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M/s GMR Energy Ltd. Versus Commissioner of Customs, Bangalore

2015 (11) TMI 81 - SUPREME COURT

Import of goods in replacement under Long Term Assured Parts Supply Agreement (LTAPSA) - Valuation of the import of parts of the Gas Turbine Hot Section of a naphtha based power plant which have to be replaced after 12,500 fired hours of use under a Long Term Assured Parts Supply Agreement dated 20 th December, 2000 entered into with GE, USA - Benefit of the exemption notification No.21 of 2002 dated 1.3.2002 - Held that:- Rules 4 and 9 would only apply in case imported goods are "sold" for expo .....

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f hours of the running of the power plant. This being the case, counsel for the assessee is correct in his submission that neither Rules 4 nor Rule 9 would apply, as Rule 4 itself, if applicable, makes Rule 9 also apply.

Further, it is clear that Rule 4(2)(g) and Rule 9(1)(d) refer only to the very goods that are imported and not to goods which may have been imported much earlier to the imported goods. Therefore, what is necessary is that there should be proceeds which arise from re- .....

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they said to be prices after re-exported items' value has been taken into account. This being the case, on facts in the present case, both the Commissioner and the learned Tribunal were wrong in arriving at a conclusion that the invoice price in the present case is only an incremental value price and not the price of the articles supplied by GE, USA. This being the case on facts, we are afraid that both the Commissioner's order and the Tribunal's order would have to be set aside on this ground .....

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or of assessee.

Claim of Exemption - Both the requisite certificate as well as the recommendation of the Principal Secretary, Government of Karnataka, have been dealt with in the proper perspective. The Tribunal is quite correct in stating that once these authorities are satisfied that the impugned goods are required for renovation, the customs department does not need to go deep into the matter and by hairsplitting and semantic niceties deny the benefit of the exemption notification. .....

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Respondent : Mr. B. Krishna Prasad,Adv JUDGMENT R. F. Nariman, J. 1. Two appeals have been filed against the impugned judgment dated 3.8.2007 passed by CESTAT. The appeal filed by the assessee M/s GMR Energy Ltd. concerns itself with the proper valuation of the import of parts of the Gas Turbine Hot Section of a naphtha based power plant which have to be replaced after 12,500 fired hours of use under a Long Term Assured Parts Supply Agreement (hereinafter referred to as "LTAPSA") date .....

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of power generation. The capacity of the said power plant is 220 MW and the entire power generated is uploaded into the grid of the Karnataka Power Transmission Corporation Limited. The power plant had to be kept in good running condition as the contract with KPTCL is to supply power to them continuously. For this purpose, the appellant entered into an agreement for service and supply of parts with GE, USA being a Long Term Assured Parts Supply Agreement dated 12.12.2000, (hereinafter referred t .....

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03 before the two bills of entry dated 25.6.2003 were presented for import of the replaced parts to the customs authorities. The appellant paid customs duty based on the value declared in the said bills of entry but did not make any payment to GE based on these invoices since their payments had already been made based on fired hour charges. The assessment of the said import was completed by the customs department after due verification of the documents produced at the time of import. 3. Subseque .....

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arth Deb, Associate General Manager of the Company. It stated: "29. From the investigation conducted the following facts appear to emerge: (i) M/s GEL, Bangalore entered in to three agreements with M/s GE, USA which included a Long Term Assured Parts Supply Agreement(LTAPSA), for the maintenance and upkeep of the Gas Turbines of the barge mounted power plant. (ii) This agreement envisaged a rotable exchange programme for the hot path parts, which are parts of an essential nature, requiring .....

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no difference to the new parts and are identical in all respects. M/s GE, USA supplies these parts to their customers. Customers like M/s GEL do not know whether the parts supplied to them are new or refurbished. (iv) When M/s GEL exports these used parts, for the exports made, no export sale proceeds are realized and M/s GE, USA makes no payment to M/s GEL. However, when M/s GEL imports the hot path parts, the price fixed is based on the rotable exchange programme. The cost of the returned use .....

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able exchange price. The abatement given towards the cost of the exported used hot path part is not reflected in the invoice. Therefore, for the purpose of Customs assessment, the declared price requires an adjustment by way of addition equal to the cost of returned hot path part, which was discounted. (vii) This abatement / discount is to the extent of 1/3 rd of the catalogue price under the rotable exchange programme. M/s GE, USA wanted M/s GEL to declare this price at the time of export from .....

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nd the cost of returned parts accrues to the seller. This situation is covered by Rule 9(1)(d) and (e) of the Customs Valuation Rules, 1988. (x) In view of the evidences discussed in this notice, the declared values require to be rejected; and the same cannot be accepted as representing the true transaction values under Rule 4 of the Customs Valuation Rules, 1988." 4. The customs duty was said to be evaded to the tune of approximately 4.20 crores. Goods were said to be liable to confiscatio .....

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4 read with Rule 9(1)(d) & (e) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and in terms of Section 14 of Customs Act, 1962, (b) the benefit of exemption under notification No. 21/2002-Cus dated 01.03.2002 should not be denied in respect of Bills of Entry Nos. 9140 dated 25.06.2003 and 598675 dated 12.04.2004, (c) A total duty of ₹ 7,36,88,521/- (Rupees Seven Crores Thirty Six Lakhs Eighty Eight Thousand Five Hundred Twenty One only) being the import duty .....

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₹ 13,20,93,674/-, forming part of goods indicated at (a) above should not be confiscated under Section 111(o) of the Customs Act, 1962, apart from their liability to confiscation under Section 111(m) of the Customs act, 1962, (g) Penalty under Section 112(a) and/94 Section 114A of the Customs Act, 1962 should not be imposed." 5. The reply to the show cause notice sent by the assessee disputed all the allegations made and stated in particular as follows:- "H. VALUE DECLARED FOR IN .....

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insuring the goods dispatched by them under the Rotable Exchange Programme to all their customers throughout the world and therefore, GE has duly declared that the value indicated in their invoice raised on the Noticees is inclusive of insurance. H.3 As has already been submitted elsewhere in this reply, the Noticees submit that the values declared by GE in their invoices exactly correspond to the prices indicated in GE's worldwide price-list for the Rotable Exchange Programme. H.4 Since the .....

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invoice value. A copy of the letter dated 05.02.2005 of GE clarifying the position in this regard is enclosed as Annexure-9. H.6 It is now settled law that where invoice values are doubted, the values declared for insurance could be the basis for determining assessable values under the Customs Act, 1962. J. ASSUMPTION THAT THE PRICE FIXED UNDER THE ROTABLE EXCHANGE PROGRAMME IS DEPRESSED IS BASELESS. J.1 The Noticees submit that the presumption in sub-paras (iv) to (vii) of para 29 of the show c .....

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on that the existing part will be sent back. J.3 The Noticees submit that the above statement is not in any way implicatory as alleged in the show cause notice. The above statement, in fact, only reiterates the agreed position in terms of the Rotable Exchange Programme as per which the removed part has to be received by GE. J.4 The Noticees further submit that the Rotable Exchange Programme clearly stipulates return of the removed part within 30 days of receipt of the replacement Hot Path Gas Pa .....

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ion can be drawn from the statement of Shri Naresh Manchanda to the effect that the prices under the Rotable Exchange Programme have been deliberately depressed after taking into account the return of the removed part. J.7 On the contrary, the Noticees submit that the return of the removed Hot Path Gas Parts under the Rotable Exchange Programme is as per the established international practice of GE and clearly brought out in the brochure itself. J.8 It is not the case of the department that the .....

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h Manchanda may be made available for cross-examination by the Hon'ble Commissioner before adjudicating the matter." 6. By an order dated 2.5.2006 passed by the Commissioner of Customs, the learned Commissioner specifically found that as per the LTAPSA since the assessee has declared only the differential value of the returned parts and the parts imported, 1/3 rd of the invoice value of the imported parts needs to be added to arrive at the correct assessable value. Thus, it confirmed th .....

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of its scope of work under this Agreement, Seller may supply Parts which have been previously installed at a power generation facility other than the Power Barge and subsequently refurbished by the Seller. Such refurbished Parts shall be warranted by Seller in accordance with the provisions of Article 8. Seller will provide reasonable documentation for purposes of Buyer's tax calculations as to those components that are new, and those that are repaired, but Buyer remains obligated to pay al .....

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8 It is clear from the Agreements that the appellant is required to export the replaced old part while receiving the refurbished part from the foreign supplier. The above mentioned para 2.8 makes it very clear that the value furnished in the Commercial Invoice is only an incremental value and also the same was provided to limit the assessment of customs duties. This is very clear evidence indicating that the value declared at the time of import is not the true value of the goods. The Revenue was .....

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ng the insurance amount applicable only to the imported parts and arriving at the conclusion as contended by the appellant is not correct." 8. Shri Sridharan, learned counsel appearing on behalf of the assessee, argued before us that the values stated in the invoices were values after the goods were insured and there is usually a mark-up of 10-15% of the actual value of the said goods. Therefore, even if these values are to be taken into account, they would be more than what the imported pa .....

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, no "sale" so as to attract the provisions of Rule 4 and consequently Rule 9. He added that the basic infirmity in the judgments below was reliance upon clause 2.8 of the LTAPSA. That clause if properly read only refers to "information" regarding the incremental value of each refurbished part over the value of the comparable used part that was exported. In fact, as has been pointed out in the reply, the invoices represented the full value of the imported parts, and not any a .....

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ked for cross-examination which was denied to it. Thus, these statements could not be relied upon at all and if these statements go, nothing really remains by way of evidence in the hands of the department. He further argued that most of the demand made would be time barred, as the show cause notice was beyond the six months' period, and findings of suppression on the assessee's part by the authorities and the Tribunal was said by him to be perverse inasmuch as the assessee did not have .....

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hat identical goods had been imported by BSES, and the Assistant Commissioner of Customs, by order dated 17.4.2002, had taken the invoice value of the imported items without any add-ons. Since this would be the value of identical goods imported at or about the same time as the goods being valued, Rule 5 of the Customs Valuation Rules would apply and, therefore, any reference to Rule 8 would be incorrect. Under Rule 5 of the said rules, as in the case of BSES, only the invoice value of the import .....

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clearly stated that it was only the differential value that would be the value of the import of the new parts. He also stated that it was incumbent upon the assessee to disclose the LTAPSA to the customs authorities as two very important things would emerge from a reading of such agreement. One, that used parts would have to be re-exported and that such parts would have a value, and second, that as per clause 2.8 of the agreement, only the difference between the actual value of the imported par .....

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ment. It was also argued by Shri Radhakrishnan that as the importer in the present case was required to furnish a declaration disclosing full and accurate details relating to the value of imported goods, he should in the first place have disclosed the entire LTAPSA agreement to the customs authorities which was not done. 10. Since reliance has been placed on a number of Rules, we deem it appropriate to set out the Customs Valuation Rules, 1988 which would apply to the imports in question. Rule 4 .....

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n appropriate adjustment can be made in accordance with the provisions of Rule 9 of these rules;" 5. Transaction value of identical goods. - (1)(a) Subject to the provisions of Rule 3 of these rules, the value of imported goods shall be the transaction value of identical goods sold for export to India and imported at or about same time as the goods being valued." 8. Residual method. - (1)Subject to the provisions of rule 3 of these rules, where the value of imported goods cannot be det .....

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bsequent resale disposal or use of the imported goods that accrues, directly or indirectly, to the seller; (e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. 10. Declaration by the importer. - (1) The importer or his agent shall furnish - (a) a declaration disclosi .....

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uot;sold" for export to India. The expression "shall be the price actually paid or payable for the goods when sold for export to India" would necessarily postulate that transaction value would be based upon goods that are sold in the course of export from a foreign country to India. It is clear on the facts that there is no sale in the present case, a fact that has been accepted by the revenue as well. All that happens under the LTAPSA is that parts are replaced without any furthe .....

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which arise from re-sale, disposal, or use of the very imported goods by the buyer. The case of the department is that these sub-rules are attracted only because there was an earlier sale at the time when the entire plant was imported and that subsequently there would be a disposal of goods imported much after the plant was set up by the buyer. As it is clear that there is no subsequent re-sale, disposal or use of the very imported goods - that is the parts imported under the two bills of entry .....

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e order dated 17.4.2002, passed by the Assistant Commissioner of Customs, Cochin, in the case of another assessee, namely, BSES. The entire discussion in that order proceeds only on whether various other charges should be added on to the invoice price and it was held that all such charges should be so added on. We do not find any reference to any argument or finding to the effect that a certain portion of the invoice price should be added on because of re-export of used parts. This case would th .....

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resent case. 13. We will, therefore, have to proceed on the footing that Rule 8 alone applies, and that the best judgment assessment made by the Commissioner would have to be reasonable and not arbitrary. 14. We find that the basis of the Commissioner's order as well as the Tribunal's order is clause 2.8 of the LTAPSA. We are in agreement with the learned counsel for the assessee when he has argued that the seller is only to furnish the buyer with "information" regarding the in .....

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dealt with GE's rotable exchange programme. The said document states:- "Effectivity These prices supersede all previously published prices for the same service. The prices of additional or newly established service will be available on a quotation basis and may be subject to revision until such time as they are incorporated into the next issue of this price sheet. The prices indicated are list unit prices and are subject to change without notice. Return of Removed Assembly Unless an al .....

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catalogue prices. By no stretch of imagination can they said to be prices after re-exported items' value has been taken into account. This being the case, on facts in the present case, both the Commissioner and the learned Tribunal were wrong in arriving at a conclusion that the invoice price in the present case is only an incremental value price and not the price of the articles supplied by GE, USA. This being the case on facts, we are afraid that both the Commissioner's order and the .....

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on the assessee to submit a declaration disclosing full and accurate details relating to the value of imported goods under Rule 10 of the Customs Valuation Rules, 1988. He has also argued that under sub-clause (b) of Rule 10(1), it was incumbent upon the assessee to have handed over the entire LTAPSA to the Customs authorities and as the assessee has breached the aforesaid rule, there has been a mis-declaration by the assessee of the value of the goods consequent to which the assessee is liable .....

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of such bill of entry and shall, in support of such declaration, produce to the proper officer the invoice, if any, relating to the imported goods." 19. A conjoint reading of Section 46(4) and Rule 10(1)(a), thus makes it incumbent on the importer while presenting a bill of entry to subscribe to a declaration as to the truth of its contents and in addition to produce to the proper officer the invoice relating to the imported goods. There is no doubt that the assessee has fulfilled this con .....

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duty under sub-section (2), the proper officer may require the importer, exporter or any other person to produce any contract, broker's note, policy of insurance, catalogue or other document whereby the duty leviable on the imported goods or export goods, as the case may be, can be ascertained, and to furnish any information required for such ascertainment which is in his power to produce or furnish, and thereupon the importer, exporter or such other person shall produce such document and fu .....

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s contended by Shri Radhakrishnan. 22. As the assessee succeeds on merits, it is unnecessary to go into the point of limitation. The assessee's appeal is, therefore, allowed and the judgment of the Tribunal is set aside. Revenue's appeal 23. The impugned judgment has held that exemption notification No.21/2002 dated 1.3.2002 would apply to the assessee's case. The relevant portion of the said notification is reproduced below:- S. No. Chapter Description of Standard Additional Conditi .....

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, has been approved and an officer not below the rank of Deputy Secretary to the Government of India in the Ministry of Power recommends, in each case, the grant of the aforesaid exemption to the goods for such scheme; (b) in other cases, an officer not below the rank of the Chief Engineer of the concerned State Electricity Board or State Power Utility certifies that the scheme for renovation or modernization, as the case may be, of such power plant, has been approved and an officer not below th .....

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he importer furnishes an undertaking to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, to the effect that the said goods shall be used for the purpose specified above and in the event of his failure to use the goods for the renovation or modernization of the said power generation plant, he shall pay an amount equal to the difference between the duty leviable on the said imported goods but for the exemption under this notification and that already .....

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efit of Notification. There is a plethora of decisions in which various Courts and Tribunals have accepted the production of Certificate even after the importation for granting benefits. The appellant, after representing to the concerned authorities, obtained a Certificate dated 23.01.2004 to the effect that the scheme of renovation has been examined thoroughly and approval accorded for the same. The Principal Secretary, Government of Karnataka has also recommended the exemption under the said N .....

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of renovating a house or building etc. In the present case it is the renovation of the Power Plant. In their letter addressed to the Government of Karnataka, the appellants have stated that they have been undertaking the renovation of the Gas Turbines at their plant. On going through that letter, we do not find that there is any misrepresentation. They have emphasized the point that after 12,500 fixed hours, renovation is necessary. We also find that the old parts are exported and the re-furbis .....

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