9911796707
TMI Blog1983 (8) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... d finished articles, components and raw materials by 100% of the f.o.b. value. They have also challenged the charge of mis-declaration under Section 111(m) of the Act and the levy of penalty under Section 112 ibid. 3. The main contention of the appellants is that OAK are an independent corporate body and their dealings with them are as a principal to principal only. They do not deny the fact that OAK have equity participation with the appellants to the extent of 45% of the capital (as per the agreement, the OAK was to supply their equity capital in the form of machinery and equipment) but strongly refute the charge that they have any special relationship. They maintain that their dealings with OAK are strictly based on commercial considerations. Further, both the parties have no interest in the business of each other except that OAK have financial stake in the appellants company by virtue of being an equity holder. The appellants have maintained that the expression `Collaborators , `Associates etc. used in the documents or the annual reports of the company have been loosely applied. For all practical purposes they are two separate bodies, deal with each other as principal to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants were nothing but a subsidiary of the OAK and that inter-company prices were being charged which were much lower than the prices determined under Section 14 of the Act. The lower authorities had also failed to properly appreciate the pricing pattern with regard to electronic goods and components where technological advances are being made at a rapid pace. Being an important equity holder in the appellants company, the OAK had been given the right to appoint one of the Directors on the appellant company s Board of Directors. A very forceful plea was also made that during the years 1974 to 1978 (which cover the present proceedings) the total f.o.b. value of imports of the appellants from the OAK amounted to ₹ 105 lakhs. Against this OAK had received by way of dividends a sum of ₹ 18.61 lakhs only. It was urged before us as to whether any prudent business company would sacrifice a sum of ₹ 105 lakhs (consequent upon the loading to the extent of 100%) to make a gain of ₹ 18.61 lakhs only. According to Shri Kurian only on this simple proposition of business management, the department s case loses all its validity and force. With regard to the charge that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants had been importing their goods regularly and producing all relevant documents for scrutiny of the customs authorities. It was not open to the Department, therefore, to say that the appellants were deliberately keeping back any material facts having bearing on valuation of these goods from it. (v) The loading of invoices by 100% of the f.o.b. value was arrived at in an arbitrary manner in utter disregard of accepted norms of valuation and principles of natural justice. The personal penalty of ₹ 5 lakhs was not only harsh but totally unwarranted under the circumstances of the case. 8. While broadly adopting the line of reasoning of the Collector, Shri Nair, the learned representative of the respondent, has assailed the plea of the appellants that their transactions with OAK were conducted purely on principal to principal basis and they had no interest in the business of each other. He even pointed out that the word O/E/N had been derived from the name of the foreign supplier OAK ELECTRO/NATICS CORPN., U.S.A. (emphasis supplied). He vehemently argued that the appellants transactions with OAK did not fall within the purview of Section 14(a) of the Act. For this pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants were a company virtually belonging to the OAK. This was evident from the fact that the system of invoicing was purely ad hoc in the sense that they based their quotations keeping in view not the open market conditions but the inter-company billing system of OAK. In any event, Shri Nair submitted that no firm conclusion could be drawn with reference to the prudence element argument advanced by Shri Kurian because transactions between companies are sometime a complicated affair. Shri Nair also referred to the status of the appellants as described in the annual reports of the appellants (and of OAK also) showing them to be collaborators, associates and even subsidiary of the OAK. 11. Regarding the loading of the invoices, Shri Nair submitted that the Collector had arrived at the same by keeping in view the fact that there was a wide range of variation between the normal prices of the OAK and the inter-company prices which were being recovered from the appellants. He stated that the figure had been arrived at the best judgment basis and no perfection could be claimed with regard to the exact figure of 100%. Shri Nair concluded his arguments by submitting that valuation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserve that the Collector has dealt with this issue in a very lucid manner in his order. It is seen that apart from the fact that OAK hold 45% of equity in the appellant company, there are other features which are a pointer that the two companies have interest in the business of each other. They have been having a common Chairman for several years. The appellants by virtue of an agreement with OAK, are entitled to an over-riding commission of 7 % on imports of goods by independent buyers in India from OAK. The right to get over-riding commission is generally enjoyed by a sole selling agent. The sole selling agent, in turn, is recognised as a `special relationship in trade and commercial world. It is not quite clear to us as to why the appellant company was getting from OAK their inter-company price-lists and other confidential price-lists. An ordinary equity holder is not entitled to get such type of confidential information. Another intriguing feature in our view is as to why the appellants were supplying at periodical intervals to OAK financial and administrative statements pertaining to their functioning. The only plausible explanation for such a state of affairs is that OAK we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is he has added the royalty of 4-5% and the over-riding commission of 7 %. When added up, this figure should come to approximately 70%. For the balance 30% i.e. 100%-70%, the Collector has not given any plausible basis. In this connection he has observed : ...... thus the pricing policy followed in inter-company transactions make the transaction at a price approximately less by 137% of the normal prices usually quoted in the course of international trade. We are not able to appreciate the exact relevance of the above observation of the Collector in the context of the loading of invoices of OAK. 16. We are also satisfied that the prices indicated by OAK in the invoices were inter-company prices or approximate thereto. This fact is established by referring to the statement which was prepared by the appellants with the cooperation of the respondent in pursuance of our orders dated 9-2-1983. From the remarks column (column 12) of the statement it is quite clear that wherever information was available, it indicated that the invoices had been prepared with reference to inter-company prices. 17. Shri Kurian while arguing the case drew our attention to the statement showing certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n invoking the proviso under sub-section (1) of Section 28 of the Act in respect of their past importations. It was vehemently argued that the appellants had been importing such goods for a number of years and clearing the same through the Custom House after due compliance with the various formalities and the customs authorities had never found any fault with their documentation. We have examined these arguments in the light of the respondent s stand in this behalf. According to the respondent, the customs had been passing the bills of entry, invoices etc. produced by the appellants in the previous years in good faith. It was only after receipt of secret information leading to the discovery of incriminating documents that the Custom House became aware of the fact that the appellants had been resorting to under-invoicing of their goods imported from OAK. Shri Nair has made a pointed reference to the fact that the appellants were not making true declaration with regard to their exact relationship with OAK on the reverse of the form of bill of entry. The form of bill of entry has been prescribed by the Bill of Entry (Forms) Regulations, 1976. Clause 4 of the declaration in the prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board of Directors of the appellants. But from the agreement dated 8-11-1967 we find that OAK had the right to appoint four Directors on the Board of Directors of the appellant company. We also observe that when a pointed question was put to Shri Kurian whether the appellants were exporting any of the products of OAK or other parties, he had given a reply in the negative. While going through the case records, we have come across a letter No. 4(9)/67/DS, dated 11-9-1968 sent by the Deputy Secretary, Ministry of Defence, Department of Defence Supplies, New Delhi to the appellants where vide condition (vii) thereof, it is provided, the entire production of Quartz Crystals, Quartz Crystal Filters and Quartz Crystals Oscillators will be exported Whether this condition of export obligation was later on modified or done away with is not borne out by the record. 22. In view of our observations on this issue, we hold that the Collector was correct in ordering confiscation of the goods under Section 111(m) and imposing a penalty under Section 112 of the Act. However, having regard to all the facts and circumstances of the case we think that the ends of justice would be met if the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, is easily ascertainable in appropriate trade circles ; (d) once the deemed value is the market price, and not the landing price or invoice price or the price at which the imported goods are themselves capable of being sold, it appears a little odd and incongruous that it is further made conditional upon - (i) the absence of mutual business interest between the buyer and seller, and (ii) the price being the sole consideration. The price at which goods are ordinarily sold or offered for sale, or the market price even conceptually excludes any price agreed upon on account of mutual business interests and necessarily implies that the price is the sole consideration. It cannot be market price otherwise; (e) (i) the corresponding provision in Section 30 of the Sea Customs Act, is a study in contrast. It did not make the price at which goods of the like kind or quality are sold or are capable of being sold conditional upon an absence of mutual business interests and the price being the sole consideration; (ii) again, while Section 30 (of the Sea Customs Act, 1878) requires a mandatory deduction of the amount of duties payable on importation from out of the price as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a discussion of the inter-relationship between the Appellant and OAK their Suppliers of the imported goods in question or their mutual business interests that may discredit the invoice prices may appear to be superfluous, if not inapposite; (h) even so, it may become relevant for a best judgment assessment in terms of Rule 8 when the deemed value cannot be ascertained under any of the other provisions. 26. Unless, therefore, it is impossible to ascertain the market price ruling on the date of importation in accordance with Section 14(a) of the Act, or Rules 3(a)-(d) of the Rules, (the other rules except Rule 8 not being relevant in the facts and circumstances of the case), a best judgment assessment of the value of the goods imported cannot be resorted to. The various grounds taken in the Appeal urging acceptance of the invoice prices as the value for assessment in terms of Section 14(a) of the Act are totally misconceived since they cannot in any view reflect the market price - the price at which the goods are ordinarily sold or offered for sale at the time and place of import-the price at which the imported goods are capable of being sold being irrelevant. 27. I ag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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