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TMI Blog2025 (4) TMI 1547X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioners of Customs aggrieved by the outcome in two adjudication proceedings, is controversy over valuation and, that too, of alleged overvaluation of imported goods which, in the context of tariff, bears no consequence of deficiency in discharge of duties of customs. And the lack of cause thereto is attributable to the bundling of the impugned goods within the omnibus 'project imports', leviable to duties of customs at the rate corresponding to tariff items enumerated below heading 9801 of First Schedule to Customs Tariff Act, 1975, which has not been controverted and, with that, eligibility to 'nil' rate on refinery and thermal power projects with duty at 3% on fertilizer projects being beyond dispute. Yet, proceedings were initiated by notice issued under section 124 of Customs Act, 1962 proposing to hold the imported goods as liable to confiscation, under section 111(m) of Customs Act, 1962, as a necessary pre-requisite for the obvious intent of proposing imposition of penalties under section 112 and section 114AA of Customs Act, 1962. The consummation, empowered from justifiable cause of discrepancy between price declared and value ascertained during assessment, is now c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder before the Hon'ble High Court of Bombay was dismissed for want of jurisdiction and appeal, preferred thereafter before the Hon'ble Supreme Court, having been withdrawn by Revenue, the adjudicating authority declared itself, and rightly so, bound thereto and we consider it, even in the face of express submission on behalf of appellant-Commissioner that issue of law remained undecided, no less binding on the Committee of Chief Commissioners of Customs/Principal Chief Commissioners whose statutory remit does not traverse beyond appeals before the Tribunal. Neither are we tasked to legitimize the documents discarded by the adjudicating authority, even if pivotal to the. Case of the investigation, from the binding decision of the Tribunal in Commissioner of Customs (Import), NS-III, Raigad v. Adani Power Maharashtra Ltd [(2023) 3 Centax 169 (Tri-Bom), mandating acceptability for sustaining allegations only to the extent of provenance established in the manner set out in section 138C of Customs Act, 1962. Challenge to this was dismissed by the Hon'ble Supreme Court and, notwithstanding its brevity, bound the adjudicating authority who, and rightly so, followed it no less than it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred from domestic trade, was not of concern to a tax collector bound by the framework of Customs Act, 1962. 5. The cases themselves relate to import of capital goods for capacity scaling through setting up of thermal power plant at Salaya by M/s Essar Power Gujarat Ltd and at Mahan by M/s Essar Power MP Ltd, capacity enhancement for refining of crude oil at Vadinar by M/s Essar Oil Ltd and capacity building by setting up of urea fertilizer plant at Durgapur by M/s Essar Projects (India) Ltd, as 'engineering, procurement and construction (EPC)' contractor, for M/s Matrix Fertilizers & Chemicals Ltd, as well as setting up of marine material handling facility at Salaya by M/s Essar Bulk Terminal Salaya Ltd and setting up of co-generation power plant at Vadinar crude refining facility by M/s Vadinar Power Company Ltd. Clearances were effected against invoices issued under supply contract of each of these with M/s Global Supplies (UAE) FZE. The goods, such as 'boiler turbine generator (BTG) and 'balance of plant (BOP)' among others, were sourced from several 'original equipment manufacturers (OEM)' in Peoples' Republic of China mostly and elsewhere on 'back-to-back' transactions of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was deduced that, though the stakes, direct or indirect, of the promoters of the importing entities had, since, altered, it was, during the relevant period, very much a 'related person' of the importers within the meaning of rule 2(2)(iv) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The conclusion in the show cause notice that '1.25.9.........Thus, it appeared that at least during the period from 10-12-2016 to 28-05-2014, GSF continued to be a subsidiary of EPL, the efforts to severe the link on paper through sham transactions notwithstanding.... xxx 1.27.5..... (xi) Last but not the least, the singular thrust of the submissions that the price negotiated with GSF was fair, objective and at arm's length, appeared to be misleading, as it was not an open competitive tendering, rather an in-house affair....' would, shorn of the judgmental portion that has nothing to do with, and to the extent of being beyond the competence of a creature of Customs Act, 1962 to determine let alone suggest, suffice merely to embark upon scrutiny of influence that the alleged relationship had on transacted price and not as conclusion of superfluity. The last, in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in, and tolerated to that extent for, assessment to duties of customs. The quantifying of valuation gap, between declared and re-determined, have been deduced from segregation of 'LC' and 'TT' invoices raised by M/s Global Supplies (UAE) FZE on the importers from the which is good only for the optics until the evidence acquires acceptability in the manner required in law and the computation of re-determined value is not in conflict with Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The validation of segregation was secured through comparison with documents obtained from facilitating, and co-operating, banks. A goodly portion, however, lacks wherewithal for this segregation and relies upon payments made to 'original equipment manufacturers (OEM)' - either of SWIFT remittances or documents retired by them - obtained from those very banks. The Tribunal, in Commissioner of Customs (Import), NS-III, Raigad v. Adani Power Maharashtra Ltd [(2023) 3 Centax 169 (Tri-Bom)], had occasion to consider the evidentiary value of such offerings from dealing banks and were, in near identical circumstances, held as barred for introduction in adjudication proceedings save ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination. Indeed, it is highly unlikely that policy formulation, in that era of backbreaking tariff and deterring non-tariff barriers, was prompted as much by consequence of overvaluation of goods, to which was appended double handicap of high impost and fewer goods, as with undervalued imports compensated for by undervalued exports. And this, in the regime of Customs Valuation Rules, 1963 characterized by vesting of unfettered discretion in customs authorities to counter overvaluation. We cannot, as laid down by the Tribunal in Knowledge Infrastructure Systems Private Limited v. Additional Director General, Mumbai [2018 (6) TMI 1164-CESTAT MUMBAI], subscribe to the proposition that section 111 (m) of Customs Act, 1962 is, of itself, enabling provision authorizing re-determination of value to confiscation as a route to appropriate empowerment for imposing penalty under section 112 of Customs Act, 1962. 11. It cannot but be said that value, in its commonly understood meaning, is the price that the average buyer pays at retail stage for a product. International trade occurs across borders of domestic law jurisdiction and each consignment is of such magnitude that negotiated prices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the notice that may render the impugned order, in portion or of entirety, to be other than legal and proper. 12. In the notice issued in connection with 222 consignments of M/s Essar Power Gujarat Ltd proposing revision of value from Rs. 2514,52,94,423 to Rs.1876,81,27,973, 226 consignments of M/s Essar Power Madhya Pradesh Ltd proposing revision of value from Rs. 2428,55,15,153 to Rs.1871,61,75,614, 350 consignments of M/s Essar Oil Ltd proposing revision of value from Rs. 2854,64,92,111 to Rs. 2189,97,10,661 and 92 consignments of M/s Essar Projects India Ltd proposing revision of value from Rs. 1510,59,23,423 to Rs. 760,04,42,662, that was dropped by order [order-in-original no. 02/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24 dated 18th May 2023] of Principal Commissioner of Customs (Adjudication), Mumbai, the re-determination was sought on the ground that '1.28.5 In the Bills of Entry featured in Annexures C1 to C4 of the SCN, it had been held out by the respective importers that the value declared therein represented the Transaction Value paid or payable for the goods imported, which appeared to be not correct, legally or factually for the following reasons:- (i) Essar Group entiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) GSF appeared to be a front of the Essar Group for acting as an intermediary invoicing agent for over-valuation. It was acquired by them and they continued to control it (distancing on paper notwithstanding), there was employee mobility between GSF and other entities of the Essar Group as apparent from fact that almost all the employees assigned to work in GSF were either ex-employees of the Essar Group or con-currently worked for GSF while under employment for one or more Essar Group entities. AH these, not only obliterated the distinction between the Essar Group entities and GSF, but also established commonality of interest. (vi) OEM-invoice value had been traditionally recognised as the most authentic value which was recognised in law. Rule 11 of the CVR-2007 lists manufacturer's invoice as a relevant document for determination of the value of the imported goods, particularly when goods were imported from or through a person other than the manufacturer or producer, 1.28.6 Thus, the transaction between GSF and EPGL/EPMPL/EOL/EPIL (including one by Matix) being apparently a sham transaction for reasons set out above, the same was, therefore, liable to be rejected under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arat Ltd, M/s Essar Power MP Ltd, M/s Essar Oil Ltd and M/s Essar Projects (India) Ltd, had proposed that 890 consignments, declared to be valued at Rs. 9299,32,25,110, with a mark up of 38.83% over the actual of value of Rs. 6698,44,56,910 were liable to confiscation under section 111(d) and section 111(m) of Customs Act, 1962, in addition to liability for penalties under section 112 and section 114AA of Customs Act, 1962 by substitution with surrogate value in accordance with rule 4 and rule 9 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 upon rejection of declared value by recourse to rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. 14. In the notice culminating in the order [order-in-original no.04/SJ(02)/PCC(ADJN.)/MUMBAI/2023-24 dated 18th May 2023] of Principal Commissioner of Customs (Adjudication), Mumbai dropping proceedings against orders M/s Essar Bulk Terminal Salaya Ltd and M/s Vadinar Power Company Ltd, the same modus operandi, with the same M/s Global Supplies (UAE) FZE in the thick of the transactions, was alleged to for similar consequences to, and in relation to confiscation of, consignments, decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein. It was also noted that M/s Global Supplies (UAE) FZE had been active enough in business well before the transactions with the importers had commenced as to preclude their irrelevance in the actual transactions and, particularly so, with the contracts themselves remaining unquestionably authentic as far as the notice was concerned as also that, while the 'mark-up' did came under scanner, the extent of obligations devolving on M/s Global Supplies (UAE) FZE having, in the absence of any allegations thereto, passed muster, the lack of acknowledgement thereto jeopardized the grounds noted in review leading to the appeal. It was further held, and upon examination of the terms and conditions, that responsibility, critical to execution of the projects, assigned to M/s Global Supplies (UAE) FZE was entailed with liquidated damages for deviations therefrom. Noticing average 'markup' of 34% in the aggregate value of supplies to M/s Essar Power Gujarat Ltd, 29.75% in that of supplies to M/s Essar Power Madhya Pradesh Ltd and 29.94% in that of supplies to M/s Essar Oil Ltd, which was held as not suggestive of abnormality or deviation and that, if so by any stretch, the onus devolving on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible seller from the transaction while proposing acceptance of price paid by ostensible seller to the 'original equipment manufacturers (OEM)' as 'surrogate value' extinguishes conformity with the buyer-seller engagement acknowledged for acceptance as 'value' in section 14 of Customs Act, 1962. This ground of appeal, in continuing to press for 'surrogate value' without postulating significant influence that relationship had on the price and by adoption of the consideration paid by intermediary to supplier as 'surrogate value' without such provisioning in the valuation scheme. Consequently, the question of appropriateness of the finding that price has not been influenced by the relationship is not of consequence thereof as, again, the recourse to 'surrogate value' has been misapplied. It should also be noted that the proposal for re-determination in the notices themselves is premised on rejection of declared value under rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 which, for the purposes rule 3 therein, are mutually exclusive but enabling same 'surrogate values' with the same outcome but without pre-requisite of rejection of declared 18. Besid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Commr of Customs, Import Vs. M/s Adani Power Maharashtra Ltd And Ors. And Order in Customs Appeal No. 85473 of 2018 in Commr of Customs (Import) V/s Maharashtra Eastern Grid Power Transmission Company Ltd. (MEGPTCL) and Ors. It is seen that as per judicial jurisprudence, the cases mentioned above can be relied upon only If they are or similar to the matter at hand. Though both are overvaluation cases, it is not necessary that they are identical or similar to each other in respect to the same legal and factual background, The Adjudicating Authority has nowhere mentioned this aspect or adduced evidence to show that both the above cases are identical or similar to the impugned case at hand. It is seen that the contract awarded in both the cases viz. M/s. Adani Power Maharashtra Ltd. and M/s. Maharashtra Eastern Grid Power Transmission Company Ltd. were after following the International Competitive Bidding process and the lowest bidder was awarded the contract. Further, in case of Maharashtra Eastern Grid Power Transmission Company Ltd., it was seen that it was a Special Purpose Vehicle formed through a joint venture between Adani Enterprises Ltd. (AEL) holding 74% of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Order in Customs Appeal No. 85473 of 2018 in Commr of Customs (Import) V/s Maharashtra Eastern Grid Power Transmission Company Ltd. (MEGPTCL) and Ors to decide this SCN without adducing evidence to show that both the cases are similar or identical.' and we do not propose to dilate further on the citations therein solely for dignifying a perverse suggestion. 21. The Tribunal, in Knowledge Infrastructure Systems Private Limited v. Additional Director General, Mumbai [2018 (6) TMI 1164-CESTAT MUMBAI], did rule on one aspect of the present proceedings while another was dealt with in Commissioner of Customs (Import), NS-III, Raigad v. Adani Power Maharashtra Ltd [(2023) 3 Centax 169 (Tri-Bom)] and the proposition of distinguishment on the basis of manner of award of contract or commonalities of 'back-to-back' contracts of the intermediary with have no bearing on the principle of law settled therein. These submissions do not advance the cause pressed in the review for discarding judicial precedent that did influence the adjudicating authority. More so, in the light of its binding nature, despite efforts to have these overturned or revisited, thus '117. Another important issue tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuary 2023 in civil appeal no. 1666/2020] of the Hon'ble Supreme Court, in Additional Director General, Mumbai v. Knowledge Infrastructure Systems Private Limited, precludes such stand on behalf of appellant-Commissioner here. 22. Learned Special Counsel intimated that, even as the impugned order found no quarrel with the proposition of 'relationship' between 'vendor on record', M/s Global Supplies (UAE), FZE and the several respondents in the two sets of appeals, the conclusion of the adjudicating authority on conformity of declared value with the template in section 14 of Customs Act, 1962 fails the test of logic. He implied, thereby, that the relationship, as established, when concatenated with 'markup' over the price charged on the related supplier by the original manufacturer sufficed for affirmation of proposal to invoke rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 as prelude to discard of declared price with consequences, as set out therein, to follow in the manner proposed in the notices. He contended that the adjudicating authority had, wrongly, lent credence to the objection of the noticees that lack of specific identification from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed the several documents that had been relied upon and the scheme of valuation that accorded legitimacy to the charge of commission of offence, i.e., misdeclaration of value, owing to which the goods were liable to confiscation under section 111(d) and section 111(m) of Customs Act, 1962. 25. Learned Counsel for respondents set out the context for the several grounds of appeal to contend that these had no bearing on the principal issue in dispute: that the buyer and seller were related and that this relationship had influenced the price in the transaction which, in terms of rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, was of essence to discard the value in the bills of entry before proceeding to determine the appropriate 'surrogate value', albeit sequentially, from among the options in the Rules. He pointed out that impugned order was unambiguous in holding that the determination of relationship was vague inasmuch as conformity with the specific of 'questionable' permutation was not apparent in the notice. He submitted that the adjudicating authority had also, with reference to the evidence marshalled in the notice, concluded that the all to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extant Rules, is for the price to be the transaction value and, thereby, the value for assessment where duties of customs are to be charged on the basis of value. The optimal description of acceptable price, in rule 3 of Customs Valuation (Determination of Value of Imported Goods Rules), 2007, is also considered to be the default, save for any additions pertaining to costs and services related to the imported goods warranted by rule 10 of Customs Valuation (Determination of Value of Imported Goods Rules), 2007, except in two specified and mutually exclusive circumstances, viz., transaction between related parties with the relationship having influenced price or upon discard by recourse to rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, permitting substitution with 'surrogate value' by sequential application of rule 4 to rule 9 therein, as the 'gold standard' of 'transaction value', as the governing concept, had been elevated to the substance itself in, with amendment of 2007 to, section 14 of Customs Act, 1962. Therefore, just as additional consideration transmitted to seller permits recast of 'price' as enhanced substitute so would the amount, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Synthesis of the two has neither approval in law nor precedent of judicial determination. Arbitrary curtailment of 'price' of 'goods under assessment' has no place in the contemporary scheme of valuation and is, for that very reason, cause for the precis of the findings in the impugned order adumbrated supra; that, with valuation scheme, having evolved as an international distillation of national experiences in assessment over the years, it is not be allowed to regress to those days of unfettered discretion that held sway. 30. That the present exercise in the show cause notices was, indeed, such throwback to the 'neanderthal' prototype preceding the General Agreement in Trade and Tariffs (GATT) valuation, and even the Brussels Definition of Value (BDV), is evident from '14(1) For the purposes of the Indian Tariff Act, 1934, or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be- (a) the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms authorities of an ilk, by others for reflecting on what once was to measure advances in seamless international trade made since then. Be that as it may, such enlarged authority does not exist anymore and that the said Rules have been overhauled, not once but twice, during the last six or so decades should be caution enough to preclude such adventurism of regressive time travel. Moreover, that most elastic of prescriptions for 'surrogate value' does, with the express bar of '(2) No value shall be determined under the provisions of this rule on the basis of ...... (v) the price of the goods for export to a country other than India; .......' in rule 9 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 precludes resort to the price payable or paid by M/s Global Supplies (UAE), FZE to 'original equipment manufacturers (OEM)' and, who being based in another country, renders that price to be for export to them. 32. The grounds of appeal, to the extent concerned with justifying non-applicability of the leading judgements on disputes about overvaluation before the Tribunal, are not to be dignified by being even taken into consideration. To do so would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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