Commissioner Of Customs (Import), ... vs Lenze Mechatronics Pvt. Ltd

(Arising out of Order-in-Appeal No. 91/2010/MCH/DC/GVC/2010 dated 30.4.2010 passed by the Commissioner of Customs (Appeals), Mumbai)

For approval and signature: Honble Mr. P.S.Pruthi, Member (Technical)

Honble Mr. Ramesh Nair, Member (Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

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Commissioner of Customs (Import), Mumbai : Appellant

VS

Lenze Mechatronics Pvt. Ltd. : Respondent

Appearance

Shri A.K. Singh, Additional Commissioner (A.R.) for Appellant

Shri Prashant Patankar, Consultant for respondent

CORAM:

Mr. P.S.Pruthi, Member (Technical) Mr. Ramesh Nair, Member (Judicial)

Date of hearing : 19/08/2015 Date of pronouncement : 7/9/2015

ORDER NO.

Per : P.S. Pruthi

This appeal is filed by Revenue against the impugned Order-in-Appeal dt. 30.4.2010. The respondent imports goods from their related person M/s. Lenze Drive System GMBH, Germany, They also import goods from subsidiaries of the Principal located worldwide. There is no dispute that the foreign supplier and the respondent importer are related in terms of Rule 2(2) of the Customs Valuation Rules. The import from the group companies is covered under Sales Promotion Agreements. A pricelist exists at which the goods are supplied by the related supplier to the importers after giving suitable discount. The suppliers also supply the goods to other unrelated customers in India from whom they charge higher prices than the price in the Global Pricelist by 10% to 30%. The contention of respondents is that the difference between the prices charged to third party unrelated buyers and the prices at which they received the goods is paid to them by their Principal as a commission. This commission is paid for the after sale issues such as warranty period servicing, repairing, and replacement of parts. Revenue built its case around a mail dt. 21.7.2006 to the respondent saying that all drives electronic or mechanical shall be supplied as per pricelist with 50% discount. The adjudicating authority in his order referring to statements submitted by the importer observed that the price variation between the prices for importer and unrelated buyers is ranging up to 55%. The price is not uniform to all buyers and therefore price is influenced by the relationship between the buyer and the seller. Accordingly, he rejected the declared invoice value and directed the assessing group to enhance the same to the value at which contemporaneous identical goods are imported by unrelated buyer. He also directed that after expiry of three years period, if no renewal is done by SVB order, the provisional assessment may be done with extra duty equivalent to 55% of the assessable value. The Commissioner (Appeals) set aside the adjudication order both on basis of facts as well as law.

2. Heard both sides.

3. The Ld. AR vehemently stated that the discount of 55% is not a normal discount. He relied on Oswal Woollen Mills Ltd. Ludhiana Vs. Assistant Collector of Customs, Bombay and Others 1984 (18) ELT 203 (Del.), Metal and Alloys Industries Vs. Collector of Customs 1989 (40) ELT 207 (Tribunal) in support of his stand. The Ld. Counsel for the respondent drew our attention to the Sales Promotion Agreement between the Principal and the respondent to prove that there is an arrangement for giving commission in respect of sales to other customers. He also drew our attention to the Chart placed at Annexure 3 which is forwarded by the Additional Commissioner of Customs to the Additional Commissioner A.R. CESTAT, Mumbai on 23.7.2015. According to this chart, the variation in prices is much less than 55% in most cases.

4. We have carefully considered the submissions made by both sides. On facts, we find the order of the adjudicating authority woefully inadequate. The Annexure 3 referred above clearly indicates that the difference in prices for the respondent and independent buyers is much less than 55% for most of the products. It is not at all brought forth in the adjudication order as to how the verification is taken as 55% uniformly. In fact, the decision of the adjudicating authority is an apology of an Order and is not a speaking Order. The Commissioner (Appeals) has also noted this fact that the invoices shown by the appellant during the hearing do not indicate that the difference in price is 55% uniformly. In majority of sales, the price to unrelated buyer was higher by 5.5% to 7.5%.

4.1. It is a well known commercial practice that the related buyer is given commission in respect of supplies by the supplier abroad to unrelated buyers in India. The Sales Promotion Agreement also provides for this commission. And this manner of grant of commission is upheld in various judicial pronouncement such as Premnath Diesels Pvt. Ltd. Vs. Commissioner of Customs, Calcutta 2000 (122) ELT 458 (Tribunal).

4.2. We agree with the finding of the Commissioner (Appeals) that the difference in commercial levels, quantity levels, cost incurred by the seller (in this case respondent) have to be considered while examining the influence on price by the relationship between the supplier and the importer. Therefore, even if similar goods sold to the unrelated buyer are taken as the basis of value of impugned goods in terms of Valuation Rules 4 & 5, adjustments have to be made on account of such factors as stated in proviso to Rule 3 (3) (b) of the Valuation Rules. In any case, the adjudicating authority simply considered the difference in price, which he states wrongly to be 55%, without examining the reasons for the price difference in proper prospective. He has failed to proceed legally to determine the value by sequentially following the Valuation Rules. In fact, he has not even touched upon the Valuation Rules, which provide the legal basis of arriving at the correct assessable value. Nor do the grounds of appeal appreciate the situation correctly in these terms. The reliance placed by the Ld. AR on various judgments does not apply to the facts of the present case. In the case of Oswal Woollen Mills Ltd. a special discount on the price of a single machine was denied. In case of Metal and Alloys Industries the international prices of the same product imported were considered. However in the present case , the situation is of commission being given which is the difference between the prices to the appellant and the unrelated buyer for taking care of after sales service/promotion etc. We find no reason to reject the impugned Order.

5. In view of the above, the appeal is dismissed.

(Pronounced in court on 7/9/2015)

(Ramesh Nair) Member (Judicial)

(P.S.Pruthi) Member (Technical)

SM.

5 Appeal No. C/596/2010-Mum