Premabhai Chhibabhai Tangal Vs. Union of India - Court Judgment

Excerpt:
customs - valuation of goods - section 14 (1) (a) of customs act, 1962 and section 4 of central excise act, 1944 - petitioner imported watches and spare parts on trade discount of 50% - custom officials issued show cause notice stating imports undervalued thereby causing loss of duty - petitioner contended that price list of 1967 should not be taken into account for valuation of imports of year 1972 - department passed order that all valuations should be done on basis of catalogue of 1967 - petitioner challenged this order of department - facts revealed that petitioners were given trade discount on account of large imports - held, department's order cannot be sustained and valuation be calculated under section 14 (1) (a). - - at a uniform price applicable alike to both these wholesale buyers and these wholesale buyers in their turn sold the dyes purchased by them from the assessee to dealers as well as consumers.orderh. suresh, j.1. the petitioner is the sole proprietor of premabhai chhibabhai tangal & co. he is also one of the shareholders of m/s. indo-french time industries ltd., bombay, having only a shareholding of about 5% in the total authorised capital of the said company (hereinafter referred to as 'the said indian company'). he was also one of the directors on the board of directors of the said indian company, which consisted of 12 directors, during the relevant period of 24th may, 1966 to 17th june, 1974.2. the petitioners had imported spare parts of watches from m/s. sedim establishment, vaduz, switzerland (hereinafter referred to as 'the said swiss company'). the said swiss company has a sister concern by name of sedim france (hereinafter referred to as 'the said french company'). there is collaboration between the said indian company and the said french company since the year 1961 and under this agreement the said indian company manufactures watches in india in collaboration with the said french company. the parts required for the manufacture of such watches are supplied by the said french company to the said indian company. it appears that the watches and parts supplied by the said french company are of a company in france which manufactures watches and the parts, namely, messrs. lorsa, france (hereinafter referred to as 'the said lorsa'). the said lorsa is one of the 7 members of a group of other companies, who deal in the sale of retail spare parts of the watches (hereinafter referred to as 'the groupement').3. the petitioner is an established importer of watches and watch spare parts recognised under the imports and exports (control) act, 1947 and the imports (control) order, 1955, as he has imported watch parts totally aggregating to about rs. 20 lakhs from the said swiss company from the year 1967. according to him, he had personally gone to switzerland during may/july 1967 when the entire transaction was negotiated and finalised. as a result of these negotiations, the petitioner had agreed to import large quantities of watch parts from the said swiss company, which he has implemented and correspondingly the said swiss company has been giving to the petitioner a trade discount upto 50 per cent and more, in view of the large quantities which the petitioner has been purchasing and the length of time for which he has been purchasing. the petitioner says that thus the price offered by the said swiss company to the petitioner has always been very much competitive export price.4. on or about 22nd june 1972, the customs authorities issued a show-cause notice to the petitioner alleging that the goods imported by the petitioner had been wrongly described or mis-stated with regard to their valuation, involving a loss of rs. 97,031/- in duty. the petitioner was, therefore, asked to explain as to why penal action be not taken against him under section 112 of the customs act, 1962 (hereinafter referred to as 'the act') and the goods be not confiscated under section 111 of the act. the reason given in the said notice was that the valuation in the invoice of the goods had been shown at a lower price and the price should have been calculated with an addition of 37.5 per cent, as according to the department the real price of the spare parts was not what the petitioner had stated in the invoice but it was much higher. the customs department, in this connection, relied on the price list, which they got from the 'groupement'. the price relied upon by the customs was that of march 1967.5. as soon as the petitioner received this notice from the customs department, he wrote to the said swiss company requesting them to explain as to why there was so much difference between the prices shown in their invoice and the prices given in the price list published by the government, so that facts could be properly placed before the customs. pursuant to that, the petitioner could get a certificate and necessary material from the said swiss company and in turn pointed out to the customs that the prices given by the groupement in their price list were on the basis of the retail prices in the market in france and not in india. the prices, therefore, are very much higher than the prices charged to the petitioner. the petitioner contended that, therefore, the department was not justified in relying on the prices given by the groupement. the petitioner also pointed out that even with regard to the prices given by the groupement, one item viz. item 227 appears to be similar to one of the item 89 imported by the petitioner. in any event, the petitioner also submitted that the price list was of the year 1967 and that cannot be taken into account at all in respect of import in the year 1972.6. however, the department passed an order dated 18th december 1972, whereby the collector of customs directed that in respect of items 1 to 14 and 17 and 18 of the invoice, the valuation for the purpose of assessment may be calculated on the basis of the catalogue of 1967 as given by the groupement. as against this, an appeal was preferred to the central board of excise and customs. that appeal was also rejected by an order passed on 23rd july, 1975. thereafter a revision application was filed by the petitioner, which was also rejected by the order of the government dated 18th november, 1978. thereafter the petitioner has filed the present petition challenging the said decision of the respondents.7. in this connection, the provisions of the act relating to valuation of goods, for the purpose of assessment, are as follows :x x x x x x 8. customs valuation rules, 1963 have been also framed in this behalf and the relevant rules are as follows :x x x x x x9. mr. rana, appearing for the petitioner, submitted that the respondents had not comparable price in india for the purpose of holding that the price shown in the invoice was undervalued. therefore, the assessment should have been under section 14(1)(a) and there is no reason as to why the price prevalent at the time and place of importation should have been rejected.mr. rana submitted that the only reason, as given by the department, was that the petitioner has an interest in the business of the swiss company and, therefore, the price was not the sole consideration for the sale or offer for sale. mr. rana submitted that there is no denial of the statement made by the petitioner that he was one of the 12 directors of the said indian company in which he had only 5 per cent shareholding in the total authorised capital. the said indian company might have some understanding with the said groupement but that does not mean that the petitioner has any interest whatsoever, either in the said french company or in the said swiss company from whom he had imported the spare parts. he also submitted that, in any event, the petitioner was not importing these spare pars for the said indian company but he was, in fact, importing for his own company, which has nothing to do with the said indian company. mr. rana further submitted that even in the past when the petitioner had imported various spare parts from the said swiss company, the department had always accepted the said invoices and they had never questioned. therefore, the valuation should not have been calculated under section 14(1)(b) of the act. mr. rana submitted that the respondents having come to a wrong conclusion that the valuation would not be calculated either under rule 3(a), 3(b) or 3(c) of the customs valuation rules, 1963 they purported to hold that the valuation could be calculated only under rule 3(d). here again, mr. rana submitted that the respondents had no price list of comparable goods produced or manufactured by the person who has produced or manufactured the goods to be assessed and which are ordinarily sold or offered for sale under competitive conditions to buyers in the country of origin. therefore, the entire approach of the department was arbitrary and, in any case deserves to be set aside.10. mr. rana, in this connection, relied on the case reported in : 1984(17)elt323(sc) union of india v. atic industries ltd. the case dealt with certain provisions relating to valuation under central excise, but the language is pari materia with the language used in the customs act, 1962 and the relevant part of the observations is at page 1498. this was a case where the assessee was a limited company, engaged in the manufacture of dyes and it had its factory situated in atul near bulsar in the state of gujarat. the share capital of the assessee was held by two limited companies : actual products limited held 50 per cent of the share capital while the remaining 50 per cent of the share capital was held by imperial chemical industries limited, london. the assessee at all material times sold the large bulk of dyes manufactured by it in wholesale to atul products limited and imperial chemical industries (india) pvt. ltd. at a uniform price applicable alike to both these wholesale buyers and these wholesale buyers in their turn sold the dyes purchased by them from the assessee to dealers as well as consumers. the assistant collector had held in the above matter that the assessee on the one hand and atul products ltd. and the other limited company (by which time the name of the said company had been changed to crescent dyes and chemicals limited) on the other hand were 'related persons' within the meaning of the definition of that term contained in sub-section (c) of sub-section (4) of section 4 of the amended central excises and salt act, 1944, and the assessable value of the dyes manufactured by the assessee was, therefore, liable to be calculated on the basis of the price at which actual products limited sold the dyes to the dealer and the consumers. this view was negatived by the court.11. in the present case, the petitioner has only 5 per cent shareholding in the said indian company which has again nothing to do with the import of the parts and, therefore, in my opinion the view taken by the customs department cannot be sustained at all.12. mr. shringarpure, appearing for the respondents, submitted that the invoice shows a trade discount of 50 per cent which not have been given, unless the petitioner had some interest in the swiss company. he submitted that this was possible because the petitioner had some special interest in the swiss company.13. the petitioner had placed all the material concerned before the customs department to show as to how he had engaged himself with the swiss company. in my view, because of the importations of a number of years and, he having imported parts of watches extending to rs. 20 lakhs, the petitioner had been given that special price discount, so that that becomes a competitive price. in my view, the stand taken by the department cannot be sustained, inasmuch as the valuation ought to have been calculated under section 14(1)(a) of the act and there was no justification whatsoever for the respondents to reject the valuation as given in the invoice.14. in the result, this petition is made absolute in terms of prayers (a) and (b) of the petition. there will be no order as to costs.

Judgment:
ORDER

H. Suresh, J.

1. The petitioner is the sole proprietor of Premabhai Chhibabhai Tangal & Co. He is also one of the shareholders of M/s. Indo-French Time Industries Ltd., Bombay, having only a shareholding of about 5% in the total authorised capital of the said Company (hereinafter referred to as 'the said Indian Company'). He was also one of the Directors on the Board of Directors of the said Indian Company, which consisted of 12 Directors, during the relevant period of 24th May, 1966 to 17th June, 1974.

2. The petitioners had imported spare parts of watches from M/s. Sedim Establishment, Vaduz, Switzerland (hereinafter referred to as 'the said Swiss Company'). The said Swiss Company has a sister concern by name of Sedim France (hereinafter referred to as 'the said French Company'). There is collaboration between the said Indian Company and the said French Company since the year 1961 and under this agreement the said Indian Company manufactures watches in India in collaboration with the said French Company. The parts required for the manufacture of such watches are supplied by the said French Company to the said Indian Company. It appears that the watches and parts supplied by the said French Company are of a Company in France which manufactures watches and the parts, namely, Messrs. Lorsa, France (hereinafter referred to as 'the said Lorsa'). The said Lorsa is one of the 7 members of a group of other Companies, who deal in the sale of retail spare parts of the watches (hereinafter referred to as 'the Groupement').

3. The petitioner is an established importer of watches and watch spare parts recognised under the Imports and Exports (Control) Act, 1947 and the Imports (Control) Order, 1955, as he has imported watch parts totally aggregating to about Rs. 20 lakhs from the said Swiss Company from the year 1967. According to him, he had personally gone to Switzerland during May/July 1967 when the entire transaction was negotiated and finalised. As a result of these negotiations, the petitioner had agreed to import large quantities of watch parts from the said Swiss Company, which he has implemented and correspondingly the said Swiss Company has been giving to the petitioner a trade discount upto 50 per cent and more, in view of the large quantities which the petitioner has been purchasing and the length of time for which he has been purchasing. The petitioner says that thus the price offered by the said Swiss Company to the petitioner has always been very much competitive export price.

4. On or about 22nd June 1972, the Customs authorities issued a show-cause notice to the petitioner alleging that the goods imported by the petitioner had been wrongly described or mis-stated with regard to their valuation, involving a loss of Rs. 97,031/- in duty. The petitioner was, therefore, asked to explain as to why penal action be not taken against him under Section 112 of the Customs Act, 1962 (hereinafter referred to as 'the Act') and the goods be not confiscated under Section 111 of the Act. The reason given in the said Notice was that the valuation in the invoice of the goods had been shown at a lower price and the price should have been calculated with an addition of 37.5 per cent, as according to the Department the real price of the spare parts was not what the petitioner had stated in the invoice but it was much higher. The Customs Department, in this connection, relied on the price list, which they got from the 'Groupement'. The price relied upon by the Customs was that of March 1967.

5. As soon as the petitioner received this notice from the Customs Department, he wrote to the said Swiss Company requesting them to explain as to why there was so much difference between the prices shown in their invoice and the prices given in the price list published by the Government, so that facts could be properly placed before the Customs. Pursuant to that, the petitioner could get a certificate and necessary material from the said Swiss Company and in turn pointed out to the Customs that the prices given by the Groupement in their price list were on the basis of the retail prices in the market in France and not in India. The prices, therefore, are very much higher than the prices charged to the petitioner. The petitioner contended that, therefore, the Department was not justified in relying on the prices given by the Groupement. The petitioner also pointed out that even with regard to the prices given by the Groupement, one item viz. Item 227 appears to be similar to one of the Item 89 imported by the petitioner. In any event, the petitioner also submitted that the price list was of the year 1967 and that cannot be taken into account at all in respect of import in the year 1972.

6. However, the Department passed an order dated 18th December 1972, whereby the Collector of Customs directed that in respect of Items 1 to 14 and 17 and 18 of the Invoice, the valuation for the purpose of assessment may be calculated on the basis of the Catalogue of 1967 as given by the Groupement. As against this, an appeal was preferred to the Central Board of Excise and Customs. That appeal was also rejected by an order passed on 23rd July, 1975. Thereafter a revision application was filed by the petitioner, which was also rejected by the order of the Government dated 18th November, 1978. Thereafter the petitioner has filed the present petition challenging the said decision of the respondents.

7. In this connection, the provisions of the Act relating to valuation of goods, for the purpose of assessment, are as follows :

x x x x x x

8. Customs Valuation Rules, 1963 have been also framed in this behalf and the relevant Rules are as follows :

x x x x x x

9. Mr. Rana, appearing for the petitioner, submitted that the respondents had not comparable price in India for the purpose of holding that the price shown in the invoice was undervalued. Therefore, the assessment should have been under Section 14(1)(a) and there is no reason as to why the price prevalent at the time and place of importation should have been rejected.

Mr. Rana submitted that the only reason, as given by the Department, was that the petitioner has an interest in the business of the Swiss Company and, therefore, the price was not the sole consideration for the sale or offer for sale. Mr. Rana submitted that there is no denial of the statement made by the petitioner that he was one of the 12 Directors of the said Indian Company in which he had only 5 per cent shareholding in the total authorised capital. The said Indian Company might have some understanding with the said Groupement but that does not mean that the petitioner has any interest whatsoever, either in the said French Company or in the said Swiss Company from whom he had imported the spare parts. He also submitted that, in any event, the petitioner was not importing these spare pars for the said Indian Company but he was, in fact, importing for his own Company, which has nothing to do with the said Indian Company. Mr. Rana further submitted that even in the past when the petitioner had imported various spare parts from the said Swiss Company, the Department had always accepted the said invoices and they had never questioned. Therefore, the valuation should not have been calculated under Section 14(1)(b) of the Act. Mr. Rana submitted that the respondents having come to a wrong conclusion that the valuation would not be calculated either under Rule 3(a), 3(b) or 3(c) of the Customs Valuation Rules, 1963 they purported to hold that the valuation could be calculated only under Rule 3(d). Here again, Mr. Rana submitted that the respondents had no price list of comparable goods produced or manufactured by the person who has produced or manufactured the goods to be assessed and which are ordinarily sold or offered for sale under competitive conditions to buyers in the country of origin. Therefore, the entire approach of the Department was arbitrary and, in any case deserves to be set aside.

10. Mr. Rana, in this connection, relied on the case reported in : 1984(17)ELT323(SC) Union of India v. Atic Industries Ltd. The case dealt with certain provisions relating to valuation under Central Excise, but the language is pari materia with the language used in the Customs Act, 1962 and the relevant part of the observations is at page 1498. This was a case where the assessee was a limited company, engaged in the manufacture of dyes and it had its factory situated in Atul near Bulsar in the State of Gujarat. The share capital of the assessee was held by two limited companies : Actual Products Limited held 50 per cent of the share capital while the remaining 50 per cent of the share capital was held by Imperial Chemical Industries limited, London. The assessee at all material times sold the large bulk of dyes manufactured by it in wholesale to Atul Products Limited and Imperial Chemical Industries (India) Pvt. Ltd. at a uniform price applicable alike to both these wholesale buyers and these wholesale buyers in their turn sold the dyes purchased by them from the assessee to dealers as well as consumers. The Assistant Collector had held in the above matter that the assessee on the one hand and Atul products Ltd. and the other Limited Company (by which time the name of the said Company had been changed to Crescent Dyes and Chemicals Limited) on the other hand were 'related persons' within the meaning of the definition of that term contained in sub-section (c) of sub-section (4) of Section 4 of the amended Central Excises and Salt Act, 1944, and the assessable value of the dyes manufactured by the assessee was, therefore, liable to be calculated on the basis of the price at which Actual Products Limited sold the dyes to the dealer and the consumers. This view was negatived by the Court.

11. In the present case, the petitioner has only 5 per cent shareholding in the said Indian Company which has again nothing to do with the import of the parts and, therefore, in my opinion the view taken by the Customs Department cannot be sustained at all.

12. Mr. Shringarpure, appearing for the respondents, submitted that the invoice shows a trade discount of 50 per cent which not have been given, unless the petitioner had some interest in the Swiss Company. He submitted that this was possible because the petitioner had some special interest in the Swiss Company.

13. The petitioner had placed all the material concerned before the Customs Department to show as to how he had engaged himself with the Swiss Company. In my view, because of the importations of a number of years and, he having imported parts of watches extending to Rs. 20 lakhs, the petitioner had been given that special price discount, so that that becomes a competitive price. In my view, the stand taken by the Department cannot be sustained, inasmuch as the valuation ought to have been calculated under Section 14(1)(a) of the Act and there was no justification whatsoever for the respondents to reject the valuation as given in the invoice.

14. In the result, this petition is made absolute in terms of prayers (a) and (b) of the petition. There will be no order as to costs.