Full Judgment Text
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CASE NO.:
Appeal (civil) 8667-8670 of 2002
PETITIONER:
Commissioner of Customs, Maharashtra
RESPONDENT:
M/s Galaxy Entertainment (I) P. Ltd. & Ors
DATE OF JUDGMENT: 08/05/2007
BENCH:
S.H. KAPADIA & B. SUDERSHAN REDDY
JUDGMENT:
J U D G M E N T
with Civil Appeal No. 7453 of 2003
KAPADIA, J.
A short question which arises for determination in these
civil appeals filed by the Department under Section 130-E of
the Customs Act, 1962 against the decision of Customs Excise
and Gold (Control) Appellate Tribunal ("the Tribunal") dated
4.7.2002 is: whether technical and installation fee amounting
to Rs. 59 lacs was required to be loaded in the assessable
value of a 20-Lane Bowling Alley equipment imported in
October, 1998 by the assessee-Galaxy Entertainment (I) Pvt.
Ltd.?
2. The assessee imported 20-Lane Bowling Alley from
M/s AMF Bowling Inc. based in USA for installation in their
premises situated at Phoenix Mills Compound, Lower Parel,
Mumbai-400013. On 18.5.1999, a show cause notice was
issued in which it was alleged that the assessee had grossly
undervalued the said equipment by declaring the price at
US $ 15000 CIF as against the normal price of US $ 30000 for
a lane. According to the show cause notice, the assessee had
disguised part of the cost of the equipment as Technical and
Installation Fee which was payable to the subsidiary of the
foreign supplier, M/s AMF Bowling (I) Pvt. Ltd., amounting to
Rs. 59 lacs payable over a period of three years. According to
the show cause notice, prior to the importation of the above
equipment, similar equipment was imported into India during
1997-98 by nine different assessees. According to the show
cause notice, in those nine cases the value of the equipment
worked out to US $ 30000 per lane. Consequently, according
to the Department, the said equipment, in the present case,
stood undervalued, hence, liable to confiscation subject to
payment of redemption fund.
3. The demand was confirmed by the Adjudicating
Authority. It was held by the Adjudicating Authority that the
declared price at the rate of US $ 15199 per lane was highly
discounted price and there was no reason for granting
discount of 45% to the assessee. According to the Adjudicating
Authority, the said equipment was undervalued and it was
further disguised under what is called as technical and
installation fees paid at the rate of Rs. 5.90 per game for one
million customers of the assessee over a period of three years.
That agreement was dated 20.8.1998. The Adjudicating
Authority arrived at the figure of Rs. 59 lacs on the aforestated
basis and included the said amount in the assessable value of
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the equipment. The Adjudicating Authority came to the
conclusion that the cost was artificially divided with the
intention of evading payment of customs duty. In the
circumstances, the Adjudicating Authority held that the
transaction value under Rule 4(1) of the Customs Valuation
(Determination of Price of Imported Goods) Rules, 1988
("Customs Valuation Rules") cannot be taken and accordingly,
the Adjudicating Authority invoked Rule 5(1)(c) of the Customs
Valuation Rules and called upon the assessee to pay duty on
the price calculated at the rate of US $ 30000 x 20 +
Rs.1.41 lacs per lane as Installation Charges, which M/s
Capital Leisure Pvt. Ltd. had paid, amounting to Rs. 28.33
lacs.
4. Aggrieved by the aforesaid decision of the Adjudicating
Authority, the matter was carried in appeal by the assessee to
the Appellate Tribunal. The Tribunal came to the conclusion
that in the present case there was no undervaluation and,
therefore, there was no reason to deviate from the valuation
under Rule 4(1). According to the Tribunal, the declared value
of the equipments at the rate of US $ 15199 per lane was the
negotiated price. According to the Tribunal, there was no
suppression as the Technical and Installation Agreement
dated 20.8.1998 was post-clearance agreement. According to
the Tribunal, the facts of the present case stood clearly
covered by the judgment of this Court in the case of Basant
Industries v. Additional Collector of Customs, 1996 (81)
E.L.T. 195. Consequently, the appeal was allowed by the
Tribunal. Hence, these civil appeals have been filed by the
Department.
5. We do not find any merit in these civil appeals. In the
present case, there were nine imports of the said equipment
during the year 1997-98. One such import was made by
M/s Capital Leisure Pvt. Ltd., New Delhi. In that matter, the
cost came to US $ 30000 per lane. This transaction has been
taken by the Department as the basis of valuation under Rule
5(1)(c). However, the import from USA by M/s Capital Leisure
Pvt. Ltd. was of 6-Lane Bowling Alley. We have examined all
the nine transactions. None of those transactions exceeded 8-
Lane Bowling Alley. In the present case, the assessee has
imported 20-Lane Bowling Alley. It is the largest in Asia. M/s
AMF Bowling Inc., USA, wanted to promote the game in India.
The records indicate hectic bargaining for 20-Lane Bowling
Alley by the assessee. In the circumstances, the Tribunal was
right in coming to the conclusion that the cost per lane at
US $ 15000 was a proper negotiated price. In the
circumstances, in our view, the matter is fully covered by the
judgment of this Court in the case of Basant Industries
(supra). Further, there is no merit in the contention advanced
on behalf of the Department that the cost of the equipment
was deliberately bifurcated and that the Technical and
Installation Charges Agreement dated 20.8.1998 was a
disguise to arrive at the true value of the import. In this
connection we find that, the foreign supplier had its subsidiary
in India; that subsidiary was M/s AMF Bowling (I) Pvt. Ltd.. It
is not the case of the Department that the said subsidiary was
a bogus company. As stated above, the equipment was
supplied by M/s AMF Bowling Inc., USA which wanted to
promote the game in India. As stated above, 20-Lane Bowling
Alley was the biggest in Asia. The foreign supplier wanted the
said equipment to be installed properly. The said equipment
was a synthetic item. To install that item required specialized
knowledge. That expertise was available with M/s AMF
Bowling (I) Pvt. Ltd. (subsidiary of the foreign supplier). As a
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matter of promotion, the Technical and Installation Charges
Agreement dated 20.8.1998 stipulated raising of revenue for
next three years by charging a fee of Rs. 5.90 per game for one
million games bowled aggregating to Rs. 59 lacs. Therefore,
that agreement had no nexus with the sale proceeds of the
equipment paid by the assessee to M/s AMF Bowling Inc.,
USA. The post-clearance agreement was revenue generation
agreement. Rs. 59 lacs was not a quantified amount. Rs. 59
lacs was calculated on the basis that one million games were
likely to be bowled in the next three years. That risk was taken
by M/s AMF Bowling (I) Pvt. Ltd.. Even under Rules of
Interpretation to the Customs Valuation Rules, post-clearance
agreements are excluded. Further, even under the order of the
Adjudicating Authority the validity or the genuineness of the
Agreement dated 20.8.1998 is not doubted. In fact, in M/s
Capital Leisure, the department has also taken into account
the cost of Technical and Installation services at Rs. 28.33 lacs
which in the present case is Rs. 59 lacs. As stated, in the case
of M/s Capital Leisure the transaction was concerning
6-Lanes Bowling Alley, whereas here we have 20-Lanes.In the
circumstances, we do not find any infirmity in the impugned
judgment of the Tribunal. One cannot compare the impugned
transaction with the transaction which M/s AMF Bowling Inc.,
USA had with M/s Capital Leisure Pvt. Ltd.. We find no merit
in the argument advanced on behalf of the Department that
the Technical and Installation charges was a disguise to cover
the true cost of the equipment. There is no evidence of any
flow-back or extra-consideration deflating the price and,
therefore, there was no reason to include Rs. 59 lacs in the
assessable value of the equipment. In our view, Rule 4(1) of
the Customs Valuation Rules was applicable and the
Department had erred in invoking Rule 5(1)(c) of the said
Rules.
6. For the aforestated reasons, we find no infirmity in the
impugned judgment of the Tribunal dated 4.7.2002.
Accordingly the civil appeals are dismissed with no order as to
costs.