TMI Blog2020 (2) TMI 1134X X X X Extracts X X X X X X X X Extracts X X X X ..... a to the farmers - The Principal Commissioner has also placed reliance upon Rule 10(1) (e) to contend that ₹ 17/- per MT paid by the Government of India to STE should be included in the transaction value. This rule provides that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods 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. This rule speaks of payment made or to be made by the buyer to the seller, or by the buyer to a third party. The seller in the instant case is the Government of India and the buyer is the Appellant. This amount of ₹ 17/- per MT has neither been paid by the Appellant to the Government of India nor the Appellant paid this amount to a third party. This amount of ₹ 17/- per MT, therefore, could not have been included in the transaction value under rule 10(1) (e) of the 2007 Valuation Rules. Also, since the aforesaid payment of ₹ 17/- per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary to examine the contention raised by the learned counsel for the Appellant that the extended period of limitation could not have been invoked in the fact and circumstances of the case. Appeal allowed - decided in favor of appellant. - CUSTOMS Appeal No. 11356 of 2016-DB - A/10521/2020 - Dated:- 24-2-2020 - MR. DILIP GUPTA, PRESIDENT AND MR. RAJU, MEMBER (TECHNICAL) Mr. Deepak Kumar, Consultant with Atul S. Chhabra, Taxation Head for the Appellant Mr. T.G. Rathod, Authorised Representative for the Respondent ORDER The Appellant has sought the quashing of the order dated 30 March 2016 passed by the Principal Commissioner of Customs (Preventive) Jamnagar [the Principal Commissioner ] by which the demand of differential customs duty has been confirmed after rejecting the declared value and re-determining it. Penalty and interest has also been directed to be paid. An order for confiscation of urea imported by M/s. Indian Farmers Fertilizers Co-operative Limited [ IFFCO ] has also been passed under the provisions of section 111 (m) of The Customs Act 1996 [ the Customs Act ] . 2. IFFCO is a multi unit Co-operative Society and is primarily engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry dated 4 April 2015 in the assessable value for the purpose of payment of duty. 5. A show cause notice dated 12 August 2015 was issued to the Appellant (IFFCO) mentioning therein that the service charges of ₹ 17/- per MT were in the nature of miscellaneous charges and accordingly, were required to be included in the assessable value from 5 October 2010 to 5 May 2015, in view of the provisions of rule 10 (1) (e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [2007 Valuation Rules ] . The show cause notice mentions that the STE purchased urea of its own and then sold it to Indian buyers on High Sea Sale basis. Thus, the purchases made by STE from foreign sellers and subsequent sale to Indian buyers are independent transactions. The show cause notice also mentions that 2% High Sea Sale Commission should be included in the assessable value for calculation of Customs duty. The relevant portions of the show cause notice are reproduced below: M/s. Indian Farmers Fertilizers Cooperative Ltd., IFFCO Sadan, C-1, Distt Centre, Saket place, New Delhi- 110017 having IEC Code Number- 0588034096 (herein after referred to as the IFFCO ) is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian buyer abroad to purchase the material. On the contrary the STE has purchased the material of its own and then sold the goods to Indian buyers on high seas sales basis. The purchases of STE s from foreign sellers and subsequent sale of it to Indian buyers are independent of each other. Therefore, it evident that the Misc Charges should form part of the assessable value for calculation of Customs Duty in terms of Section 14(1)(a) of Customs Act, 1962 and Rule 10(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007. 7.5 It is also seen that by virtue of the high seas sales through which the notice purchased the urea from the Ministry of Chemicals Fertilizers, Govt. of India, it has derived the benefit of avoiding the payment of sales tax/ VAT on these goods. Further, on what price the 2% HSS Commission should be charged, as there are various prices available i.e. the price of the goods which STE purchased from the foreign supplier or the price on which STE sale to the Ministry of Chemicals Fertilizers, Govt. of India or the price at which Ministry of Chemicals Fertilizers, Govt. of India sale to M/s. IFFCO? It is also evident from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation (Determination of Value of Imported Goods) Rules, 2007 and re-determined as ₹ 63,68,08,88,946/- (Rupees Six Thousand Three Hundred and Sixty Eight Crore Eight Lakh Eighty Eight Thousand Nine Hundred and Forty Six only), as detailed in Annexure-III to this Notice, under Section 14 of the Customs Act, 1962 read with the Rule 4 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007; (ii) The 3032282.5 MTs goods i.e. Urea imported, as detailed in Annexure III totally valued at ₹ 63,68,08,88,946/- should not be held liable for confiscation under Section 111(m) of the Customs Act, 1962; (iii) The differential Customs duty amounting to ₹ 7,64,84,141/- (Rupees Seven Crore Sixty Four Lakh Eighty Four Thousand One Hundred Forty One only) on import of Urea, for 57 finally assessed Bills of Entry as detailed in the Annexure III to the show cause notice, should not be demanded and recovered from them under Section 28(4) of the Customs Act, 1962; (iv) The differential Customs duty amounting to ₹ 44,98,936/- (Rupees Forty Four Lakh Ninety Eight Thousands Nine Hundred Thirty Six only) on import of Urea, for 03 provisionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be taken as an admission on the part of the Appellant to include the miscellaneous charges in the transactions value. 8. The Appellant also pointed out in its reply that the Central Board of Excise and Customs, New Delhi [ CBEC ] , in its Circular dated 11 May 2004, had clarified that it had not approved the Mumbai Customs House existing practice of adding 2% Notional High Sea Sales Commission in the Cost, Insurance and Freight [CIF ] value and the actual High Sea Sale Contract price paid by the buyer would constitute the transaction value. The Appellant also stated that the extended period of limitation provided for under the proviso to section 73(1) of the Finance Act 1994[the Finance Act] could not have been invoked as there was no wilful mis-statement or suppression of facts with intent to avoid payment of service tax. The Appellant also pointed out that the goods could not have been confiscated nor penalty could have been imposed. 9. The Principal Commissioner, however, did not accept the contentions of the Appellant and after rejecting the declared value, re-determined it. Accordingly, the demand of differential customs duty was confirmed and the urea imported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be paid. iv) The extended period of limitation provided for under the proviso to section 73(1) of the Finance Act could not have been invoked either in regard to non-payment of 2% Notional High Sea Sale Commission in the assessable value nor on the miscellaneous charges of ₹ 17/- per MT as there was no wilful mis-statement or suppression of facts with an intent to evade payment of service tax. 11. Shri T.G. Rathod, learned Authorized Representative of the the Department has, however, supported the impugned order and made the following submissions: (i) The Principal Commissioner was justified in coming to a conclusion that the miscellaneous charges of ₹ 17/- per MT paid by the Government of India to STE would be included in the assessable value in view of the provisions of rule 10(1) (e) of the 2007 Valuation Rules; (ii) The Principal Commissioner was also justified in holding that 2% High Sea Sale Commission should be included in the assessable value in view of the decision of the Supreme Court in Hyderabad Industries Ltd; (iii) The extended period of limitation was correctly invoked; and (iv) The Principal Commissioner was justified in confiscating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laneous charges of ₹ 17/- per MT as service charges in the Bills of Entry from 4 April 2015 in view of the communication dated 2 February sent by the Assistant Commissioner to the Deputy Commissioner of Customs. It also paid ₹ 30,41,704/- by challan dated 23 May 2015 towards miscellaneous charges of ₹ 17/- per MT for import of urea from 19 May 2010 up to 18 May 2015 with interest to the extent of ₹ 9,37,680/- by challan dated 25 May 2015. According to the Appellant, this amount was paid purely as a commercial decision to avoid litigation and should not be treated as an admission on the part of the Appellant that it is liable to pay this charge. 14. The issues, therefore, that arise for consideration in this Appeal are as follows: (i) Whether for the purchase of urea by the Appellant from the Government of India on High Sea Sale, miscellaneous charges of ₹ 17/- per MT paid by the Government of India to STE is required to be included in the assessable value and consequently duty payable on it; (ii) Whether in regard to the aforesaid purchase of urea by the Appellant from the Government of India on High Sea Sale, notional 2% High Sea Sale Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two high sea sales. It is the price at which GOI has purchased goods from STE, on which the import duty is being paid by IFFCO. It is because, the price which is being paid by GOI to IFFCO is not the transaction value, but the lower price at which IFFCO has to sell the goods to farmers. The difference is being born by GOI as subsidy. Therefore, the question to be decided is whether in the first high sea sale, which forms the basis for arriving at transaction value, the service charges of ₹ 17/- per MT is to be added in terms of rule 10(1) (e) of CVR, 2007. As held by Hon ble Supreme Court in Hyderabad Industries case, this payment cannot be treated as buying commission, as the relationship between STE and GOI cannot be treated as relationship between a principal and agent. There is an independent sale between STE and GOI on high sea sale basis. Further, deduction of TDS by GOI in terms of Income Tax Act, cannot be the basis to decide, whether in terms of provisions of Customs Act, 1962, this amount is to be added in assessable value or not. 13.5 In view of the above reasoning, I hold that service charges of ₹ 17/- per MT paid by GOI to STE as service charges are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the Ministry have been revised in consultation with the Ministry of Finance and for urea it has been stated that the service charges would be ₹ 17/- per MT. 19. In this connection, the Appellant has also placed the letter dated 2 February 2015 sent by the Ministry of Chemicals and Fertilizers in the Government of India to the Deputy Commissioner, Krishnapatnam Port in connection with the finalisation of provisional Bills Of Entry in respect of urea imported through the said port. The contents of the letter are reproduced below: I am directed to refer to your letter dated 22.01.2015 on the subject cited above and to say that urea is the only fertilizer under statutory price control and it is imported for direct agriculture use on Government account through State Trading Enterprises (STEs) i.e. MMTC Limited (MMTC), State Trading Corporation Limited (STC) and Indian Potash Limited (IPL). These agencies are paid ₹ 17/- per MT as service charges on the urea imported by them on Government account for direct agricultural use. Fertilizers other than Urea are imported under Open General License (OGL). Companies import these fertilizers as per their commercial judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All other payment 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. --------- (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 24. Rule 13 provides that the interpretative notes specified in the Schedule to the rules shall apply for interpretation of the rules. Interpretative note to rule 10 is as follows: Note to rule 10- In rule 10(1) (a) (i), the term buying commissions means fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued. 25. A perusal of rule 10(1) shows that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, amongst others, commissions and brokerage, except buying commissions. Interpretative Note to rule 10 defines buying commissions to mean fees paid by an importer to his agent for the service of rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to examine the factual position in Hyderabad Industries Ltd. The question that arose for consideration before the Supreme Court was whether the service charges payable to MMTC by the Appellant Hyderabad Industries Ltd for the import or raw asbestos could be included in the assessable value of import as provided for in the Customs Act and the Customs Valuation (Determination of Price) Rule 1988. The Appellant was a manufacturer of asbestos cement products for which it used raw asbestos that was mainly imported from foreign countries. Under the provisions of the Export and Import policy of the Government of India, MMTC was designated as a canalising agency. MMTC imported raw asbestos in bulk from foreign sellers and then entered into sale agreements on High Sea Sale basis with various users of raw asbestos. The consideration paid by the purchasers of the raw asbestos from MMTC, including the Appellant, is the purchase value incurred by MMTC and an additional sum equivalent to 3.5% of the CIF value of the imports as service charges. The Supreme Court concluded from these facts that there was no relationship of principal and an agent between the Appellant and MMTC as MMTC had not pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rea to the Appellant and the Appellant sells urea to the farmers. The decision of the Supreme Court in Hyderabad Industries Limited, therefore, does not help the respondent. 30. The Principal Commissioner has also placed reliance upon Rule 10(1) (e) to contend that ₹ 17/- per MT paid by the Government of India to STE should be included in the transaction value. This rule provides that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods 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. This rule speaks of payment made or to be made by the buyer to the seller, or by the buyer to a third party. The seller in the instant case is the Government of India and the buyer is the Appellant. This amount of ₹ 17/- per MT has neither been paid by the Appellant to the Government of India nor the Appellant paid this amount to a third party. This amount of ₹ 17/- per MT, therefore, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions involved. One is between STE and GOI and another is between GOI and IFFCO. The first high sea sale between STE and GOI is an international transfer of goods. I have already held that the service charges paid by GOI to STE are includable assessable value. There cannot be any doubt that the price at which GOI transfers goods to IFFCO cannot be accepted as transaction value. This is also the reason that IFFCO is paying duty on the price at which the goods are transferred by STE to GOI. In normal course of trade, a person selling the goods on high sea sale basis, would naturally add some commission to cover his expenses and margin in the deal with high sea sale buyer. However, in the present case, no data regarding expenses incurred by GOI (apart from declared value of the imported goods) is available as the goods have been sold at an artificial price to IFFCO. Therefore, one has to go for best judgment method prescribed in rule 9 of CVR, 2007. It is established practice that where data regarding actual commission is not available, 2% high sea sale commission is to be added to arrive at the correct assessable value of the imported goods. (emphasis supplied) 33. In this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance has been placed in the show cause notice and the order of the Principal Commissioner, is reproduced below: Circular No. 32/2004-Cus., dated 11-5-2004 Subject: Customs Valuation Rules, 1988-Determination of assessable value for goods sold on high seas- Regarding. Representations have been received on the Ministry to clarify the manner of determining the value of imported goods imported on high-sea-sales basis. As per the existing practice in Mumbai Customs House, the high-sea-sale-charges are added to the declared CIF value in terms of Public Notice No. 145/2002, dated 3-12-2002. Such high-seas-sales-charges are taken to be 2% of the CIF value as a general practice. In case the actual highsea- sale Contract price is more than the CIF value plus 2% , then the actual Contract price paid by the last buyer is being taken as the value for the purpose of assessment. In some of the custom houses, however, audit has raised objection stating that if, in a particular transaction, there were about three/ four high-sea-sales, then high-sea-sales Service Charges @ 2% has to be added to the CIF value, for each such transaction. 2. The matter has been examined taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods lay with the importer who would have to furnish the entire chain of documents, such as original invoice, High Sea Sales contract, details of service charges/ commission paid to establish a link between the first international transfer of goods to the last transaction and it is only in case of doubt regarding the truth or accuracy of the declared value, that the Department may reject the declared transaction value and follow the sequential methods of valuation provided for in the 1988 Rules. Thus, it is not in all cases that 2% Notional High Sea Sale Commission has to be added to the assessable value. 37. In this connection, it would be pertinent to refer to the decision of the Supreme Court in Wipro Ltd vs Assistant Collector of Customs [2015(319) ELT 177 (S.C) ] . The issue that arose for consideration was regarding the constitutional validity of proviso (II-i) to rule 9(2) of the 1988 Customs Valuation Rules. It was contended that the proviso was not only ultra vires section 14(1) and section 14 (1) A of the Customs Act, but was also violative of article 14 and article 19 of the Constitution. The High Court had upheld the validity and the writ petition was dismissed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still added a further sum to the value of goods, being 1% free on board value of the goods. The Appellant was aggrieved by this addition and it is this addition that was the cause for filing a writ petition in the High Court. 40. The Supreme Court examined the unamended provision of section 14 of the Customs Act as also the provision amended in the year 2007. It noticed that under the unamended provision, the principle was to find out the valuation of goods by reference to the value and it introduced a determining / fictional provision by stipulating that the value of all the goods would be the price at which such or like goods are ordinarily sold . However, under the amended provisions, the valuation was based on the transaction price namely, the price actually paid or payable for the goods . It is in this context, that the Supreme Court observed: 26) On the aforesaid examination of the scheme contained in the Act as well as in the Rules to arrive at the valuation of the goods, it becomes clear that wherever actual cost of the goods or the services is available, that would be the determinative factor. Only in the absence of actual cost, fictionalised cost is to be ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding and handling charges is concerned even in those cases where actual cost paid on such an account is available and ascertainable. Obviously, it is contrary to the provisions of Section 14 and would clearly be ultravires this provision. We are also of the opinion that when the actual charges paid are available and ascertainable, introducing a fiction for arriving at the purported cost of loading, unloading and handling charges is clearly arbitrary with no nexus with the objectives sought to be achieved. On the contrary, it goes against the objective behind Section 14 namely to accept the actual cost paid or payable and even in the absence thereof to arrive at the cost which is most proximate to the actual cost. Addition of 1% of free on board value is thus, in the circumstance, clearly arbitrary and irrational and would be violative of Article 14 of the Constitution. -------- 34) In the present case before us, the only justification for stipulating 1% of the F.O.B. value as the cost of loading, unloading and handling charges is that it would help customs authorities to apply the aforesaid rate uniformly. This can be a justification only if the loading, unloading and handli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14(1) of the Act in paragraph 22 judgement of Wipro Ltd and they are as follows: 22) The underlying principle contained in amended sub-section (1) of Section 14 is to consider transaction value of the goods imported or exported for the purpose of customs duty. Transaction value is stated to be a price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation. Therefore, it is the price which is actually paid or payable for delivery at the time and place of importation, which is to be treated as transaction value. However, this sub-section (1) further makes it clear that the price actually paid or payable for the goods will not be treated as transaction value where the buyer and the seller are related with each other. In such cases, there can be a presumption that the actual price which is paid or payable for such goods is not the true reflection of the value of the goods. This Section also provides that normal price would be the sole consideration for the sale. However, this may be subject to such other conditions which can be specified in the form of Rules made in this behalf. 23) As per the first proviso of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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