Brief of the Case
In the Case of M/s GMR Energy Ltd vs. Commissioner of Customs, Bangalore, Hon’ble Supreme Court while dealing with the appeal of the assessee and of the revenue held that Rules 4 and 9 of the Custom Valuation Rules, 1988 would only apply in case imported goods are “sold” for export to India. It is clear under the terms of LTAPSA that parts are to be replaced without any further charge after a certain number of hours of the running of the power plant. There is no sale in the present case as the assessee has not made any payment for the imported goods separately. Further once the appropriate authorities are satisfied that the impugned goods are required for renovation, the customs department does not need to go deep into the matter and by hairsplitting and semantic niceties deny the benefit of the exemption notification.
Facts of the Case
The assessee’s appeal was related with the issue of valuation of import of parts of the Gas Turbine Hot Section of a naphtha based power plant while the revenue concerns was whether the assessee is entitled to avail itself of the benefit of the exemption notification No.21 of 2002 dated 1.3.2002 in respect of the goods imported under two bills of entry dated 25.6.2003. The appellant had imported a naphtha based power plant with five gas turbines for purposes of generating power which is to be uploaded into the grid of the Karnataka Power Transmission Corporation Limited. The power plant had to be kept in good running condition as the contract with KPTCL is to supply power to them continuously. For this purpose, the appellant entered into an agreement for service and supply of parts with GE, USA being a Long Term Assured Parts Supply Agreement dated 12.12.2000, (referred to as “LTAPSA”) under which the appellant was required to make payments based on either fired hour charges or maintenance charges. Various parts of the Gas Turbine Hot Section of the said plant, which had to be imported under the ‘LTAPSA’, were imported under two bills of entry dated 25.6.2003 after 12,500 fired hours had come to an end. The parts that were identified as having to be replaced were re-exported back to GE, USA under cover of shipping bills of the month of May, 2003 before the two bills of entry dated 25.6.2003 were presented for import of the replaced parts to the customs authorities. The appellant paid customs duty based on the value declared in the said bills of entry but did not make any payment to GE based on these invoices since their payments had already been made based on fired hour charges. The assessment of the said import was completed by the customs department after due verification of the documents produced at the time of import. Subsequently, the custom department considered the invoice value as discounted price and by a show cause notice dated 12.08.2004 sought to add 1/3rd of the value of the imported items to represent the amount of the parts that were replaced and re-exported back to GE, USA to the invoice value by invoking Rule 4(2)(g) and Rule 9(1)(d) and 9(1)(e). The Department also denied the benefit of exemption under NN 21/2002-Cus dated 01.03.2002. In reply thereof the assessee disputed all the allegations made in the notice. The commissioner of custom, however, confirmed the demand made in the show cause notice. The Appeal of the assessee was also dismissed by the Tribunal as it found that there is no transaction value at all and applied Rule 8 of the Custom Valuation Rules. However the Tribunal granted relief for availability of benefit of exemption notification. Therefore the two appeals came up before Hon’ble Supreme Court to decide.
Contention of the assessee
The Ld. Counsel of the appellant submitted that the imported goods are covered under insurance policy and the price mentioned in the insurance policy is the best reference to determine the intrinsic value of the imported goods. Values stated in the invoices were values after the goods were insured and there is usually a mark-up of 10-15% of the actual value of the said goods. Therefore, even if these values are to be taken into account, they would be more than what the imported parts were actually worth in the market. Further the values declared by GE in their invoices exactly correspond to the prices indicated in GE’s worldwide price-list for the Rotable Exchange Programme, which programme made it clear that these are list unit prices or catalogue prices and would, therefore, by their very nature not include any adjustment made on account of the parts that were re-exported to GE, USA. He further argued that Rules 4 and 9 had no application in the present case as there was, in fact, no “sale” so as to attract the provisions of Rule 4 and consequently Rule 9. He cited several judgments in support of the plea that there could not, in law, be suppression on his part on account of failure to produce the LTAPSA. He further submitted that identical goods had been imported by BSES, and the Assistant Commissioner of Customs, by order dated 17.4.2002, had taken the invoice value of the imported items without any add-ons. Since this would be the value of identical goods imported at or about the same time as the goods being valued, Rule 5 of the Customs Valuation Rules would apply and, therefore, any reference to Rule 8 would be incorrect.
Contention of the Revenue
Learned senior counsel appearing on behalf of the revenue argued that the case was squarely covered by Rule 4(2)(g) read with Rules 9(1)(d) and 9(1)(e). In any case, according to learned counsel, even if one had to go by best judgment assessment, it is clear that 1/3rd value of the imported goods would have to be added inasmuch as clause 2.8 of the agreement clearly stated that it was only the differential value that would be the value of the import of the new parts. He also argued that it was incumbent upon the assessee to submit a declaration disclosing full and accurate details relating to the value of imported goods under Rule 10 of the Customs Valuation Rules, 1988. He also argued that under sub-clause (b) of Rule 10(1), it was incumbent upon the assessee to have handed over the entire LTAPSA to the Customs authorities since two very important things would emerge from a reading of such agreement. One, that used parts would have to be re-exported and that such parts would have a value, and second, that as per clause 2.8 of the agreement, only the difference between the actual value of the imported parts and the value of the used parts, which according to the assessee itself is 1/3rd of the value of the imported parts, would be the invoice value of the imported items. As the assessee has breached the aforesaid rule, there has been a misdeclaration by the assessee of the value of the goods consequent to which the assessee is liable to additional duty and penalty.
Held by Supreme Court
The Hon’ble Apex court after going through the relevant Custom Valuation Rules 1988 noticed that the Rules 4 and 9 would only apply in case imported goods are “sold” for export to India. The expression “shall be the price actually paid or payable for the goods when sold for export to India” would necessarily postulate that transaction value would be based upon goods that are sold in the course of export from a foreign country to India. It is clear on the facts that there is no sale in the present case, a fact that has been accepted by the revenue as well. All that happens under the LTAPSA is that parts are replaced without any further charge after a certain number of hours of the running of the power plant. This being the case, counsel for the assessee is correct in his submission that neither Rules 4 nor Rule 9 would apply, as Rule 4 itself, if applicable, makes Rule 9 also apply. Further, it is clear that Rule 4(2)(g) and Rule 9(1)(d) refer only to the very goods that are imported and not to goods which may have been imported much earlier to the imported goods. Therefore, what is necessary is that there should be proceeds which arise from re-sale, disposal, or use of the very imported goods by the buyer. The case of the department is that these sub-rules are attracted only because there was an earlier sale at the time when the entire plant was imported and that subsequently there would be a disposal of goods imported much after the plant was set up by the buyer. As it is clear that there is no subsequent re-sale, disposal or use of the very imported goods – that is the parts imported under the two bills of entry dated 25.6.2003, the assessee is right in his contention that in any case neither of these sub- rules would apply to the facts of the present case.
With respect to applicability of BSES case, the Hon’ble court held that the imports made in that case were of the year 1998, which was four years before the present import, and would not, therefore, be identical goods imported at or about the same time as the goods being valued. Therefore, view of the tribunal is correct to say that Rule 5 would have no application in the facts of the present case. The Court further found that the basis of the Commissioner’s order as well as the Tribunal’s order was clause 2.8 of the LTAPSA which reads as under:-
“2.8 SUPPLY OF CERTAIN REFURBISHED PARTS
In the performance of its scope of work under this Agreement, Seller may supply Parts which have been previously installed at a power generation facility other than the Power Barge and subsequently refurbished by the Seller. Such refurbished Parts shall be warranted by Seller in accordance with the provisions of Article 8.
Seller will provide reasonable documentation for purposes of Buyer’s tax calculations as to those components that are new, and those that are repaired, but Buyer remains obligated to pay all taxes, import duties, value added and all other taxes, however characterized, arising from the supply, repair, refurbishment, import, delivery to the Power Plant, and use of such Parts. With Respect to refurbished Parts, seller shall furnish Buyer with information regarding the incremental value of each refurbished Part over the value of the comparable used Part that was exported in order to limit the assessment of customs duties to the incremental value of each such refurbished Part.”
After going through the above clause of LTAPSA, the Supreme Court found itself in agreement with the learned counsel of the assessee when he has argued that the seller is only to furnish the buyer with “information” regarding the incremental value of each refurbished part so that customs duty may be limited to the incremental value of each such refurbished part. On the facts the court found that the assessee has, in its reply to the show cause notice, made it more than clear that the price of the imported goods was a rotable exchange programme price which was a common uniform price at which such parts were supplied worldwide by GE, USA. This being the case, on facts in the present case, both the Commissioner and the learned Tribunal were wrong in arriving at a conclusion that the invoice price in the present case is only an incremental value price and not the price of the articles supplied by GE, USA.
The Hon’ble Court then dealt with the revenue’s contention of submitting declaration disclosing full and accurate details relating to the value of imported goods by the assessee. It held that a conjoint reading of Section 46(4) and Rule 10(1)(a), thus makes it incumbent on the importer while presenting a bill of entry to subscribe to a declaration as to the truth of its contents and in addition to produce to the proper officer the invoice relating to the imported goods. There is no doubt that the assessee has fulfilled this condition. What is sought to be argued by the Revenue is that the assessee should also have disclosed the LTAPSA entered into with M/s. GE, USA which would have disclosed the true value of the imported goods and other details to the proper officer who could then have made an informed assessment. The LTAPSA would be a document which would fall within Rule 10(1)(b) read with Section 17(3) of the Act as it then stood. Section 17(3) reads as follows:
“17(3) For the purpose of assessing duty under sub-section (2), the proper officer may require the importer, exporter or any other person to produce any contract, broker’s note, policy of insurance, catalogue or other document whereby the duty leviable on the imported goods or export goods, as the case may be, can be ascertained, and to furnish any information required for such ascertainment which is in his power to produce or furnish, and thereupon the importer, exporter or such other person shall produce such document and furnish such information.”
A conjoint reading of Section 17(3) and Rule 10(1)(b) would make it clear that the proper officer may require the importer to produce any contract with reference to the imported goods consequent upon which the importer shall produce such contract. On the facts of the present case, the proper officer has not called upon the assessee to produce any contract in relation to the imported goods. This being the case, it is clear that there is no infraction of Rule 10 as contended by Revenue. The assessee succeeded on merits and therefore, assessee’s appeal was allowed and the judgment of the Tribunal was set aside.
With respect to the appeal of the Revenue related to non-availability of benefit of exemption notification as the required certificates was not produced by the appellant at the time of import, the Hon’ble Court relied upon the order of the Tribunal. On this aspect of the matter, the Tribunal held that:-
“10.3. The case of the Revenue is that at the time of importation the required Certificate was not produced.
It is also the case of the Revenue that the Appellants misrepresented the facts to the concerned authorities for obtaining the Certificate. The objection of the Revenue that at the time of import, the Certificate was not produced is not a very strong ground for denying the benefit of Notification. There is a plethora of decisions in which various Courts and Tribunals have accepted the production of Certificate even after the importation for granting benefits. The appellant, after representing to the concerned authorities, obtained a Certificate dated 23.01.2004 to the effect that the scheme of renovation has been examined thoroughly and approval accorded for the same. The Principal Secretary, Government of Karnataka has also recommended the exemption under the said Notification. The list of spares recommended have also been mentioned. The General Manager of the Karnataka Power Transmission Corporation Ltd. Has certified that the spares listed in the letter of the appellant dated 29.09.2003 are essential for the proper upkeep of the generating units. The Revenue contends that the impugned goods are not for renovation but only for upkeep. In our view, one cannot take such a narrow view. What is the meaning of renovation? To renovate means to make new. We talk of renovating a house or building etc. In the present case it is the renovation of the Power Plant. In their letter addressed to the Government of Karnataka, the appellants have stated that they have been undertaking the renovation of the Gas Turbines at their plant. On going through that letter, we do not find that there is any misrepresentation. They have emphasized the point that after 12,500 fixed hours, renovation is necessary. We also find that the old parts are exported and the refurbished parts are imported for replacement. In a way, this can be understood to be a sort of renovation. In any case, the State Government has accepted the proposal of the appellants and the Certificate has been issued by the Principal Secretary, Government of Karnataka, Energy Department. Once the competent authority is satisfied that the impugned goods are required for renovation, the Customs Department need not go deep into hair splitting and semantic niceties to deny the benefit of Notification.”
The Hon’ble Court found that the Tribunal is quite correct in stating that once these authorities are satisfied that the impugned goods are required for renovation, the customs department does not need to go deep into the matter and by hairsplitting and semantic niceties deny the benefit of the exemption notification. The finding of the Commissioner has been correctly set aside by the Tribunal and hence the Revenue’s appeal was dismissed.
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