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TMI Blog2020 (2) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... It is the Government of India that ultimately sells urea to the Appellant and the Appellant sells urea to the farmers - The Principal Commissioner has also placed reliance upon Rule 10(1) (e) to contend that 17/- per MT paid by the Government of India to STE should be included in the transaction value. This rule provides that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. This rule speaks of payment made or to be made by the buyer to the seller, or by the buyer to a third party. The seller in the instant case is the Government of India and the buyer is the Appellant. This amount of 17/- per MT has neither been paid by the Appellant to the Government of India nor the Appellant paid this amount to a third party. This amount of 17/- per MT, therefore, could not have been included in the transaction value under rule 10(1) (e) of the 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is set aside. It is, therefore, not necessary to examine the contention raised by the learned counsel for the Appellant that the extended period of limitation could not have been invoked in the fact and circumstances of the case. Appeal allowed - decided in favor of appellant. X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of duty. 5. A show cause notice dated 12 August 2015 was issued to the Appellant (IFFCO) mentioning therein that the service charges of ₹ 17/- per MT were in the nature of "miscellaneous charges" and accordingly, were required to be included in the assessable value from 5 October 2010 to 5 May 2015, in view of the provisions of rule 10 (1) (e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [2007 Valuation Rules]. The show cause notice mentions that the STE purchased urea of its own and then sold it to Indian buyers on High Sea Sale basis. Thus, the purchases made by STE from foreign sellers and subsequent sale to Indian buyers are independent transactions. The show cause notice also mentions that 2% High Sea Sale Commission should be included in the assessable value for calculation of Customs duty. The relevant portions of the show cause notice are reproduced below: " M/s. Indian Farmers Fertilizers Cooperative Ltd., IFFCO Sadan, C-1, Distt Centre, Saket place, New Delhi- 110017 having IEC Code Number- 0588034096 (herein after referred to as the 'IFFCO') is a Multistate Co-Operative Society primarily engaged in production and distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material of its own and then sold the goods to Indian buyers on high seas sales basis. The purchases of STE's from foreign sellers and subsequent sale of it to Indian buyers are independent of each other. Therefore, it evident that the 'Misc Charges' should form part of the assessable value for calculation of Customs Duty in terms of Section 14(1)(a) of Customs Act, 1962 and Rule 10(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007. 7.5 It is also seen that by virtue of the high seas sales through which the notice purchased the urea from the Ministry of Chemicals & Fertilizers, Govt. of India, it has derived the benefit of avoiding the payment of sales tax/ VAT on these goods. Further, on what price the 2% HSS Commission should be charged, as there are various prices available i.e. the price of the goods which STE purchased from the foreign supplier or the price on which STE sale to the Ministry of Chemicals & Fertilizers, Govt. of India or the price at which Ministry of Chemicals & Fertilizers, Govt. of India sale to M/s. IFFCO? It is also evident from the statement of Shri Surinder Singh Rawat, JT. GM (F&A), IFFCO that M/s. IFFCO pays pool ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,946/- (Rupees Six Thousand Three Hundred and Sixty Eight Crore Eight Lakh Eighty Eight Thousand Nine Hundred and Forty Six only), as detailed in Annexure-III to this Notice, under Section 14 of the Customs Act, 1962 read with the Rule 4 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007; (ii) The 3032282.5 MTs goods i.e. "Urea" imported, as detailed in Annexure 'III' totally valued at ₹ 63,68,08,88,946/- should not be held liable for confiscation under Section 111(m) of the Customs Act, 1962; (iii) The differential Customs duty amounting to ₹ 7,64,84,141/- (Rupees Seven Crore Sixty Four Lakh Eighty Four Thousand One Hundred Forty One only) on import of Urea, for 57 finally assessed Bills of Entry as detailed in the Annexure 'III' to the show cause notice, should not be demanded and recovered from them under Section 28(4) of the Customs Act, 1962; (iv) The differential Customs duty amounting to ₹ 44,98,936/- (Rupees Forty Four Lakh Ninety Eight Thousands Nine Hundred Thirty Six only) on import of Urea, for 03 provisionally assessed Bills of Entry as detailed in the Annexure 'III' to the show cause notice, should not be demanded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns value. 8. The Appellant also pointed out in its reply that the Central Board of Excise and Customs, New Delhi [CBEC], in its Circular dated 11 May 2004, had clarified that it had not approved the Mumbai Customs House existing practice of adding 2% Notional High Sea Sales Commission in the Cost, Insurance and Freight [CIF] value and the actual High Sea Sale Contract price paid by the buyer would constitute the transaction value. The Appellant also stated that the extended period of limitation provided for under the proviso to section 73(1) of the Finance Act 1994[the Finance Act] could not have been invoked as there was no wilful mis-statement or suppression of facts with intent to avoid payment of service tax. The Appellant also pointed out that the goods could not have been confiscated nor penalty could have been imposed. 9. The Principal Commissioner, however, did not accept the contentions of the Appellant and after rejecting the declared value, re-determined it. Accordingly, the demand of differential customs duty was confirmed and the urea imported by IFFCO was held liable for confiscation under section 111(m) of the Customs Act. Interest was also directed to be paid and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been invoked either in regard to non-payment of 2% Notional High Sea Sale Commission in the assessable value nor on the miscellaneous charges of ₹ 17/- per MT as there was no wilful mis-statement or suppression of facts with an intent to evade payment of service tax. 11. Shri T.G. Rathod, learned Authorized Representative of the the Department has, however, supported the impugned order and made the following submissions: (i) The Principal Commissioner was justified in coming to a conclusion that the miscellaneous charges of ₹ 17/- per MT paid by the Government of India to STE would be included in the assessable value in view of the provisions of rule 10(1) (e) of the 2007 Valuation Rules; (ii) The Principal Commissioner was also justified in holding that 2% High Sea Sale Commission should be included in the assessable value in view of the decision of the Supreme Court in Hyderabad Industries Ltd; (iii) The extended period of limitation was correctly invoked; and (iv) The Principal Commissioner was justified in confiscating the goods and imposing penalty. 12. The submissions advanced by the learned Consultant for the Appellant and the learned Authorised Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assistant Commissioner to the Deputy Commissioner of Customs. It also paid ₹ 30,41,704/- by challan dated 23 May 2015 towards miscellaneous charges of ₹ 17/- per MT for import of urea from 19 May 2010 up to 18 May 2015 with interest to the extent of ₹ 9,37,680/- by challan dated 25 May 2015. According to the Appellant, this amount was paid purely as a commercial decision to avoid litigation and should not be treated as an admission on the part of the Appellant that it is liable to pay this charge. 14. The issues, therefore, that arise for consideration in this Appeal are as follows: (i) Whether for the purchase of urea by the Appellant from the Government of India on High Sea Sale, miscellaneous charges of ₹ 17/- per MT paid by the Government of India to STE is required to be included in the assessable value and consequently duty payable on it; (ii) Whether in regard to the aforesaid purchase of urea by the Appellant from the Government of India on High Sea Sale, notional 2% High Sea Sale Commission is required to be included in the assessable value of goods and consequential duty is payable; (iii) Whether the extended period of limitation could hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I to IFFCO is not the transaction value, but the lower price at which IFFCO has to sell the goods to farmers. The difference is being born by GOI as subsidy. Therefore, the question to be decided is whether in the first high sea sale, which forms the basis for arriving at transaction value, the service charges of ₹ 17/- per MT is to be added in terms of rule 10(1) (e) of CVR, 2007. As held by Hon'ble Supreme Court in Hyderabad Industries case, this payment cannot be treated as buying commission, as the relationship between STE and GOI cannot be treated as relationship between a principal and agent. There is an independent sale between STE and GOI on high sea sale basis. Further, deduction of TDS by GOI in terms of Income Tax Act, cannot be the basis to decide, whether in terms of provisions of Customs Act, 1962, this amount is to be added in assessable value or not. 13.5 In view of the above reasoning, I hold that service charges of ₹ 17/- per MT paid by GOI to STE as service charges are to be added in the assessable value in terms of rule 10(1) (e) of CVR, 2007." (emphasis supplied) 17. The Principal Commissioner has observed that since the STE imported urea indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant has also placed the letter dated 2 February 2015 sent by the Ministry of Chemicals and Fertilizers in the Government of India to the Deputy Commissioner, Krishnapatnam Port in connection with the finalisation of provisional Bills Of Entry in respect of urea imported through the said port. The contents of the letter are reproduced below: "I am directed to refer to your letter dated 22.01.2015 on the subject cited above and to say that urea is the only fertilizer under statutory price control and it is imported for direct agriculture use on Government account through State Trading Enterprises (STEs) i.e. MMTC Limited (MMTC), State Trading Corporation Limited (STC) and Indian Potash Limited (IPL). These agencies are paid ₹ 17/- per MT as service charges on the urea imported by them on Government account for direct agricultural use. Fertilizers other than Urea are imported under Open General License (OGL). Companies import these fertilizers as per their commercial judgment." 20. The contents of these two letters do support the contention of the Appellant. Both these letters are in connection with the amount of ₹ 17/- per MT paid as service charges on urea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such payments are not included in the price actually paid or payable. --------- (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule." 24. Rule 13 provides that the interpretative notes specified in the Schedule to the rules shall apply for interpretation of the rules. Interpretative note to rule 10 is as follows: "Note to rule 10- In rule 10(1) (a) (i), the term "buying commissions" means fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued." 25. A perusal of rule 10(1) shows that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, amongst others, commissions and brokerage, except buying commissions. Interpretative Note to rule 10 defines "buying commissions" to mean fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued. 26. It has, therefore, to be examined whether the amount of ₹ 17/- per MT paid by the Government of India to the STE can be termed as "buying commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he import or raw asbestos could be included in the assessable value of import as provided for in the Customs Act and the Customs Valuation (Determination of Price) Rule 1988. The Appellant was a manufacturer of asbestos cement products for which it used raw asbestos that was mainly imported from foreign countries. Under the provisions of the Export and Import policy of the Government of India, MMTC was designated as a canalising agency. MMTC imported raw asbestos in bulk from foreign sellers and then entered into sale agreements on High Sea Sale basis with various users of raw asbestos. The consideration paid by the purchasers of the raw asbestos from MMTC, including the Appellant, is the purchase value incurred by MMTC and an additional sum equivalent to 3.5% of the CIF value of the imports as service charges. The Supreme Court concluded from these facts that there was no relationship of principal and an agent between the Appellant and MMTC as MMTC had not purchased the raw asbestos for and on behalf of a particular consumer of raw asbestos in India. On the contrary, it made bulk purchases to cater to the needs of various consumers of the raw asbestos in India and it is only after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce upon Rule 10(1) (e) to contend that ₹ 17/- per MT paid by the Government of India to STE should be included in the transaction value. This rule provides that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. This rule speaks of payment made or to be made by the buyer to the seller, or by the buyer to a third party. The seller in the instant case is the Government of India and the buyer is the Appellant. This amount of ₹ 17/- per MT has neither been paid by the Appellant to the Government of India nor the Appellant paid this amount to a third party. This amount of ₹ 17/- per MT, therefore, could not have been included in the 'transaction value' under rule 10(1) (e) of the 2007 Valuation Rules. 31. What further needs to be noticed is that under 10 (1) (e) of the 2007 Rules, all other payments can be added to the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssable value. There cannot be any doubt that the price at which GOI transfers goods to IFFCO cannot be accepted as transaction value. This is also the reason that IFFCO is paying duty on the price at which the goods are transferred by STE to GOI. In normal course of trade, a person selling the goods on high sea sale basis, would naturally add some commission to cover his expenses and margin in the deal with high sea sale buyer. However, in the present case, no data regarding expenses incurred by GOI (apart from declared value of the imported goods) is available as the goods have been sold at an artificial price to IFFCO. Therefore, one has to go for best judgment method prescribed in rule 9 of CVR, 2007. It is established practice that where data regarding actual commission is not available, 2% high sea sale commission is to be added to arrive at the correct assessable value of the imported goods." (emphasis supplied) 33. In this connection, the Circular dated 11 May 2004 issued by CBEC has been referred to by the Principal Commissioner. On an analysis of the said Circular, a finding has been recorded that High Sea Sale commission has to be included in the assessable value and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas- Regarding. Representations have been received on the Ministry to clarify the manner of determining the value of imported goods imported on high-sea-sales basis. As per the existing practice in Mumbai Customs House, the "high-sea-sale-charges" are added to the declared CIF value in terms of Public Notice No. 145/2002, dated 3-12-2002. Such "high-seas-sales-charges" are taken to be 2% of the CIF value as a general practice. In case the actual highsea- sale Contract price is more than "the CIF value plus 2%", then the "actual Contract price" paid by the last buyer is being taken as the value for the purpose of assessment. In some of the custom houses, however, audit has raised objection stating that if, in a particular transaction, there were about three/ four high-sea-sales, then high-sea-sales Service Charges @ 2% has to be added to the CIF value, for each such transaction. 2. The matter has been examined taking into account the Advisory Opinion 14.1 of the GATT. Valuation Code, which stipulates that if the importer can demonstrate that the immediate sale under consideration took place with a view to export the goods to the country of importation, then such transaction woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and it is only in case of doubt regarding the truth or accuracy of the declared value, that the Department may reject the declared transaction value and follow the sequential methods of valuation provided for in the 1988 Rules. Thus, it is not in all cases that 2% Notional High Sea Sale Commission has to be added to the assessable value. 37. In this connection, it would be pertinent to refer to the decision of the Supreme Court in Wipro Ltd vs Assistant Collector of Customs [2015(319) ELT 177 (S.C)]. The issue that arose for consideration was regarding the constitutional validity of proviso (II-i) to rule 9(2) of the 1988 Customs Valuation Rules. It was contended that the proviso was not only ultra vires section 14(1) and section 14 (1) A of the Customs Act, but was also violative of article 14 and article 19 of the Constitution. The High Court had upheld the validity and the writ petition was dismissed. The Supreme Court observed that a conjoint reading of the provisions of rules 3 and 4 of the 1988 Customs Valuation Rules would make it clear that the value of the imported goods has to be the transaction value and in cases where the transaction value cannot be determined, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of section 14 of the Customs Act as also the provision amended in the year 2007. It noticed that under the unamended provision, the principle was to find out the valuation of goods "by reference to the value" and it introduced a determining / fictional provision by stipulating that the value of all the goods would be the price at which such or like goods are "ordinarily sold". However, under the amended provisions, the valuation was based on the 'transaction' price namely, the price "actually paid or payable for the goods". It is in this context, that the Supreme Court observed: "26) On the aforesaid examination of the scheme contained in the Act as well as in the Rules to arrive at the valuation of the goods, it becomes clear that wherever actual cost of the goods or the services is available, that would be the determinative factor. Only in the absence of actual cost, fictionalised cost is to be adopted. Here again, the scheme gives an ample message that an attempt is to arrive at value of goods or services as well as costs and services which bear almost near resemblance to the actual price of the goods or actual price of costs and services. That is why the sequence go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that when the actual charges paid are available and ascertainable, introducing a fiction for arriving at the purported cost of loading, unloading and handling charges is clearly arbitrary with no nexus with the objectives sought to be achieved. On the contrary, it goes against the objective behind Section 14 namely to accept the actual cost paid or payable and even in the absence thereof to arrive at the cost which is most proximate to the actual cost. Addition of 1% of free on board value is thus, in the circumstance, clearly arbitrary and irrational and would be violative of Article 14 of the Constitution. -------- 34) In the present case before us, the only justification for stipulating 1% of the F.O.B. value as the cost of loading, unloading and handling charges is that it would help customs authorities to apply the aforesaid rate uniformly. This can be a justification only if the loading, unloading and handling charges are not ascertainable. Where such charges are known and determinable, there is no reason to have such a yardstick. We, therefore, are not impressed with the reason given by the authorities to have such a provision and are of the opinion that the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction value is stated to be a price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation. Therefore, it is the price which is actually paid or payable for delivery at the time and place of importation, which is to be treated as transaction value. However, this sub-section (1) further makes it clear that the price actually paid or payable for the goods will not be treated as transaction value where the buyer and the seller are related with each other. In such cases, there can be a presumption that the actual price which is paid or payable for such goods is not the true reflection of the value of the goods. This Section also provides that normal price would be the sole consideration for the sale. However, this may be subject to such other conditions which can be specified in the form of Rules made in this behalf. 23) As per the first proviso of the amended Section 14(1), in the transaction value of the imported goods, certain charges are to be added which are in the form of amount paid or payable for costs and services including commissions and brokerage, engineering, design work, royalties and licence fees, costs o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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