Service Charges And Other Charges Paid To Overseas Supplier Towards Various Services Which Have No Nexus With Import Of Goods Not Addable To The Transaction Value Of Imported Goods Covered In Their Appeals Under Rule 10 (1) (C) Of Customs Valuation Rules, 2007- South Zonal Bench, Chennai

Citation

[M/s Schwing Stetter (India) Private Limited v. Commissioner of Customs (Imports) Chennai in Appeal No. C/40309/2015]

FINAL ORDER No.40280/2016 pronounced in open Court on February 17, 2016

BRIEF FACTS

1. The Appellant imported machinery i.e. Schwing mobile concrete pump placers from their related supplier. Though both the foreign supplier and the Appellant are related, as per the O-I-O of the Deputy Commissioner of Customs (SVB) dated December 22, 2000, the transaction value was accepted. The Deputy Commissioner also ordered that an amount of Rs.4.25 Crores towards design and drawing fees to be added to the assessable value as and when the same is paid. The Appellant amended the collaboration agreement by deleting the clause relating to payment of design and drawings. The said SVB order was reviewed and followed upto December 22, 2013. However, the Deputy Commissioner of Customs (SVB) in his OIO dated March 05, 2013 while reviewing the order rejected the transaction value and ordered for loading. 

APPEAL BEFORE THE COMMISSIONER OF CUSTOMS (APPEALS) 

2. Aggrieved by the order-in-original, the Appellant preferred an appeal before the Commissioner of Customs (Appeals). The Lower Appellate Authority in his impugned order C. Cus. No. 1703/2014 dated September 18, 2014 upheld the order of the Adjudicating Authority and rejected the Appeal. Further, the Commissioner (Appeals) has also ordered modification of OIO at S.No where he ordered that till finalization of the proceedings under Section 28 (4) and Section 28 AA and Section 114 A of the Customs Act, 1962, the assessment shall continue to remain provisional and 5% EDD shall be collected on all future imports. Further, he has also ordered the Department to procure suitable security/bank guarantee for the past imports.
3. Hence the present appeal. 

APPELLANT SUBMISSIONS

4. The Appellant reiterated the grounds of appeal and submits that we are the manufacturer of concrete handling equipment Concrete Boom Pump Placer, which are imported from related company. The Appellant drew attention to technical literature/catalogue/diagram of Truck Mounted Concrete Pump S 36X model. The Appellant further submitted that we are importing components and manufacturing Truck Mounted Concrete Pump S 36X model by using the imported components and same are cleared to domestic market.
5. The Appellant further submitted that they have also imported fully assembled Truck Mounted Concrete Pump S 36X model and cleared on high sea sales. We have imported the machine Boom Placer and Pumps are manufactured in their factory and assembled along with Bloom Placer and cleared on payment of excise duty. The Adjudicating Authority held that the price of Boom Placer is based on their own imported invoices relating to fully assembled which contains Pumps. The Adjudicating Authority held that the price of knowhow fee paid to the overseas supplier has been loaded to the transaction value and also loaded the fees paid towards reimbursement of repair and maintenance expenses for the services rendered by the foreign collaborator.
6. The Appellant submitted that both the Adjudicating Authority and the Commissioner (Appeals) have confirmed the loading of all the three issues. Further, the Appellant submitted that the Commissioner (Appeals) while upholding the OIO also ordered for 5% EDD which is beyond the purview of SVB order.

Issue No.1-Technical knowhow 

7. Regarding addition of technical knowhow fee paid to the related supplier, the Appellant referred and drew attention to the agreement and to the copy of the agreement and submitted that out of total 60 units agreed upon, they have imported only 27 units and included the development cost of EUR 12,000 in their invoice price. He submitted the copy of the invoices, wherein it clearly shows out that of total invoice price of EUR 1,49,000, less 12,000 which was already received as per the agreement. He further submitted that the customs have already taken into account, which was paid including the technical knowhow fee while calculating the transaction value. The same cannot be loaded again. In support of this, he drew attention where these facts have been clearly brought out these facts before the Adjudicating Authority. The Appellant submitted that we have not imported the remaining 33 units and therefore no appropriation was indicated in the invoices. Further he drew attention to where in their reply dated February 19, 2014, to the Deputy Commissioner, they have clearly brought out these facts before the Adjudicating Authority informing that the development costs of EUR 12,000 for all the 27 units imported as per the list already included in the invoices. The customs duty has been discharged on the total price of 1,49,000 EURO. He further submitted that balance 33 units were not imported, the development cost will be added as and when the imports take place.
8. Regarding 15 Boom Placer shipped during the year 2011, the Appellant does not fall under the purview of the agreement entered in 2012. He further submitted that the balance of 3,96,000 EURO paid to their principal as advance still remains in the books of accounts as advance. He further submitted that as per the agreement dated 24.01.2012, the payment of development cost relates to only S 36 X model and not applicable to other Pumps of other models.

Issue No.2-On Price Variation 

9. On the issue of price variations, he submitted that the Adjudicating Authority held that the prices based on the invoices of fully assembled equipment mobile concrete pumps of model S 36X and the declared price is EURO 1,63,250. He drew attention to the copy of invoice and submitted that the said invoice relates to import of fully assembled equipment, which was sold on high sea sales.  The said equipment includes Pump kit. In this case, what was imported is without pump kits as they have started manufacturing the pump kits in their own factory itself.  He drew attention to another invoice and submitted that though the description in both the invoices refers to the same model, the total gross weight is 17260 kgs in this case and the fully assembled equipment sold to high sea sales referred under invoice dated August 19, 2011, the gross weight is 18560 kgs. The difference in weight in the later case relates to the weight of the pump kit, which they have not imported. To substantiate this, he relied on the invoices where they have imported only the pump kits and the declared weight of 8516 kgs for four pump kits fully assembled.  He further submitted that if both the invoices referred are taken together, the total gross weight will match to the gross weight of fully assembled kit. He also submitted that the invoice price of EURO 1,49,000 of equipment without pump declared under the invoice and the price of pump kit of EUR 13350 of pump kits is added together, the total price comes to EUR 1,62,350. This proves that the goods sold on high sea sales declared price of EUR 1,62,350 is pump placer with pump kits and what they have imported is for the price of EUR 1,49,000 only, without pump kits. He drew attention to the sketch/diagram of pump placer and pump kits placed of pump kits and without pump kits respectively. He further submitted that these facts can be verified from the documents as well as by physical verification at their factory. The customs conducted post clearance audit, (on site audit) and verified the records and no irregularities were noticed.

Issue No. 3- Various payments made to their principal company

10. On the issue of various payments made to their principal company towards common expenses incurred by them. He submitted that as per their agreement dated March 07, 2011, principle company has entered with service agreement with all their subsidiary units located all over the world. As per the scope of the service, the principle company will provide management service, sales service, joint administration service etc. to all their sister units and in consideration service fee is payable by the appellant to the principle holding company. He submitted that the service fee calculated as per the agreement based on the actuals and the service fee is calculated on quarterly basis. He drew attention to invoices and explains that their principle company has raised invoices towards purchase of machineries, sales promotion etc. they have already registered with service tax and service tax has been discharged and TDS have also been deducted and the same cannot be taken for customs valuation. Whereas, the Adjudicating Authority has loaded these expenses on import of equipments under Rule 10(1) (c) of Customs Valuation Rules. Under this Rule only the amount which is related to the cost of the imported goods can only be included.  Since these amounts are service charges/reimbursable expenses towards repair and maintenance, the same cannot be added to the cost of imported goods.

Issue No.4- Order of 5% EDD by the Commissioner (Appeals)

11. He drew attention to the OIA para 4 and 5. The Commissioner (Appeals) modified the DC SVB’s order and ordered that until the proceedings under various sections are being finalized, the assessment shall continue to remain provisional and 5% EDD shall be collected on all imports. He relied on the Board’s Circular dated February 23, 2001 and drew attention to the paras 9 & 10 of the Boards Circular and submitted that the Commissioner (Appeals) direction of loading of 5% EDD is totally contradictory to the Board’s Circular.  He also drew attention to the Commissioner’s interim order dated June 17, 2014, at the time of granting waiver, the Commissioner has clearly recorded that the Appellant is a regular importer with a long standing track record of import and export and insisting of security may be avoided whereas the same authority in the final order took a different stand which is totally contradictory.  He relied on  the decision of the Hon’ble Supreme Court decision in the case of UOI Vs. Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (S.C.). 

DEPARTMENTAL SUBMISSIONS 

12. The Learned AR appearing on behalf of the Revenue reiterates the findings of the order of the DC, SVB as well as the impugned order. She submitted that the Appellant is into the imports since 2000.  She drew attention to the SVB order dated December 22, 2010.  As per the SVB order, any change in the method of transaction or any agreement, the Appellants is required to bring it to the notice of SVB.  Whereas, in the present case, the Appellant subsequently entered into the service agreement on March 02, 2011 and also renewed the agreement dated January 25, 2015 and in the agreement dated January 24, 2012 of technical knowhow fee, which the Appellant did not bring it to the notice of SVB.
13. On the merits, the Learned AR countered the arguments of the Appellant. On the loading of value on payments based on the price variation, the Adjudicating Authority has rightly loaded the price as the description in both the invoices are identical. She drew our attention where the Commissioner (Appeals) has clearly spelt out his findings regarding principles of natural justice. In the case of SVB there is no requirement to issue any SCN as both the Appellant and the Department are in correspondence with each other in the form of questionnaire and reply and thereafter heard the Appellant, the Adjudicating Authority passed the SVB order.
14. Regarding loading of technical knowhow fee, she reiterated the findings of Appellate Authority where the Commissioner (Appeals) has reproduced the OIO. She submitted that the Adjudicating Authority has rightly loaded the technical knowhow fee with the cost of imported equipment. As regards the invocation of Section 28, 28(4) 28 AA, the Appellate Authority has correctly held that and ordered for 5% EDD is fully justified. She relied on the decision of the Hon’ble Supreme Court in the case of Commissioner Vs. Aquamall Water Solutions Ltd. 2006 (193) ELT A197 (S.C.), wherein the Hon’ble Supreme Court has held that the sale made to third parties is admissible. 

TRIBUNAL’s FINDING 

15. The short issue in the present Appeal relates to determination of value and loading on the goods imported from their related supplier by the Special Valuation Branch. From the facts already set out above, there is no dispute on the relationship between the Appellant and the overseas company as the appellant company is a wholly owned subsidiary of foreign supplier. It was also observed that the transaction value was initially accepted by the Customs vide SVB order dated December 22, 2000 and renewed after 3 years and their transaction value was accepted by Customs upto December 22, 2013. The Tribunal also observed that the Appellant regularly imported and cleared the said goods as per the declared value for 13 years and there was no dispute.
16. The Hon’ble proceeded to discuss the each issue on merits.

On enhancement of value of Model S 36X pumps

17. From the facts, it is evident that the invoice price of Euro 1,62,350/- of pumps imported, sold to third parties on High Sea Sale Basis are not comparable goods with the goods imported by the appellants @ Euro 1,49,000. The rejection of declared price and loading EURO 1,62,350 ordered by the authority is not sustainable. We hold that the declared value of the pumps imported is the correct transaction value. Accordingly, we set aside the loading ordered by adjudicating authority the operative part of OIO relating to re-determination of value of import of Schwing mobile concrete pump placer and allow the appeal.

Loading of Technical Knowhow fees to the Transaction value of imported goods

18. The Adjudicating Authority loaded the Technical Knowhow fee of EURO 7,20,000/- paid to overseas company towards transfer of technical knowhow relating to manufacturing of SCHIWING Concrete Boom Pump Model S36 by the Appellant. The Appellant entered into agreement with their principal supplier.
19. As per the clause above agreement, the supplier had agreed to reduce the price of the Boom Pump from Euro 1,49,000/- to Euro 1,37,000/- by taking into account Euro 12,000/- per unit towards development cost already received from the appellant of Euro 7,20,000. The reduction in price is limited to first 60 units to be supplied during January to December 2012. It is also stipulated the invoice of 60 units should separately mention the Development Cost of Euro 12,000/- per unit.
20. In view of the facts discussed, the Tribunal was of the considered view that the original authority ordering of loading of Technical knowhow fee of Euro 720,000 to the Transaction value of 76 Nos Pumps under Rule 10 (1) (c) is not sustainable and not backed with any evidence. Accordingly the Hon’ble Tribunal set aside the impugned order in so far as the addition of Technical knowhow fee to the Transaction value of pumps.

Loading of service fees paid to overseas supplier towards rendering various services

21. The Lower Authority ordered for loading of the amount to the transaction value on the grounds that both the parties are related and the service charges paid by the Appellant are related to the import of goods.
22. On perusal of the Service Agreement dated March 03, 2011, the Hon’ble Tribunal observed that the principal agreed to provide Management Services, Sales Services, General Administrative Services which includes, marketing legal and IT Support Services etc. and the consideration is payable on actual on quarterly basis. It is evident from the above facts that these charges are related post-manufacturing activities and not connected to the import of goods and the payments made towards these services has no nexus to the import of pumps.
23. Relying on the judgment of Hon’ble Supreme Court in the case of CC Chennai Vs Toyota Kirloskar Motor Pvt. Ltd. (supra) [reported in 2007 (213) ELT (SC)] wherein it was held that the Technical assistance fee has direct nexus with post import activities and not with importation of goods and dismissed Revenue’s appeal. The Hon’ble Tribunal held that the ratio of the Apex Court judgement is squarely applicable to the present case. By following the above apex Court decision and the High Court decisions, this Division Bench in the case of Saint Gobain Glass India Ltd. Vs. Commissioner of Customs, Chennai 2014-TIOL-1406-CESTAT-MAD = 2014 (310) ELT 757 (Tri. Chennai), and in Final Order No. 41538 & 41539/2015 in the case of Godrej Agro Ltd. VS CC Chennai on identical issue of know how fees and other charges allowed the appeals. Therefore, the Hon’ble Tribunal maintained the same in the present case.
24. Further, we find that the Appellant is registered with Service Tax Department and discharged service tax on the said service charges paid to the overseas service supplier under reverse charge basis which is not in dispute. In view of the above facts, the Hon’ble Tribunal held that service charges and other charges paid to their overseas supplier towards various services has no nexus with import of pumps and accessories and the said amount not addable to the transaction value of imported goods covered in their appeals under Rule 10 (1) (c) of CVR. Accordingly, the Hon’ble Tribunal set aside the impugned order loading of the amount of service charges. 

Issue related to provisional assessment and 5% EDD

25. The Hon’ble Tribunal found from the impugned order the LAA on one hand upheld the original order of adjudicating authority who finalised the loading of value but proceeded beyond the scope of appeal and directed the Appraising Group that all future imports should be provisionally assessed till finalization of demands and realisation of differential duty and also ordered to collect 5% EDD on all future imports and also directed the department to secure with additional security.
26. The Hon’ble Tribunal found that this direction is beyond the scope of the OIO March 05, 2013 which was appealed by the Appellant before the Commissioner of Customs (Appeals). The Hon’ble Tribunal stated that it is the case where the DC (SVB) has decided valuation issues and ordered loading under Customs Valuation Rules and directed the appraising group to finalize the assessment accordingly as per his order. Therefore, the Commissioner (Appeals) order to continue provisional assessment for all future imports does not arise.
27. It is interesting to note that the Commissioner (Appeals) in his interim order dated June 17, 2014 while granting the stay and waiver of pre-deposit stated that the Appellant has long standing track record of imports and exports and directed that insisting of security deposit to be avoided.
28. In view of our foregoing discussion and findings on each issues held in favour of the Appellant as set out in the preceding paragraphs, The Hon’ble Tribunal directed the authorities concerned to finalize all the assessments covered in the disputed period i.e. from December 23, 2013 by accepting the transaction value declared by the Appellant. In the result, the Hon’ble Tribunal set aside the impugned order and allowed the appeal of appellant with consequential relief.