Mirah
Exports Pvt. Ltd. Vs. Collector of Customs [1998] INSC 58 (4 February 1998)
S.C.
Agrawal, G.T. Nanatavi S.C.Agrawal, J.
ACT:
HEAD NOTE:
[WITH
CIVIL APPEAL Nos. 1030-34/90]
These
appeals have been filed against the judgment of the Customs Excise & Gold
[Control] Appellate Tribunal [hereinafter referred to as `the Tribunal'] dated September 4, 1989. They raise the question whether
there was undervaluation for the purpose of levy of customs duty under Section
14 of the Customs Act, 1962 [hereinafter referred to as `the Act'] in the
invoices of the various consignments of ball bearings which were imported by
the appellants.
Skefko
India Bearing Co. Ltd. [hereinafter to as `the Skefko'], appellant in C.A.Nos.
1030-34/94, are importers of ball and roller bearings. They also act as
intending agents for marketing of imported ball bearings for and on behalf of AB-SKF, Sweden. Ball bearings of various types are manufactured by AB-SKF
in Sweden and by their subsidiary companies
in U.K., Germany, France and Italy. Skefko book orders from different types of customers which
can be classified into three categories:
a]
Original Equipment Manufacturers [OEM];
b]
Replacement user - also described as Actual Users (Aus); and
c]
Dealers who import for stock and sale.
In addition
to this Skefko book orders on their won behalf for stock and sale in India. Ball bearings could only be
imported against an import licence and in order to secure a large volume of
orders, agents were required to contact the licence holders and secure their
orders for the purpose of consolidating these orders into one large order. Skefko
had appointed persons, described as "Canvassers", who would go round
the market and secure large volume of orders.
Punjab
Bearing Traders were appointed as one such canvasser by Skefko. Mirah Exports
Pvt. Ltd. [hereinafter referred to as `Mirah Exports'], appellant in C.A.No.
47/90, is a private limited company incorporated under the companies Act, 1956,
carrying on business as importers, exporters and manufacturers' representative
at Bombay. In July and September, 1982 Mirah
Exports contacted Skefko for purchase of approximately 15 lakh pieces of ball
bearings from SKF from Italy/Germany. The entire negotiations for purchasing
the said goods were carried out by Mirah Exports, 24 consignments of ball
bearings were imported by Mirah Exports from SKF; Italy and SKF; Germany and the balance quantities were
imported by Skefko in the months of November, 1982 and January, 1983. The Bills
of Entry in respect of 24 consignments imported by Mirah Exports were submitted
to the collector of Customs, Bombay in the
months of November, 1982 and January, 1983 and the same were noted. Clearance
was sought against 22 import licences held by Mirah Exports. On or about June 22, 1983, pursuant to certain information,
the officers of the Enforcement Directorate carried out search at the premises
in Bombay of :
[i] Skefko;
[ii]
Associated Bearings Co. Ltd.; and
[iii] Shri
Kishan Chand, the President of Skefko.
During
the said search certain documents were sebed by the Enforcement Directorate.
After further investigation a show cause notice dated May 31, 1984 was issued to
[i] Skefko;
[ii] Mirah
Exports;
[iii]
Punjab Bearing Traders; and
[iv] the
clearing agents of Mirah Exports.
In the
said show cause notice it was stated that by undervaluing, Mirah Exports had misdeclared
the value for bearings nos. 6201,6202,6203 including shielded bearings in each
of 24 Bills of Entry which misdeclaration had rendered all the 24 imports
liable for action under Section 111(m) of the Act and that in respect of the
goods, so under valued to the extent as indicated in the said show cause
notice, no import licences had been produced and in the absence of any import licence
in respect of such goods in each consignment, such goods had apparently become
liable for action under Section 111(d) of the Act read with Section 3(2) of the
Imports & Exports (Control)_ Act, 1947 and that Mirah Exports, Punjab
Bearing Traders and Skefko had done or omitted to do certain acts, which acts
of commission/omission had rendered the goods liable for confiscation and that
they had thus become liable for action under Section 112 of the Act. The
parties mentioned above were required to show cause to the collector of
customs, Bombay as to why the goods detailed in Annexure `A' to the show cause
notice should not be confiscated under Section 111(d) of the Act read with
Section 3(2) of the Imports & Exports (Control) Act. 1947 and also under
Section 111(m) of the Act and why penal action should not be taken against them
under Section 112 of the Act. The said show cause notice was based primarily on
the price list for the year 1981-82 that was finished by the Central Office of
the Oversees Suppliers to Skefko since the invoice value of the goods imported
by Mirah Exports was 48.7% of the prices mentioned in the said price list. It
was claimed that the price list was recovered during the course of search that
was conducted by officers of the Enforcement Directorate on or about June 22, 1983.
Replies
to the said show cause notice were submitted by Mirah Exports as well as Skefko.
Mirah Exports, in their reply to the said show cause notice, stated that they
were not aware of any price list in use by Skefko; since the quantity being
imported was about 5 lakh pieces of each type reduced prices had been given by
the suppliers; the imports by M/s Crompton Greaves, Mahindra & Mahindra and
jay Engineering Works, who had been importing quantities from 10.000 to 50,000
pieces, had been at similar prices and that even the Government undertakings
like BHEL, Hindustan Tele- Printers and other public limited companies had been
offered discounts ranging from 50% to 70% and the invoice prices were favorable
comparable with similar bearings from other countries like USSR, Romania Czechoslavakia
and Japan.
Skefko,
in their reply to the show cause notice, submitted that Mirah Exports were not
required to pay any amount over and above the invoice prices; the prices
charged in the invoice were in consonance with the pricing policy of the
company; the exchange rate difference had caused variation of approx. 27% over
their prices in 1981-82 for US Dollar when compared with the exchange rate
applicable to DM; and the local agent have a discount upto 20% and for any higher
discount, prices had to be accepted for each import by the supplier.
The
Addl. Collector of Customs by his order dated April 16, 1986 discharged the
notice since the charges set out in the show cause notice failed and directed
that the consignments in question be assessed on their invoice value.
The
Addl. Collector of Customs has found that the appellants herein. particularly
during the personal hearing, had led substantial evidence to chronologically
show that despite the said price list there was a development of a new sales
and pricing policy for not only India but the world over, after exchange of
numerous correspondences and personal discussions during visits of
representatives of the seller and that this policy distinguished between
following categories of buyers on logical commercial grounds:
i.
Replacement users who order small lots at infrequent intervals;
ii.
Original Equipment manufactures (OEMs) who import for fitment in their
manufactured products and for this build up inventories with sizeable orders
after securing favorable prices between various competitors and in view of
their sizeable orders and the competition involved, the sales policy allowed upto
20% discounts (on quantity) upon the prices of the said price list;
iii.
Canvassers and Skefko, who import in even greater bulk or the purposes of only
trading, and may secure even lower price, particularly if they generated
additional volumes of sales.
This
policy was aimed at a more aggressive marketing objective and envisaged
discounts even over 20% (but on the approval of the sellers on a case-by-case
basis, on reference to them).
The
Addl. Collector held that since the documents which had been referred by the
appellants to evidence the existence of the said policy were valid and
acceptable since they were from amongst those which were seized by the
Enforcement Directorate and on some of which even the department had based its
case. The Addl. Collector found that apart from Mirah Exports, a number of
other importers, viz., Skefko, Amul Engg., Krishna Engg. Works, Delhi, Jayaveer
Forge, Davangere, Ajay Trading Co., Delhi, Ramgopal Lachmi Narayan, Bombay, Sanmukh
Engineering Industries, etc.
had
also imported comparable quantities of similar bearings at the same (or lesser)
prices as those of Mirah Exports and the mere fact that the prices charged to
buyers through Punjab Bearing Traders is as low as 48.7% of the price list does
not prove anything by itself. The Additional Collector also found that the
evidence produced by Mirah Exports, along with their reply to the show cause
notice, show that 50 to 70% discount over the list prices were the normal
invoice prices for a number of unconnected importers during that period
(including a public sector institution) and that there is nothing abnormal in
the alleged 51.93% discount averaged by Punjab Bearing Traders. While referring
to the provision contained in Section 14 of the Act, the Addl. Collector held
that quantity discounts is a recognized feature of international trade
practices and that different prices for different commercial levels of import
is supported by international trade practices and that as long as those
discounts are uniformally available to all and based on logical commercial
basis they cannot be denied under Section 14. It was observed that there was
nothing in the documents evidencing the new sales policy to show that it is a
restricted policy not open to all canvassers. It was held that the policy of
selling additional volumes at higher discount is totally within the ambit of the
expression " in the course of international trade" in Section 1 of
the Act and that it also does not, by itself, constitute any special interest
between the buyer and seller in the business of each other and that on the
contrary it is a contract based on the seller's considerations of his own
profits and continuance of industry in the teeth of fierce international
competition and the buyer's considerations of obtaining goods of acceptable
quality at the lowest possible prices.
The
Addl. Collector also held that the Department has not been able to prove beyond
doubt that a special relationship exists between supplier [M/s SKF] and the
importers [Mirah Exports] through the media of Skefko and Punjab Bearing
Traders inasmuch as no evidence was forthcoming to prove that there is any
interest in the business of each other e.g. due to share holdings, royalty,
common directorships, family relationship, etc. and there is also no evidence
available to prove or even create a doubt that any illegal relationship exists
in the subject transaction i.e. that any extra sums have been unofficially
passed on by the buyer to the seller either directly or indirectly through the
canvassers/indenting agents.
In
pursuance of the orders dated June 7, 1985
passed by the Central Board of Excise & Customs, the Collector of Customs
presented three appeals against Skefko, Mirah Exports and Punjab Bearing
Traders against the order of the Addl. Collector before the Tribunal. The said
appeals were registered as Appeal Nos. C/1925/85A, C/1926/85A and C/1927/85A.
Skefko
had also imported ball bearings on the basis of import licence issued in its favour
under invoice dated May
20, 1983 from
SKF-Germany and under Invoices dated March 17, 1983 and April 29, 1983 from SKF-Italy. In addition M/s Rajkumar & Co. had
imported one consignment of bearing of SKF brand part No. NU 209 under invoice
dated July 31, 1984.
Separate
show cause notices dated January
30, 1984 February 3, 1984, march 29, 1984 and October 21,1986 were issued by the Collector of Customs,
Bombay in respect of the said imports. Skefko
filed its reply to the said show cause notice. On the basis of the said show
cause notices separate orders dated March 20.1987 were passed in respect of the
show cause notices dated January 30, 1984, February 3, 1984 and march 29, 1984
and order dated December 5, 1986 was passed in respect of the show cause notice
dated October 21,1986. In the said orders the Collector of Customs took a view
contrary to that taken by the Addl. Collector in his order dated April 16, 1985. The Collector of Customs proceeded
on the basis that the price list does not show any discount schedule or
reduction in the price for any reasons, i.e., cash discount, trade discount or
quantity discount and that from the record seized it is seen that Skefko were
entitled to 6% commission on the c.i.f. value if the invoice prices are as per
the list price and that if the invoice prices are with the discount up to 20%
is not available to everyone but is discretionary discount to be given by the
importers with utmost discretion and that any price which was less by more than
20% of the price indicated in the list price was a special price and that such
discount is not available to all and hence it cannot be admissible while
determining the assessable value under Section 14 or the Act. he further held
that the importers had not made out any case of quantity discount at
per-determined level available to all customers exceeding certain quantity or
value limit.
The
Collector was of the view that a special price for bulk purchase is not a
quantity discount and is not a percentage of a basic price and that it could at
best be a negotiated price and normally even such a price will not be accepted
under Section 14 of the Act, unless it is shown that it is the price at which
such or like goods are normally sold or offered for sale in such quantities at
the time and place of importation. The Collector has also referred to one of
the seized documents, namely, "Fixation of price Level objective for 1983"
and has observed that the said document shows sales to Kirloskar Electric,
Bangalore of Bearing for c.i.f. value of Rs. 22,43,000/- at 0.5% discount of
list price, to M/s Premier Automobiles Ltd., for c.i.f. value of Rs.20,64,000/-
at a price 30% higher than the list price, to Eicher Good Earth for c.i.f value
or Rs. 20,36,000/- at a discount of 20% of the price list as against the sales
to Punjab Bearing Traders of Rs. 9.21.000/- at 48.7% discount.
The
Collector has observed that this clearly shows that discounts given for even
larger quantity or value is not more than 20%. According to the collector, the
contention of the importers that only negotiated price which is actually paid
should be the assessable price is therefore not tenable and is contrary to the
provisions of Section 14 or the Act and that once it is established that for
the similar quantity, discount not exceeding 20% is normally given, place and
period of import being same, discount more than 20% becomes inadmissible in
arriving at assessable value.
The
Collector, therefore, held that for arriving at value for assessment purposes
in terms of Section 14 of the Act prices indicated in the price list No.8211
for 1982 will be taken as the base and if discount is allowed upto 20% of the
price list, depending upon the quantity, the same can be accepted. This being
an old case, where the goods have already been cleared provisionally, the
Collector refrained from taking any action under Section 111(d) of the Act and
further held that since the importers declared their special relationship with
the supplier and, therefore, special price charged cannot be treated as misdeclaration
as the importers have paid the amount only due to their special relationship,
charge under Section 111(m) of the Act was also dropped.
Feeling
aggrieved by the aforesaid orders of the Collector of customs, Skefko filed
four appeals [No.C/1473/87-A, C/2426/87-A, C/2435/87-A and C/2472/87-A] before
the Tribunal.
All
the 7 appeals have been disposed of by the Tribunal by the impugned judgment
date September 4, 1989. The Tribunal has dismissed the
appeals filled by Skefko against the orders of the collector of Customs dated
December 5, 1986 and march 20, 1987 but has allowed the appeals filed by the
Collector of Customs against the order of the Addl. Collector of Customs dated
April 16, 1985. The Tribunal has directed the revenue authorities to fix the
value as mentioned in price list No. 8102 dated February 15, 1981 less 20% discount. The Tribunal has also found that there
is violation of provision of Section 111(d) and Section 111(m) of the Act and
has directed the Collector of Customs to fix the quantum of fine and penalty
keeping in view the gravity of the offence and the margin of profit. The
Tribunal has proceeded on the basis that the genuineness of the price list
No.8102 dated February 15, 1981 has not been doubted by the appellants and that
reliance could not be placed on the pricing policy of the foreign supplier of
the appellants and that the invoice price could not be accepted in view of the
said price list. According to the Tribunal 20% discount is the normal discount.
Feeling aggrieved by the said decision of the Tribunal, the appellants have
filed these appeals.
The
Tribunal has not taken note of the documents referred to by the Addl. collector
of Customs in his order dated April 16, 1985, showing that other importers had
been given 50% to 70% discount over the list price by SKF.
Shri
H.N. Salve, the learned counsel appearing on behalf of the appellants, has
urged that burden lies on Revenue to show that the invoice price does not
represent the true price of the goods and that there is an under valuation and
that in the present case Revenue has not adduced any evidence except the price
list No.8102 dated February 15, 1981 which was found among the documents seized
during the course of search and seizure of the premises of Skefko, etc. It was
submitted that on the basis of the said price list only it could not be said
that the value as indicated in the invoices was not the correct value of the
goods which were imported by the appellants. It has also been urged that the
Addl. Collector of Customs in his order dated April 16, 1985 has taken into
consideration the evidence that was produced by the appellants to come to the
conclusion that the invoice prices represent a proper basis for valuation of
the consignment for the purpose of assessment under Section 14 of the Act and
neither the collector of Customs nor the Tribunal have taken note of the said
evidence and that in view of the said evidence it could not be held that the
invoice prices cannot be made the basis for valuing the consignment for the
purpose of assessment under Section 14 of the Act. It has been urged that the
price list of the supplier does not preclude the supplier and the importers
from negotiating at a lower price keeping in view the quantity of the bearings
to be imported and that the collector of Customs was in error in holding that
such negotiated price was not permissible for the purpose of assessment of the
value of the goods under section 14 of the Act. It was also urged that the
Tribunal was in error in holding that the reliance could not be placed on the
pricing policy of the foreign supplier. Shri Salve has submitted that at the
relevant time SKF was facing stiff competition from other manufacturers and the
prices of SKF were higher than those quoted by Japanese manufacturers of
bearings and that this fact is borne out by the documents that were seized
during the course of search of the premises of Skefko, etc. The learned counsel
has placed lenience on the Collector of Customs, Bombay, 1996 [81] ELT 195
[SC];
Mahindra
Ltd. 1995 [76] ELT 481 [SC] Shri Gauri Shanker Murthy, the learned counsel
appearing on behalf of the Revenue, has submitted that the Tribunal has rightly
ignored the invoice price in view of the price list of the foreign supplier,
the genuineness of which is beyond doubt. The learned counsel has placed
reliance on the decision of this Court in Sharp Business Collector of Customs,
1995 [7] ELT 20 [SC].
The
legal position is well settled that the burden of proving a charge of under
valuation lies upon Revenue and Revenue has to produce the necessary evidence
to prove the said charge "Ordinarily the Court should proceed on the basis
that the apparent tenor of the agreement reflect the real state of
affairs" and what is to be examined is "whether the revenue has
succeeded in showing that the apparent is not the real and that the price shown
in the invoices does not reflect the true sale price." [ See :
In the
present case the only evidence that was adduced by Revenue in support of the
charge of under-valuation is the price list No. 8102 dated February 15, 1981
which was found during the course of search in the premises of Skefko, etc.
that was conducted by the officers of the enforcement Directorate on or about
June 22, 1983. The price list does not even mention about the discount of 20%
that has been allowed by the Tribunal in the impugned judgment. The matter of
discount to be given on the prices indicated in the price list is actually
mentioned in other documents that were seized during the search. The said
documents include the various letters and telexes received from SKF Oversees
Bearings Division, Sweden which indicate the new pricing
policy of the foreign supplier. As pointed out by the Addl.
Collector
of Customs in his order dated April 16, 1985 the said documents show that 20%
discount is allowed to the original equipment manufacturers who import for
fitment in their manufactured products and for this build up inventories with
sizeable orders after securing favorable prices between various competitors but
as regards canvassers and Skefko, who import in even greater bulk for the
purposes of only trading, the policy envisaged that they may even secure lower
price particularly if they generated additional volumes of sales. The documents
seized during the search and seizure that were produced by the appellants
before the customs authorities (genuineness of which was accepted by the Addl.
Collector of Customs) show that apart from Mirah Exports a number of other
importers namely, Skefko, Amul Engg., Krishna Engg. work, Delhi Jayaveer Forge,
Davangere, Ajay Trading Co., Delhi Ramgopal Lachmi Narayan, Bombay Sanmukh
Engineering Industries, etc. has also imported comparable quantities of similar
bearings at the same or lesser prices as that of Mirah Exports and that
discount from 50% to 70% on the list prices was the normal invoice price for a
number of unconnected importers during the period. The Collector of Customs,
while passing the order dated December 5, 1986 and march 20, 1987 and the
Tribunal in the impugned judgment have not taken note of the said documents and
the fact that the importers had been given 50% to 70% discount on the prices
indicated in the list price.
In Basant
Industries [supra] this Court has pointed out that "in the business world,
considerations of relationship with the customer are also a relevant
factor" and that "a price which is offered by a supplier to an old
customer may be different from a price which the same supplier offers to a
totally new customer". In that case, the Court, on the basis of the
correspondence that had ensued between the supplier and the importer, found
that there was some bargaining before the price was finalised and that the
price mentioned in the invoice that was agreed was in view of the quantity that
was being imported by the importer. thus it not unusual for a foreign supplier
to give a higher discount to an importer who is importing a much larger quantity
and merely because such a discount has been given by the supplier it cannot be
said that there has been any undervaluation in the invoice.
Section
14 of the Act prescribes that valuation of goods for the purpose of assessment
has to be made at the price at which such goods or like goods are ordinarily
sold, or offered for sale, for delivery at the time and place of importation of
exportation, as the case may be, in the course of international trade, where
the seller and the buyer have no interest in the business of each other and the
price is the sole consideration for the sale or offer for sale. In the present
case neither has it been alleged nor has any material been produced to show
that Mirah Exports and the foreign suppliers have any interest in the business
of each other. As regards Skefko it has been pointed out that AB-SKF, Sweden
holds 39.8% of the share capital in Skefko but there is nothing to show that Skefko
has any interest in the business of AB-SKF. Moreover it is of no consequence in
the present case because the invoice price at which the imports were made by Skefko
were the same at which Mirah Exports and other importers had imported and no
special price was given to Skefko for import. In these circumstances, we are of
the opinion that the invoice prices as mentioned in the invoices could be
treated as the price at which the goods are ordinarily sold or offered for sale
in the course of international trade and that it had been rightly accepted as
the value for assessment purposes under Section 14 of the Act by the Addl.
Collector of Customs.
In
Sharp Business machines Pvt. Ltd. [supra] the invoice value was not accepted as
the real value of the goods which were imported in view of the special facts
and circumstances of that case. it was found that the appellant company in that
case has tried to practise a fraud in defeating the import policy relating to
import of Copiers which enabled the new entrepreneurs establishing small scale
industries to import, in the first phase, 62% of the components of the copiers
and the balance of the 38% was to be manufactured by them indigenously. In that
case it was found that the appellant company had purchased 14 fully finished
plain paper copiers of Japanese origin in Hong Kong and Singapore and had them
dismantled in Hong Kong for importing the same in the guise of the components
of the copiers and thereby the company not only had violated the terms and
conditions of the licence but had also committee a fraud on the Import Policy
itself in importing the fully finished copiers which was totally prohibited
item for import. The finding about undervaluation in the invoices was arrived
at on the basis of prices mentioned in quotations of the authorised agents of
the manufacturers and it was held that there was no question of supplying the
components of the copiers on a lower price than given by the manufacturers
themselves. the decision in Sharp Business Machines [supra] has, therefore, no
application to the facts of this case. Similarly the decision in Padia Sales Corporation
[supra] and Commerce International [supra] which were decided on their own
facts have no application to the present case.
In the
result, the appeals are allowed, the impugned judgment of the Tribunal is set
aside and it is held that the invoice prices as mentioned in the invoices for
the imports of ball bearings by the appellants shall be treated as the value
for the purpose of assessment of customs duty under section 14 of the Act. No. Order
as to costs.
Back