| SooperKanoon Citation | sooperkanoon.com/7801 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Sep-12-1994 |
| Reported in | (1994)LC44Tri(Delhi) |
| Appellant | Eicher Motors Ltd. |
| Respondent | Collector of Customs |
In terms of the said agreement the foreign collaborators were to contribute 15% of the share capital of the appellants' company and they were also authorised to nominate two Directors on the Board of the appellant company. The appellants also entered into a Technical Assistance Agreement dated 4th October, 1982 with 'MMC'. In accordance with the Industrial Licence granted to them by the Government for undertaking phased manufacturing of 'LCV, from February, 1986, the appellants commenced importation of CKD components of 'LCV, spare parts and warranty spare parts.
2. Pending a decision on the question of acceptability of the invoice values, the customs authorities decided to allow the clearance of goods imported by the appellants from their collaborators on provisional basis after loading the invoice values by 25%. Subsequently by his order dated 23-6-1989, the Assistant Collector of Customs, Special Valuation, Bombay, held that in view of the Joint Venture Agreement and Technical Assistance Agreement there was a special relationship between the appellants and their foreign collaborators. On the grounds that the appellants were using the patent, design and trade mark of the foreign collaborators and as per Rule 6 of the Customs Valuation Rules, 1963 any fee paid for use of patent, design and trade mark is to be included while determining the value of imported goods, he held that having regard to the royalty paid by the appellants the invoice value of components, CKD Packs and Light Commercial Vehicles supplied by the foreign collaborators should be loaded by 0.25% under Rules 6 and 8 of the Customs Valuation Rules, 1963. Similarly, in the case of spare parts and warranty spare parts, he held that in the absence of any price list of the foreign collaborator, the invoice value should be loaded by 2.5% under Rule 8 of the said Rules. In their appeal before the Collector (Appeals), the appellants contended that as a result of the two agreements, no special relationship could be deemed to have been created between them and their foreign collaborators and the assessable value of the goods imported by the appellants had to be determined under Section 14(1)(a) of the Act. However, by the impugned order the Collector (Appeals) confirmed the findings of the Assistant Collector.
3. Appearing on behalf of the appellants Shri Ravindra Narain, ld. Sr.
Advocate stated that the impugned order being contrary to law is not sustainable since in the absence of any special relationship between the appellants and their foreign collaborators, the value of the imported goods is liable to be determined on the basis of the invoice value under Section 14(1)(a) of the Act. He submitted that even after admitting that the appellants and their foreign collaborators did not have any interest in the business of each other, the Collector (Appeals) had upheld the findings of the Assistant Collector that the value of the goods imported by the appellants was determinable under Section 14(1)(b) of the Act. He contended that it was incumbent upon the Collector (Appeals) to record his findings as to why the assessable value of the imported goods could not be determined under Section 14(1)(a) of the Act. He submitted that the Collector (Appeals) had erred in confirming the Assistant Collector's finding that in the appellants' case Rule 6 of the Customs Valuation Rules, 1963 was attracted. He contended that no part of lump sum payment made by the appellants on account of royalty for know-how granted by the foreign collaborator could be added to the invoice value since according to the Technical Assistance Agreement, the licencing of trade mark was to be free of charge. He stated that the royalty payments were related only to the goods manufactured indigenously and there was no nexus between such payments and the imported parts. He added that out of the know-how fee paid by the appellants no payment was attributable to the so-called patent and design rights granted by the foreign collaborator. He submitted that the reliance placed by the Collector (Appeals) on the provisions of Brussels Convention was wholly misplaced since the provisions of the said convention had not been incorporated in the statute. He added that the recommendations of the Customs Cooperation Council referred to by the Collector (Appeals) were also not relevant.
He stated that the export prices of the goods supplied by the appellants' foreign collaborators were settled after negotiations and accepted by the appellants only if they were fair and competitive. He contended that the impugned order was not sustainable in view of the Tribunal's decision in the case of Collector of Customs v. Maruti Udyog Limited reported in 1987 (28) E.L.T. 390 in which the facts were identical. In support of his submissions he also cited the following case law :- (i) 1991 (55) E.L.T. 15 (Bom.) - Union of India v. Mahindra and Mahindra Ltd.Collector of Customs v. Modi Xerox Ltd.Honesty Traders v. Collector of CustomsSawhney Export House v. Collr. of Customs.
4. On behalf of the respondents Shri A.K. Singhal, ld. JDR submitted that there is no force in the contention of the appellants that in view of the Tribunal's decision in the case of Collector of Customs, Bombay v. Maruti Udyog (supra) the finding of the Collector (Appeals) that the assessable value of the goods supplied by their foreign collaborators was required to be determined under Section 14(1)(b) of the Act, would not be sustainable. He contended that in the case of Collector of Customs v. Maruti Udyog, there was a difference of opinion between the Members on the question whether in the facts of the case the assessable values were determinable under Section 14(1)(a) or 14(1)(b) and while allowing the appeal against the Tribunal's decision, the Supreme Court did not go into this question. He stated that according to the Joint Venture and Technical Assistance Agreements entered into by the appellants with their foreign collaborators, the foreign collaborators had contributed 15% of the capital of the Joint Venture and they also had the right to nominate two Directors on the Board of Directors. He added that the agreements provided for mutual consultations between parties in regard to the quality, prices and other terms in respect of assembled and manufactured goods and for prior approval by the collaborators in regard to change in specifications, quality and design of the products. He contented that on reading of these and certain other provisions of the relevant agreements, it follows that the appellants and their collaborators were related parties. He stated that under these circumstances as held by the Collector (Appeals) the assessable value of the appellants' imports from their collaborators was required to be determined under Section 14(1)(b) of the Act. He contended that claim of the learned counsel for the appellants that the royalty of 3% was related to indigenous parts and was not payable in respect of imported parts was not correct since the relevant clause of the Technical Assistance Agreement referred to F.O.B. value, which could be only in respect of imported goods. Referring to the contention of the counsel for the appellants that the Brussels Convention and the advice of the Customs Cooperation Council relied upon by the Collector (Appeals) were not relevant, he submitted that certain provisions of the Brussels Convention and the advice of the Customs Cooperation Council were referred to be the Collector (Appeals) since they supported his findings . He reiterated his stand that on account of the special relationship between the appellants and their foreign collaborators, the assessable value of the goods in question was to be determined under Section 14(1)(b). On these grounds he pleaded for the rejection of the appeal.
5. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the main point that arises for consideration in this case is whether having regard to the terms of the agreements entered into between the appellants and their foreign collaborators, they have to be deemed as having interest in the business of each other and the value of the goods and the value of components, CKD packs and light commercial vehicles has to be determined under Section 14(1)(b) of the Customs Act read with Customs Valuation Rules, 1963 as held in the impugned order or as claimed by the appellants such goods would be assessable under Section 14(1)(a) on the invoice price.
6. The appellants who are engaged in the manufacture of light commercial vehicles have entered into a Joint Venture Agreement with M/s. Mitsubishi Motors Corporation and M/s. Mitsubishi Corporation of Japan, which provides for contribution of 15% of the share capital of the appellants' company by the foreign collaborators and also authorise the foreign collaborators to nominate two Directors on the Board of the appellant company. The appellants have also entered into Technical Assistance Agreement with M/s. Mitsubishi Motor Corporation of Japan which inter alia provides for a lump sum payment of Japanese Yen, 330,000,000 by the appellants to the Japanese party in consideration of the rights granted and Technical Assistance supplied or to be supplied and royalty at the rate of 3% of the Mitsubishi's FOB price for local parts carresponding to those manufactured by or for the licencee and used for the assembly of vehicles by the licencee.
7. The appellants' case is that the finding in the impugned order that there is a special relationship between the appellants and their foreign collaborators and the values of the components, CKD packs and LCV supplied by the Collaborators has to be determined under Section 14(1)(b) of the Customs Act, 1962 read with the Customs Valuation Rules, 1963 is erroneous. It has been pointed out that in terms of the Technology Assistance Agreement, right of the licencee to use the trade mark is free of charge since the lump sum payment was wholly on account of know-now and was not related to the imported goods. It has also been contended that in the absence of any mutuality of interest in the business of each other between the appellants and the foreign collaborators and on account of the clear provision in clauses 7.3 and 7.4 of the Joint Venture Agreement that the collaborators shall always sell to the appellants components and spares at fair, reasonable and competitive prices, the value of the imported goods has to be determined under Section 14(1)(a) of the Act on the basis of their invoice price.
8. We are inclined to agree with the appellants that mere holding of 15% shares by the collaborators in the Joint Venture and right to nominate two Directors on the Board of Directors of the Company was not sufficient for holding that the appellants and the collaborators had interest in each other's business. It is seen that the facts in their case are similar to the facts in the case of Collector of Customs Bombay v. Maruti Udyog Limited, reported in 1987 (28) E.L.T. 290 in which relying upon the Supreme Court's judgment in the case of Union of India v. Atic Industries, reported in 1984 (17) E.L.T. 325 the Tribunal had held that to rule out valuation under Section 14(1)(a) one sided interest is not enough; there should be mutuality of interest or in other words buyer and seller should have "Interest in the business of each other". On these grounds when Suzuki held 26% shares in Maruti and also had proportional representation on the Board of Directors of Maruti, the Tribunal held that even though there was transfer of technical know-how from Suzuki to Maruti under a separate transaction governed by the Licencee Agreement for which Suzuki was being paid some price, it could not be said an interest of Maruti had been created in the business of Suzuki, Japan. The Tribunal also held that payment of royalty/fee under the Licencee Agreement was relatable to indigenous manufacture of components and vehicles of Suzuki's patents, designs and specifications and the use of trade mark was also for marketing of indigenously manufactured goods and neither royalty nor the use of trade mark had anything to do with import of components and assemblies from Japan. On these grounds the Tribunal rejected the argument that import invoice price was not the sole consideration for sale of imported goods.
9. As pointed out by the appellants in terms of clause 7.3 of the Joint Venture Agreement, the components and spare parts required to be imported for assembly and production of licenced products are to be supplied by their collaborators at fair, reasonable and competitive prices. It is also seen that lump sum fee of Japanese Yen 330,000,000 in terms of clause 6(7) of the Technical Assistance Agreement is on account of Technical Assistance and other rights granted to the licencee and no part of it is attributable to the use of trade mark since clause 4 of the agreement states that licensing of trade mark will be free of charge. It is also seen from clause 6(7) of the agreement that payments on account of royalty are to be made by the appellants only in respect of the local or indigenously manufactured parts. We find that the contention of the ld. JDR that the use of the 'FOB Japanese Port' in the relevant clause is indicative of 'royalty payments' being connected with imported parts has no force at all. On a plain reading of the relevant clause in the agreement, it is seen that the royalty is payable only on local parts and the amount to be paid on this account is to be worked out @ 3% at the FOB Japanese port price of similar goods. We are inclined to agree with the learned counsel for the appellants that such provisions are commonly made in such agreements in order to compensate the collaborator by way of larger payments on account of royalties when on account of increasing indigenisation there is progressive decline in the realisations of the foreign supplier on account of sale of parts and components.
10. In view of the above discussion we are of the view that on the ratio of the Tribunal's decision in the case of Collector of Customs, Bombay v. Maruti Udyog Ltd. (supra) the invoice price of the goods imported by the appellants from M/s. Mitsubishi Motor Corporation of Japan has to be deemed as the assessable value of the goods under Section 14(1)(a) of the Customs Act, 1962 and the decision to resort to Section 14(1)(b) and loading of the invoice value on account of design, patent and trade mark fee in terms of Rules 6 and 8 of the Valuation Rules, 1963 is not sustainable.
11. It has been contended on behalf of the respondents that the Tribunal's decision in the case of Collector of Customs, Bombay v.Maruti Udyog (supra) had not settled the question that in the facts of the case the values of the imported goods were to be determined under Section 14(1)(a) of the Customs Act, 1962, since there was a difference of opinion between the two Members and the Supreme Court while disposing of the appeal had not gone into the merits of the case. It is seen that this point was also raised on behalf of the Revenue before the Division Bench of the Bombay High Court in the case of Union of India v. Mahindra and Mahindra Ltd., reported in 1991 (55) E.L.T. 15 in which the issues arising for consideration were similar to the appellant's case. Having regard to the fact that the crucial words "Interest in the business of each other " are identical in both the statutes, the High Court held that the learned Single Judge was perfectly justified in relying upon the decision of the Supreme Court in Atics' case to conclude that there was no mutuality between Mahindra and foreign collaborators, as they had no interest in the business of each other, consequently the Assistant Collector was not right in excluding the application of Section 14(1)(a) of the Act. Paras 11 and 12 of the said judgment being relevant are reproduced below: -Collector of Customs v. Modi Xerox Ltd. reported in 1980 (48) E.L.T. 141 the Tribunal relying upon the earlier decision in the case of Collector of Customs v. Maruti Udyog Ltd. had once again held that to rule out valuation under Section 14(1)(a) of the Customs Act, 1962, there must be mutuality of interest.
Seller and buyer must have interest in the business of each other. One sided interest would not be sufficient enough to lead us to a conclusion that there was mutuality of interest. The relevant extracts from para 7 of the said decision are reproduced below : - 13. We are inclined to agree with the learned counsel for the appellants that the Brussels Convention on Valuation and the clarifications of the Customs Cooperation Council relied upon by the Collector (Appeals) have no relevance to the issue involved in this case which have to be decided strictly having regard to the provisions of Section 14 of the Act.
14. In view of the above discussion we set aside the impugned order and allow the appeal.