2025 (7) TMI 162 - AT - Customs

Valuation of imported goods - Investigation by SVB - the invoice prices of the foreign supplier can be accepted in the absence of higher contemporaneous import prices or not - reliability of LME prices alone for determination of value of imported goods between related parties in the absence of noticing any flowback in the form of royalty/technical knowhow fees - HELD THAT - It is observed that there is no evidence of higher contemporaneous import prices recorded either in the OIO or the impugned order. Further we find that LME prices cannot be the sacrosanct evidence to substantiate the charge of undervaluation especially when contemporaneous import of almost same price was available during the material time. The law is well settled in the following cases that transaction value cannot be rejected unless there is contemporaneous import prices as evidence to reject the invoice value. The impugned Order- in-Appeal for mechanically remanding without cogent reasons could not be sustained and the value declared by the Indian Importer cannot be rejected in view of the detailed examination carried out by the SVB not once but twice that after examining all the invoices and documents as relevant. Further on going through the impugned order it is found that the objections raised by the appellants are justified. The OIA is very cryptic and does not give any cogent reasons for rejecting the declared assessable value. In the absence of any evidence of contemporaneous import or any other factors that rendered the invoice unacceptable it is not possible to say that the transaction value was not the correct value acceptable under Section 14 of Customs Act. It would have been a different matter if the Department was able to show by reference to contemporaneous imports or other evidence that the goods were undervalued. There is however no such evidence placed. It is to be noted that the importer has filed his questionnaire all the invoices and related documents before the SVB - the Appellate Authority did not discuss any problem in the methodology to arrive at the import price having rejected the declared value. No directions are given to the lower authorities about the manner in which the valuation is to be arrived at and the rules thereunder to be applied. Such an order cannot be implemented. Further it is noted that the submissions of the Ld. Counsel for the Appellant who has averred that in the absence of any evaluation by the assessing group or any allegation even to state that the contemporaneous import prices of aluminium ingots during the relevant period were higher than the price declared by the appellant there is no requirement to probe the documents pertaining to the transactions between the foreign related supplier and their unrelated suppliers (LME Registered Suppliers). Therefore there is no justification or any compelling reason to interfere with order of the Lower Adjudicating Authority and the impugned order of the Commissioner (Appeals) setting aside the Order-in-Original No.20495/2013 dated 21.03.2013 is not legally sustainable. Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal revolve around the determination of transaction value for customs valuation purposes in the context of imports from a related foreign supplier. Specifically, the issues are:

i. Whether the invoice prices declared by the foreign related supplier can be accepted as the transaction value in the absence of evidence of higher contemporaneous import prices;

ii. Whether reliance can be placed solely on London Metal Exchange (LME) prices for determining the value of imported aluminium alloy billets and ingots between related parties, particularly when there is no evidence of any flowback payments such as royalties or technical knowhow fees affecting the transaction value.

Regarding the first issue, the relevant legal framework is provided by Rule 3(3)(a) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, which states that where the buyer and seller are related, the transaction value shall be accepted provided the relationship did not influence the price. Section 14 of the Customs Act, 1962, and its judicial interpretations further govern the acceptance or rejection of declared transaction value.

The Tribunal examined the findings of the original adjudicating authority, the Deputy Commissioner of Customs, Special Valuation Branch (SVB), who had conducted a detailed inquiry. The SVB found that the foreign related supplier was not the manufacturer but procured aluminium billets/ingots from unrelated LME-registered traders in Singapore at prices based on the LME spot market. The foreign supplier then added service and other charges before invoicing the appellant. Importantly, the SVB noted that the invoice prices charged to the appellant were higher than the LME prices and the prices paid by the foreign supplier to unrelated traders, indicating no downward influence due to the related party relationship.

The SVB orders incorporated standard riders requiring the importer and assessing groups to immediately inform the SVB of any changes in invoicing methods, terms of relationship, or other material facts affecting valuation, allowing for review and provisional assessment with an Extra Duty Deposit if necessary. This demonstrated a structured approach to monitoring the transaction value over time.

The department challenged the acceptance of declared value on grounds that the SVB did not extract and analyze LME prices adequately, did not examine agreements between the foreign supplier and LME traders, and failed to address "other charges" billed by the foreign supplier. The Commissioner of Customs (Appeals) agreed with the department, holding that LME prices, being daily fluctuating spot prices, should not be the sole basis for valuation and that the SVB's enquiry was incomplete and lacked depth.

However, the Tribunal found the impugned appellate order to be cryptic and lacking cogent reasons for rejecting the declared transaction value. It emphasized settled legal principles from Supreme Court decisions that the invoice price is the primary basis for transaction value and can only be rejected if there is cogent evidence of contemporaneous imports at higher prices or other valid grounds. Mere suspicion or reliance on fluctuating LME spot prices without evidence of undervaluation or flowback payments is insufficient.

The Tribunal referred to authoritative precedents, including rulings that underscore the necessity of detailed inquiries and evidence before rejecting declared values in related party transactions. It noted that no evidence was produced by the department to show contemporaneous imports at higher prices or any flowback payments that would render the declared value unacceptable.

On the second issue, the Tribunal acknowledged that LME prices are spot market prices that fluctuate daily and contracts between related parties may not be fixed strictly on LME prices. It recognized that prices above or below LME levels may occur due to supply continuity or volume considerations. However, the Tribunal observed that the SVB had examined the entire pricing mechanism, including the foreign supplier's purchase prices from unrelated LME traders and the service charges added, concluding that the relationship did not influence the invoice price adversely.

The Tribunal held that reliance on LME prices alone is not sacrosanct and cannot be used mechanically to reject declared values. Instead, the entire transaction circumstances, including contemporaneous imports and flowback considerations, must be assessed. As no evidence of flowback or undervaluation was presented, the declared transaction value was to be accepted.

The Tribunal also noted that the appellant had submitted comprehensive documentary evidence, including purchase orders, invoices, insurance certificates, and certificates of import, which were examined by the SVB and not disproved by the department. The appellant's contention that the foreign supplier's service charges and margins legitimately increased the invoice price above the LME purchase price was found credible and consistent with international trade practices.

In addressing competing arguments, the Tribunal found that the department's reliance on the spot nature of LME prices and the absence of detailed examination of agreements with LME traders did not constitute sufficient grounds to reject the declared value. The Tribunal criticized the appellate order for being a mechanical remand without specific directions or cogent reasons, which rendered it legally unsustainable.

The Tribunal concluded that the original SVB orders accepting the declared transaction value, subject to the standard riders for future review, were legally sound and supported by evidence. The impugned appellate order was set aside, and the appeal was allowed, restoring the Order-in-Original dated 21.03.2013 passed by the Deputy Commissioner of Customs, SVB, Chennai.

Significant holdings include the following verbatim excerpts encapsulating the Tribunal's legal reasoning:

"The invoice price is based on the LME price at international market. The foreign supplier procures the goods from the traders in Singapore based on the LME prices and the goods were supplied to the Indian company after adding service and other charges. From the above it is evident that Indian company Invoice price is more than the LME price and hence not influenced by the relationship with the foreign supplier."

"Therefore, before rejecting the transaction value as incorrect or unacceptable, the Department has to find out whether there are any imports of identical goods or similar goods at a higher price at around the same time. Unless the evidence is gathered in that regard, the question of importing Section 14(1A) does not arise. In the absence of such evidence, invoice price has to be accepted as the transaction value."

"Placing reliance on LME prices for justification of the declared value is not correct especially by the Special Valuation Branch which is burdened with the study of the value over a period of time between the related parties. Therefore, the Impugned order is clearly shallow and lacking in depth and not complete in its enquiry."

Core principles established are:

- The transaction value declared by an importer in related party imports shall be accepted unless there is cogent evidence that the relationship influenced the price adversely.

- LME spot market prices, while relevant, cannot be the sole or sacrosanct basis for rejecting declared transaction values, especially in the absence of contemporaneous import prices at higher levels or evidence of flowback payments.

- The burden lies on the department to conduct detailed inquiries and produce evidence before rejecting declared values.

- Standard riders and safeguards in SVB orders provide a mechanism for ongoing review and adjustment of valuation if circumstances change.

Final determinations on the issues are:

i. The invoice prices declared by the foreign related supplier are acceptable as transaction value in the absence of evidence of higher contemporaneous import prices or other factors indicating undervaluation.

ii. Reliance solely on LME prices for valuation between related parties is not justified without supporting evidence of price influence or flowback payments; the declared invoice price inclusive of service charges is accepted.

The appeal is allowed, the impugned appellate order is set aside, and the original order accepting the declared transaction value is upheld with consequential relief as per law.