U.D. If it is the case of M/s. Seagram that there were indeed comparable brands of whiskeys marketed by companies other than M/s. U.D., it was for them to make specific submission in this regard, which they have not done. It would, therefore, stand to logic to infer that no other company, besides M/s. U.D, imported similar or comparable whiskey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e similar goods which is used for valuation of the items under import, would be in terms of prevalent commercial prices. 18. The second major contention of the appellant is that adjustment in price is required to be made taking into account quantities under import of similar goods and goods under assessment. This claim is within the specific terms of Rule 6. Sub rule (c) of Rule 5(1)(c) reads as under: - "Where no sale referred to in clause (b) of sub-rule (1) of this rule, is found, the transaction value of identical goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value." This sub-rule is equally applicable to determination of value under Rule 6 as made clear by sub-rule (2) of Rule 6. The quantity differences are large in the case of certain varieties. The appellant's claim for deduction based on quantit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the provisional assessment in terms of Section 18(2) of the Customs Act. As per the order of the Delhi High Court penal action, if warranted, could be initiated subsequently after finalization of assessment. The scope of the show cause notices thus got modified/altered by the said order. The direction of the High Court, in our considered opinion, does not preclude use of the materials revealed in the show cause notice when the same has relevance for arriving at the value in finalization of the assessment. 8.3 First order of the Tribunal dated 27-3-2003 considered the arguments of both sides about the applicability of Rule 4(3)(b) of the Valuation Rules and rejected the contention of the appellant. It was also held, "the appellant cannot be herd to contend that it was able to prove that the relationship has not influenced the price". The claim that in spite of relationship the value declared by them was acceptable in terms of Rule 4(3)(b) of the Customs Valuation Rules, 1988 thus already stands rejected by the Tribunal. Therefore this issue is not to be considered again by the Tribunal in the present proceedings. 8.4 The submission at this stage that the determinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the value of imported goods. (c) Where no sale referred to in clause (b) of sub-rule (1) of this rule, is found, the transaction value of identical goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value. (2) Where the costs and charges referred to in sub-rule (2) of Rule 9 of these rules are included in the transaction value of identical goods, an adjustment shall be made, if there are significant differences in such costs and charges between the goods being valued and the identical goods in question arising from differences in distances and means of transport. (3) In applying this rule, if more than one transaction value of ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such determination, due allowance shall be made for the value added by processing and the deductions provided for in items (i) to (ii) of sub-rule (1) of this rule." 10.1 The Commissioner has confirmed the demand applying the provisions of Rule 6 of the Valuation Rules. According to ld. Advocate for the appellant, Rule 6 is not applicable in the present case and the value requires to be determined in terms of Rule 7. The value as per Rule 7 shall be lower than the transaction value declared by them. Even if it is held that Rule 6 is applicable, adjustments as envisaged in the rules are required to be made. The submission of the learned Advocate that similarity of goods for the purpose of Rule 6 has to be determined only by comparing two or more imported goods is definitely valid. In the present case, on a close scrutiny it is seen that what is being treated as similar goods are different categories of CABs imported by the appellant with goods imported by their competitors and for identifying similar goods, certain parameters have been adopted. What the law requires is to adopt parameters which are feasible and practicable to determine similarity of goods. The Commissioner h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roper to compare non-branded goods with the branded goods. Similarity of goods should not be considered on same rigid parameters as applicable in the case of identical goods. The Valuation Rules and the Interpretative notes make a clear distinction between identical goods and similar goods. The comparison is for the purpose of valuation to determine the custom duty. For this purpose, no extensive market research into finer aspects of valuation of trade mark, brand names etc. is expected to be made by the Department. For determining similarity, no studies on consumer preferences, differing tastes based on cask used for the aging, the temperature during the heating process, water used for making the scotch etc. and ingredients used and details of blending formulae are expected to be made - as painstakingly argued by the Advocate. It is not only impossible but it is also not necessary. The observation in the Commentaries and the view expressed by Sh. Saul L. Sherwan that "similarity is likely to be found mainly with highly standardized goods" is not legally binding and may not have relevance in the present case. Such an approach would make the provisions Rule 5 unworkable. The submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted by the appellant and by the contemporaneous importers is of the same magnitude. A comparison of quantity of imports for different years with that of the contemporaneous imports is not justified especially because the import of the CAB required import licence till 2001-2002. The appellant did not adduce any evidence whatsoever to justify quantity discount beyond a bald assertion. The appellant did not prove that they had any discount or a pricing policy; that did not have any objective and a quantifiable discount structure. In the present case, it cannot be said that the seller grants any quantity discount as no such quantity discount is disclosed in the contract and no other evidence has been produced to show that such a discount was given. Such adjustment cannot be made as the transaction is between related parties. We are unable to agree with the above view of the Department. The finding of the Tribunal vide order dated 29-6-2005, [2006 (197) E.L.T. 351 (T)] on this issue, was as follows : "The quantity differences are large in the case of certain varieties. The appellant's claim for deduction based on quantity is required to be considered. The rule makes it clear that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant with the corresponding brand of similar goods being compared. 11.5 In this case, against the first order of the Commissioner the appellant alone came in appeal, the Department did not, nor did it file any cross-objection. Similarly, in respect of the second order of the Commissioner also, only the appellant filed appeal; the Department neither filed appeal nor filed any cross-objection. In the proceedings before the Tribunal, the appellant cannot be put in a position worse than they were before filing it as held in the case of Commissioner of Customs Bombay v. Vishal Chabbria - 1996 (81) E.L.T. 295 (Tribunal.) Therefore, the adoption of prices in the impugned order of the Commissioner which are higher than those adopted by the Commissioner in his second order dated 28-9-2003 is not sustainable. The submissions of the learned Advocate in this regard merits acceptance. 12. We uphold the decision of the Commissioner in determining value under Rule 6. We hold that they are eligible for adjustments from the value of the similar goods as they have imported substantially higher volume. We also hold that they are eligible for adjustments from the value of the sim ..... 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