Full Judgment Text
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CASE NO.:
Appeal (civil) 509 of 2002
PETITIONER:
Commissioner of Customs, Mumbai
RESPONDENT:
Clariant (India) Limited, Worli
DATE OF JUDGMENT: 29/03/2007
BENCH:
S.H. Kapadia & B. Sudershan Reddy
JUDGMENT:
JUDGMENT
KAPADIA, J.
1. This is a civil appeal under Section 130E of Customs Act, 1962 filed by
the Department against the order dated November 27, 2000 in Appeal No. C
401/98-Bom passed by the Customs, Excise & Gold (Control) Appellate
Tribunal (CEGAT), Mumbai.
2. Respondent No.1 herein, during the assessment year 1977-78, imported raw
material from M/s Sandoz Quinn (subsidiary of M/s Sandoz (India). This was
under the Technical Collaboration Agreement dated April 2, 1990, between
the said two companies. That Technical collaboration agreement provided for
import of capital goods, raw materials, intermediates etc. along with
transfer of technical know how and technical assistance for upgradation of
the respondent’s manufacturing plant in India. The respondent is a
manufacturer of leather chemical products. Respondent entered into three
agreements particulars of which are given at page 36 of the paper book. One
of the agreement is called Technical Collaboration Agreement. The other two
agreements pertain to import of seeds. According to the technical
collaboration agreement the respondent was to import raw materials for
manufacture of leather chemical products. The Department called upon the
respondent to submit their invoices and certificates from Chartered
Accountants. They gave the said particulars contending that the Technical
Collaboration Agreement with the Sandoz Quinn was for upgradation of the
chemical plant in India and for that purpose they were not required to pay
technical know how charges. They contended that the import was on principle
to principle basis and that the price was the sole consideration. They also
contended that the import of raw material had no nexus with the
collaboration agreement and that the import of raw material was not a
condition of the collaboration agreement. In the circumstances it was urged
that the Department should not load the technical know-how charges to the
assessable value of the, raw materials under Rule 8 or any other Rule
framed under the Customs Act, 1962. At this stage it may be clarified that
in the present case the respondent had waived the show cause notice.
3. By order dated 15.12.1994 passed by the adjudicating authority, it was
held that there was no mutuality of interest between the respondent company
and M/s Sandoz Quinn, and that the fees payable were not includible in the
assessable value of the raw material.
4. Aggrieved by the decision of the adjudicating authority the Department
carried the matter in appeal to the Collector of Customs (A). It was urged
on behalf of the Department that the two companies were related and that
the fees were includible in the assessable value of the capital goods.
5. By order dated 31.12.1997 passed by the Collector of Customs (A) it was
held that the technical know-how charges were required to be loaded to the
value of raw materials. It was further held that though the two companies
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were related their relationship did not influence the value of the capital
goods. It was further held that since the said two companies were related
valuation should be done under rule 4(2)(a) and (b) in the matter of
computing the assessable value of the raw material.
6. Aggrieved by the decision of the Collector of Customs (A) the respondent
herein went in appeal to CEGAT. By the impugned judgment it was held that
both the companies are related to each other. The Tribunal recorded the
admission made by the advocate for the respondents that the two companies
are related to each other. The Tribunal found that the appellate authority
had confused the valuation of capital goods with valuation of imported raw
materials. It was further held that the only issue before the appellate
authority was regarding valuation of capital goods and therefore, it had
erred in going into the larger question of adding DM 5,00,000 to the cost
of raw materials. According to the Tribunal this was never an issue before
the appellate authority. In the circumstances, the Tribunal concluded that
the said amount should not be added to the cost of the raw material.
7. At this stage it may be noted that the Department is seeking to invoke
Rule 4(2)(a) and (b) of the Customs Valuation Rules, 1988 on the footing
that the said two companies are related, and that the payment of fees was
the condition for importation of the quality raw material.
8. The only question which arises for determination in the present civil
appeal is whether the Tribunal was justified, on the facts and
circumstances of the case, in holding that the addition of DM 5,00,000 to
the cost of the raw material was never in issue before the adjudicating
authority, and therefore, its finding to that extent was beyond the appeal.
9. We do not agree with the approach of the Tribunal for the following
reasons. Firstly, in the present matter the adjudicating authority
proceeded on the basis that the above two companies were not related to
each other. The entire finding of the adjudicating authority is based on
the premise that the two companies are not related. That premise got
eliminated when, before the appellate authority, the advocate for the
assessee fairly stated that the respondent company and M/s Sandoz Quinn
were related. Secondly, in the present case three agreements were entered
into by respondent herein with three different companies, one of which was
M/s Sandoz Quinn. One it is conceded on behalf of the respondents that the
two companies are related the matter takes a different complexion. It is in
this light that the matter needs de novo reconsideration. The first two
agreements pertain to import of seeds. The third agreement pertains to
technical collaboration. The third agreement provides for import of quality
raw material for manufacture of leather chemical products. Therefore, the
question as to whether the said payment of DM 5,00,000 was the condition
for import of quality raw material needs to be examined, particularly in
the light of the relationship between the parties.
10. In the case of Union of India v. Mahindra & Mahindra Ltd., (1995) 76
ELT 481 the question arose as to how the Department should interpret an
agreement between the buyer and seller in the context of valuation under
the Customs Valuation Rules, 1988. It was held that ordinarily the
Department should proceed on the basis of the apparent tenor of the
agreement. However, it was up to the Revenue, on examination of the
relevant circumstances to allege and prove, that the apparent was not real.
In that case also the Department was required to consider technical know
how agreement between the Indian manufacturer and foreign collaborator. In
that case the Department contended that there was nexus between payment for
know how transfer and import of engines. The assessee succeeded before this
Court in that case and one of the main reasons for the success of the
assessee was that this Court found that Mahindra & Mahindra were not
related to the foreign collaborator.
11. In the present case that is not so. The respondent here had conceded
before the appellate authority that the two companies are related. We make
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it clear that merely because the two parties are related to each other will
not amount to undervaluation per se. It will depend on the facts and
circumstances of each individual case.
12. For the above reasons we set aside the impugned judgment of the
Tribunal and remand the matter to the adjudicating authority which will
decide the matter de novo in accordance with the Customs Valuation Rules,
1988. The adjudicating authority will not only go by apparent tenor of the
agreement, but also examine the necessary facts and decide the matter in
accordance with law. We do not wish to express any opinion as to whether
Rule 4(2)(a) or Rule 4(2)(b) or Rule 4(3)(b) is applicable in this case. It
will all depend on the facts to be established in this case and the
adjudicating authority has to decide about the applicability of the
relevant rule in this case. We express no opinion in that regard.
13. Accordingly, the appeal is allowed with no order as to costs.