Citation Codes

Equivalent Citations

citation codes

Case Number

Final Order No. 381/92-A in Appeal No. C/192/92-A

Judges

P.C Jain, Member (T)
S.V Maruthi, Member (J)

Acts

Rule 7 read with Rule 8 of the Customs (Valuations) Rules.
Article 2 of the Provisional Regulations
Rule 7 of the Valuation Rules.
Rule 4 of the Rules.12.

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Smart Summary

Tribunal Order Summary — Assessment of Value of Neomycin Sulphate Nonsterile

Factual and Procedural Background

The dispute concerns the assessable value of imported Neomycin Sulphate Nonsterile. The appellants imported 2,000 kgs under two bills of entry dated 19-9-1991 and declared the value at Rs. 10,50,032/-. They produced a manufacturer's invoice dated 4-7-1991 indicating that the goods were sold to the supplier at US$16 per kg. The Collector rejected the manufacturer's invoice as not genuine, on the ground that the invoice identified M/s. Long March Pharmaceutical as the manufacturer (a "sub-factory") while the Collector considered M/s. Hinan Huabao Pharmaceutical Factory to be the manufacturer of the impugned goods.

The Collector enhanced the value under Rule 7 read with Rule 8 of the Customs (Valuations) Rules, arriving at an assessed value of US$56 per kg (after various calculations starting from Indian market value and considering quotations). The appellants appealed to the Tribunal against the Collector's order. The Tribunal was required to decide, in particular, whether the manufacturer's invoice was genuine and whether the Collector's valuation should stand.

Legal Issues Presented

Whether the manufacturer's invoice produced by the appellants (showing a purchase price of US$16 per kg from the manufacturer to the supplier) is genuine.
Whether the Collector's valuation (enhancing the value to US$56 per kg under Rule 7 read with Rule 8 and by reference to various quotations) could be sustained, or whether the transaction value under Rule 4 should be accepted.

Arguments of the Parties

Appellant's Arguments

The manufacturing and export regime in China is controlled by an export licensing system: manufacturing units that lack export licences act as sub-factories for licensed exporters. M/s. Long March Pharmaceuticals had no export licence and therefore acted as a sub-factory for M/s. Hinan Huabao Pharmaceutical Factory (a licensed exporter).
Consequently, invoices issued in the trade chain (including invoices from Long March as the sub-factory) should be regarded as manufacturer's invoices for the purpose of customs valuation.
The appellants relied on an opinion by solicitors J.N. Karbhari & Co. (dated 22-2-1992) explaining the Chinese export licensing arrangement, Article 2 of the Provisional Regulations Governing Export Licence System (extracts of which were placed before the Tribunal), and contemporaneous invoices showing the flow of goods and prices (manufacturer to supplier, and supplier to appellants).
On the facts, the manufacturer sold to the supplier at US$16/kg and the supplier sold to the appellants at US$20/kg (a profit of US$4/kg); hence the transaction value evidence should be accepted.

Revenue's Arguments (Collector / Learned JDR)

The Collector had held that the manufacturer's invoice was not genuine because of the name discrepancy (Long March as sub-factory vs. Hinan Huabao as manufacturer) and therefore enhanced the assessable value to US$56 per kg using Rule 7 read with Rule 8 and various quotations obtained from indenting agents and suppliers.
The learned JDR reiterated the Collector's finding denying genuineness of the manufacturer's invoice.
The learned JDR also pointed to a letter (dated 6-7-1991) stating the goods were a "stock lot" and argued that this could justify a lower price for that lot (i.e., that the low invoice price might reflect a stock-lot sale rather than a representative transaction value).

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Tribunal's analytical approach proceeded in distinct steps, relying solely on the materials and legal framework placed before it:

Examination of the documentary evidence regarding Chinese export practice:
- The Tribunal considered the solicitor's opinion (J.N. Karbhari & Co., dated 22-2-1992) explaining that manufacturing units in China are controlled by the State and that exports are regulated by an export licensing system such that some factories without export licences serve as sub-factories for licensed exporters.
- The Tribunal also examined Article 2 of the Provisional Regulations Governing Export Licence System (extract included in the record), which requires approval and registration for any corporation wishing to engage in export business.
Conclusion on genuineness of the manufacturer's invoice:
- Applying the solicitor's opinion and Article 2, the Tribunal concluded that Long March acted as a sub-factory for Hinan Huabao, and that invoices issued in the chain (including those from Long March or from Hinan as reflecting sub-factory production) are to be treated as manufacturer's invoices in the context of that regulatory regime.
- The Tribunal expressly found that the Collector's rejection of the invoice as not genuine was based on a misconstruction of the legal and factual position in China.
- Consequently, the Tribunal accepted the manufacturer's invoices dated 4-7-1991 and 2-9-1991 as genuine.
Effect of accepting the manufacturer's invoice on valuation:
- From the manufacturer's invoice the Tribunal noted that the manufacturer sold to the supplier at US$16/kg and that the supplier sold to the appellants at US$20/kg (a margin of US$4/kg).
- Under the amended valuation rules, an importer must produce the manufacturer's invoice; because the Tribunal accepted the manufacturer's invoice as genuine, it held there was no reason not to act upon that invoice.
- The Tribunal stated that, absent evidence of contemporaneous imports of identical or similar goods at higher values, the only viable course was to accept the invoice price as the transaction value under Rule 4 of the Customs (Valuation) Rules.
Consideration of the Collector's alternative evidence (quotations) and the "stock lot" contention:
- The Tribunal reviewed the various quotations relied on by the Collector (from indenting agents and other suppliers showing prices in the range US$61–US$100/kg) but held that such quotations are not relevant evidence of assessable value in the absence of an actual import effected pursuant to those quotations.
- The Tribunal explained that quotations are merely offers and subject to negotiation; consequently, they cannot be used as reliable evidence of transaction value.
- Regarding the stock-lot argument raised by the learned JDR, the Tribunal observed that the same correspondence also offered delivery over time ("delivery starting September 1991 2000 KB per month at USD 20 per KB CIF Madras net by air") and a delivery period of six months, undermining the contention that the sale was a one-off stock-lot sale at an abnormally low price. The Tribunal therefore rejected the stock-lot argument as without substance.
Overall assessment:
- Because the manufacturer's invoice was accepted as genuine and represented the transaction under Rule 4, the Tribunal concluded there was no need to rely on the alternative valuation under Rule 7/Rule 8 or on the various market quotations cited by the Collector.

Holding and Implications

Holding: The Tribunal allowed the appeal and set aside the Order of the Collector. The Tribunal accepted the manufacturer's invoices (dated 4-7-1991 and 2-9-1991) as genuine and treated the transaction value reflected in those invoices as the relevant value for assessment.

Implications for the parties and valuation practice (as stated in the opinion):

Direct effect on the parties: The Collector's enhanced valuation (adopting US$56 per kg) was set aside; the Tribunal accepted that the manufacturer sold to the supplier at US$16 per kg and that the supplier sold to the appellants at US$20 per kg (i.e., a US$4 per kg margin). The transaction value shown by the genuine manufacturer's invoice was to be acted upon.
On evidentiary practice for valuation: The Tribunal reiterated its view that quotations, by themselves, are not relevant evidence for determining assessable value in the absence of actual imports effected pursuant to those quotations, because quotations are offers subject to negotiation.
Broader precedent: The opinion applies established valuation rules (Rule 4 as representing transaction value) and reflects the Tribunal's consistent stance on the limited probative value of mere quotations; the decision resolves the dispute between these parties by accepting the invoice-based transaction value. The opinion does not state or claim the creation of a novel legal precedent beyond applying these principles to the facts before it.

This summary is composed exclusively from the contents of the provided Tribunal order and does not add information beyond what the opinion itself contains.

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Sai Impex v. Collector Of Customs

[Order per: S.V. Maruthi, Member (J)]. - The dispute relates to assessable value of Neomycin Sulphate Nonsterile.

2. The facts in brief, according to the appellants are - they have imported 2000 kgs. of Neomycin Sulphate Nonsterile from Hong Kong under two bills of entry dated 19-9-1991. In the bills of entry they have declared the value at Rs. 10,50,032/-. They have also filed manufacturer’s invoice dated 4-7-1991, which indicated that the goods were sold @ US $ 16 to the supplier of the goods. The Collector rejected the manufacturer’s invoice as not genuine on the ground that manufacturer’s invoice indicates that the goods were manufactured by M/s. Long March Pharmaceutical Sub Factory whereas the manufacturer of impugned goods is M/s. Hinan Huabao Pharmaceutical Factory China. Collector enhanced the value to US $ 56 under Rule 7 read with Rule 8 of the Customs (Valuations) Rules. He also relied on quotation obtained from indenting agents viz. M/s. Chemet from M/s. Siemsgluss and Sohn GMBH & Co., Hornburg, Germany. According to this quotation, the two grades - Neomycin Sulphate Sterile Micro USP and USP oral are quoted at US $ 100 Kg. cif and US $ 67.50 Kgs. CIF respectively. The Collector also referred to a quotation dated 10-10-1991 issued by M/s. P.D. Tolia & Co. in which the price of such goods of Chinese origin is indicated at US $ 62 per Kg. He observed that the quotation by M/s. P.D. Tolia & Co. is not disputed by the importers in respect of value. The Collector also referred to other quotations viz. M/s. Chemphar, Hong Kong to M/s. Star Chemicals at US $ 62 Kg., M/s. Chephis, Hong Kong at US $ 61 per Kg. CIF, M/s. Loucatos, Hong Kong at US $ 70 per Kg. CIF, M/s. Bio Chemie, Austria at US $ 75 per Kg. CIF and observed that the price range of the impugned goods is between 62 $ to 75 $ per Kg.

3. The Collector under Rule 7 took the market value in India at Rs. 4900/- per Kg. and after allowing the various deductions arrived at US $ 58 per Kg. According to him, under Rule 7, the value of the impugned goods would be at US $ 58 per Kg. Thereafter he has taken the price of US $ 70 per Kg. and deducted 20% and arrived at US $ 56/Kg. According to him, this value is in close agreement with the Value Determination under Rule 7 of the Valuation Rules. Therefore, he has adopted US $ 56/Kg. in respect of the impugned goods against which the appellants have come up in appeal before us.

4. The main contention of Shri Kantawala is that in China, there is no private ownership of manufacturing units and all of them are owned or controlled by the Government. All the manufacturing units are regulated by Export Licencing System. The manufacturing companies who have licence for export carry out export for and on behalf of such manufacturers who do not have export licence, who are termed as sub factories of licence units. M/s. Long March Pharmaceuticals have no export licence, therefore, they were the sub factory for M/s. Hinan Huabao Pharmaceutical Factory. In other words, M/s. Long March Pharmaceuticals is the sub factory of M/s. Hinan Huabao Pharmaceutical Factory. They manufactured the goods and supplied the same to M/s. Siu Hon Traders @ US $ 16 under two invoices No. 91SHS K345554 dated 2-9-1991 and No. 91SPHZ 889, dated 4-7-1991. Therefore, the finding of the Collector that the manufacturer invoice is not genuine is based on misconstruction of facts. In support of the above, he brought to our notice the opinion of J.N. Karbhari & Co., Solicitors & Notaries, dated 22-2-1992 and Article 2 of the Provisional Regulations Governing Export Licence System of the Administrative Commission on Import and Export and the Ministry of Foreign Trade. He also brought to our notice two invoices under which the suppliers namely M/s. Siu Hon Traders purchased the goods from the manufacturers.

5. Shri Prabhat Kumar, learned JDR reiterated the Order of the Collector on the issue as to whether the manufacturer’s invoice is genuine or not.

The question, therefore, is whether the manufacturer’s invoice is genuine or not.

6. In order to consider this question, it is necessary to refer to the opinion of the Solicitors namely M/s. J.N. Karbhari & Co., dated 22-2-1992. The relevant portion reads as follows :-

“At the outset there are no private ownership of any manufacturing units in China as all of them are owned and controlled by the Government. All the manufacturing units in China are regulated by export licensing system and therefore manufacturing companies require a licence to export their products and receive their price in foreign exchange. The manufacturing companies who have such licence carry out export for and on behalf of such manufacturers who do not have such a licence and therefore they are termed as sub-factories of such licenced units.

In the instant matter Long March Pharmaceutical have no such export licence and therefore act as sub-factory for Hinan Huabao Pharmaceutical Factory China who have an export licence under the Regulations as framed by Administrative Commission on Import and Export under the Chinese Ministry of Foreign Trade it is because of this reason that the negotiations to sell neomycin sulphate is carried out by Hinan and in fact in their letter of offer dated 21st May, 1991 to Siu Hon Traders Hong Kong they have specially mentioned Long March Pharmaceutical as their sub-factory. In fact even the contract dated 4th February, 1991 between Hinan and Siu Hon mentioned that fact which is again reflected in their invoice of 2nd September, 1991.

We from the above are of a definite opinion that due to such licencing control Long March Pharmaceutical cannot issue any invoice to Hinan or to Siu Hon Traders. The invoice dated 2nd September, 1991 issued by Hinan to Siu Hon Traders under the Contract dated 4th February, 1991 is the manufacturer’s invoice.”

7. We may also extract the relevant portion of Article 2 of the Provisional Regulations Governing Export License System. It reads as follows :-

“Any other corporation desiring to engage in the export business of a specific item must first file an application with the designated organs mentioned above and shall, after the approval of its application, register with the Ministry of Foreign Trade or the foreign trade bureau of the province, municipality or autonomous region where the corporation is, as well as with the relevant custom house on the strength of the document of approval. Only then shall the corporation be allowed to conduct its export business.”

8. A perusal of the opinion of the Solicitors and the Regulation extracted above, it is clear that the export trade in China is controlled by the Regulation and all manufacturing units are owned and controlled by the Government. Since Long March Pharmaceuticals Factory have no export licence, they were acting as sub-factory to other manufacturing unit who have a licence in dealing foreign exchange and carrying out exports. Therefore, the Long March Pharmaceuticals is a sub-factory of M/s. Hinan Huabao Pharmaceutical Factory. Since Long March Pharmaceuticals Factory is sub-factory of M/s. Hinan Huabao Pharmaceutical Factory, the invoice by them to M/s. Suo Hon Traders i.e. appellants supplier under their contract dated 4-7-1991 and 2-9-1991 are the manufacturer’s invoices. We, therefore, accept that the invoice dated 4-7-1991 and 2-9-1991 are genuine manufacturer’s invoice. Therefore, reasoning given by the Collector that the manufacturer’s invoice is not genuine is based on mis-construction of the legal position and facts obtaining in China. We, therefore, are of the view that the manufacturer’s invoice is genuine. From a reading of manufacturer’s invoice, it is evident that the suppliers have purchased the goods at US $ 16 per Kg. Under the invoice from supplier to the appellants, the goods were sold at 20 US $ per Kg. Under the amended rule, importer has to produce invoice of the manufacturer. Since, we are of the view that the manufacturer’s invoice is genuine document, there is no reason why it should not be acted upon. We, therefore, are of the view that the price at which the suppliers purchased the goods from the manufacturer is at US $ 16. He sold to the appellants at US $ 20 per Kg. by making a profit of US $ 4. There is no reason why we should doubt the price at which the goods are purchased by the appellants. There is no evidence of contem- poraneous imports of identical or similar goods at higher value in the absence of which there is no other alternative except to accept the invoice price.

9. Shri Prabhat Kumar, learned JDR points out that from the letter dated 6-7-1991, the goods offered for sale are stock lot and he brought to our notice the particular paragraph in the letter which reads as follows :-

“We know it is a big lot but we would prefer to sell the whole lot at a low margin if we can eliminate our risk.....”

10. We do not agree with the contention of Shri Prabhat Kumar, learned JDR as in the very same letter, the next line reads as follows :-

“We can offer you the same lot for delivery starting September 19912000 KB per month at USD 20 - per KB CIF Madras net by air.”

We may also refer to another letter dated where the delivery period is mentioned as 6 months. Therefore, the argument of Shri Prabhat Kumar that it is a stock lot and, therefore, sold at a lower price is without any substance.

11. In view of the foregoing, it follows that the best evidence of the price of the imported goods is available and, therefore, it is not necessary to go to other contemporaneous imports of identical or similar goods. In our view, the manufacturer’s invoice represents the transaction under Rule 4 of the Rules.

12. In view of the above, though it is not necessary for us to go, into the finding of the Collector as to the under-valuation since he has referred to various quotations, we are considering those quotations to find out whether in fact there is an under-valuation. At the outset, we may point out that this Tribunal is taking a view that quotations cannot be acted upon as they are not relevant evidence in the absence of an actual import in pursuance of the quotations. We have been holding time and again that quotations are in the nature of offer and there is scope for negotiations to fix a final price for the import of goods. Therefore, these quotations are irrelevant. The Collector referred to a quotation dated 10-10-1991 issued by M/s. P.D. Tolia & Co. in which the price of goods of Chinese origin is indicated as US $ 62 Kg. He also referred to various other quotations which in our view are not relevant for the purpose of determining the assessable value.

13. In the light of the above, we allow the appeal and set aside the Order of the Collector.

Sai Impex v. Collector Of Customs

Tribunal Order Summary — Assessment of Value of Neomycin Sulphate Nonsterile

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Revenue's Arguments (Collector / Learned JDR)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Sai Impex v. Collector Of Customs

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