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TMI Blog2011 (2) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... when evidence exists for discounts given even to retail buyers. The services availed by the importer from their holding company, for which CSC is paid, are likely to be chargeable to service tax under Section 66A of the Finance Act, 1994 and it is open to the Customs authorities to notify the concerned service tax authorities for taking action as permitted under law for recovery of service tax if not already paid. - C/142/2009-Cus - - - Dated:- 22-2-2011 - Hon'ble Mr. Ashok Jindal, Member Judicial Hon'ble Mr.Mathew John, Technical Member Appeared for the Appellant: Shri Prasad Paranjape, Advocate Appeared for the Respondent: Shri Fateh Singh, DR Per Mathew John: The issue involved in this appeal is the valuation of computer software imported by M/s Bentley System India Pvt Ltd, the Appellant, from M/s Bentley Incorporated USA which holds 99.5% of the share capital of the Appellant company. The importer is related to the foreign supplier in terms of Rule 2(2) of Customs Valuation (Determination of Imported Goods) Rules, 2007 (hereinafter referred to as Customs Valuation Rules ). The Appellant declared the relationship as required under the Customs V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Details of Microstation V8 2004 Edition as sold by Bentley USA to Bentley India Quantity Price per unit (US$) Total Price (US$) 108 2586 279288 245 2781 681345 Total Average 353 2721 960633 4. It was also noticed that the supplier s price list for its main product namely Microstation V-8 during the year 2006-07 showed a price of US $ 4795 per piece FOB but for goods imported by the Appellant, the price was declared at US 2781.10 per piece C F. Further, it was noticed that the appellant was paying money to the supplier i.e. their foreign supplier under Corporate Service Charges (hereinafter referred to as CSC ) and such charges are also mentioned in the Transfer Price Agreement. Considering the above aspects, the adjudicating authority passed an assessment order. The operative part of the order is reproduced below:- The importers and the foreign suppliers are related as per Rule 2(2) of the Valuation Rules. The prices declared by the importers in the import invoice in respect of goods manufactured by the Foreign suppliers and import made from the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 2004-05 1,90,76,440 3,09,09,959 61.71% 2005-06 1,58,23,853 9,06,12,818 17.46% 2006-97 3,47,80,481 18,43,43597 18.86% 9. From the above table, it is not clear whether the CSC payable is based on actual cost of service rendered or otherwise. Since it is the contention of the Appellant that the CSC have not influenced the declared values, the burden is on them to prove the same by furnishing detailed cost analysis of CSC which Appellant have failed to do Thus, the Appellant have not discharged the burden that CSC had not influenced the declare values. Moreover, as stated by the AC in his order, the Appellant have declared before Income-tax authorities that corporate service charges are linked transactions to the purchase of software products. In transfer pricing cases, the charges which the importer is required to pay to the supplier besides declared price has to be analyzed incisively as there is always a risk of assessable value getting transferred to other charges payable. In the subject case, as I have already stated, CSC payable has to be incommensurate with the cost of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of the quantity. Quantity involved in each transaction is a separate matter dealt with in the same Rule. The Customs Valuation Rules recognize that values for different commercial levels will be different. Further as distributor, the Appellant is importing higher volumes than what is imported by individual customers. Therefore, price at which the goods are sold to individual customers cannot be the prices at which the goods are sold to the distributor Appellant. 9. The Appellant also submitted that as per the transfer price, the transfer price agreement is for determining the price of products and service. Such prices are determined as per clause 1.01 of the agreement which is reproduced below- Prices The transfer prices for the purchase of products and services by Bentley local from Bentley shall be determined substantially in accordance with arm s length pricing rules based on the relative functions performed and risks borne by the contracting parties as required by the arm s length standard. The transfer price calculation may be mended in written by Bentley US from time to time. Bentley US will have transfer price studies performed by qualified professionals from tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding discounts given from list price to unrelated buyers like Pixel Soft Tech Pvt Ltd, Durr India Pvt Ltd, ONGC etc. are produced. This matter does not need any elaborate discussion. The order-in-original and order-in-appeal are to be set aside on this count alone. 16. However, it is necessary to examine whether any addition need to be made on account of CSC being paid by the importing company to the supplier abroad. Here the relevant facts are (i) there is no denial of the fact that the supplier is providing service to the importer company in the matter of accounting, finance, legal, data processing human resources and other management functions, corporate marketing and product support services, such as continuous product upgrades and online resources marketed as Bentley SELECT . (ii) No case is made out that the payment is disproportionate to any reasonable estimate of cost of such services; (iii) CSC is not proportionate to the value of sales; (iv) There is no information regarding any objection taken by Income-tax Department to the cost of services in the Transfer Price Agreement. 17. The Ld. DR argues that CSC is linked to the imported goods. The man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine the circumstances surrounding the sale. In this context, the proper officer of customs should be prepared to examine relevant aspects of the transaction, including the way in which the buyer and the seller organize their commercial relations and the way in which the price in question was arrived at in order to determine whether the relationship influenced the price. Where it can be shown that the buyer and seller, although related under the provisions of rule 2(2) buy from and sell to each other as if Appellant were not related, this would demonstrate that the price had not been influenced by the relationship. An example of this, if the price had been settled in a manner consistent with the normal pricing practices of the industry in question or with the way the seller settles prices for sales to buyers who are not related to him, this would demonstrate that the price had not been influenced by the relationship. As a further example, where it is shown that the price is adequate to ensure recovery of all costs plus a profit which is representative of the firm s overall profit realized over a representative period of time (e.g. on an annual basis) in sales of goods of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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