Judgment:
1. Heard both sides and perused the case records. This a Revenue appeal against the impugned Order-in-Appeal passed by Commissioner (Appeals) under which the Order-in-Original passed by the Assistant Commissioner has been set aside. The facts of the case narrated below are not in dispute.
2. M/s. Habasit Holding AG, Switzerland, the foreign supplier holds 51% shares in M/s. Habasit Iakota Pvt. Ltd. the Indian Importer who is the respondents before us. The Swiss Company has two agreements with the respondents "Technical Collaboration Agreement" and "Marketing and Distribution Agreement". On examination of these two agreements and other correspondence, the original authority has come to the conclusion that the Swiss Company and the Indian Company are related. Apart from the fact that the Swiss Habasit holds the controlling share of 51% equity in the Indian Habasit, the former appoints three directors in the Board of the latter with the additional right to nominate a Director of its choice to be the Chairman of the Board with a casting vote. Considering the facts that the supplier Swiss Company has 51% share in the Indian Company and is also in a position to control the Indian Company, we are of the view that the finding of the original authority to the effect that the Swiss Habasit and the Indian Habasit are related cannot be faulted.
3. While examining whether the relationship between the Swiss Exporter and the respondents has influenced the price of the impugned imported goods, the original authority found that the impugned goods imported by the respondents are not being sold to any other unrelated importer in India. However, he found that the goods imported by others is of same grade and identification code namely, S-251 and A-2 grade. The difference was that other independent importers bought belts which were cut and joined whereas the respondents imported belts in running length which were to be cut and joined. The original authority also found that the exporting Swiss Company charged the independent importers 20% extra on the basic list price of S-251, A-2 grade materials towards cutting and joining. This extra 20% has been into account and adjusted by the original authorities to compare the prices charged to the respondents and other independent importers. This method adopted by the original authority is perfectly in order to arrive at a valid comparison between goods of the same grade and identification code in the absence of any sale of belts in running length to other independent importers.
4. On comparison, the original authority found that the Swiss Company is allowing a 20% discount to independent buyers, whereas the respondents have been charged a lower price after allowing a 33.3% discount. In other words, the respondents are not being charged 20% towards the cutting and joining charges and in addition they are being given a discount of 33.3% as against 20% to others. Under the circumstances, the original authority cannot be faulted for having come to the conclusion that the price charged to the respondents is influenced by their relationship with the supplier Swiss Company.
5. Once it is held that the supplier and the importer are related and the relationship has influenced the price, valuation cannot obviously be done under the Transaction value method accepting the declared value. The original authority has therefore, rightly, in our view, rejected the declared value. He has ordered assessment after disallowing the extra 13.3% discounts by which an arms-length price, so to say, has been established which has inter alia taken into account the 20% extra cost involved in cutting and joining the belt in running length imported by the respondents. The secondary methods of valuation in the Customs Valuation Rules, based on value of identical/similar goods, deductive and computed value methods and the residual method all seek to establish an arms-length price when the declared value cannot to be accepted in cases such as this, where the price is influenced by the relationship. The value established by the original authority adequately represents cost plus freight to the suppliers based on independent sales once the cutting and joining charges are adjusted.
6. We find that the Commissioner (Appeals) has passed a rather superficial order without examining the details of the related party transaction involved in this case. He has also not taken into consideration that the original authority has made adjustments on the cutting and joining charges while determining the value of the goods.
As such, the impugned Order-in-Appeal cannot be sustained.
7. It was feebly argued on behalf of the respondents during hearing that the impugned sale to them was at a different commercial level. We do not find that this argument was ever pressed by them before the lower authorities. Moreover, their claim is not supported by any documentary evidence to show that the suppliers have a different pricing pattern for different commercial levels. On the other hand, sales to them having been established as related party transactions and the price being influenced by the relationship, the declared value cannot be accepted as the Customs value, nor can the transaction value method of valuation be applied in their case as contended by them.
8. In view of the foregoing, we set aside the impugned Order-in-Appeal, allow the Revenue appeal and restore the order of the Original authority.