TMI Blog2007 (8) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... -3-2002 in respect of the goods imported under two Bills of Entry dated 25-6-2003 and 12-4-2004 respectively. The Adjudicating Authority re-determined the assessable value of the goods imported under Rule 8 of the Customs Valuation Rules. He denied the benefit of exemption Notification 21/2002-Cus. for the goods imported under two Bills of Entry. He confirmed differential duty amount of Rs. 4,20,31,824/- on account of undervaluation and an amount of Rs. 3,16,56,697/- on account of denial of the Notification benefit. The longer period has been invoked. Interest under Section 28AB was demanded. Mandatory penalty equal to the duty demanded was imposed under Section 114A of the Customs Act. The impugned goods were held liable for confiscation under Section 111(m) and under 111(o) of the Customs Act, 1962. A penalty of Rs. 10,00,000/- was imposed on Shri Siddharth Deb, Associate General Manager of M/s. GEL under Section 112B of the Customs Act, 1962. The appellants strongly challenge the impugned order. Hence, they have come before the Tribunal for relief. 3. S/Shri V. Sridharan and G. Shiva Dass, the learned Advocates, appeared for the appellants. Shri P.R.V. Ramanan, the Special Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36). The goods were covered by Commercial Invoices and duties were paid based on the values shown in the Commercial Invoices. The detailed investigations revealed that in terms of the LTPSA, the appellants are required to export each part, which is supplied by the foreign supplier within thirty days of the replacement. In other words, the condition of supply of any part is that the appellant had to export the used part. The part, which is imported, can either be new or refurbished. However, as per the LTPSA, after 12500 fired hours, each part will be replaced. The payment is based on the agreed sum for fired hours and sum fixed chargers. Further, it is seen that the seller has goods title to the components removed. While exporting the old part, the appellant declared its value based on the advice of the foreign supplier. This value comes to one-third of the price of the new part. From the above, it is clear that in the present case, there is no Transaction Value. The amount shown in the Commercial invoice is different from what one is required to pay for outright purchase. In fact the amount shown in the commercial invoice corresponds to what is known as exchange price under Rotabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of 12 Hot Path Gas Parts replaced during the said period. The average price per Hot Gas Path Parts works out to USD 17,49,000. This amount is almost equal to USD 17,40,000 declared by the appellants at the time of import of the Hot Path Gas Parts. Hence, by operating under LTSA, no extra consideration accrues to GE even after the period of the Agreement. (ii) The valuation of the imported goods is to be done under Section 14 on the basis of the price at which such or like goods are ordinarily sold, or offered for sale, and not on the basis of the 'cost' of the imported goods. The Department has committed a fundamental error while trying to equate the price paid or payable to the cost of the imported goods. After making this fundamental error, the Department is trying to arrive at the cost of the imported parts by adding the price of the removed Hot Path Gas Parts. (iii) The assumption that the price of the defective/returned Hot Gas Path Parts was not considered by GE at the time of fixation of the price under the Rotable Exchange Programme is erroneous and clearly without any basis. It is a common international practice that the replaced part is returned to the supplier un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rule 9 shows that 9(1)(d) and 9(1)(e) refer only to remittances of actual payments. The Show Cause Notice did not contain any provision to redetermine the assessable value of the imported goods under Rule 8 of the Customs Valuation Rules. Consequently, the appellants were never put on notice about the intention of the Department to resort to the provisions of Rule 8 of the Customs Valuation Rules, 1988. Therefore, the confirmation of demand under Rule 8 is beyond the proposal contained in the Show Cause Notice. The following case-laws are relied on : (a) Hindustan Polymers Co. Ltd. v. CCE - 1999 (106) E.L.T. 12 (S.C.) (b) Warner Hindustan Ltd. v. CCE - 1999 (113) E.L.T. 24 (S.C.) (c) Chimique Industries v. CCE - 2005 (100) ECC 373 (xi) The assumption that the cost of the removed parts is adjusted against the imports is incorrect and without basis. The above assumption is based on the letter dated 11-7-2003 written by the appellants to the Manager, Bank of India. A reading of the letter does not in any way suggest that the cost of the removed part is adjusted against the imported part. (xii) The value declared for insurance is the best reference to determine t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is implied by the clause in the LTSA Agreement to the effect that GE would furnish to the appellants reasonable information about the incremental cost of the refurbished part which is in keeping with internationally accepted practice to levy duty in respect of repaired/refurbished items only on the value of repairs and the value of parts/components replaced. (xvi) The appellants have not misdeclared the assessable value of the parts at the time of import. They have correctly declared the value in the Bill of Entry based on price indicated by GE in the invoice raised for Customs purposes. As the defective/returned part had only scrap value, the return of such a part did not constitute additional consideration under Rule 9(1)(d) and 9(1)(e) of the Customs Valuation Rules. In the invoice, the value of the goods declared was as per the prices indicated in the price list of GE for the Rotable Exchange price. At the foot of the invoice, GE has also duly declared that the supplies were as per the LTSA between the appellants and GE. The value of one third import price attributed to the returned goods is the value attributed by GE and as far as the appellants are concerned, these goods h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment. The following case-laws are relied on : (a) Cosmic Dye Chemical v. CCE, Bombay - 1995 (75) E.L.T. 721 (S.C.) (b) Tamil Nadu Housing Board v. Collector - 1994 (74) E.L.T. 9 (S.C.) Though the Commissioner, in para 122 of the impugned order, has invoked the proviso to Section 28(1) of the Customs Act, 1962 to confirm the demand of duty, no findings have been adduced to justify invoking the longer period of limitation. (xxi) As regards the denial of exemption Notification 21/2002-Cus in respect of the two Bills of Entry, it was submitted that the Show Cause Notice alleged that the appellants had not produced the prescribed Certificate at the time of import of the goods. The appellants were not in a position to produce the prescribed certificate and, therefore, they executed a Bond for the differential duty as directed by the Department. The appellants were, thereafter, permitted to clear the goods by paying duty at the concessional rate of duty pending production of the prescribed certificate. Subsequent to the import, the appellants furnished the necessary certificate. Inviting our attention to the said Notification to clause (b) of condition 45, it was urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13) E.L.T. 24 (S.C.) (c) Chimique Industries v. CCE - 2005 (100) ECC 373. (xxiii) Once the authority competent to grant the Certificate is satisfied that the goods are required for renovation/modernization, the Customs authorities cannot sit in judgment over the validity of the certificate. (xxiv) The Commissioner has sought to deny the exemption on the ground that the Certificates did not meet the requirements of the Notification, as some of them used the term 'upkeep' instead of the term 'renovation/modernization'. The Commissioner has conveniently ignored the certificates as per the terms of the Notification. In any case, the interpretation given by the Commissioner that the term 'upkeep' was not the same as 'renovation/modernization' is a narrow interpretation and is not keeping with the intention of the Government and the authority competent to grant such certificate. (xxv) The 5 Bills of Entry in respect of which the demand has been confirmed have been assessed during the period April 2003 to April 2004 and the Show Cause Notice has been issued on 12-8-2004. The assessments have been completed and the clearances allowed. In the case of CCE v. Cotspun Ltd. - 1999 (113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds are received by GEL on the export of removed Hot Path Parts to GE, USA; (iv) such returned Hot Path Parts, on removal from the main equipment, become the property of GE, USA; (v) such returned Hot Path Parts are repaired/refurbished by GE, USA and sold to any of its customers and the resultant proceeds accrue to GE, USA; (vi) the price of the imported Hot Path Parts under the Rotable Exchange Program is adjusted by taking into account the cost of the returned part; (vii) the price of the returned Hot Path Parts is taken as 1/3rd of the price of the refurbished parts by the US Customs; (viii) the price of the imported goods i.e. refurbished Hot Path Parts is a reduced price on account of the above; (ix) GEL did not declare or disclose these facts to Customs at the time of importation and misdeclared the assessable value of the imported goods; (x) the fact that the goods imported were under Rotable Exchange Program was not brought to the notice of the Customs. (xi) the same was also not declared at the time of exporting the remoted Hot Path Parts; (xii) in the case of two imports in which the benefit of exemption under Notification No. 21/2002-Cus. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was invited to a ruling by Inland Revenue Service, USA, consequent to a Court decision that the transaction involving rotable exchange of spares under a service agreement were not in the nature of sale and such spares should be regarded as depreciable assets and not as inventory meant for sale. 2. The appellant contended that Rules 9(1)(d) and 9(1)(e) are not applicable, as the goods have only scrap value and the proceeds on account of return of the used/old goods do not accrue to GE and that the payments are not made in any of the forms specified in the Rule. Further, it was urged that once the goods are defective and removed, they have no commercial value for the appellants. · While exporting the old parts, the appellants had declared certain value in the relevant shipping bills and invoices. The proceeds of the removed Hot Path Parts exported are not realized by GEL, but adjustment to that extent is made in the price of the refurbished Hot Path Parts imported. This is substantiated by the price difference demonstrated earlier. · If the exported goods were only scrap and had no value, there was no purpose in exporting it to USA paying airfreight and insurance charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustoms and as accepted by GE, the value of the returned parts is 1/3rd of the exchange price. As the insurance amount is split between imported part and used part exported to GE as both have a value of their own, taking the insurance amount applicable only to imported parts and arriving at the conclusion as above, is not correct. 5. The appellants contend that the Department has presumed that the price under Rotable Exchange Program is the price after deducting the price of the returned part. The following evidence adduced is relevant :- (i) Article 2.8 of the LTAPSA states that with respect to refurbished parts, the seller shall furnish to the buyer information regarding the incremental value of each refurbished part over the value of the comparable used part that was exported in order to limit the assessment of customs duties to the incremental value of each such refurbished part; (ii) Under the Rotable Exchange Program, the price is mentioned as 'Exchange Price; (iii) Payment made to GE is not according to the prices mentioned in the proforma invoices accompanying the imports but as per the invoices raised by GE for periodic payments in terms of Article 5 of the LT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisite exemption certificate from the competent authority and the said exemption is not extendable to the goods in question. It is in examination of the said allegation the Commissioner has come to the conclusion that the subject goods are not eligible to the aforesaid exemption. Hence, he has not traversed beyond the Show Cause Notice. In terms of the Notification, the requisite certificate was required to be produced at the time of importation. But, the appellant had produced it seven months after import. Moreover, in their application to the competent authority, they had stated that they were proposing to import on a future date for renovation of the power plant, though that was not the case. It is also seen that the first competent authority has only certified that the spares in question were essential for the proper upkeep of the generating units. In terms of the Notification, the purpose should be only for modernization/renovation. 8. The appellants have contended that the confirmation of demand under Rule 8 is not within the purview of Show Cause Notice, as the said Rule has not been invoked. Even though it is true that there is no mention of this Rule, the Show Cause No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with in the submissions made by the appellants and also by the Revenue. Therefore, we do not find it necessary to repeat the same. The main issues involved are as follows :- (i) Whether the values declared by the appellants for the Hot Gas Path Parts imported represent the correct value for Customs assessment purposes and whether the re-determination of such values by the Commissioner and consequent demand of differential duty are in accordance with law? (ii) Whether the denial of benefit of exemption Notification 21/2002-Cus. dated 1-3-2002 in respect of the goods imported under the two Bills of Entry are in order? Based on the findings in respect of the above issues, the other issues, which arise, can be decided. 9.1. First, let us deal with the valuation issue. The impugned goods have been imported under cover of 5 Bills of Entry. The Bills of Entry were accompanied with Commercial Invoice and also the necessary statutory declarations. The appellants had discharged the duty liability on the basis of the value declared in the Commercial Invoices. The goods had also been cleared. At the bottom of the invoices it is stated that "These parts are supplied under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are also supposed to clear the goods in accordance with law. The appellant's statement that they did not produce the Agreements because the Customs did not ask for it indicates, to say the least, a very irresponsible attitude especially when the value of the impugned goods declared by them is not the Transaction Value. 9.4 The appellants, by not producing the Agreements at the time of import and not informing the Customs about the Scheme under which the goods were supplied, had actually suppressed the relevant facts and, therefore, at the outset, we hold that the longer period is invocable. 9.5 In the industry, there is a practice of returning the used part to the original manufacturer who will repair or refurbish the old part. The manufacturer would supply the refurbished part to the customer. This has several advantages. In fact, in the website of GE, we find interesting information on refurbished parts. We are reproducing the entire page of the website. Refurbished parts · Products Services · Products · Services · Repair · Solutions · Compressors · Gas Turbine Heavy Duty · Gas Turbine Aero derivative · Generator · Mechanical · Motor · On-Site ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that in terms of the Agreement, the foreign supplier is responsible for the entire maintenance of the Turbines in the Power Plant. In terms of the Agreement, after 12,500 firing hours, each Hot Gas Path Part is to be replaced. We have already mentioned the terms of the payment. As far as Customs is concerned, when any item is imported, Customs duty has to be paid on the value. The value is governed by Section 14 of the Customs Act read with the Customs Valuation Rules. Under normal circumstances, the Transaction Value is taken for assessment purposes with suitable adjustment. What is Transaction Value? In the language of the layman, the Transaction Value is the amount paid for the transaction of purchase of the goods. In the normal circumstances, it will represent a value for an outright purchase of an item. In the present case, in the above sense, there is no Transaction Value at all. However, the foreign suppliers have given Commercial Invoice indicating the value for customs purpose. 9.7 Now, let us turn to para 2.8 of the LTPSA. "2.8 SUPPLY OF CERTAIN REFURBISHED PARTS In the performance of its scope of work under this Agreement, Seller may supply Parts which have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8 will not vitiate the same. In other words, the invocation of Rule 8 is implied in the manner in which the assessable value was proposed to be re-determined. The Adjudicating Authority has also taken recourse to Rule 9(1)(d) and Rule 9(1)(e) of the Customs Valuation Rules, 1988. The appellants strongly challenge the re-determination of assessable value on various grounds. It is the contention of the appellants that the addition to the Transaction Value in terms of the above mentioned rules should be in the form of some payment. According to them, the seller is not receiving any monetary consideration from the buyer. They have also stated that the returned part does not have any value and it should be treated only as scrap. These contentions are not sound. If the returned part is only a scrap, where is the need for indicating its value in the shipping bill as per the requirement of the US Customs? Moreover, while exporting the so called scrap, the appellants have submitted a letter explaining why there is no inward foreign exchange remittance. It is very clear that the value of the imported part is adjusted in view of the return of the used part. That is why there is no inward r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted. In any case, while arriving at the value for the assessment purposes, we cannot go by the intention of the Government indicated in some other Notification. We have to go only by Section 14 of the Customs Act read with the Valuation Rules. 9.12 Our attention was also drawn to an adjudication order relating to imports made by BSES, Kerala where the value as per the Rotable Exchange Program was accepted by the Adjudicating Authority. Further, it has been urged that the said order of the Adjudicating Authority has not been appealed against and, therefore, the Department is bound to follow the same. We are not impressed with this argument. The Special Counsel for the Revenue submitted that the adjudication order dated 17-4-2002 cited by the appellant is based on wrong and incorrect appreciation of the facts of the case. He relied on the ratio of the Apex Court's ruling in the case of Faridabad CT Scan Centre - 1997 (95) E.L.T. 161 (S.C.) wherein it was held that wrong orders cannot be perpetuated with the help of Article 14 of the Constitution on the basis that such wrong orders were earlier passed in favour of some other persons and, therefore, there will be discrimination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to be cleared claiming exemption under Sl. No. 236 of the Table annexed to the Notification. The relevant portion is reproduced below :- S. No. Chapter Heading No. or sub-heading No. Description of goods Stan-dard Rate Additional Duty Rate Condition No. 236 84 or any Chapter All goods, for renovation or modernization of a power generation plant (other than captive power generation plant) 5% 16% 45 45 If, - (i) in the case of a power plant (except a nuclear power plant), - (a) in the case of Central Power Sector Undertakings, the Chairman of the concerned Undertaking or an officer authorized by him 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 the rank of a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 23-1-2004 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 Notification. The list of spares recommended have also been mentioned. The General Manager of the Karnataka Power Transmission Corporation Ltd. has certified that the spares listed in the letter of the appellant dated 29-9-2003 are essential for the proper upkeep of the generating units. The Revenue contends that the impugned goods are not for renovation but only for upkeep. In our view, one cannot take such a narrow view. What is the meaning of renovation? To renovate means to make new. We talk 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 renova ..... X X X X Extracts X X X X X X X X Extracts X X X X
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