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TMI Blog2012 (11) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... ters have not submitted details of licence fee and royalty, loading of the assessable value by 20% is justified. 4. Against this finding of the Deputy Commissioner no appeal was filed by the Department. The respondents, however, filed an appeal to the lower appellate authority who has come to the conclusion that the finding of the original authority is without any basis. He has examined the provision of Rule 2(2) of the Valuation Rules and has stated as follows :- "In the instant case, the lower authority has held that the appellant and the foreign supplier are related in terms of Rule 2(2)(iv). As per this, persons shall be related if any person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stockings of both of them. It has not been shown in the instant case that any person is holding 5% or more of the voting stock in both the appellant and the supplier companies. The fact that the foreign supplier holds 35% of the share capital of the appellant company will not make them related under the provisions of Rule 2(2). As such, the finding of the lower authority is not sustainable and as such, rejection of the transaction value is not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner. He refers to the fact that the supplier has 35% shareholding in the respondent-company and therefore both parties appear to be related in terms of Rule 2(2)(i)(iv)(v) of the Customs Valuation Rules. He also states that no opportunity was given to the original authority to examine/cross-examine the submissions made before the lower appellate authority. Thirdly, he states that the burden is on the importer to prove that the relationship between them and the supplier had not influenced the price and that the importer had failed to prove or demonstrate the same. 9. In reply, Shri Alwan, learned counsel appearing for the respondents reiterates the points taken up in the cross-objection filed by the respondents. He submits that the order passed by the lower appellate authority merits confirmation. He states that the mere fact that the supplier is holding 35% of the share capital of the respondents or that on that basis they have a right to nominate directors to the Board of the respondent company by themselves will not be evidence of relationship as per the Customs Valuation Rules. He cites the following decisions in this regard :- (i) Collector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons with the hope that both sides to the dispute are well aware of the nature of the dispute and our reasoning for deciding the dispute one way or the other, particularly when such orders are dictated and pronounced in the open court in the presence of both sides. 11. To ensure that the customs valuation methods do not become trade restricting non-tariff barriers, GATT 1947 and its successor GATT 1994 incorporated broad principles of customs valuation for universal adaptation. The WTO Agreement on customs valuation follows the broad principles contained in the GATT Article 7. India being a signatory to the WTO Agreement has formulated its Customs Valuation Rules accordingly. Hence, there are parallel provisions in the WTO Agreement on Customs Valuation and the Indian Customs Valuation Rules. The customs valuation methods prescribed under these are to be applied in a hierarchical fashion starting with the first which requires that the transaction value to be accepted as the customs value subject to the conditions as well as adjustments provided for. One of the pre-condition of acceptance of transaction value is that the buyer and the seller are not related. It is also provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) they are officers or directors of one another's businesses; (ii) they are legally recognized partners in business; (iii) They are employer and employee; (iv) any person directly or indirectly owns, controls or holds 5 per cent or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family. Explanation 1. - The term "person" also includes legal persons. Explanation 2. - Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionare, however described, of the other shall be deemed to be related for the purpose of these rules, if they fall within the criteria of this sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Rule 4(3) do not arise in the absence of relationship itself not being established. Such examination is envisaged only where relationship is first established. 18. As regards the question of dealing with the royalties, licence fee etc., there are adequate provisions in the Customs Valuation Rules [for example, Rule 9(1)(c)] to deal with the same. We find that the original authority has not made use of such provisions and has wrongly proceeded on the basis that the supplier and the respondents are related in terms of Rule 2(2)(iv) of the Customs Valuation Rules and the Department did not challenge his order. Even where the relationship is not established, the rules provide adequate provisions to deal with cases of suspected undervaluation and the original authority namely the Deputy Commissioner in-charge of the Special Valuation Branch cannot be said to have been unaware of the same. Since he has not used any of those nor the Department has appealed against his order, there is precious little that the Tribunal can do except upholding the order of the lower appellate authority which is legally correct. It cannot also uphold arbitrary enhancement of value by 20% without ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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