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TMI Blog2023 (1) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants on one hand and DOF, GOI on the other hand were officers or directors of one another s businesses. Thus, the condition prescribed in sub-rule 2(2)(i) is not satisfied in the instant case. The contention of the revenue also not correct in terms of Rule 2(2)(ii) on the ground that Appellants and OMIFCO are legally recognized partners in business, in as much as IFFCO/ KRIBHCO hold 50% of equity of OMIFCO and that there are two representatives of IFFCO/KRIBHCO on the Board of Directors of OMIFCO while another Director on the Board of OMIFCO represents the GOI - a company and shareholder cannot be termed as partner in the business carried on by the company. In partnership Act, 1932 partnership has been defined as relationship between two persons who have agreed to share profit of business carried on by all or any of them acting for all. Partnership is formed through an agreement. In the present matter there is no partnership agreement between the Appellants and OMIFCO, so they cannot be treated as legally recognized partners only because the Appellants hold 50% share in OMIFCO. It is a settled principle of law that the authority making the allegations has to prove with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons for rejecting the transaction value is not in consonance with law and therefore liable to be set aside - Since the charges of misdeclaration undervaluation are not sustainable in law, the differential duty demand along with interest and penalties imposed is liable to be set aside. Appeal allowed. - CUSTOMS APPEAL NO. 11133 OF 2015, 11971 OF 2015, 11463 OF 2016, 11529 OF 2016, 10922 OF 2017 IN CUSTOMS (EH) APPLICATION NO. 10256 OF 2021 & CUSTOMS (CO) APPLICATION NO. 10665 OF 2016 - A/11354-11358/2022 - Dated:- 11-11-2022 - HON BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) AND HON BLE MR. RAJU, MEMBER (TECHNICAL) Shri. Manish Jain, Shri. T. Vishwanathan Shri. B. K. Singh, Advocates for the Appellant Shri. Ajay Jain Shri. S. K. Mathur, Special Counsel for the Respondent ORDER RAMESH NAIR These appeals have been filed against orders as enumerated below in the table [hereinafter referred to as the impugned order(s) or order(s) ] filed by M/s. Indian Farmer Fertilizers Co-operative Ltd. (in short IFFCO) , M/s Krishak bharti Cooperative Ltd. (in short KRIBHCO) and department also. Since the issue involved in all the appeals are same, therefore all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas the study of the imports from OMIFCO revealed that the said company was a Joint Venture between the Oman Oil Company (50%), M/s IFFCO (25%) and M/s. KRIBHCO (25%). Further, the import of Urea and Ammonia from the said company was on the basis of a long term Urea Off- take Agreement (UOTA for short) and an Ammonia Off-take agreement (AOTA for short) between the Government of India and OMIFCO. The Urea and Ammonia was being purchased by the department of Fertilizer from OMIFCO and the imports were being made by M/s IFFCO and M/s KRIBHCO on the basis of an agreement for Handling and Marketing signed between the Department of Fertilizer and M/s IFFCO and M/s KRIBHCO. 3. DRI initiated investigation into the imports made by the both assessee during the course of which, it recorded statements of some employees of the assessee. After completing the investigation show cause notices were issued to proposing inter-alia to reject the declared value of imported goods and also to re-determine the same in terms of Section 14 of the Customs Act, 1962 read with Rule 4 of the Valuation Rules, 2007; that the imported goods should be liable for confiscation under Section 111(m) ibid; it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties have to be natural or biological persons as only natural or biological person can be officer or director. Appellant have not entered into a partnership agreement with OMIFCO. Instead, the Appellant have only entered into a Joint Venture Agreement with OOCL and KRIBHCO to set up OMIFCO which is limited liability company and not a partnership firm. Thus, the GOI/ Appellant and OMIFCO are not legally recognized partners. Thus, the Appellant/GOI and OMIFCO are not carrying on any business together much less sharing the profit arising from such business and have therefore not entered into a partnership agreement. OMIFCO is an independent limited liability company incorporated overseas in the Sultanate of Oman and is conducting its own business. It is controlled by its Board of Directors. The Appellant are only a 25% shareholder in OMIFCO and A company and shareholder cannot be termed a partners in the business carried on by the company. Hence the Appellant and OMIFCO are not partners in a partnership firm. The Appellants and GOI are also not partners in terms of Partnership Act. IFFCO cannot bind GOI by its actions nor can the GOI bind IFFCO by their action which is essence of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alization of the pricing method of Urea i.e. Long Term Price (LTP) of Urea under UOTA dated 29.05.2002 entered into between OMIFCO and GOI and AOTA entered into between IFFCO and OMIFCO shows that the price has not been influenced by the alleged relationship between the parties. In the appellant case the price in not influenced by its relationship with OMIFCO, when the contracted price is comparable with the prevalent international price. The current market price cannot be adopted unless the contracted price is rejected as per the law. In the present case, there is no evidence that the price negotiated between the appellant and OMIFCO are influenced by their relationship. Appellant had correctly paid the customs duty on the transaction value agreed between it and OMIFCO (for Ammonia ) and between OMIFCO and Government of India (for Urea), taking into account prevailing market price at the time of entering into the contract and off-take of the entire produce on long term basis. Therefore it cannot be held that the contract price (i.e transaction value) is influenced by the relationship. 6.4 He also placed reliance on following judgments in support of their arguments. Basant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence to even suggest that the GOI is an officer or director of one another. In fact, relationship between OMIFCO and GOI is only buyer and Seller. Hence condition (i) of the requirement is not fulfilled. There is no evidence to show that the GOI and OMIFCO are legally recognized partners. For two entities to be considered as legally recognized partner, there has to be Partnership Deed or agreement. There is no such agreement or deed in this case. The only agreement between the GOI and OMIFCO is UREA OFF TAKE Agreement, which is simple seller and buyer agreement with all covenants including penalty clause for not fulfilling the commitment. This cannot be considered as a Partnership Deed. Further, there was Memorandum of Understanding (MOU) dated 15th June 1993 signed by the GOI and Government of Sultanate of Oman for establishing a project for manufacture of Fertilizers. The second MOU dated 30th July, 1994 was another blue print of conceived Fertilizer Project. In this MOU, the interest of Sultanate possesses considerable reserve of Natural Gas and they were interested in developing long term strategic market for the GAS. The obligation of GOI was limited to facilitate approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O) cannot be called related persons. And if they cannot be called related person, the department had not examined as to why the declared value can be rejected. The impugned orders need to be set aside on this ground also. 7.5 He further submits that assuming without admitting that the GOI and OMIFCO are related person under Section 14 of the Act read with Customs Valuation Rules, 2007, that ipso facto cannot be a ground for rejecting the transaction value. This has been explained in Rule 3(a) of the Customs Valuation Rule 2007. The price of the imported Urea was arrived at by the Government of India by examining the date of the international price at the relevant time and the manufacturing cost. This price was not artificial but based on international data which was available at that time. Further, it had taken note of that the seller should get minimum 10% profit from each sale. It is available in MOU in para 6.4(b). Even the price of the raw materials was fixed @US$ 0.50 per British Thermal unit. Under the UOTA, there is Take or Pay Liability and that case OMIFCO was forced to reduce production due to default in lifting by KRIBHCO or GOI, it had to be compensated for the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SphrcastPvt.Ltd. Vs. CCE, Ahmedabad II- 2019(369)ELT 1338. 9. Heard both sides and gone through the facts, documents and case laws relied upon and oral submission made during the personal hearing. We find that in the present matters issue is related to the undervaluation of goods imported by the Appellants on the grounds that seller and buyer are related to each other and that their relationship had influenced the price of goods imported. 10. Perusal of the MOU/ agreements and other records reveal that in order to meet out the fertilizer requirement in India and to ensure uninterrupted supply of fertilizer to farmers of India at a subsidized price a Joint Venture company had been formed as per the Memorandum of Understanding (MOU) dated 15.06.1993 entered in to between the GOI and the Sultanate of Oman. In terms of said MOU the companies designated by the GOI for setting up of the joint venture ammonia-urea project were M/s KRIBHCO and IFFCO while Oman Oil Company Ltd. was similarly designated by the Sultanate of Oman in pursuance of the said MOU a further MOU was signed on 30.07.1994 between the GOI, Appellant on one hand and Sultanate of Oman and the Oman Oil Company Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned and that the entities are only agents. 10.1 We also find that as per the clause 2.1 of Urea Off-Take Agreement (UOTA) as regards supply and sales by the company, OMIFCO was bound to offer to supply and sell to the GOI in bulk at FOB the loading terminal one hundred percent (100%) of the actual production of urea from and after the date of commencement of production for the term and on the terms and conditions of agreement. Further, as per clause 5.1 price of urea produced after the date of commercial production the company and GOI agreed for the long term price of urea for rated capacity (initially specified manufacturing capacity) quantity and for excess quantity It had further been provided vide clause 5.1 (a) that the agreement for urea produced up to rated capacity the rates were finalized for the initial 15 years and further that vide clause 5.1 (c) excess urea the price of FOB the loading terminal payable by the GOI to the company for purchase of excess urea was to be an amount equal to ninety five percent of the market price prevailing on the date of applicable bill of lading. Clearly, GOI had agreed to purchase 100% of rated production on the basis of a fixed Long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sub-clause deals with different means of establishing deemed relationship between two persons. In terms of Rule 2(2)(i) persons can be deemed to be related only if they are officers or directors of one another s business. In terms of Rule 2(2)(ii) persons can be deemed to be related only if they are legally recognized partner in business and in terms of rule 2(2)(iv) persons can be deemed to be related only if both of them are directly or indirectly controlled by the third person. In the present matter we find that department has failed to prove that as to how the Appellants on one hand and DOF, GOI on the other hand were officers or directors of one another s businesses. Thus, the condition prescribed in sub-rule 2(2)(i) is not satisfied in the instant case. 12. The contention of the revenue also not correct in terms of Rule 2(2)(ii) on the ground that Appellants and OMIFCO are legally recognized partners in business, in as much as IFFCO/ KRIBHCO hold 50% of equity of OMIFCO and that there are two representatives of IFFCO/KRIBHCO on the Board of Directors of OMIFCO while another Director on the Board of OMIFCO represents the GOI. We find that a company and shareholder cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onship between the Appellants/ GOI and OMIFCO has not influenced the price of the imported goods. Urea- Off Take agreement and Ammonia- off Take agreement both are long term international contract finalized between two sovereign countries. From the MOUs and agreements it is also clear that rates were finalized for 15 years. Further it is evident that GOI had agreed to purchase 100% of rated production on the basis of fixed Long Term Pricing (LTP) for 15 years. These facts would evidence that there was a long term agreement as regards production and sale of goods by OMIFCO and purchase of the same by GOI/ Appellants. Further LTP for 15 years has been worked out in such a manner that the LTP was substantially higher than the projected import prices (as per Chem- System) in the initial years of the projects. From the para 7.2 and 7.3 of the records notes of discussion in the meeting of Public Investment Board (PIB) it is clear that contemporaneous international market price trends have been taken into account while negotiating the LTP with OMIFCO. Market price has been defined in the agreement (UOTA) as the average of low and high end of FOB Middle East prices as quoted in the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for rejecting the transaction value is not in consonance with law and therefore liable to be set aside. 17. We also find that the issue in question involved in the present case on the similar facts and MOU and agreements has also already been decided by the Chennai Bench vide final Order No. 41756/2020 dated 09.12.2020 (supra) in favour of the assessees. In view of the said order also the issue is no longer res integra, hence the we are of the view that the impugned orders are liable to set aside. 18. Since the charges of misdeclaration undervaluation are not sustainable in law, the differential duty demand along with interest and penalties imposed is liable to be set aside. 19. Accordingly, the impugned orders are set aside and the appeals filed by the assessees are allowed with consequential relief in accordance with law. 20. As regard appeal filed by the revenue seeking to impose redemption fine on the goods in question, we find that confiscation of the goods and proposal to impose fine in the revenue s appeal is consequential to confirmation of differential duty and since we set aside the duty, interest and penalties, the grounds of revenue s appeal do no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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