Rejection of transaction value without evidence proving reason influencing price is unjustified

Indian Farmers Fertilizers Co Operative Limited Vs C.C (CESTAT Ahmedabad)

CESTAT Ahmedabad held that rejection of transaction value is unjustified as department has failed to produce any evidence reflecting that the relationship between the parties has influenced the price.

Facts-

M/s IFFCO and M/s KRIBHCO both are a Multistate Co-operative Society primarily engaged in manufacturing of Fertilizers and distribution of fertilizers. On the basis of intelligence gathered by the Department of Revenue Intelligence (DRI), the imports of Urea by M/s IFFCO and M/s KRIBHCO were taken up for analysis and it was revealed that while the prevailing import price of Urea is around US $ 410 Per MT, Both the appellants are importing Urea from M/s Oman India Fertiliser Company, Oman (in short OMIFCO) at about US $ 160 per MT.

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 impugned orders the demand of customs duty relates to imports of Urea and Ammonia confirmed alongwith interest and imposing penalty on the Appellants

Conclusion-

Held that it is clear that even if it is assumed that the buyer and seller are related in terms of Rule 2 (2) of valuation Rules, 2007 read with explanation II of said Rule, the price at which the goods were purchased from OMIFCO is the true transaction value and not influenced by their relationship. In the present matter Department has also not produced any evidence to show that the relationship between the parties has influenced the price. Therefore, we find that the reasons for rejecting the transaction value is not in consonance with law and therefore liable to be set aside.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

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 the appeals are being taken up together for discussion and disposal.

2. Brief facts of the case are that M/s IFFCO and M/s KRIBHCO both are a Multistate Co-operative Society primarily engaged in manufacturing of Fertilizers and distribution of fertilizers. On the basis of intelligence gathered by the Department of Revenue Intelligence (DRI), the imports of Urea by M/s IFFCO and M/s KRIBHCO were taken up for analysis and it was revealed that while the prevailing import price of Urea is around US $ 410 Per MT, Both the appellants are importing Urea from M/s Oman India Fertiliser Company, Oman (in short OMIFCO) at about US $ 160 per MT. 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 was also proposed to demand the differential customs duty in terms of Section 28 (1) ibid apart from interest under Section 28AA and proposing penalty under Section 112 (a) & 114A ibid.

4. The said Show cause notices were adjudicated vide respective adjudication orders as mentioned in above table. In impugned orders the demand of customs duty relates to imports of Urea and Ammonia confirmed alongwith interest and imposing penalty on the Appellants on following grounds.

(i) There is huge difference between the prices of the same goods imported in terms of UOTA and AOTA and international price of said goods. Therefore, the price at which urea and ammonia imported into India was not representing the true and correct value of said goods;

(ii) Government of India (GOI) is obligated to buy the entire production of Urea and M/s IFFCO is obliged to buy entire production of ammonia at a pre­determined price from the supplier, OMIFCO;

(iii) The Appellants/ Government of India are related to OMIFCO in terms of Rule 2(2)(i), (ii) and (vi) of the Customs Valuation Rules, 2007 read with Explanation II thereof.

(iv) The prices at which urea and ammonia are imported from OMIFCO appears clearly influenced by the relationship between GOI, OMIFCO and the Appellants and hence the transaction value is liable to be rejected in terms of Rule 12 of the Customs Valuation Rules, 2007 read with Section 14 of Customs Act, 1962.

5. The appellants are before us challenging the above impugned orders in respect of confirmation of demand and penalty. The Revenue is in appeal before us, seeking imposition of redemption fine in respect of Order-In-Original No. 05/COMMR/2016 dated 19.04.2016

6. Shri. Manish Jain, learned Counsel appearing for the Appellant M/s IFFCO submits that Appellants are purchasing Urea from the GOI on high sea sale basis. GOI has in turn purchased the urea from OMIFCO based on long terms contract. The department has not alleged that the Appellant are related to the GOI. Impugned Orders have not clearly stated as to which two persons are treated as related persons out of three entities concerned in the transactions i.e. OMIFCO (the seller –manufacture), GOI (Buyer and High-Sea Seller) and Appellant (the buyer –importer). The Appellant nominating directors in OMIFCO cannot be considered as an importer acting as director. To apply provisions of Rule 2 parties 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 any Partnership. The OMIFCO and GOI are also not partners in terms of the Partnership Act. There is no shareholding in each other. In order for parties to be considered as related they should fall under one of the eight categories listed in Rule 2 (2) of the Customs valuation Rules. He placed reliance on the decisions of Commissioner of Customs, (Import), Mumbai Vs. Bayer Crop Science – 2015(324)ELT 17 (SC).

6.1. He also submits that, this is also evident from Explanation II to Rule 2(2) which provides that if a person is a sole agent of the other he shall be treated as related only if he falls within one of the eight categories mentioned in Rule 2(2). Therefore, in the present matter Ld. Commissioner has totally failed in establishing the relationship between IFFCO /KRIBHCO and Government of India in terms of Rule 2(2) (i),(ii) and (iv) of CVR, 2007. Further even if for the sake of argument the GOI and IFFCO are treated as related persons for import of Urea because of the shareholding of GOI in IFFCO, the said relationship is of no relevance as IFFCO is not paying duty on the price at which it purchases Urea from GOI but pays duty on the price at which GOI imported from OMIFCO.

6.2 Without prejudice, he also submits that relation has not influenced the price. Rule 3(2) (d) provides for acceptance of transaction value even though the buyers and sellers are related, if the provisions of Rules 3 (3) are satisfied by the assessee. He placed reliance on the following decisions.

• Modi Senator (I) Pvt. Ltd. Vs. CC (Import & General), New Delhi – 2009 (247) ELT 313 (Tri. Del.). Affirmed by the Supreme Count in 2010(256)ELT A19(S.C.)
• Nestle India Ltd. Vs. Commissioner of Customs- 2010(252)ELT 208 (Tri. Chennai).
• Sew- Curodrive (I) Pvt.Ltd. Vs. Commissioner of Customs, – 2012(284) ELT 294
• Of Customs, Mumbai Vs. Sysmex Trnasasia Bio Medicals Pvt. Ltd. – 2014(313) ELT 68 (Tri. Mumbai)
• Commissioner of Customs (Import), Mumbai Vs. M/s Voith India Pvt. Ltd. – 2008-TIOL-2214-CESTAT -MUM

In the present case, alleged relationship between the parties has not influenced the price in any manner. Rule 3(3)(a) provides that the transaction value shall be accepted when examination of the circumstance of the sale of imported goods indicates that the relationship did not influence the price.

6.3 He also submits that the background which led to finalization 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 Industries Vs. Addl. CC, Bombay -1996(81) ELT 195 (SC)
• CC, Maharashtra Vs. Galaxy Entertainment (I) Pvt. Ltd – 2007 (214) ELT 14 (SC)
• Ex Vs. Indian Turpentine & Resin Co. Ltd. – 1989(41) ELT 678 (Tribunal )
• Mark Auto Industries Ltd. Vs. CC., New Delhi 2003 (162) ELT 261 (Tri. Del)
• Mosaic India Pvt .Ltd. Vs. CC.- Jamnagar (Prev) 2020 (6) TMI 285 – CESTAT, Ahmedabad.
• Indian Farmer Fertilizer Co-Operative Ltd. Vs. Pr. CC Jamnagar -2020 (373) ELT 530 (Tri. Ahmd.)
• (v) Pr. CC, Jamnagar Vs. Indian Farmer Fertilizer Co-Operative Ltd. 2021 (S.C.) order dtd. 08.01.2021
• Hyderabad Industries Ltd. Vs. Union of India 2000 (115) ELT 593 (SC)
• Eternist Everest Ltd. Vs. CC., Bombay 2000(119)ELT 716 (Tri. LB)
• CC, Tuticorin Vs. Krishak Bharti Co-Operative Ltd. Final Order No. 41756/2020 dtd. 09.12.2019

7. Shri. B K. Singh, learned Counsel appearing for the Appellant M/s KRIBHCO submits that the only issue to be decided in these cases is whether the price at which the Urea was imported could be rejected under provisions of Customs valuation Rules, 2007 and the value can be re­determined considering the contemporaneous value of the identical goods imported at the same time. In the present matter department has not proved as how the GOI and OMIFCO are related under any of the sub-rules of Rule 2 (2) of the Customs Valuation Rules 2007. In the present matter buyer is GOI and seller is OMIFCO. It is also not disputed that GOI was indeed instrumental in getting the production unit in OMAN established. But they did not invest in this company. The investment pattern was 50% by the Oman Oil Company, 25% by TFFCO and 25% by KRTBHCO. Relationship between two entities could be established if they satisfy any of the following conditions.

(i) They are officers or directors of one another‟s businesses;

(ii) they are legally recognized partner in business;

(iii) they are employer and employee;

(iv) any person directly or indirectly owns, controls or holds five percent or more of outstanding voting stock or shares of both of them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third persons; or

(viii) they are members of the same family.

7.1 He submits that in the present matter there is no evidence to even suggest that the GOT is an officer or director of one another. Tn fact, relationship between OMTFCO and GOT is only buyer and Seller. Hence condition (i) of the requirement is not fulfilled. There is no evidence to show that the GOT and OMTFCO 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 GOT and OMTFCO 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 15^th June 1993 signed by the GOT and Government of Sultanate of Oman for establishing a project for manufacture of Fertilizers. The second MOU dated 30^th July, 1994 was another blue print of conceived Fertilizer Project. Tn 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 GOT was limited to “facilitate approval by reserve bank of India, and other applicable governmental authorities for all financial obligations of KRTBHCO/ TFFCO including payment of fees and expenses relating to preparation of DFR (Detailed Feasibility Report). Further, it is clear from the MOU,it was to be signed by KRTBHCO and TFFCO and Oman Oil Company either as limited company or Joint Stock Company. Even financing was to be met by KRTBHCO/TFFCO and Oman Oil. Therefore, OMTFCO and GOT cannot be considered to be related under clause (ii) of Rule 2.

7.2 He also submits that it is also quite apparent that OMTFCO does not employ GOT and neither does GOT employ OMTFCO. Thus, they cannot be termed as employer nor employee as required under clause (iii) of Rule2. Further, clause (iv) to be applicable, it must be shown that a third party (beside OMTFCO and GOT) controls or holds five per cent or more of the outstanding voting stock or share of both OMTFCO and GOT, whether directly or indirectly. This clause cannot be applicable for the simple reason that the GOT is not a company limited by shares to enable any such holding of stock. OMTFCO is a Joint venture between Oman Oil Company (50%), KRTBHCO (25%), TFFCO (25%). So neither KRTBHCO nor TFFCO have any controlling interest in OMTFCO. Assuming the GOT has some shares in KRTBHCO or TFFCO, it still cannot control OMTFCO because of the holding pattern described above. On the other hand, it does not need any explanation that OMTFCO cannot directly or indirectly control the GOT. Thus, it cannot be said that one of them directly or indirectly controls the other for clause (v) to apply.

7.3 He submits that similar to clause (iv) for clause (vi) to be applicable, it must be shown that a third person (beside OMTFCO and GOT), directly or indirectly, controls both OMTFCO and GOT. This clause cannot be applicable for the simple reason that GOT is not an entity to enable any such control. For the clause (vii) to apply, it must be shown that both of them, together, directly or indirectly control a third person. No such third person has been discussed or mentioned in the entire case at hand. Thus, this clause cannot be applied in the instant case. Further, it cannot be said that they are member of the same family for clause (viii) to be applicable.

7.4 He argued that thus under the provisions of Customs Valuation Rules 2007, buyer (GOT) and Seller (OMTFCO) 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 of margins. The price has been charged for the Urea imported in this case under a Long Term Agreement that too for bulk quantity. Further there is no incidence or evidence to show that the relationship of the GOI and OMIFCO as buyer and seller has influenced the price of Urea imported. As per the MOU dated 30.07.1994, it is ensured that Oman Oil Company Ltd. would exclusively provide natural gas to the proposed fertilizer plant under long term gas supply agreement at the price determined and stated in the said MOU; that KRIBHCO and IFFCO would be committed to purchase on FOB Oman basis under a long term take or pay contract, on the term and conditions to be agreed upon, 100% of Urea Production of the Fertilizer plant at the price equal to the defined calculated floor price or the market price of urea at FOB Oman, whichever is greater; that the calculated floor price (CFP) of urea was defined to mean a price necessary to yield a 10% internal rate of return (IRR) on the equity investment in the fertilizer project. Thus, it is found that the selling price has been fixed in LTP/UOTA in such a manner that reasonable margin of profit is earned by the company. However, in-spite these glaring facts and ignoring the long term price agreement, the Ld. Commissioner has enhanced the value only on the basis of contemporaneous import. Further Rule 12 of CVR makes it clear that the transaction value of imported goods could be rejected, only when the proper officer has reason to doubt “ the truth or accuracy of the value declared in relation to any imported goods.”

7.6 He also submits that on the identical issue Hon‟ble Chennai CESTAT vide Final Order No. 41756/2019 dated 09.12.2019 dismissed the appeal of department on merit as well as being time barred.

8. Shri. Ajay Jain & Shri. S. K. Mathur, (Special Counsel) for the Revenue, on the other hand reiterated the findings of impugned orders. He placed reliance on the following judgments.

• Eclipse Combustion Pvt. Ltd. Vs. Commissioner – 2016(339)ELT A 147 (SC)
• Eclipse Combustion Pvt. Ltd. Vs. C.C. Mumbai – 2005(189)ELT 282 (Tri. Mum)
• Ansaldo STS Transportation Systmes India Pvt. Ltd. Vs. Commissioner -2016(339)ELT 436 (Tribunal Chennai)
• Biesse Manufacturing Co. Pvt Ltd. Vs. CC (Imports), Chennai – 2018(364)ELT 245 (Tri. Chennai)
• HabasitLakoka Pvt. Ltd. Vs. CC, (imports) -2015(321)ELT 15 (SC)
• Bhagwati 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 GOT, Appellant on one hand and Sultanate of Oman and the Oman Oil Company Ltd. on other. As per the said MOU dated 30.07.1994 the obligations of the GOT were to be performed through Appellants while the Sultanate of Oman would perform its obligations through Oman Oil Company Ltd. As per the said MOU the equity participation in the new JV company was 25% of KRTBHCO, 25% of TFFCO and 50% Oman Oil Company. Oman Oil company Ltd. were expected exclusive to provide natural gas to be proposed fertilizer plant under a long term supply agreement at a price determined and stated in the said MOU. Both the Appellants would be committed to purchase on FOB oman basis under a long term take-or-pay contract, on terms and conditions to be agreed upon, 100% of urea production of the fertilizer plant at price equal to defined calculated floor price or the market price of urea at FOB Oman, whichever is greater. The calculated floor price (CFP) of urea was defined to mean a price necessary to yield a 10% internal rate of return (TRR) on the equity investment in the fertilizer project. Appellants would be entitled to a urea sales fee at the rate of $3.50 per MT. in consideration of the sale and take-or-pay expense incurred by them. Thus in pursuance of the said MOU dtd. 30.07.1994 and the Joint Venture agreement dated 02.04.1997 was signed between Appellants and Oman Oil Co. Ltd. a new JV Company in the name and tile of Oman Tndia Fertilizer Company LLC ( OMTFCO) was formed with equity participation as envisaged in the MOU, i.e KRTBHCO -25%, TFFCO – 25% and Oman Oil Ltd. – 50%. Tn addition, in the Board of Directors of the new company there is equal number of Directors nominated by either side. Tt is evident that the GOT and Sultanate of Oman have protected their interest conceived behind MOU signed between them by way of assigning the rights and responsibilities to the entities under each. We also find from the records and details submitted by the Appellants that as per the note of discussion of the meeting held on 20.12.1999 and 27.12.1999 of the Public Tnvestment Board of the GOT vide paragraph 8 thereof that the imports made under the projects would be on GOT account and that under UOTA the Tndian Sponsors ( Appellants) have been designated as agents of GOT. Tn OMTFCO,, though equity participation is by the Appellants and Directors are nominated by them it is evident that the real person behind the project is the GOT as far as the Tndia side is concerned 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, OMTFCO was bound to offer to supply and sell to the GOT 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 GOT agreed for the long term price of urea for rated capacity (initially specified manufacturing capacity) quantity and for excess quantity Tt 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 GOT 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, GOT had agreed to purchase 100% of rated production on the basis of a fixed Long Term Pricing (LTP) for 15 years. These facts would evident that there was a long term agreement as regard production and sale of urea by OMTFCO and purchase of the same by GOT. We also observed that in terms of JV agreement dated 20.02.2000 an Ammonia off-take Agreement was signed on 29.05.2002 between the TFFCO and OMTFCO. As per the said agreement TFFCO had agreed to enter into the agreement in pursuance of the JV agreement dated 20.10.2000, for purchase of the surplus Ammonia produced or to be produced at Fertilizer Plant over and the above that required for urea production. Tn terms of said AOTA , OMTFCO shall offer to sell to TFFCO, FOB, the loading terminal, all of the Ammonia produced from and after the date of Commencement of production. The price at which the Amonia was to be sold to TFFCO was stated in clause 5 of the said agreement.

11. The above facts not disputed in the present matter. We find in the present matter adjudicating authority held that TFFCO/KRTBHCO as the importer and the Government of Tndia –through the department of fertilizer, fall within the ambit of related person in terms of the Rule 2(2) (i) (ii) and (vi) of the CVR, 2007. The said provision reads as under :

Rule 2

“(2) For the purpose of these rules, persons shall be deemed to be “related” only if –

(i) they are officers or directors of one another’s businesses;

(ii) they are legally recognized partners in business;

(iii) They are employer and employee;

(iv) any person directly or indirectly owns, controls or holds 5 per cent or more of the outstanding voting stock or shares of both of them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

(viii) they are members of the same family.

Explanation 1. – The term “person” also includes legal persons. Explanation 2. – Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionare, however described, of the other shall be deemed to be related for the purpose of these rules, if they fall within the criteria of this sub-rule.”

From the above, it is seen that in sub-clauses (i) to (viii) of Rule 2 (2) of CVR, 2007 indicates that each of these 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 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.

13. Further, Rule 2 (2)(vi) of CVR, 2007 states that person shall be deemed to be related only if both of them are directly or indirectly controlled by a third person. In the present matter revenue failed to show that who is the third person who controls Appellants. From the facts of the case it is also clear that none of the party involved in the present transactions controlled each other. Accordingly, based on the undisputed facts of this case the appellants and the GOI and OMIFCO are not related persons in terms of Rule 2 (2)(i), (iii) and (vi) of Customs Valuation Rules 2007.

14. It is a settled principle of law that the authority making the allegations has to prove with sufficient evidence. In the instant case, leaving alone the evidence, even reasons to entertain such a belief have not been properly brought forth or established. Therefore, we find that the impugned orders do not stand the scrutiny of law. We find that declared prices cannot be reviewed without any evidence to the effect that the relation between the appellants and sellers has influenced the declared price or to the effect that there was a flow back of money from the importer to the related supplier. Therefore, we don’t find any substance to sustain the impugned orders.

15. Without prejudice, We also find that though the importer Appellants and GOI and Suppler of goods OMIFCO are related in terms of Rule 2(2) of the Customs Valuation Rules, 2007; declared value of the imported goods shall continue to be accepted as transaction value under Rule3(3)(a) of the CVR, 2007. For the sake of reference said rule is reproduced below.

(3)(a) Where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price.

15.1 We find that alleged relationship 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 specified international journals. We also find that Government has issued Notification No. 4/2015 dated 16.02.2015 exempting Urea when imported into India from OMIFCO under the UOTA agreement dated 29.05.2002 from the customs duty and additional customs duty leviable under sub-section 1 of Section 3 of the Customs Tariff Act subject to condition that the importer produce the certificate to effect that the declared value is in the terms of agreed price under UOTA. The important aspect is not the exemption but the acceptance by the Government about the correctness of the price under UOTA. The goods imported in this matter have followed the said LTP price only. In the present matter impugned orders and department had not established that the price of the goods imported by the Appellants was influenced by the relationship between OMIFCO.

15.2 We also observe that in the matter of Commissioner of Customs, New Delhi vs. Prodelin India (P) Ltd. 2006 (202) E.L.T. 13 (S.C.) the Hon‟ble Supreme Court held that:

28. Even assuming for argument’s sake that the respondent and M/s. PC USA are related persons even in that case their transaction value is to be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price.

Further we find that following decisions also support the case of the appellants.

(i) Sew-Curodrive (I) Pvt. Ltd. Vs. CC. 2012 (284) ELT 294 (Tri)

(ii) Gemplus India Pvt. Ltd. Vs. CCE- 2005 (185) ELT 269 (Tri.)

(iii) CC Vs. Hewlett Packard Ltd. – 1999 (108) ELT 221 (Tri.)

(iv) Volvo India Pvt. Ltd. Vs. CC -2005 (180) ELT 489

(v) Modi Senator (I) Pvt. Ltd. Vs. CC (Import & General), New Delhi – 2009 (247) ELT 313 (Tri. Del.). Affirmed by the Supreme Court in 2010(256)ELT A19(S.C.)

(vi) Nestle India Ltd. Vs. Commissioner of Customs- 2010(252)ELT 208 (Tri. Chennai).

16. From the forging, it is clear that even if it is assumed that the buyer and seller are related in terms of Rule 2 (2) of valuation Rules, 2007 read with explanation II of said Rule, the price at which the goods were purchased from OMIFCO is the true transaction value and not influenced by their relationship. In the present matter Department has also not produced any evidence to show that the relationship between the parties has influenced the price. Therefore, we find that the 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 not carry any substance, accordingly the revenue’s appeal being devoid of any merit is dismissed. MA’s also stands disposed of.

(Pronounced in the open court on 11.11.2022)