Adjudicating Authority can reject transaction value if assessee fails to prove that relationship had not influenced price

[Arising out of Order-in-Appeal C.Cus.763/06 dated 23.10.2006 passed by the Commissioner of Customs (Appeals), Chennai]

Brief of the case:

The CESTAT Chennai in the case of Ansaldo STS Transportation Systems India Pvt. Ltd vs. Commissioner of Customs, Chennai held that if the importer had entered into transaction with related persons and failed to prove that the price had not been influenced by the relationship then adjudicating authority was justified in rejecting transaction value and arriving value as per Rule 5 to 8 of Customs Valuation Rules, 1988.

 Facts of the case:

• The appellants have entered into agreements with various sister subsidiary companies i.e. 100% subsidiaries of its Netherland based holding co. – M/s Ansaldo Signal NV, Netherlands for import of components and parts and also for technical knowhow, software maintenance, design and servicing etc.
• Since both the assessee and the foreign company were found to be related, a case was registered in Special valuation Branch to examine the relationship and its influence on the transaction value. Pending completion of proceedings, provisional assessment was ordered with the deposit of 1% Extra Duty Deposit.
• Special Valuation Bench rejected the transaction value and assessed the value as per Rule 8 of Customs Valuation Rules, 1988 by considering assessee and the foreign companies as related persons in terms of Rule 2(2)(vii) of Customs Valuation Rules,1988.
• The findings of Special Valuation bench was upheld by Commissioner of Customs (Appeals), against which assessee is in appeal before the CESTAT Chennai.

 Contention of the Assessee:

• It was contended that all the group companies had independent transaction with the assessee company, therefore, the invoice price has to be accepted as transaction value. Further, the price variation of 30% as adjusted (added) by the Special Valuation Bench was due to the discounts offered by the group companies to the assessee in the normal course of business which should be allowed.
• Therefore, the relationship did not influence the price and that’s why the invoice price can be very well adopted as transaction value.

  Contention of the Revenue:

• The learned counsel for revenue contended that the assessee importer and the supplier companies are controlled by the Netherland based company who is holding 100% stake in importer as well as suppliers, therefore, the relationship of related persons had established without doubt.
• Adjudicating authority has correctly adjusted invoice price as per price list as discount offered to them are only special discounts and there is no uniformity of any discount. Assessee also failed to prove any discount offered to any unrelated buyer. Further, there was huge difference between import price and the sale price to Indian Railways.
• Taking all these things into consideration, the adjudicating authority has rightly denied the special discount and taken into consideration the price list for determining the transaction value.

 Held by CESTAT Chennai:                                                                                                                

• On perusal of statements of facts of appeal and other records, it is not in dispute that M/s Ansaldo STS Transport Systems India Pvt. Ltd. (formerly known as M/s. Union Switch & Signal Pvt. Ltd. Bangalore) i.e. the appellant is a 100% subsidiary of M/s.Ansaldo Signal N.V. Netherlands.
• M/s.Ansaldo Signal Netherlands had also 7 more 100% owned subsidiary companies other than assessee viz. Union Switch and Signal Inc., USA , CSEE Transport, France and five others.
• The assessee had imported goods necessary for execution of Indian Railways contract from USS Inc. USA and CSEE Transport, France which are among the 100% subsidiaries of M/s.Ansaldo Signal N.V. Netherlands.
• As per Rule 2(2)(vii) of Customs Valuation Rules,1988 tow persons shall be deemed as related persons if both of them are directly or indirectly controlled by a third person. Further, if the assessee/importer could not demonstrate that the price has not been influenced by the relationship then the value of transaction with related person shall be arrived as per Rule 5 to 8 of Customs Valuation Rules.
• In the present case, assessee and other 7 subsidiaries are fully owned and controlled by M/s.Ansoldo Signals NV and all the imports are made only from the said group companies. As such the transaction was between related persons. Further, the assessee had itself admitted that its principal holding company decides the corporate policy, design, specification, quality control, marketing, sub-licensing of patent, franchise etc. and assessee had not produced anything to show that price not influenced by the relationship.
• Therefore, the valuation made by Special Bench as per Rule 8 rejecting the transaction value is valid in law.