2025 (5) TMI 2021 - AT - Customs

Determination of the correct assessable value for customs duty - imports of solar power equipment and accessories - transactions between the Indian importer and the foreign suppliers - HELD THAT - There is no other material based on which the Adjudicating Authority could change his observation. The finding below Table-D in fact goes to the very root of the issue to the effect that though parties are related yet there was no transaction between them except the fact that only the invoices were raised by the Hong Kong entity. That by itself would not make the Hong Kong entity the supplier. No Agreement is referred to in this regard by the Adjudicating Authority in support to hold that imports were made from their related suppliers. In that view of the matter the borrowings and reimbursements to their Group Company at Belgium is of no consequence. The Customs Act 1962 by itself is a complete code the disallowances and/or additions could be made only if the respective conditions as prescribed under the Act are not satisfied and certainly not because an officer/Adjudicating Authority feels so. When there is no international transaction between the 2 Group Companies there remains nothing to analyse the transaction value just in the context of Borrowings and Reimbursements which have nothing to do with any trade as such. Hence what was relevant was to verify if the amount paid to the actual supplier was at Arm s length provided they are related in terms of the statute. We do not find any findings to the effect that the invoice raised by the Hong Kong entity was not in order and that the said Hong Kong entity had in turn raised invoice on the Indian Company by adding its mark-up. Therefore the Transfer Pricing analysis made by the Adjudicating Authority like an IT assessment is redundant and the consequential loading suffers from serious legal infirmity. Revenue has hence not discharged the burden of proof so as to load the value. The First Appellate Authority was thus correct in setting aside the same. In the result there is no merit in the Department s Appeal and hence we dismiss the same.

Summary

The core legal questions considered by the Tribunal in this matter revolve around the determination of the correct assessable value for customs duty purposes on imports of solar power equipment and accessories. Specifically, the issues include:

• Whether the transactions between the Indian importer and the foreign suppliers, who are related entities, constitute international transactions requiring valuation adjustments under the Customs Act, 1962 and related circulars.
• The applicability and correctness of loading additional percentages on the invoice value of imported goods (Photovoltaic Cables, Power One Inverters, Solar Panels, and accessories) based on suspicion of undervaluation due to related-party transactions.
• The validity of the Adjudicating Authority's findings that the Hong Kong trading company was the actual supplier, despite the goods being directly shipped from the Chinese manufacturer to India.
• The appropriateness of applying transfer pricing principles and enhanced duties (EDD) in the customs valuation context.
• The burden of proof on Revenue to establish that the declared transaction value is not acceptable and requires enhancement.

Issue-wise Detailed Analysis:

1. Nature of Transactions and Identification of Supplier

The legal framework governing customs valuation is primarily the Customs Act, 1962, supplemented by Board Circular No. 11/2001 dated 23.02.2001, which addresses related-party transactions and the need to examine transaction value for customs duty purposes. The Tribunal analyzed whether the Indian company imported goods from related parties, specifically the Hong Kong trading company and the Belgium parent company, or directly from the Chinese manufacturer.

The Adjudicating Authority had taken the position that the Hong Kong entity was the real supplier, and the Indian company imported most goods from related suppliers. However, the Tribunal noted that the actual movement of goods was directly from the Chinese manufacturer to India, with invoices raised by the Chinese company on the Hong Kong trading company, which in turn invoiced the Indian company without any margin or markup. This factual matrix was supported by documentary evidence in the form of invoices and supply chain details.

The Tribunal reasoned that merely raising invoices by the Hong Kong entity does not convert it into the supplier for customs valuation purposes. The absence of any agreement or material evidence indicating that the Hong Kong entity was the supplier or that it added any value or markup was significant. Therefore, the Tribunal held that there was no international transaction between the Indian company and the related Hong Kong or Belgium entities that would warrant valuation scrutiny under the Customs Act.

2. Application of Loading on Assessable Value

The Adjudicating Authority imposed loading of 20% on Photovoltaic Cables, 15% on Power One Inverters, and 15% on accessories, while accepting the invoice value for solar panels. These loadings were based on suspicion that the declared transaction value was not reflective of the true value due to related-party transactions and absence of margins between the trading company and the manufacturer.

The Tribunal emphasized that the Customs Act is a complete code and additions or disallowances to the declared value can only be made if the statutory conditions are met. The burden lies on the Revenue to prove that the declared transaction value is unacceptable. In the present case, the Revenue failed to discharge this burden as there was no evidence that the invoice value was not at arm's length or that the Hong Kong entity added any markup. The Tribunal noted that the transfer pricing analysis applied by the Adjudicating Authority was misplaced in the customs valuation context, as transfer pricing principles pertain to income tax assessments and not customs duty valuation.

Consequently, the Tribunal found the loading imposed to be legally unsustainable and quashed the additions.

3. Treatment of Borrowings and Reimbursements

The Adjudicating Authority had also considered borrowings and reimbursements between the Indian company and the Belgium group company as relevant to the valuation. The Tribunal rejected this approach, holding that such financial transactions are unrelated to the import transactions and cannot form the basis for altering the assessable value under the Customs Act.

4. Burden of Proof and Reliance on Precedents

The Tribunal referred to the principle that the Revenue must establish that the declared transaction value is not acceptable under the Customs Act before making any additions. The mere suspicion or inference drawn from related-party relationships without supporting evidence is insufficient. The Tribunal also noted that the First Appellate Authority had rightly set aside the additions based on these principles and relevant rulings of the Income Tax Appellate Tribunal (ITAT) were not applicable to customs valuation.

Conclusions on Issues:

• There was no international transaction between the Indian company and the related Hong Kong or Belgium entities that justified valuation adjustments under the Customs Act.
• The invoice values raised by the Chinese manufacturer and passed through the Hong Kong trading company to the Indian company were at arm's length and acceptable for customs valuation.
• The imposition of loading on assessable value by the Adjudicating Authority was without legal basis and failed the test of burden of proof.
• Transfer pricing principles and financial transactions such as borrowings and reimbursements are irrelevant for customs valuation.
• The First Appellate Authority's decision to set aside the additions was legally correct.

Significant Holdings:

The Tribunal held, verbatim, that "The Customs Act, 1962 by itself is a complete code, the disallowances and/or additions could be made only if the respective conditions as prescribed under the Act are not satisfied and certainly not because an officer/Adjudicating Authority feels so."

It further stated, "When there is no international transaction between the 2 Group Companies, there remains nothing to analyse the transaction value just in the context of Borrowings and Reimbursements which have nothing to do with any trade as such."

On the application of transfer pricing principles, the Tribunal observed, "We do not find any findings to the effect that the invoice raised by the Hong Kong entity was not in order and that the said Hong Kong entity had in turn raised invoice on the Indian Company by adding its mark-up. Therefore, the Transfer Pricing analysis made by the Adjudicating Authority like an IT assessment is redundant and the consequential loading suffers from serious legal infirmity."

Finally, the Tribunal concluded, "Revenue has hence not discharged the burden of proof so as to load the value. The First Appellate Authority was thus correct in setting aside the same."