Full Judgment
1B. It was further agreed that the seller Airbus Industries will provide interim capacity requirements of the Buyer pending commencement of delivery of the A-320 aircraft. The agreement also stipulated that the seller will provide to the buyer with a credit memorandum of US $ 37,30,000 for each of the A-320 aircraft in order to reimburse to the buyer the leased rentals paid by the buyer to the seller for lease of the interim aircraft to meet their interim capacity requirements. The agreement also provided that in the event that part or all of the amount of this credit memorandum is not utilized towards refund of lease rentals, such unutilised amount will be available to the buyer for use towards reducing the invoice price of each of the A-320 aircraft upon delivery.
1C. Letter agreement No. 3 and 6 were duly executed in confirmation of the above provisions in the agreement and it was also agreed that these letter agreements 3 and 6 will constitute a part of the said purchase agreement.
1D. As mentioned above, the purchase agreement including letter agreement 3 & 6 forming the part and parcel of the purchase agreement were duly executed by the Appellant, Indian Airlines (Buyer) with the Seller M/s. Airbus Industries, France with the prior approval of the Government of India.
1E. In accordance with the above purchase agreement, the Appellant received the first A-320 Airbus Aircraft VT-EPB and presented Bill of Entry No. 237070 for assessment of duty claiming the reduction from the invoice price of the aircraft in accordance with the provisions of the above two letter agreements and the credit memo issued by M/s. Airbus Industries simultaneously with the delivery of Aircraft and raising their invoice for the same.
1F. The Apprasing Authorities assessed the provisional duty allowing the reduction in price as claimed on execution of an Indemnity Bond.
1G. Subsequently the Appellant were served with a notice of less charge under cover of the Additional Collector of Customs, Air Cargo Complex IGI Airport, New Delhi letter No. 1H. The Additional Collector of Customs has passed Adjudicating Order No. 1209/89 dated 16.11.1989 rejecting the Appellant's contention for reduction in the price of the aircraft on account of the credit memorandum received by the Appellants under the provisions of letter agreement No. 3 dated 15.3.1986 and letter agreement No. 6 dated 15.3.1986 amounting to US $ 5,730,000.
1I. The order further stipulates that the Appellants pay the amount of Rs. 26,84,888.70, less charged custom duty with 15 days of the issue of this letter.
2. Shri D. Dave, learned Counsel along with Shri Rajesh Kumar and Shri Jatinder Singh, learned Counsels and Shri S.N. Mathur, learned Consultant argued for the appellants. In the earlier hearing of the matter, Senior Counsel Shri A.M. Sitalvad represented the appellants.
It was submitted that the appellants had entered into an agreement with the Airbus Industries, France that the prior approval of the Government of India had also been obtained for the purpose. Clause 1.1 of this agreement was referred to which indicates that the purchase of aircraft will be as per terms and the conditions contained in the agreement with the letters agreement attached thereto which shall be deemed to be a part of the agreement. The learned Counsel also referred to the Clause 3.3 of the agreement relating to total contract price. He also referred to the terms of the letters of agreement No. 3 and No. 6. According to Clause 1 of the letter agreement No. 3 and Clause 4 of the letter agreement No. 6 of the purchase agreement all signed on 15.3.1986, for the purpose of 19 Airbuses A-320 Aircraft, the total credit of US $ 5.73 million was available on each of the 19 aircrafts. Letter agreement No. 3 is regarding price discount. In this letter, it is stated that the seller will grant the buyer a credit memo of US $ 2 million for each of the firmly purchased A-320 Aircraft. This credit memorandum will be made available at each concerned aircraft delivery to reduce the final contract price. Letter agreement No. 6, the learned Counsel pointed out relates to reimbursement of interim dry lease aircraft. It runs as follows: At the time of delivery of each of the first nineteen (19) A320 Aircraft, them Seller will provide the Buyer with a credit Memorandum of US Dollars 3,730,000 (US Dollars Three Million Seven Hundred and Thirty Thousand) for each A320 Aircraft. This Credit Memo will be used to refund to the Buyer in cash, part or all of the monthly A300/B737 dry lease rentals paid by the Buyer to the Seller for the lease of Interim Aircraft in the terms of Paragraphs 1 and 2 hereabove. In the event that part or all of the amount of this Credit Memorandum is not utilised towards refund of dry lease rentals such unutilised amount will be available to the Buyer for use towards reducing the invoice price of each A 320 Aircraft upon delivery.
The learned Counsel also referred to the statement of payment of lease which showed that the credit Memorandum thus made available to the Indian Airlines was not infact utilised for lease payment but was utilised for reducing the price of the aircraft at delivery. Therefore, it was urged that the credit memorandum is in the nature of an discount. The letter agreements were part of the purchase agreement and the purchase contract envisaged deductions as contained in the letters agreement. The learned Counsel further contended that the transaction was on principal to principal basis and the agreement to purchase the aircraft was sanctioned by the Government of India and the extent of discount was known before hand. The Additional Collector has confirmed the demand for short levy without considering the letters agreement and holding that the invoice price was the transaction value as per Rule 4 of the Customs Valuation Rules, 1988. The learned Counsel pointed out that they had also produced certificate from the supplier M/s. Airbus Industries before the Additional Collector which should have been given due consideration. The learned Counsel also referred to the letter of the Ministry of Finance, Department of Revenue, Central Board of Excise and Customs Judicial Cell F. No. 383/478/88 AV dated 4.12.1990 addressed to the Collector of Customs, Air Cargo, Bombay with a copy to them. In this letter it is stated that though in the case considered in that letter, the appeal of M/s. Indian Airlines against rejection of their claim for refund of duty on the disallowance cash discount given to them by Airbus Industries in the purchase of A-300 Aircraft, was rejected as barred by limitation under Section 27 of Customs Act, 1962 it has been further staled in that letter by the Ministry that the matter had been token up before the Supreme Court on their appeal being rejected by CEGAT also on limitation. The Ministry in that letter thereafter has stated that since on merits the claim is not disputed it has been decided to grant exgratia payment of the refund resulting from the disallowance of cash assistance allowed by the supplier, even though the M/s. Indian Airlines had not preferred the appeal in time.
The learned Counsel urged that this shows on merits there is no dispute that it was a permissible discount. Further it was submitted that the criteria under Section 14 of the Customs Act are all satisfied in this case because the price at which the aircraft offered for sale and was sold is US 33 million and not 39 million. There is no special relationship between buyer and seller, therefore, the declared price ought to have been accepted. For the purpose of Rule 4, Transaction Value, it was submitted that the price actually paid or payable is the criterion and not the invoice price. Relying upon the Supreme Court decision in the case of Sharp Business Machines Pvt. Ltd. v. Collector of Customs that invoice is not always final basis for assessable value, there should be the evidence to show what is correct price. In this case the evidence of the purchase agreement, letters agreement, and the credit notes go to show that the reduced price in terms of these was the actual price paid or payable. The learned Counsel also submitted that in the purchase of A-300 aircrafts from Airbus Industries earlier had also been the subject matter of similar dispute which had come up before the Tribunal. The purchase agreement in that case was identical which was entered into on 13.12.1974 for the purpose of 10 numbers A-300 aircrafls. The CEGAT has passed Order No. 380 to 382/1984-A dated 6.6.1984 in which it was held that the purchase of the aircraft by the appellants from the foreign supplier can be treated as a straight-forward commercial deal and expressed satisfaction about the bona fide character and legal status of the reduction which it was held to be in the nature of a trade discount. Another order of the Tribunal No. 309 & 310-1986/A dated 24.4.1986 followed this by observing that on going through the record it is found that the special cash assistance in question was in fact a trade discount or reduction in price negotiated between the buyers and the sellers which meets the test of being admissible discount in terms of Section 14 of the Customs Act, 1962. Therefore, the learned Counsel pleaded that price actually paid for the aircraft in terms of purchase agreement and the letters agreement should be accepted as transaction value for the purpose of Section 14 of the Customs Act in this case.
3. Shri Prabhat Kumar, the learned Departmental Representative pointed out that this was a case covered by Rule 4 of the Customs Valuation Rules, 1988. He referred to the terms of letter agreement No. 6 and contended that this was nothing but an extra commercial consideration which had the effect of making Indian Airlines dependent on the supplier M/s. Airbus Industries for the delivery of aircraft. Clause 4 of the letter agreement No. 6 is so worded that the actual amount of deduction from the sale price is not fixed or determinable. The learned Departmental Representative also pointed out that the appellants were sole purchasers of aircraft and it is not possible to make enquiry regarding similar imports by others. The learned Departmental Representative referred to the reasoning in the Additional Collector's order wherein he has referred to the fact that Indian Airlines had written to Ministry of Civil Aviation and Tourism in which they had given a much higher value. The Additional Collector has correctly held that invoice price reflected the total transaction between the appellants and the supplier which did not indicate any deduction or discount given by the supplier. The Credit Notes according to the impugned order will be available to the importers only subsequent to the imports. Therefore, the Additional Collector has pointed out that for the purpose of any benefit of any discount in prices which may take place at later time cannot be monitored. The reduction in price is effected by way of a credit from the supplier, which means that initially the full payment has been made from which the reduction by way of credit is allowed. In such circumstances, the Additional Collector is right, according to the learned Departmental Representative, in treating the invoice value as the transaction value.
In reply, the learned Counsel Shri Dave pointed out that letter agreement No. 3 and No. 6 have not been disputed and the Additional Collector has not called it an extra commercial consideration. The case of the appellants is that the amount reduced is not claimed as a discount but their case is that the price stands reduced to that extent and it is that price which is paid or payable. It was further pointed out that this price reduction is simultaneous with and on the same day of delivery of the aircraft.
4. The submissions made by the learned Counsels and the learned Departmental Representative have been carefully considered. The question is whether the price of the aircraft at US $ 3,93,51,357 million as per invoice is to be taken as the transaction value under Rule 4 of the Customs Valuation Rules, 1988 for the aircraft imported or whether it should be that value as reduced by the credit memos in terms of the purchase agreement and the letters agreement No. 3 and 6 of 15.3.1986. According to Rule 4, transaction value of imported goods shall be the price actually paid or payable for the goods sold for export to India adjusted in accordance with the provisions of Rule 9 of this Rule. In the interpretative notes to the Valuation Rules, it is stated that the price actually paid or payable is the total payment made or to be made by the buyer to the seller for imported goods. In this case, the transaction is based on the purchase agreement dated 15.3.1986 and the letters agreement which arc expressly agreed to constitute part of purchase agreement. The purchase agreement on record has been perused. This shows that the sale is to lake place upon the terms and conditions contained in the agreement together with letters agreement attached to the agreement which shall be deemed to be a part of it vide Clause 1.1 of the purchase agreement. Coming to the letters agreement No. 3 and No. 6, these provide for reduction in price. The effect of all these is that the purchase agreement lays down that the price is governed by the terms of the purchase agreement together with letters agreement. The final contract price as envisaged in the purchase agreement is that as reduced in terms of letter agreement. Now the transaction value as per Rule 4 is the price actually paid or payable, it is submitted before us that the seller, Airbus Industries issued credit memo, to the extent and in terms of letter agreement No.3 and No. 6 dated 15.3.1986, to the Indian Airlines simultaneously with delivery of aircraft and raising the invoice thereof. The records show that the invoice as well as the credit notes bear the same date 21.6.1989 and the credit notes mention that they are being given in accordance with letters of agreements No. 3 and 6 dated 15.3.1986.
Telex confirmation from the S.B.I., New York that this amount has been received from Airbus Industries and credited to the appellants' account is also shown on record. The certificate certifying the actual payment paid or payable for the aircraft from their Finance Manager is also on record which is the amount arrived at after taking into account various provisions of the purchase agreement including the letters agreement.
There is also on record the Bill of Sale dated 21.6.1989 with the confirmation from Airbus Industries as follows: Airbus Industries confirm that it has received a sum of US $ 39,351 Million towards the sale of its Airbus A 320 Aircraft, MSN 045, Registration Mark VT-EPB. After reducing the amount of credit of US $ 5.73 Million available to you pursuant to Clause 1 of Letter Agreement No. 3 and Clause 4 of Letter Agreement No. 6 of the Purchase Agreement dated 15th, March 1985, the net price of this Aircraft works out to US $ 33,621 (sic).
As per the Bill of Sale dated 21st June, 1989, (copy enclosed) in respect of the above Aircraft, the title of the Aircraft stands transferred to M/s. Indian Airlines.
The Additional Collector has also observed that the transaction is on a principal to principal basis and no special relationship is found. The ground on which that authority has not considered the reduction in price is that the such reduction is not permissible as it would involve monitoring the transfer of credit subsequent in time to the import.
However, the appellants have shown evidence of credit being given simultaneously with raising of the invoice and the delivery of the aircraft. There is also evidence that the amount made available to the appellants in terms of Clause 4 of letter agreement 6 relating to dry lease agreement has in fact been utilised only for reducing the invoice price of the aircraft upon delivery as per Note on the Receipt/Adjustment of Credits available for the acquisition of 19 Airbus aircraft submitted by the appellants before us. The Department has further relied upon the letter of the appellants to their administrative Ministry wherein the higher value without deduction as in the invoice has been furnished. But for purposes of Section 14 one has to go by the terms Rule 4 relating to transaction value as also admitted by the adjudicated authority which is the Rule applicable in the present case. Thus when there is evidence to show that contractually between the admittedly unrelated buyer and seller the actual price paid or payable is the price fixed as per purchase agreement as reduced in terms of letters agreement which are parts of the purchase agreement, and once it is shown that such reduction in price is simultaneous with raising of invoice and delivery of the aircrafts, there is sufficient ground and it will be reasonable to accept this reduced price as the transaction value under Rule 4 of the Customs Valuation Rules, 1988 being the value of the imported goods actually paid or payable. It may also be observed that in such a circumstances as in the present case the fact that such deductions are not shown in the invoice may not be material as long as it is established by evidence that the actual price paid or payable is the one which is as per purchase agreement as reduced by amount of credit in terms of the letters agreement which form part of it. It is also evident from the records that the availability of this price reduction was something known to both the parties at the time of contract.
Therefore, it is not something indeterminate. This Tribunal in its earlier decisions in appeals by the same appellants had to deal With similarly worded and structured contracts and on scrutiny of the various aspects of the purchase agreement had found them to be in the nature of trade discount, as the amount of reduction had been contemplated in the original agreement of purchase itself. It is also significant further that even in the case where the appellants' refund claim claiming such deductions had been rejected as time-barred by the authority under Section 27 of Customs Act, 1962 right up to the Tribunal, and on the matter being taken to the Supreme Court, the Ministry of Finance, Department of Revenue by its letter F. No.383/478/88-AD dated 4.12.1990 had granted ex-gratia refund of the duty collected on such Cash Assistance allowed by the supplier since the Ministry found that on merits their claim is not disputed although admittedly the claim was barred by limitation. This is also a pointer that such reduction in value has to be treated as permissible. In the result, having regard to the totality of the evidence on record relating to the transaction, there is sufficient ground to hold that the value as declared by the appellants for the aircraft in the Bill of Entry taking into consideration the reduction envisaged in the letters agreement can be accepted as transaction value for the purposes of assessment of the goods to duty in terms of the Section 14(1) of the Customs Act, 1962 read with Rule 4 of Customs Valuation Rules, 1988 being the transaction value of the imported goods. In this view of the matter, the appeal is allowed.