Relationship not the only factor in Customs valuation

By : Sukumar Mukhopadhyay
Last Updated: Wed, Nov 21, 2012 07:21 hrs
Customers shop inside a HyperCity supermarket in Mumbai

Transaction value declared by assessee is under challenge very often by officers of the department — both in Customs and Central Excise on various counts. But judicial decisions are always of the view that it is the Revenue which has to prove the transaction value declared is not acceptable.

One of the recent decisions of the tribunal in the case of Sew-Curodrive (I) Pvt. Ltd vs Commissioner of Customs – 2012(284)ELT294(Tri-Del.) shows that Revenue challenged transaction value quite oblivious of the fact that it is a settled issue due to the Supreme Court decision that transaction value can be acceptable even if the importer and the exporter are related if the price charged to non-related persons is also the same.

The Supreme Court judgment in the case of CC s Prodelin India (P) Ltd -2006(202)ELT13(SC) is very clear on the issue. It holds that if there are two parties importer and exporter, who are otherwise related charge a certain price for the imported goods but that price is no different from the price charged to other unrelated parties, then the price charged by the related parties also become acceptable as transaction value. The Supreme Court has enunciated this theory in the following words: “Even assuming for argument’s sake that the respondent and M/s PC USA are related persons, even in that case their transaction value is to be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price and the importer demonstrates that the declared value of the goods being valued, closely approximates to the value for identical goods or similar goods”.

It is thus clear that if there is a relationship between exporter and importer, all that the Revenue can do is to institute an investigation by asking the importer to show proof that the exporter which is related to him has sold same goods to other unrelated person at about the same price. In the present case of Sew-Curodrive Pvt Ltd, that is the importer, submitted evidence to show that the relationship did not affect the price by producing copies of invoices raised by their suppliers to customers in Germany showing that the pries and discounts offered to unrelated buyers in Germany are at par with what is offered to the appellant. This should have been sufficient for Revenue to conclude that the transaction value declared by the importer was a genuine transaction value.

But Revenue simply did not examine this evidence and came to the conclusion that the transaction value was not acceptable and had to be loaded. This was quite an arbitrary decision without regard to the settled law by the Supreme Court as mentioned above. Unfortunately in valuation matters it is found from the reported cases that the transactions values are ignored arbitrarily and lightly, without regard to the settled law.

The principle is same in the case of Central Excise also. There are any judgments which lay down that transaction value cannot be ignored just because the relation between the manufacturer and the customer is one between holding company and subsidiary company.

The Supreme Court held in the cases of UOI vs Atic Industries – 1984(17)ELT323(SC) and Moped India vs ACCE – 1986(23)ELT 8 (SC) that mutuality of interest (which makes the declared transaction value suspect) has to be established by Revenue even if it is a case of holding company – subsidiary company situation.

The conclusion is that both in the cases of customs and central excise the declared transaction value cannot be dismissed by Revenue just because the parties are related.

In Customs, exporter and importer may be related but if the exporter sells the goods at the same price to others the price is acceptable as transaction value. Similarly in Central Excise even if the relation is of holding and subsidiary companies, the declared transaction value does not get automatically disqualified. Revenue has to prove by hard evidence that it has been artificially lowered compared to independent sales. Revenue should follow this principle so as not to generate undue litigations and also to be fair to the importers and manufacturers.


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