Apollo Tyres Limited Vs. The Collector of Customs & Anr  INSC 1588 (10 December 1996)
Bharucha, S.C. Sen S. P. Bharucha. J.
appeal is the judgment and order of the Customs, Excise and Gold (Control)
Appellate Tribunal, New
Delhi. The Tribunal
allowed the appeal of the Revenue setting aside the order of Central Board of
Excise & Customs and restoring the order of the Collector of Customs,
subject to the modification or reducing the quantum of penalty.
appellants were setting up a plant for the manufacture of tyres. 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 Articles-5 stated, so far as is relevant:
ATL shall have the option and right to call for the services of GENERAL for
procurement or 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 services, including inspection at the supplier's
manufacturing site, furnishing for such supply of all necessary documentation,
guarantees, data and manuals relating to and customarily supplied with, for
installing, testing, operating and maintaining such equipment and machinery and
the details as to the needs and procurement of spare parts and accessories therefor.
Prior to placing of any firm order for purchasing any equipment, machinery,
spares, accessories, or raw materials, GENERAL shall obtain quotations from
responsible qualified suppliers thereof and shall submit quotations and GENERAL's
recommendations to ATL for final approval and authorization to place such
orders but no orders shall be placed by GENERAL unless approved and authorised
in writing by ATL.
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 purchased by GENERAL directly in the
name of ATL, and ATL shall pay for the same including shipping, transportation
charges and insurance premiums.
OF PROCUREMENT SERVICES:
GENERAL agrees to observe the following forms in respect of procurement
services to be rendered under this Article:
the obligations concerning optional procurement services referred to in this
Article, ATL agrees to pay GENERAL, in U.S. $ three 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 ATL specific written
amount payable under Article
(c) shall be paid against 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.
appellants procured through the instrumentality of General ten items of
equipment. The same were cleared on the basic 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 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 cause notice was confirmed. The appellants appeal to the Central Board
succeeded, and therefrom the Revenue went in appeal to the tribunal.
of the Tribunal's order records its reasons for setting aside the order under
appeal before it. It reads thus:
merits, we observe that the goods (various items of machinery) but manufactured
against specific orders. (Counsel's letter dated 20.7.79 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 terms of 5.14 (1) (d) of
the Act. The Board was clearly in error in assuming that "there is
overwhelming evidence suggesting that these goods were normally available for
sale in the course of international trade." The evidence is all to the
assessable value cannot, in the circumstances be determined under 5.14 (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
determination of assessable value by best judgment. Such a determination cannot
be arbitrary but should take all relevant factors into account.
commission payable or paid to M/s General Tire is not an irrelevant factor in
any such determination. Nor is it seriously contested that the commission was
disclosed at any stage or 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 be added by reason of the terms of the
agreement. A best judgment assessment, therefore, was not called for and had
not been made.
the agreement provides that the appellant shall have the option and right to
call for the services of General for the procurement of items 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 obtain quotations from the appropriate
suppliers and submit such quotations, with its recommendations, to the
appellants for final approval, and no orders may be placed by General unless
final approval is accorded by the appellants. The agreement provides that such
items of equipment shall be purchased directly in the name of the appellants
and he appellants' 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 a consolidated invoice to be submitted by General.
this was an agreement by which General was appointed the 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.
provisions aforementioned make it clear that the appellants would see the
quotations submitted to General by the various suppliers 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 equipment. 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.
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.
shall be no order as to costs.