Judgment:
1. M/s. Seagram Manufacturing Limited (SML) the appellant herein, is engaged in the manufacture of whiskies in India since 1994. The manufacture is from imported Scotch Whisky concentrates (approximately 63% proof). In the case of three whiskies sold in India under foreign brands, namely 'Something Special', '100 Pipers' and 'Passport', the manufacturing process involved is to dilute the imported whisky concentrates to the permitted Indian concentration (42.8% proof) and to bottle. In the case of Scotch whiskies sold under Indian brands, namely, 'Blenders Pride', 'Oaken Glow', 'Royal Stag' and 'Imperial Blue' imported whisky concentrates (Malts) are mixed with indigenous whisky concentrates and are bottled. For either activity, SML imports whisky concentrates.
2. The appellant's imports started from 1994. The imports were from a related company, M/s. Seagram Distillers Plc. Therefore, the Customs authorities took a view that the transaction value between the appellant's related supplier and the appellant cannot form the basis for customs valuation. Accordingly, assessments were originally carried out on provisional basis. Subsequently, after investigation into import pricing by the Director General of Revenue Intelligence, two show cause notices were issued. One notice by that Directorate was in respect of imports for the period January, 1995 to June, 2000 and another notice by the Commissioner of Customs was for the period July, 2000 to May, 2001. These notices were adjudicated by the Commissioner of Customs under Order-in-Original No. AKR/CC/ICD/TKD/45-46, dated 29-8-2003 holding to the effect that the transaction values were too low, and when the consignments are assessed at the value of comparable similar Scotch whisky concentrates, there would be a short-levy of about Rs. 42 crores.
3. The appellant filed an appeal before this Tribunal against the aforesaid order challenging the method of valuation on the ground that Rule 6 of the Customs (Valuation) Rules which has been resorted to by the Commissioner had been ruled out in the show cause notice; that even otherwise, Rule 6 is not attracted to the instant case and that the Commissioner had not followed even the requirements of that Rule while adjudicating the case. This Tribunal passed Final Order No.129/2003-NB-A, dated 25-3-2003, 2003 (154) E.L.T. 610 (T) and remanded the matter to the Commissioner for a fresh decision in terms of the appropriate rule, be it Rule 8 of the Customs (Valuation) Rules which had been invoked in the show cause notices or in terms of Rule 6 which had been resorted to in the adjudication. Pursuant to that order, Commissioner passed an order dated 29-8-2003 determining the value in terms of Rule 6 of the Customs (Valuation) Rules and holding that there was a short-levy of about Rs. 40 crores in respect of the consignments covered by the two show cause notices. The present appeal challenges that order.
4. We may straight away tabulate the comparative position between the appellants import prices (C.I.F. + cost of barrel) and the assessable value determined by the Commissioner based on the price of similar goods under Rule 6:________________________________________________________________________________Import by SML Price (BL) Similar goods deter- Lowest value (CIF Pound Ster- mined in adjudication per BL) for similar ling goods adopted for assessment________________________________________________________________________________Whisky concen-(i) 'Something 1.554 Black Dog (UD) GBP 2.41 Special'________________________________________________________________________________(ii) '100 Pipers' 0.854 Vat 69 (UD) GBP 1.375________________________________________________________________________________(iii) 'Passport' 0.854 Black & White (Ud) GBP 1.58________________________________________________________________________________(iii) Vatted Malt 0.954 Vatted Malt by Whyte GBP 1.53 for Indian & Mackay India Ltd. 5. The very first (unfortunate) thing to be noted is that a second adjudication has not reduced the area of dispute or established a proper factual basis for the order. The present appeal also assails the valuation on the same grounds as the previous order, that Rule 6 (transaction value of similar goods) is not appropriate for the valuation of the goods in India; the correct method to follow would have been deductive value method stipulated in Rule 7 of the Valuation Rules and that the Commissioner has fixed high assessable values arbitrarily by flouting the provisions of Rule 6. The objections in regard to selecting 'similar' goods is that, the price of a high end branded consumer item is not dependent upon or determined by its intrinsic cost but is driven by its brand value. It is submitted that whisky is clearly such an item (like perfumes) and therefore resort should not have been taken to valuation based on 'similar' goods under Rule 6. The appeal also points out that the appellant's additional costs in establishing its brands in the Indian market is made clear by the fact that, during the relevant period, the appellant was incurring losses (About Rs. 4.6 crores in 1997-98) and that appellant's venture broke even only by 98-99, dispute the alleged low import prices of the main input. The submission is that the appellant's transaction value should have been seen in the context of its brand position in the Indian market at the time of the said imports. The Memorandum of Appeal also seeks to show that, if the 'deductive value' method under Rule 7 had been followed it would have been clear that the appellant's transaction value was about 9.5% higher than the value arrived at by that method.
6. The impropriety alleged while proceeding under Rule 6 is that the Commissioner did not disclose or take into consideration the entire data relating to import of 'similar goods' during the period of dispute and that failure has vitiated the findings. This grievance is in view of the provision in the Rule [Sub-rule (3) of Rule 5] that "if more than one transaction value is found, the lowest such value shall be used to determine the value of imported goods". The Commissioner rejected the appellant's demand for disclosing full import data on the ground that since Pirectorate of Revenue Intelligence (Investigation) had relied on the imports of M/s. United Pistillers for the purpose of comparison, he would be going beyond the show cause notice if he took into account other I imports. This stand of the Commissioner is clearly erroneous inasmuch as the relevant Rule specifically stipulates using the lowest transaction value to determine the value of the imported goods". Accordingly, we directed the investigation to disclose particulars of all imports and both sides were heard in relation to the data so disclosed. Both sides have also filed written summaries of their arguments.
7. We are not going into the above-mentioned issue about the appropriateness of Rule 6 for two reasons. Firstly, we had left this Rule open to the adjudicator in our remand order and no appeal had been filed against that order. Secondly, the present appeal can be disposed of after considering the appellant's contentions in terms of Rule 6.
8. The very first objection of the appellant is directed against the method used for identification of 'similar' whisky brands for comparison. The impugned order has gone by the Indian retail prices of various whisky brands. It is being contended that this is entirely contrary to the rule inasmuch as the rule contemplates first identification of similar goods and then 'using' the transaction values of these goods, and not compare prices first and then determine similarity of goods based on prices. The appellant has pointed out that this is clear from the definition of 'similar goods' in the Customs Valuation Rules. Similar goods have been defined in Sub-rule (e) of Rule 2 as under: (i) which although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable with the goods being valued having regard to the quality, reputation and the existence of trade mark; (ii) produced in the country in which the goods being valued were produced; and (iii) produced by the same person who produced the goods being valued, or where no such goods are available, goods produced by a different person.
The appellant has also relied on the following extract from the book Customs Valuation Commentary on the GATT Customs Valuation Code by Saul L. Sherman: "Although substantial differences in price might reflect differences in quality or reputation which are factors to be taken into account in considering whether goods are identical or similar, the price itself cannot be such a factor". The learned Counsel has also relied on the opinion of Saul L. Sherman that similarity is found to be mainly with highly standard goods. Another factor emphasized by the learned Counsel for the appellant is the difference in trade mark of the whisky produced by the two manufacturers. It has been pointed out that, Sherman has observed as under on the effect of trade mark on 'similarity' of goods: Goods bearing a trade mark known to purchasers will ordinarily not be similar to goods bearing no trade mark. Two trade marks may be roughly, equal value, but more often goods bearing different trade marks will not qualify as similar.
9. The appellant has also a case that, if the comparison had been done correctly in terms of Rule 6 and full price data available on record considered, much lower assessable values would have been arrived at.
This contention is being made on two grounds, one that price comparison has not been made with cheapest similar goods and the second that due adjustment has not been made from the transaction value of similar goods. We may note these submissions itemwise: It is being pointed out that the show cause notice had accepted that 'Findlaters' is a brand of scotch whisky similar to 100 Pipers. It is being pointed out from the import data filed during the appeal proceedings that Findlaters was being imported at Pounds Sterling 1.02 per B/L. The appellant's submission is that this lowest price of similar goods and not. the higher value of VAT 69 at 1.375 should have been 'used' for the purpose of valuation of whisky concentrate for 100 pipers A further submission is that after the transaction value of appropriate similar goods, is ascertained, the valuation authority should have 'used' that transaction value to determine the value of the goods under import by allowing required adjustment towards quantities under import. It is being pointed out that import of 100 Pipers was several times that of Findlaters (1,250,093: 20030).
It is being pointed out that adjustment was required to be made in view of the fact that Black Dog (similar goods) was costlier by Rs. 200/- per bottle at the retail stage than Something Special. The submission is that, admittedly Something Special was selling at Rs. 1100/- per ltr., while Black Dog was selling at Rs. 1300/- per ltr.
This difference at the retail stage has to be worked back to determine the price of the concentrate also and when done so, the concentrate price would be Pounds Sterling 1.56 as against the value of Pounds Sterling 2.41 determined in the order. Learned Counsel has submitted that at this price, the import price of Something Special compares very favourably with the price of Black Dog inasmuch as import price was 1.554 when imported in barrel and 1.41 when imported in tankers.
The contention is that a big discount was due in view of the massive (100 times) difference in quantity of import of similar whisky.
The learned Counsel has emphasized that it is well accepted that quantity is an important factor in pricing and higher quantity purchases brought quantity discounts. Learned Counsel has emphasized that this important factor in pricing should be accepted as equally applicable to transaction between related parties also.
The submission is that the appellant's importation was almost 15 times more than the quantity imported by M/s Allied Mackey. It is being contended that when require4 adjustment is made, it would be seen that the appellant's purchase price was a fully commercial price. In support of its contention in regard to quantity discount, the appellant has produced two invoices covering its sales to Canteen Stores Department of the Armed Forces (CSD) and has submitted that a discount of 40% should be accepted.
10. The contention of the Revenue is that the selection of similar goods for comparison has been done by the Revenue correctly and the appellant cannot have an objection since they have themselves stated in paras 2 and 9 of the present memo of appeal that "brand such as VAT 69, Black Dog etc. had already been well established in the Indian market.... The retail price of this established brand would determine the entry price of the appellant's brand." The learned Counsel has, therefore, emphasized that the comparison in respect of concentrates for branded whisky have been correctly done. With regard to the appellant's submission that Findlaters is the appropriate comparison for Passport brand, the contention of the Revenue is that, even though brand Findlaters finds mention in the show cause notice in para 4, the market survey had concluded that the aforesaid three brands of the appellant's were in direct and healthy competition with the three brands of M/s. United Disttlary, namely 'VAT 69,' Black & White 'and' 'Black Dog' respectively in terms of taste, selling price, consumption, demand etc. It is also being pointed out that due to lack of sales, Findlaters which was launched as 'Special Reserve' was discontinued in 1999 and such a discontinued brand could not have been the basis for comparison. The Counsel for the Revenue has generally emphasized that M/s. Seagram Manufacturing Ltd., and M/s. United Disttilary are reputed international drinks companies and are comparable with regard to quality reputation and trade mark. It is also emphasized that it is the testimony of the officers of M/s. Seagram that comparable brands are VAT 69 for 100 Pipers Black and White for Passport and Black Dog for Something Special in terms of taste, price, reputation, trade mark, consumption, demand etc.
11. With regard to the pricing of concentrate (vatted malt spirit) the submission of the learned Counsel for the Revenue is that the appellant's transaction value of less than one pound per ltr. is well below the broking value in bond which is the norm for commercial sales.
It is also being pointed out that the cost of production of fresh malt spirit in Scotland itself is GBP 1.7 to 2.10 per ltr. of 5 year old Malt spirit. The ld. Counsel has emphasized that the price below these prices cannot find acceptance, particularly when the lowest price of other importers was 1.53 Pound.
12. With regard to the quantity discount claim, the submission of the learned Counsel is that the total import of other importers came to 385765 bulk ltrs. as against the total import by the appellants of 241369 only.
13. As already noted, we are not going into the submissions made by the appellant against valuation under Rule 6. Instead, the appeal is being disposed of after considering the alternate submissions relating to errors committed while determining the assessable values based on the transaction value of similar goods.
14. The grievance of the appellant with regard to valuation of concentrate for '100 Pipers' is that the cheapest of similar goods, namely Findlalers, was excluded from consideration. The contention is that this action is clearly illegal inasmuch as Sub-rule (3) of Rule 5 specifically stipulated that "lowest such value shall be used to determine the value of imported goods". The Commissioner rejected the appellant's request for supplying to them the complete data of imports in the following terms: 408. It is also the allegation of M/s. Seagram that DRI had selectively taken invoices of comparable products. However, the case on record has established that during the entire period covered by the two show cause notices, the prices of impugned scotch whiskeys imported by M/s. Seagram remained constant or static. On the other hand, the prices for comparable U.D. products were seen to be fluctuating in a particular range. However, the lowest in the price range for comparable products is required to be and should be adopted in the subject case. If this is done, no further objection will sustain unless it is proved by M/s. Seagram that there was a lower than the said lowest price available of the same product, which has not been disclosed by the Department. Such allegation has not been made by M/s. Seagram. It has also been alleged that the DRI ignored comparable prodnet of whiskey marketed by others in India.
It is not the case of the department that there were comparable products of whiskey marketed by companies other than M/s U.D. If it is the case of M/s. Seagram that there were indeed comparable brands of whiskeys marketed by companies other than M/s. U.D., it was for them to make specific submission in this regard, which they have not done. It would, therefore, stand to logic to infer that no other company, besides M/s. U.D, imported similar or comparable whiskey during the material period of the two show cause notices. Surely, the department cannot be asked to discharge the onus which is unrealistic and non est. I have, therefore, no hesitation in holding that the above request made by M/s. Seagram is infructuous and irrelevant in the subject case.
However, during the hearing, learned Counsel for the Revenue has sought to justify the exclusion of Findlaters on other grounds also, like, according to the appellants themselves, the competition was with VAT 69 and the imports of Findlaters stopped in 1999, as the brand Special Reserve had failed.
15. The view taken in the impugned order is clearly illegal. The adjudication process related to valuation of imported goods. The relevant Rule specifically stipulated consideration of similar imported goods and utilising the lowest transaction value of similar goods for the determination of the price of the goods under import. Therefore, no data relating to similar goods could be excluded. That the show cause notice had excluded certain similar goods or failed to consider certain similar goods is no ground for their continued exclusion during adjudication. That cannot be the reason for the adjudicating authority not considering full data. The data disclosed during the appeal proceedings before us confirm that Findlaters was being imported. It is also seen that para 4.1 of the show cause notice specifically mentioned Findlaters as one of the comparable brands. It reads: It was further gathered that in 1995 as well as in the subsequent periods, Something Special was being marketed as a Deluxe Whisky and in addition to Black Dog of M/s. United Distillers it used to compare and compete with two other brands - namely, Teacher (12) years old brand of Allied Domecq) - in the market in terms of selling price (price range Rs. 1050 to Rs. 1300 per bottle). It was also gathered that Black Bottle of M/s. DCM Remy, Vat 69 of M/s.
United Distillers, Highland Queen of M/s. Mcdonald Mohan and Findlaters of M/s. White & Mackey were being sold at a price range of Rs. 600 to Rs. 745 per bottle to consumers of comparable status as in tlie case of Sengram product '100 Pipers.
16. The explanation offered during the hearing that Findlaters was not an appropriate comparison also does not seem to be valid, inasmuch as similarity was determined in the present proceedings based on the retail prices of the various brands and not on other considerations like taste, reputation, trade mark even though they also find mention in a loose fashion. That retail price in the country of import is what has guided the Commissioner is clear from para 418 of the adjudication order. We read that para: 418. The point that has been raised by the appellant/noticee is with regard to some deduction, considering the quality reputation and existence of trademark. In other words, it is the case of M/s.
Seagram that in those three spheres, scotch whiskey imported by M/s.
Seagram are inferior and hence some deduction in value could be justified, within the meaning of Clause (e)(i) of Rule 2. The market inquiry, however, does not corroborate the above proposition. If Seagram products were known as inferior in the market obviously, those products would have been cheaper compared to the price of M/s.
U.D. Products. Scuh is not the case. It is seen that 100 Pipers of M/s. Seagram and Vat-69 of M/s. U.D. both matured for about 3 years, were selling in the market for Rs. 600/- to Rs. 750/- per 750 ML bottle, during the material period. Similarly, Passport produced by M/s. Seagram and Black & White product by M/s. U.D, both matured for 5 years, were selling in the range of Rs. 750/- to Rs. 900/- per 750 ML bottle. As regards Deluxe brand, Something Special of M/s.
Seagram and Black Dog of M/s. U.D, both matured for 12 years, were selling in the market verification it is not established that Seagram products were inferior to U.D. Products. In the absence of manufacturing details or the proportion of inputs, which in any case are not likely to be divulged by any overseas producers, the only criterion that one can reasonably refer to or rely upon for ascertaining the quality, reputation and trademark of comparable products should be in terms of their retail price in the country of import. Any other criterion adopted by the department is likely to be questioned on the ground of subjectivity.
In view of this, the appellant's submission that 100 Pipers should be valued based on the import price of Findlaters requires acceptance.
17. The general submissions made in support of the valuation based on broking value etc. cannot find acceptance in view of the specific requirements stipulated in Rule 6. That apart, those aspects, to the extent they are correct, would be satisfied since the transaction value of the similar goods which is used for valuation of the items under import, would be in terms of prevalent commercial prices.
18. The second major contention of the appellant is that adjustment in price is required to be made taking into account quantities under import of similar goods and goods under assessment. This claim is within the specific terms of Rule 6. Sub-rule (c) of Rule 5(1)(c) reads as under: Where no sale referred to in Clause (b) of Sub-rule (1) of this rule, is found, the transaction value of identical goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the resonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value.
This sub-rule is equally applicable to determination of value under Rule 6 as made clear by Sub-rule (2) of Rule 6. The quantity differences are large in the case of certain varieties The appellant's claim for deduction based on quantity is required to be considered. The rule makes it clear that this is required to be done based on evidence relating to actual commercial practice in relation to quantity discount on the item under import.
19. The appellant also has a grievance that due adjustments have not been allowed in import prices taking into account the differences in the retail prices of the similar goods and assessed goods. In the present case, similar goods have been identified based on comparable retail prices. It is further clear from para 418 of the adjudication order (reproduced earlier at para 16 of this order) that there were differences in the retail prices of the compared and similar goods. Due adjustment is required to be made, as in the normal course, difference in import price would be an element contributing to difference in retail price. The difference in retail price is also not insignificant.
The appellant points out a difference of Rs. 200/- per bottle in the case of 'Something Special'.
20. From the above, it is clear that the valuation of the items in question should be re-done by using lowest transaction value of Findlaters for determining the price of 100 Pipers. Further, due adjustments towards quantity difference and retail price difference should be made wherever warranted. In order to facilitate such re-valuation, we set aside the impugned order and remit the case to the Commissioner for fresh adjudication. Both sides would be at liberty to present data relevant to the above issues.