M/S Appollo Tyres Ltd. v. the Collector of Customs and Anr.

S.P. BHARUCHA, J. Under appeal is the judgment and order of the Customs, Excise and Gold (Control) Appellate Tribuna~ New Delhi. The Tribunal allowed the appeal of the Revenue setting aside the order of H A Control Board of Excise & Customs and restoring the order of the Collec­ tor of Customs, subject to the modification or reducing the quantum of penalty. The appellants were setting up a plant for the manufacture of tyre. B They entered into an agreement for the supply of technical know-how, documentation and the like. On the same day they entered into a second agreement which noted that the second party to the agreement, General Tyre International Company, had for many years been engaged and had acquired vast experience in the manufacture of tyres as well as the design, engineering and equipment of plants for the same. The agreement in C Article 5 stated, so far as is relevant; OPTIONAL PROCUREMENT SERVICES: 5.1 ATL shall have the option and right to call for the services of D GENERAL for procurement of any one or more items of equipment, machinery, spares, accessories and raw materials required for the PLANT, which ATL may elect to purchase, and GENERAL shall arrange for obtaining quotations and for rendering or all the related senjces, including inspection at the supplier's manufacturing site, furnishing for such supply E of all necessary documentation, guarantees, data and manuals relating to and customarily supplied with, for installing, testing, operating and main­ taining such equipment and machinery and the details as to the needs and procurement of spare parts and accessories therefor. Prior to placing of any firni order for purchasing any equipment, machinery, spares, acces- F sories, or raw materials, GENERAL shall obtain quotations from respon­ sible qualified suppliers thereof and shall submit quotations and GENERAL'S recommendation to ATL for final approval and authoriza­ tion to place such order's but no orders shall be placed by GENERAL unless approved and authorized in writing by ATL. G 5.2 Unless otherwise mutually agreed in any given transaction, all equipment, machinery, spares, accessories, and raw materials purchased by GENERAL, in pursuance of ARTICLE 5.1 for ATL, shall be pur­ chased by GENERAL directly in the name of ATL and ATL shall pay for the same including shipping, transportation charges and insurance H premiums. APPOILO TYRES LTD. v.' COI.LECTOR OF CUSTOMS [BHARUffiA, J.] 805 CONDITIONS OF PROCUREMENT SERVICES : A 5.3 GENERAL agrees to observe the following norms in ~espect of procurement se;>ices to be rendered under this Article. : · (c) For the obligations concerning optional procurement services preferred to in this Article, ATL agrees· to pay GENERAL., in U.S. $ three B per cent (3%) on the FOB value of such imported equipment; machinery, . and/or raw materials for which GENERAL has rendered procurement services to ATL against A TL specific written reqnest. (d) The amount payable under Article 5.3 (c) shall be paid against C a quarterly consolidated invoice to be submitted by GENERAL after having taken into accounts such invoices of supplies (with two copies thereof) in respect of. which dispatches have been completed by GENERAL and goods received and approved at ATL's PLANT. This payment shall be effected within ninety (90) days from the date of receipt of the consolidated invoices by ATL from GENERAL. D The appellants procured through the instrumentality of General ten items of equipment. The same were cleared on tbe basis of their invoice value. Thereafter a notice was. served upon the appellants asking them to show cause why the assessable value of these items of. equipment should E not be recomputed and enhanced so as to add to the invoice values thereof the procurement charges thereof, that is to say, to add 3% of the FOB value of each item of equipment. The show callse notice was confirmed. The appellants appeal to the Central Board succeeded, and therefrom the Revenue went in appeal to the Tn'bunal. Paragraph-4 of the Tribunal's order records its reasons for setting aside the order under appeal before it. It reads thus: 'On merits, we observe that the goods (various items of machinery) but manufactured against specific orders. (Counsel's letter dated G 'lJJ.7.79 to the Collector of Customs and Central Excise). There is no question, therefore, of a 'price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation" in terrns of S.14 ( 1) ( d) of the Act. The Board was dearly in error in assuming that "there is overwhelming evidence suggesting that these goods were normally available for sale in the H 806 SUPREME COURT REPORTS (1996) SUPP. 9 S.C.R. course of international trade." The evidence is all to the contrary. The assessable value cannot, in the circumstances be determined under S.14 (1) (a). Seeing that the imported goods were machinery made to specification and not off the shelf, the assessable value on the imports could be only determined under Rule 8 of the Customs Valuation Rules and no other. That Rule provides for the deter­ mination of assessable value by best judgment. Such a determina­ tion cannot be arbitrary but should take all relevant factors into account. The commission payable or paid to M/s General Tyre is not an irrelevant factor in any such determination. Nor is it serious­ ly contested that the commission was disclosed at any stage of the proceedings before the assessment of the various imports to duty. We, therefore, find, in the circumstances, that the order of the Board is not correct. It is, therefore, set aside." We find it difficult to appreciate the Tribunal's reasoning.when it states that the assessable value of machinery made to specifications and not purchased off the shelf can only be determined by the best judgment method and no other. The Tribunal, apparently, failed to take notice of the fact that this was not a case where the invoices produced by the appellant had been rejected or, indeed, the agreement aforementioned. It was the case of the Revenue that to the value mentioned in those invoice 3% should E be added by reason of the terms of the agreement. A best judgment assessment, therefore, was not called for and had not been made. Now, the agreement provides that the appellant shall have the option and right to call for the services of General for the procurement of items F of equipment required for the tyre plant and for rendering services related thereto. It provides that in the case of items of equipment which the appellants call upon General to procure, General shall contain quotations from the appropriate suppliers and submit such quotations, with its recom­ mendations, to the appellants for final approval, and no orders may be placed by General unless fmal approval is accorded by the appellants. The G agreement provides that such items of equipment shall be purchased directly in the name of the appellants and the appellant's would pay for the same, including shipping, transportation charges and insurance premia. For the procurement services the appellants' agreed to pay General 3% of the FOB value of the items of equipment, the payment to be made against H a consolidated invoice to be submitted by General. - ~. l APPOLLOTYRF.SLTD. v. COLl..ECTOROFCUSfOMS[BHARUCHA,J.J 807 Clearly, this was an agreement by which General was appointed the A purchasing agent of the appellants in respect of such items of equipment for the tyre plant that the appellants opted to purchase through the agency of General. The provisions aforementioned make it clear that the appel­ lants would see the quotations submitted to General by the various sup­ pliers and would approve the same. They provide that the purchases from the suppliers would be made by the appellants. They provide that what the appellants would pay to General was a commission or remuneration to be computed on the basis of 3% of the value of each of the items of equip­ ment. These provisions show beyond any doubt that the value of the items of equipment was not enhanced thereby. We, therefore, cannot accept the reasoning of the tribunal. C In the circumstances, the appeal is allowed, the order under appeal is set aside and the order of the Central Board of Excise and Customs is restored. There shall be no order as to costs. T.N.A. Appeal allowed.