In re Foxconn Technology (India) Pvt. Ltd. (CAAR Mumbai)
1. The applicant M/s. Foxconn Technology (India) Private Limited (hereinafter referred to as FTIPL / applicant) is engaged in the business of manufacturing and trading electronic products, particularly communication network products and components, computers and computer parts, devices and systems for use in various industrial and domestic sectors. The applicant company is a subsidiary of Ingrasys (Singapore) PTE Ltd (hereafter referred to as “Ingrasys Singapore”) which holds 99% of the share capital of the applicant company. The applicant imports various electronic products, components, etc., from Ingrasys Singapore and engages in the manufacture and sale of network cabinets and server cabinets. The applicant is also engaged in a trading activity whereby they import goods like server racks from Ingrasys Singapore and then sell the same in the domestic market. This application for Advance Ruling dated 19.11.2022 is pertaining to the Customs valuation of imported goods for trading activity.
3.1 Applicant’s submissions are reiterated as follows:
M/s Amazon Data Services Private Limited (hereafter referred to as ADSPL), a third party buyer, has contracted with M/s Ingrasys Singapore (foreign parent company of the applicant) for the purchase of server racks and the terms of the contract are agreed to between them and this agreement is for the global operations of ADSPL. In pursuance of the same, the applicant imports the goods based on purchase order (PO) raised by ADSPL on them and in turn the applicant raises a similar PO on Ingrasys Singapore for import of the required products. The said goods are classifiable under Chapter heading 8471 of the Customs Tariff and the Basic Customs duty is exempted for the same, but IGST @ 18 % is payable. The freight for import of the goods is paid directly to the carrier / freight service provider by ADSPL in terms of the master agreement between ADSPL and Ingrasys Singapore. The applicant does not engage in trading of goods in this model with any other domestic purchaser.
3.2 The applicant does not undertake any value addition on the goods. It earns a margin of 3% while trading imported goods. The assessable value for payment of customs duties has been determined by the applicant as the sum of price at which the goods are sold by Ingrasys Singapore to the applicant plus freight. It may be noted that such freight is directly met by ADSPL.
3.3 The transaction of import by the applicant from Ingrasys Singapore, i.e., foreign parent company was investigated by the Special Valuation Branch (SVB), as the parties are related to each other and as per the order dated 31-1-2019, the price was found to be at arm’s length or uninfluenced by the relationship between the seller/exporter (Ingrasys Singapore) and importer/buyer (FTIPL/applicant). The method for valuation of imported goods as adopted by FTIPL/applicant was found to be correct by SVB after examining the documents and computation. Accordingly, the applicant was paying customs duties, including IGST on the basic import price and freight component. Subsequently, the imported goods were sold by FITPL to ADSPL by adding 3 % profit margin.
3.4 Pursuant to investigation / inquiry by the Directorate of Revenue Intelligence (DRI) in 2021, the applicant started adopting a method different from the one adopted earlier and as approved by SVB to determine the value of imported goods for payment of customs duty purposes. The contentions of the DRI, on the basis of the investigation, is that the assessable value should be the sum of basic value, transportation cost and the margin of 3% earned by the applicant upon sale of the imported goods to ADSPL. In other words, DRI alleged that the applicant is only a commission agent and the margin earned by them upon sale of the imported goods is nothing but their commission, which also needs to be included in the assessable value for customs purposes. In this connection, DRI has issued summons to the executives of the applicant company and also recorded statements from them. The applicant has chosen to pay the differential customs duties along with interest and penalty in terms of Section 28(2) of the Customs Act and paid differential customs duty of Rs. 6,68,83,559, interest of Rs.7,143,766 and the matter was closed in terms of Section 28(2) ibid. Hence the issue is no more pending. The applicant wishes to submit that they are of the view that the addition of 3 % trading margin earned by them in the assessable value of imported goods is not in accordance with the provisions of the Customs law and it also leads to the accumulation of Input Tax Credit of IGST paid on imports.
3.5 The applicant by way of example, explains the method of determination of Assessable value being followed by them.
