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2015 (11) TMI 445 - CESTAT CHENNAI

2015 (11) TMI 445 - CESTAT CHENNAI - 2016 (339) E.L.T. 436 (Tri. - Chennai) - Valuation of goods - Related person - whether the appellants are related persons to the suppliers of imported goods within the scope of Rule 2 (2) (vi) of CVR - Held that:- the appellant and all the 7 subsidiaries group companies are fully owned and controlled by M/s.Ansoldo Signals NV and all the imports are made only from the said group companies and there is no outside translation. Therefore, the transaction between .....

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items in terms of Rule 4(2) of CVR is correct or otherwise - Held that:- it is established beyond doubt that the discounts offered are exclusive discounts only to the appellant who is 100% subsidiary of the principal company. Therefore, the appellant s contention that they are eligible for discount of upto 30% for the transfer price is not acceptable. - the rejection of discount and loading of invoice price to different % for each imports made from their related suppliers is liable to be upheld .....

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knowhow, lump sum payment, royalty are part of condition of executing the contract with Railways and certainly it is a condition of sale of imported Microlock-II components to the appellant falls within Rule 9 (1) (c) of CVR and includible in the invoice price of imported goods. - the lump sum fee, royalty paid to U.S.S.CSEE are includible in the invoice value. - Decided against the assessee. - Whether the loading ordered for previous imports of 1999 to 2002 based on price list of 2002 is va .....

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s could not have been brought to light. Therefore, we have no hesitation in holding that since the appellants had suppressed the facts of their related party transaction the adjudicating authority had rightly ordered for determination of value of all the imports made in 1999 to 2001 based on the Transfer price list of 2002. - Decided against the assessee. - Appeal No. C/32/2007 - Final Order No. 41423/2015 - Dated:- 16-10-2015 - Hon ble Shri R. Periasami, Technical Member And Hon ble Shri P.K. C .....

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mported various parts, components of railway signalling equipments from their related supplier M/s.Ansaldo Signal NV, Netherlands and its 100% owned subsidiaries i.e M/s.Union Switch and Signal Co. USA. Since both the appellant and the foreign company were found to be related, a case was registered in Special valuation Branch to examine the relationship and its influence on the transaction value. Pending completion of proceedings, provisional assessment was ordered with the deposit of 1% Extra D .....

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AT Signal System AB, Sweden * Ansaldo Segnalamentro Ferroviorio S.P.A. Italy * Ansaldo Signal, UK * Ansaldo Transport Signalling Ltd. Ireland. 3. The appellants have entered into agreements with various subsidiary companies including the unit viz. M/s.Union Switch and Signal, Inc. USA for import of components and parts and also for technical knowhow, software maintenance, design and servicing etc. and also paid lump sum payments as well as royalty for technical knowhow etc. The adjudicating auth .....

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etermined under rule 8 of Customs Valuation Rules, 1988, as given below : * In respect of imports under B/E No.380858 dated 07-11-2002, the invoice value shall be loaded by the followings for MICROLOCK II-CPU - 294.2% for PPCB-non vital - 333.7% * In respect of imports made under B/E Nos. 51873 dt. 21-10-2003, 537122 dated 02-12-2003, 667918 dated 19-08-2004, 735697 dated 20-12-2004, 716915 dated 18-1-2004 and 704949 dated 26-10-2004, the invoice value shall be loaded by 7.5% * In respect of the .....

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ny extended. * In respect of imports made from 2003 to 2005, the goods should be assessed based on the respective transfer pricelists by disallowing discount if any involved. * Lumpsum fee of USD 4,90,000 and Royalty of ₹ 16,19,623 shall be added to the transaction value of the imports made during the year 2004 from M/s.Union Switch and Signal Inc. USA, determined under rule 8 of CVR, 1988, in terms of rule 9 (1) (c) of Customs Valuation Rules, 1988. * Lumpsum fee of ₹ 64,00,000/- sh .....

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tention to SVB circular No.50/2004-SVB dt. 1.12.2004 and submits that they have imported parts and components from the USA company which is a subsidiary of M/s.Ansaldo Signal NV, Netherlands. He submits that the adjudicating authority has not accepted the transaction value on the imported goods and loaded the invoice price based on the pricelist of 2002 and rejected the discounts. He submits that the period of imports is from 1999 onwards. The adjudicating authority ordered for loading of all th .....

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Services Agreement" entered into between Ansaldo Signal NV, Netherlands and with various group companies including appellant which is annexed at page 97 w.e.f. 1.1.2002. He submits that the adjudicating authority has agreed that no addition is required as far as the service agreement. 6. He drew our attention to third agreement dt. 27.6.2000 entered with one of group companies i.e. CSEE Transport S.A. and the appellant. He referred to clause (A) & (B) and submits that the appellant enga .....

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er submits that all the six group companies had independent transactions with appellant. Therefore, invoice price has to be accepted as transaction value. He drew our attention to page 188 to 191 of adjudication order (internal page 7 of OIO) wherein the adjudicating authority rejected the transaction value in respect of each Bill of Entry where the adjudicating authority made a comparative chart of the declared value and the price list and the difference for each of the imports made under the r .....

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ectively. For other imports made from M/s.CSEE Transport, loading was allowed at 44.4%. He further submits that adjudicating authority ordered for loading of value as per the price list for the period 2002-05. He further submits that the adjudicating authority also directed for loading of the price for all the imports made between 1999 and 2001 based on the pricelist of 2002. He further submits that since the period involved is prior to 2007, the 1998 Customs Valuation Rules applies. He submits .....

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ayment can be added only if it is related to the goods imported and if it is a condition of sale. He further submits that in their case there is no condition of sale of goods in this case. Therefore no addition of royalty or lump sum is warranted. He submits that technical knowhow and royalty payment is only for the manufacture of final product and not related to the imported goods. He relied the following case laws :- (1) UOI Vs Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (S.C) (2) CC Vs Fer .....

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isfied. He submits that all these facts were also brought before the Commissioner (Appeals) and the same was not considered. 9. Ld. A.R appearing for Revenue reiterated the detailed finding of OIO as well as OIA. He submits that appellant is a 100% unit controlled by overseas firm and one of the directors is common. He further submits that this is not a case that appellant disclosed the relationship when they started importing the goods from the related persons since 1999 and not declared to the .....

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g authority has correctly loaded as per price list as discount offered to them are only special discounts and there is no uniformity of any discount. Appellant could not produce any explanation for the variations of huge discounts and the variation is abnormal between the pricelist and the sale price. He also submits that there is huge difference between import price and the sale price to Indian Railways. He drew our attention to page 192 of OIO. Since appellant is a 100% subsidiary wholly owned .....

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ation Rules is applicable to the appellant. As the sales are exclusive to the appellant and the discount are applicable only to the appellant which is special discount and not permissible under Rule 4 (2) (b). 10. Regarding technical knowhow and royalty, he reiterated the finding of adjudicating authority and the impugned order. The entire lump sum payments are related to imported goods as well as with domestically manufactured goods and the adjudicating authority has not loaded the entire lumps .....

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the denial of special discount offered to the supplier and loading of value of the imported goods as per the list price for each of import items in terms of Rule 4(2) of CVR is correct or otherwise and (iii) whether the addition of lump sum fee and royalty paid to value of goods in terms of Rule 9 (1) (c) of CVR is correct or otherwise and (iv) whether the loading ordered for previous imports of 1999 to 2002 based on price list of 2002 is valid or otherwise. 12. On perusal of the order in origi .....

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ing authority and OIA of 32 pages by LAA. 13. On the issue of "Related person" the L.A.A in his impugned order at para 8 to 11 had discussed in detail. On perusal of statements of facts of appeal and other records, we find there is no dispute on the fact that M/s. Union Switch & Signal Pvt. Ltd. (presently known as Ansaldo STS Transport Systems India Pvt. Ltd.) Bangalore i.e. the appellant is a 100% subsidiary of M/s.Ansaldo Signal N.V. Netherlands. It is evident from the appellant .....

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ignal NV became a single market leader worldwide holding patent technology for manufacture of Railway Signalling Products i.e. Microlock II Electronic Interlocking Equipment, End of Train, Train Protection Warning System, and UM 71 Audio frequency Radio circuiting. 14. Further, we find that as a part of expansion of their operations in Asia Pacific Region they formed company in India in the year 1996. As admitted by the appellant in their above letter the Indian unit (i.e. appellant company) doe .....

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m their seven overseas 100% subsidiary group companies (overseas supplier) which are as under :- (a) Union Switch and Signal Inc., USA (b) CSEE Transport, France (c) Union Switch and Signal Pty. Ltd., Australia (d) Ansaldo Signal, UK (e) Ansaldo Segnalamento Ferroviario S.P.A. (f) Ansaldo Transport Signalling Ltd., Ireland and (g) AT Signal Systems AB, Sweden Appellant also admitted in their letter that they have imported significant quantities of goods from USS Inc. USA and CSEE Transport, Fran .....

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r own declaration submitted to the Department in Annexure-I questionnaire filed by them at para 9 (a) (b) they have admitted that their principal holding company decides the corporate policy, design, specification, quality control, marketing, sub-licensing of patent, franchise etc. In view of the above undisputed facts, the appellants and suppliers are related persons and we uphold the adjudicating authority and lower appellate authority s finding that the appellants and the foreign supplier are .....

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that there is huge variation of price of the same item. The appellant s contention is that the transaction is at arms length and the price list of 2002 is not comparable with invoice price without considering the discount. Since these Railway signalling equipments are patented products manufactured by the principal company through their 100% subsidiaries located at USA and France etc. and carry out for Railway signalling and interlocking system to various countries across the world and the Indi .....

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the value under Rule (8) by adopting the supplier transfer price list 2002. We find that the discount offered by their related 100% subsidiary to another 100% subsidiary is only a special discount just to boost profit margin. As already discussed above, these Railway signalling equipments Microlock-II and other equipments / components are manufactured only for themselves which are transferred from one subsidiary to another subsidiary for commissioning their contract with various Railways. The d .....

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ngth and when there is no special consideration, where court held discount of 23% for price list to be accepted. The said decisions not applicable to the present case as the "special circumstances" is established in this case and the discount is not available to anybody except appellant. As per Rule 4 (2) (c) of CVR the transaction value is acceptable only where the sale does not involve special discount limited to exclusive agent/person. In the present case, it is established beyond d .....

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amount to the value of imported goods under rule 9 (1) (c) of CVR the appellants main contention is that these payments are not addable on the imported goods as it is not condition of sale of imported goods. We find that the lower authority dealt this issue in detail at paras 18 to 23 of OIA and gave clear findings on the appellant's arguments and citations relied by the appellants. The adjudicating authority in his findings at page 15, 16, 17 and 18 of OIO brought out at length on lumpsum p .....

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ion shall mean and any of the following: * (i) Schematics for the printed circuit boards (PCB) and MICROLOCK and MICROLOCK II card file back plane * (ii) PCB layouts for the PCB and MICROLOCK I card file back plane * (iii) Detailed mechanical drawings for the PCB * (iv) MICROLOCK and MICROLOCK II card file and back plane * (v) Additional detailed design documentation, which may describe the structure, interconnection and operation of the MICROLOCK and MICROLOCK II (..........) * (c) "US &am .....

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end it is required for manufacturing, distribution or using MICROLOCK and MICROLOCK II. Also the LICENSOR agrees that the licensee shall have the right to sublicense the technical information and US & S Software to such third parties as may be approved by the LICENSOR subject to other terms and conditions of the agreement." It is evident from the above definition that the technical knowhow is directly related to the Microlock and Microlock II which is the patented product of their princ .....

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lows and control cases. To simplify wayside control system installations while increasing their capabilities, flexibility and economy of installation and operation, Union Switch & Signal has consolidated vital and non-vital control logic, data transmission and coded track circuits into a single package with the MicroLok II Wayside Control System. General Description The US & S Microlok II Wayside Control System has the flexibility and all of the capabilities required to control wayside c .....

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scription that the Microlock-II Railway Signal Interlocking Control System is nothing but a set of vital and non-vital logic data transmission communication system in the form of programmed coded circuit built in PCB, CPUs Relays etc which the appellants imported from their related supplier and the entire knowhow and royalty payments are for these patented products. As already discussed in the preceding paragraphs the knowhow, design, drawings and importation of Microlock-II are required for imp .....

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Signal Pvt. Limited, SLV Complex, AVC Compound # 35,80 Feet Road, IV Block, KORAMANGALA, BANGALORE hereinafter called the 'Contractor' of the other part : WHEREAS the Contractor has agreed with the Railway for the performance of the works of Design, Manufacture, Supply, Installation, Testing and Commissioning of Solid State (Electronic) Interlocking System at Aharaura Road, Kailahat, Pahara, Jhingura, Vindhyachal, Birohe and Jigna station of Mughasarai Allahabad section of Allahabad Div .....

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to quote the branded name "Microlock-II" instead described in general as "Solid State Electronic System". The L.A have excluded that portion of amount of lump sum & royalty related to certain items manufactured through their sub-contractor locally and added proportionately to the imported goods based on the appellants data. Therefore, there is no justification on the appellant s contention that the entire payments are related to manufacture of only indigenous goods. It is .....

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of Denso Kirloskar Industries P.Ltd. (supra), Shasun Chemicals and Drugs Pvt. Ltd (supra) and India Japan Lighting Ltd. (supra) are clearly distinguishable and not applicable to the facts of the present case as the above case law relates to Technical Knowhow for setting up of new plant and machinery for manufacture of excisable products. In the present case, the principal holding company i.e Ansaldo Signals NV 100% controls all the subsidiaries for the sole purpose of promoting their business o .....

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ame company transacts with other arm of the same company. The appellants' claiming the transactions are at arms length is beyond justified and beyond the scope of law as far as determining value under Customs Act. Similarly, the payments made by the appellant to CSEE towards data services is on also of identical pattern and we hold that for the reasons explained above the same is liable to be included. As regards the appellants' contention that out of total amount of ₹ 64,00,000/- .....

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goods. The relevant paragraph of Apex Court decision is reproduced as under :- "27. Therefore, the payment of DM 10,100,000 was being made for the transfer of technology under the Process Licence Agreement entered into with Midrex. The services mentioned hereinabove are to be part of Licensing Agreement with Midrex. This agreement was a pre-requisite for finalisation of the contract with TIL to purchase the plant at Emden. The licence is not merely a permission to use the plant, but also t .....

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ilities. 28. So far as payment of DM 23,100,000 is concerned, this sum is to be paid for Technical Services . A sum of DM 2,200,000 was payable for theoretical and practical training. This sum cannot be added to the value of the plant in any way. The sum of DM 23,100,000 payable for engineering and consultancy fee as specified in the agreement includes services like basic engineering and re-engineering for relocation of the existing plant at Hazira, India and basic engineering package for Hot Di .....

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gineers and personnel in similar plant. It also agreed to render various services in India. The technical services will cover, inter alia, - "2.3 Technical services related to the relocation of the plant from Emden to Hazira and simultaneously considering the incorporation of Hot Discharge and Hot Briquetting facilities. 2.3.1. Assisting ESSAR in the arrangement of laboratory and plant scale tests on Indian raw materials (terms and conditions for the plant scale test are to be agreed direct .....

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to the extent available at Emden. 2.3.3 Assessment of Process Related Units and facilities (equipment, machinery, piping, instrumentation, electrics and control system, related wear and spare parts) as available at Emden, jointly with ESSAR AND MECON and confirm the suitability of these facilities for refuse as such as evidenced at Emden or alternatively establish the extent of revamping/replacement/debottle-becking between dismantling and re-installation. Details of plant and equipment audit ar .....

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ent. Collaborator will perform all process calculations on the basis of the design criteria applicable for Hazira and perform the re-engineering work to the extent required simultaneously considering the incorporation of Hot Discharge and Hot Briquetting facilities. 2.3.4.1 Prepare complete list of all new, missing equipment, machinery, electrics, instrumentation, refractories, insulation, lubricants, chemicals, catalyst to be procured, modified erected and commissioned as well as a list of wear .....

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h ESSAR and MECON in accordance with Article 3.3.2. 2.3.5 Establish jointly with ESSAR and MECON, a division list identifying those equipments, machinery, material and parts which can be procured in India or have to be imported. COLLABORATOR will provide a list of Vendors/manufacturers for refurbishing or procurement of all import items and MECON will provide a list of indigenous items. 2.3.7 Preparation and issue of new and re-engineered drawings/documents/calculations/manuals for Process Relat .....

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to hold that the entire payment of engineering consultancy fee to V.A. will have to be added to the imported plants. But the plant was sold on as is where is basis. So whatever expenditure was needed to be incurred for dismantling the plant and making it ready for delivery has to be added to the value of the plant. The specialist supervision for dismantling of the plant anpod also engineering and consultancy services for this purpose will have to be added to the value of the imported plant. But .....

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inly it is a condition of sale of imported Microlock-II components to the appellant falls within Rule 9 (1) (c) of CVR and includible in the invoice price of imported goods. 18. Further the Tribunal in the case of Electronic Corporation of India Vs CCE (supra) clearly held that technology fee are exclusively for the ECIL only and includible in the invoice price. The relevant paragraph is reproduced as under : "21. The drawings, designs etc. imported by ECIL no doubt incorporated the trent t .....

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ll for loading of prices of imports made by ECIL. We have brought out about the circumstances in which the fees were agreed to be charged and paid and therefore do not wish to go into this argument except to state that ECIL-RSPL was only a child of convenience and at all times the physical imports were made and obligations were undertaken only by ECIL. 23. Both counsels stated that the quantum of duty confirmed in the impugned order was wrongly calculated. The show-cause notice alleged that the .....

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to be allowed on this ground alone. We have seen the figures quoted in the show-cause notice and the impugned order. The show-cause notice alleged the payment of US$ 10,90,000 equivalent to INR 3,75,23,700/-, the order speaks of US$ 5,50,000 equivalent to INR 1,86,91,800/-. The amount confirmed i.e. ₹ 1,34,42,174/-, however, remained the same in the impugned order. The appellants mentioned in the written submission that even if the higher figure is taken, it would come to US$ 9,90,000 and .....

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n is squarely applicable to the present case. Further we find that the original authority has meticulously worked out the amount and clearly apportioned in proportionate amount to the cost of imported components involved and indigenous components at the ratio of 49 : 51 and added only proportion of the amount of lump sum and royalty amount to the transaction value for each year of transaction of imported goods. Therefore, we hold that the lump sum fee, royalty paid to U.S.S.CSEE are includible i .....

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