The CESTAT Chennai has held that the declared prices cannot be reviewed without any evidence to the effect that the relation between the appellant and the foreign supplier has influenced the declared price or to the effect that there was a flow back of money from the importer to the related foreign supplier. The Tribunal noted that where neither the reviewing authority nor the Commissioner (Appeals) produced evidence to show that the prices were influenced by their relation or there was certain amount of flowback to the foreign supplier, the transaction value could not be rejected.
FULL TEXT OF THE CESTAT JUDGEMENT
Appellants M/s. Hanil Automotive India Pvt. Ltd. are engaged in the manufacture of automotive parts for Hyundai cars since 2002; they have been importing 15% to 20% parts required for the manufacture from M/s. E-Hawa Co. Ltd., Korea who have become their principals in 2007. Before the appellants have become a subsidiary of the foreign supplier, the department have been accepting the pricelists declared by the appellants as transaction value. On the appellant becoming of its subsidiary, the appellant-importer and foreign supplier have become related parties in terms of Rule 2 (2) (i) (iv) and (xi) of Customs Valuation Rules, 2007. Special Valuation Branch (SVB) orders, dated 27.12.2007 and 11.05.2011, were issued holding that there is no change in the pattern of sale and there was no flow back in any manner. These orders were accepted by the Commissioner. In 2015, the appellant approached the SVB in respect of the supplies from M/s. Hanil Interior Co. Ltd., Korea which is also owned by the foreign company of the appellant. Order-in-Original dated 05.06.2015 was passed taking into account the material facts accepting that the import from the overseas supplier was on principal to principal basis only; Indian company has not entered into any additional arrangements other than those already declared; there is no change in the share holding pattern of the company and that the Indian company have entered into an Engineering Support Agreement and SAP Project and Support Agreement which does not have any bearing on the value of the imported goods. The department reviewed the order and filed an appeal before Commissioner (Appeals) who passed the impugned order dated 11.01.2016.
2.1 Learned Counsel for the appellant submits that the Commissioner (Appeals) has failed to consider a settled fact and law involved; he failed to notice that the original authority referred not only to the price list but also to other factors, including the earlier orders passed by SVB; Commissioner (Appeals)’ observation that the original authority has not examined whether the pricelists are applicable to the unrelated buyers in other countries, in the same commercial level and quantity or applicable exclusively to the importers in India, is incorrect as it was maintained all the while that there was only one buyer, i.e. the appellant.
2.2 Learned Counsel submits that reference to price at which the goods are sold to unrelated buyers elsewhere in the world is against the principles of valuation under Section 14 of the Customs Act, 1962; it renders the Rules, 4 & 5 of Customs Valuation Rules, 2007, which deal with contemporaneous imports of identical goods or similar goods, redundant; finding of the appellate authority on Rules 7 & 8 is due to non-application of mind.
2.3 Learned Counsel for the appellant submits that Rule 3 (3) of CVR 2007 provides that examination of the prices of goods in respect of related party transactions is required only when there are doubts about the applicability of the declared prices; the assessing officer has examined all the aspects involved; it is not open for the appellate authority to entertain a doubt as to whether the declared price was correct or otherwise without citing any reasons; the lower authority has examined all the records of the case; has considered the earlier SVB orders and accepted the price declared as he had no doubt about the transactions. Therefore, there was no reason for the Commissioner to interfere with the order and pass an order in review; the reviewing authority has not spelt out any reasons as to why proper officer should discard the provisions of Rule 3 (3) (a) and follow Rule 3 (3) (b) when there is no change in the invoicing pattern or in the relationship between the parties over the years. Commissioner (Appeals) has unsettled the issue which was settled for eight years without considering the facts of the case and the position of the Revenue over the years.
3. Ld. A.R for the department reiterated the findings of the Order-in-Appeal.
4. Heard both sides and perused the records of the case.
5. We find that the original authority has gone through the various case records of the case and price declared for each of the products and has come to a categorical conclusion as follows:
“The above agreements are entered by the Indian Company with the foreign supplier is meant for the technical support and engineering service support provided by the related supplier. There is no payment of royalty, TKH or Licence fee that is paid / payable by the Indian Company on the basis of the said agreements. The Indian Company is paying Service Tax on the above services rendered by the foreign supplier. On scrutiny of the Balance Sheet, I do not find any flow back of cash towards Royalty, Technical Knowhow fee. Therefore, I hold that no addition to the transaction value is warranted under Rule 10 (1) (c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
In view of the above, the pricing adopted by the Foreign Supplier to the Indian Company clearly demonstrates that the sale between the Indian Company and the Foreign Supplier is their true transaction value, as if it is between a buyer and a seller in the normal course of International Trade and the examination of circumstances surrounding the sale clearly indicate that, the relationship has not influenced the Transaction Value. Hence I accept that the pricing of the imported goods are at arm’s length and the same can be accepted as transaction value under Rule 3 (3) (a) of the Customs Valuation (Determination of Value of Imported goods) Rules, 2007.”
We find that original authority concluded that though the foreign suppliers M/s. Hanil E-Hwa Company Limited, Korea and M/s. Hanil Interior Company Limited, Korea and the importer- appellant M/s.Hanil Automotive India Private Limited are related in terms of Rule 2 (2) (i) (iv) of the Customs Valuation Rules, 2007; declared value of the imported goods shall continue to be accepted as transaction value under Rule 3(3) (a) of the CVR 2007 with the usual additions under Rule 10 (2) ibid.
6. We find that the reviewing authority has sought review on the grounds that:
“(i) The adjudicating authority in this periodical review order has accepted the declared value as transaction value under Rule 3(3) of the CVR’2007 on the basis that the materials are supplied by the related foreign supplier as per the price list and that there are no discount or other concession granted. The LAA has thus observed that the circumstance of sale has been verified. However, the LAA has not examined if this price list is applicable to unrelated buyers also and thus the LAA’s observation that circumstance of sale has been verified is not proper. The LAA has also not verified the contemporaneous imports of identical or similar goods. Thus, it cannot be conclusively held that the value declared can be considered as the transaction value under Rule 3 (3) of the CVR’2007. The adjudicating authority should have examined the influence of relationship on declared prices in terms of the following procedure prescribed in Rule 3 (3) of CVR’2007 :-
(a) Examination of circumstances of sale indicates that relationship has not influenced the price;
(b) The importer demonstrates that the declared value closely approximates the test values.
In the instant case, the adjudicating authority has not followed any of the above said two ways to examine the influence of relationship on price. If examination of circumstances of sale could not establish that price was not influenced by the relationship, the importer should have been asked to demonstrate that the declared value closely approximates to test values. In terms of Rule 3 (3) (b) of CVR’2007 burden is on the importer to demonstrate that the declared value closely approximate to test values. In case, the importer failed to do so, transaction value should have been rejected and subsequent rules should have been applied in hieratical order.”
7. We find, on going through the records of the case, that as submitted by the appellants, the reviewing authority did not spell out the grounds on which it could be held that order of the original authority is not proper and legal. In spite of the categorical assertion and findings by the original authority as discussed above, the reviewing authority avers that
(i) the LAA has not examined if the price list is applicable to unrelated buyers
(ii) LAA’s observation that circumstance of sale has been verified is not proper
(iii) LAA has not verified contemporaneous imports of the identical or similar goods.
8. We find that appellants have been importing over the years and on a number of occasions it was brought to the notice of the Revenue that the appellants are only importers from the said foreign company and there are no identical or similar products. Therefore, we find review was done without going in to the facts of the case leave alone adducing any evidence to indicate that the price was influenced by the mutual relationship and the price declared was incorrect. We also find that the Commissioner (Appeals) has stressed upon the point that the basis of acceptance of SVB passed by the previous and the current officer-in-charge of SVB were different; whereas earlier SVB considered the affidavit submitted by the appellant, the instant case DC SVB has accepted the valuation on the basis of the price list. Interestingly, Learned Commissioner (Appeals)’ finding, that DC SVB has not examined whether such price lists are applicable to the unrelated buyers in other countries in the same commercial level and quantity or applicable exclusively to the imports made by the appellants, goes beyond the grounds raised in review. We find that above averment of the Ld. Commissioner (Appeals) is not only farfetched but also beyond the scope of Valuation Rules. In respect of valuation of imported goods, the price at which the foreign supplier sells the goods to the importers in other countries is not at all relevant. We find that it is not open for the reviewing authority or Commissioner (Appeals) to conduct a fishing expedition and to raise questions without giving sufficient and enough reasons for entertaining such a reasonable belief. Neither the reviewing authority nor the Commissioner (Appeals) has cited proof whatsoever to indicate either that the prices declared by the appellants were influenced by their relation or that there was a certain amount of flow back to the foreign supplier in the one form or the other. In the absence of the above, no amount of questioning, though seemingly logical, would be of any help to the Revenue. 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. Under the circumstances, we find that neither the reviewing authority nor the Commissioner (Appeals) has made out a case for striking down the order of the original authority. Therefore, we find that the impugned order does 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 appellant and the foreign supplier has influenced the declared price or to the effect that there was a flow back of money from the importer to the related foreign supplier. We don’t find anything to sustain the impugned order.
9. We find that Tribunal in the case of Berger Becer Coatings Pvt Ltd. Vs CC Mumbai-I – 2006 (205) ELT 263 (Tri.-Del.), held that –
6. A perusal of the legal provisions makes it clear that the valuation ordered under the impugned order is not sustainable. Rule 4(3)(a) specifically states that a transaction value between related parties is required to be accepted, if in the circumstances of the transaction, the sale price is not effected by the relationship. This is what the appellant was trying to prove through purchase prices and sale prices of the appellant’s related person. These were required to be considered by the lower authority. There is also merit in the appellant’s contention that method adopted is contrary to Rule 5.”
10. In view of the above, the appeal is allowed with consequential relief, if any, as per law.
(Operative part of the order in court on 12.01.2021)