Judgment:
1. The order dated 21-2-1989 of the Assistant Collector, Special Valuation Branch, Bombay and the appellate order dated 10-7-1990 of the Collector (Appeals), Bombay are challenged in this appeal.
2. The appellants are manufacturers of Brake Systems for motor vehicles and components and parts. They entered into collaboration agreements with three foreign concerns, namely, M/s. Bendix USA (31-12-1983), M/s.
Bendix France (11-6-1984) and M/s. Nippon Air Brake Co., Japan (21-5-1984) for technical know-how use of patent and assistance for the manufacture of Brake Systems, Spring Brakes, Master Clyinders, parts and components thereof agreeing to pay lump sum royalty in three instalments for technical information and royalty of an amount equal to 5% of net ex-factory sales price of all products and parts thereof manufactured by appellants and sold for licence to manufacture such products and parts thereof and for rendering technical assistance. The appellants were importing various components and spares of the products from the foreign concerns. After receiving various records and information from the appellants and the foreign concerns and after hearing the appellants, the Assistant Collector recorded the following findings :- (1) The transaction between the appellants and Bendix USA are not between two independent parties since the Bendix USA have equity participation and receive royalty and allow appellants use of their patents, designs and trade marks. Their relationship is influenced by the special commercial relationship other than that created by the sale of goods. The transactions are not at arms length. Hence, value cannot be decided under Section 14(l)(a) of the Customs Act, 1962 (for short, the Act) and has to be determined under Section 14(l)(b) of the Act.
(2) Royalty amount increases with increase in indigenisation. The foreign concerns loss in profit on account of reduction in import is compensated by increase in Royalty. Imports and royalty are related.
(3) In view of the collaboration agreement, price is not the sole consideration.
(4) Photo copies of invoices received by the Assistant Collector from Nippon Air Brake Co. are of no use since it is not possible to correlate the goods with the goods imported by appellants.
(5) Similar is the position with regard to copies of invoices furnished by Bendix France.
(6) Appellants have not cited comparable imports in support of the prices declared by the appellants.
(7) Therefore, valuation has to be made under Rules 6 and 8 of the Customs Valuation Rules, 1963 (for short, the Rules) read with Section 14(1 )(b) of the Act.
3. On the basis of the above findings, the Assistant Collector ordered as follows :- (1) The invoice value of Components imported by the appellants from Nippon Air Brake Co. Ltd., Japan and their associate companies and Bendix France will be loaded by 1.5%.
(2) The percentage of loading shall be 4 1/2 in the case of components imported by the appellants from Bendix USA. (3) The invoice value of capital goods imported will be assessed under Section 14(l)(b) of the Act, subject to usual check, scrutiny and verification of contemporary prices.
(4) The invoice value of spares will be assessed on the basis of prices mentioned in the spares price list. If spares are imported on quotation basis and spares price list is not existing, then the invoke value will be loaded at the same rate as in the case of Components, The Collector (Appeals) dismissed the appeal filed by the appellants against the order of the Assistant Collector.
4. The Learned Counsel for the appellants at the outset challenged the findings regarding the special commercial relationship between the appellants and Bendix USA and the transactions between them not being at arms length. The finding is based on the equity participation and the terms of the collaboration agreement between them.
Appellant-Company is a joint venture, Bendix USA holding 40% equity in the joint venture, Kalyani House of Industries owning 40% and Public at large owning 20%. The important terms of the collaboration agreement are as follows :- (a) The foreign concerns granted licence to the appellants to manufacture and sell the products in India or elsewhere.
(b) The foreign concern has to transfer and impart technical information to the appellants subject to the terms and conditions stipulated in the agreement.
(c) The appellants have to pay the foreign concern U.S. Dollar 2,50,000.00 in three instalments as consideration for transfer of technical info mation.
(d) The appellants have to pay the foreign concern an amount equal to 5% of the net ex-factory sale price of the products and parts thereof sold in India or exported out of India, less the landed cost of imported components and the cost of standard bought-out components as consideration for the licence, technical assistance and use of patent right.In Eicher Motors Ltd. v. Collector of Customs - 1994 (74) E.L.T.357, the Tribunal considered a collaboration agreement, which besides containing the provisions contained in the present appellants collaboration agreement with Bendix USA, (except the foreign concern held 15% shares in the Joint Venture), also stipulated that the foreign concern had right to nominate two Directors on the Board of Directors of the Joint Venture. Relying on Collector of Customs v. Maruti Udyog Ltd.Union of India v. Atic Industries -1984 (17) E.L.T. 325, the Tribunal held that the foreign concern had an interest in the business of the appellants but the appellants cannot be said to have interest in the business of the foreign concern and hence, there was no mutuality of interest in the business of each other, that payment of royalty was relatable to indigenous manufacture of the products and components of the foreign concerns and use of patents and it had nothing to do with import of components and assemblies and it cannot be said that invoice price was not the sole consideration for sale of the imported goods. A similar view was taken in Escorts Ltd. v.Collector of Customs -1996 (83) E.L.T.388 ((Tribunal)) which also commented on the absence of reservation to the foreign concern of any controlling interest in the manufacture of finished goods and absence of evidence to show that the invoice price was lower than the ordinary price obtained in international trade. See also Union of India v.Mahindra and Mahindra Ltd.(S.C.) and Collector of Customs v. Modi Xerox Ltd. 6. The fact that Bendix USA has equity participation in the Appellants-Company and the parties have entered into a collaboration agreement, by itself is not sufficient to show that they have mutual interest in the business of each other; the interest is one way, that is the foreign concern has interest in the business of the appellants.
The agreement to provide technical information, assistance and to allow use of patent is on the basis of consideration shown in the agreement; the terms and conditions are not out of the ordinary or unusual so as to call for an inference of special commercial relationship depressing the price of goods supplied to the appellants by the foreign concern.
The agreement does not insist that the appellants can use only components or parts manufactured by the foreign concern. Royalty for grant of licence and technical assistance is 5% of appellants net ex-factory price of all products and parts thereof sold for use within India and for export outside India. "Net ex-Factory Sales price" has been defined in the agreement as meaning the price of the products and parts thereof excluding the excise duties, "the value of Standard Bought-Out Components and landed cost of imported components irrespective of the Source of procurement...". This would clearly indicate that the appellants had no obligation to procure components only from the contracting foreign concern, but were at liberty to import components from other sources. In fact the Royalty amount is not directly proportional to the cost of imported components; on the other hand, the more the cost of bought-out items and imported components, the less the amount of royalty. Conversely, the less the cost of imported components and bought-out items, the more will be the total amount of royalty. That being so, if more and more quantities of components are imported from the contracting foreign concern or other sources, less will be the amount of royalty. The provision for consideration for technical information has not been shown to be excessive. In these circumstances, the relationship created by the agreement cannot be said to have influenced the price of components or resulted in depression of the price thereof. There is no merit in stating that the parties are not independent or that the transactions are not at arms length. Consequently the finding that the invoice price of imported components is not genuine or value cannot be determined under Section 14(l)(a) of the Act is unsustainable.
7. The Collaboration Agreement with Nippon Air Brake Co. Ltd., Japan and Bendix France do not stand on a different footing. The terms and conditions of these agreements are almost similar to those of the agreement with Bendix USA. There is one difference in that unlike Bendix USA, the other two foreign concerns do not have any equity participation in appellants-company. Nor is there any material to show that the appellants have any interest in the business of the two foreign concerns. There is nothing to indicate flow of additional consideration for the imported components or to indicate that price was not the sole consideration. The Department has not marshalled evidence of contemporaneous imports of components at higher prices. In these circumstances, there was no justification to place the burden on the appellants to prove contemporaneous imports at comparable prices. The impugned orders do not state that appellants were called upon to produce manufacturers' price list for components or that the Department made any attempt to procure such price list. We therefore hold that the lower authorities were in error in rejecting invoice prices of imported components and erred in holding that the value, cannot be determined for such components under Section 14(l)(a) of the Act.
"The invoice value of spares will be assessed on the basis of prices mentioned in spares price list. However, if the spares are imported on quotation basis and spares price list is not existing then the invoice value of spares imported if any by KBX will be loaded at the same rate as (i) to (iii) above." The above passage suggests that the manufacturers' price list for spares was before the Assistant Collector. It is manifest that the Assistant Collector could have procured the manufacturers' price list for components also; but for some undisclosed reason, no effort was made to do so. The direction to value spares the prices of which were shown in the price list at such prices is unexceptionable. But for the reasons already indicated, the decision to load the prices of other spares by 1.5% or 4.5% as the case may be, is not sustainable.
9. The impugned orders are set aside to the extent they direct loading of prices by 1.5% or 4.5% as the case may be. The direction to adopt the prices for spares shown in the manufacturers' price list for spares is confirmed. The appeal is allowed in part as indicated above.