Citation Codes

Equivalent Citations

citation codes

Case Number

Final Order No. 448/2005 in Appeal No. C/332/2003

Judges

Dr. S.L Peeran, Member (J)
T.K Jayaraman, Member (T)

Acts

provisions of Rule 4(3) of the Customs Valuation Rules, 1988.
fact, Rule 4(3) of the Customs Valuation Rules, 1988
provisions in the Customs Valuation Rules
Customs Act/Customs Valuation Rules, 1998.
Rule 5 of the Customs Valuation Rules,
Rule 5 of the Valuation Rules
Rule 6 read with Rule 5(1)(b).

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Smart Summary

Structured Summary of the Tribunal Opinion (per T.K. Jayaraman, Member (T))

Factual and Procedural Background

The appellants, M/s Gemplus India Private Ltd. (GIPL), imported SIM/smart cards from related foreign entities (including Gem Plus SCA and Gemplus Technologies Asia Pte. Ltd.). The relationship between the importer and foreign suppliers was undisputed. The original assessing authority investigated and concluded that the relationship had influenced price, noting a variation in prices offered to the appellants and to independent buyers in India ranging from 21% to 51%. Using data supplied by the appellants, the original authority calculated an average difference of 39.67% (this figure was mistakenly shown as 35.67% in one paragraph of the order). The original authority rejected the transaction value and sought to load the invoice value by 50% of the average difference (i.e., approximately 20%).

The Commissioner (Appeals) upheld the decision to load the transaction value but altered the loading factor from 20% to 17.83%, on the basis that there had been an arithmetical error in the original authority's calculation. The appellants challenged the Commissioner (Appeals) order dated 30-6-2003 before the Tribunal, contending that the transaction value should be accepted and no loading applied.

The Tribunal considered the submissions of the learned Advocate for the appellants and the learned JCDR for Revenue, examined the contractual background (a collaboration agreement and a product supply agreement), reviewed import quantities (both for GIPL and for other importers), and determined whether the conditions for applying the relevant Customs Valuation Rules were satisfied. The Tribunal ultimately allowed the appeal with consequential relief.

Legal Issues Presented

Whether, given the undisputed relationship between the appellant and the foreign supplier, the relationship had in fact influenced the price of the imported goods so as to permit rejection of the transaction value under Rule 4(3) of the Customs Valuation Rules, 1988.
Whether the assessing authority properly applied Rules 5 (and, as referred, Rule 6 read with Rule 5(1)(b)) of the Customs Valuation Rules in using prices of imports by independent buyers to re-determine assessable value and in fixing the loading factor.
Whether differences in commercial level, quantity of imports and the fact of personalization being performed by the importer (rather than the supplier) explain the price differences observed and therefore preclude comparison with independent buyers' prices for the purpose of valuation.
Whether the arithmetic reduction of the loading factor by the Commissioner (Appeals) (from the original authority's 20% to 17.83%) addressed the alleged error properly, and whether any loading is justified at all.

Arguments of the Parties

Appellant's Arguments

The Commissioner (Appeals) did not properly follow Rule 4(3) of the Customs Valuation Rules, 1988; she relied on figures in the original investigation order (OIO) rather than on the records and documents presented before her.
The appellants perform personalization (software encoding) of SIM cards in India after receiving purchase orders; for unrelated buyers personalization is performed by the overseas supplier at manufacture, and that increases the price for unrelated buyers. Thus the higher prices observed for unrelated buyers incorporate personalization costs not present in the appellants' imports.
Other factors explain price differences between imports to independent buyers and to the appellant: sales tax/exchange rate advantages, bulk-order negotiation benefits, and price negotiation due to urgency of orders.
The lower authority compared prices on a narrow basis (particular quantity/variety on a particular date) instead of comparing total yearly imports of the appellant with imports by unrelated buyers over the same financial year; the authority should have considered total imports to arrive at a comparable quantity level.
The appellant imported very large quantities (e.g., over 10 lakh units of Gemex 8K in 2000–2001), so the lower authority's limited comparison was inappropriate.
The lower authority did not correctly follow Rule 5 of the Valuation Rules when re-determining the assessable value.
The transaction value of imports made by traders/dealers (such as the appellant) cannot be compared with transaction values of imports by actual users; reliance placed on past tribunal decisions (including Atco Industries Ltd. v. CC) to support that commercial levels are not comparable.
Appellants relied on several authorities (Elite Packaging Industries v. CCE; Punjab Niryat Ayat Pvt. Ltd. v. CC; Polyvinyl Industrial Corpn. v. CC; Eicher Tractors Ltd. v. CC, Mumbai; Atco Industries Ltd. v. CC) in support of their position.

Revenue's (Respondent's) Arguments

The lower authority had properly considered personalization and the quantity imported by the appellants in arriving at the loading — specifically allowing 50% of the average price variation as loading (later reduced to 17.83% by the Commissioner (Appeals)).
The data relied upon in the OIO were supplied by the appellants themselves; despite the appellant importing larger quantities, the prices charged to independent buyers were still much higher, undermining the appellant's argument that higher commercial level explains the lower price.
On these bases, the Revenue maintained that the loading at 17.83% was correct and should be upheld.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Atco Industries Ltd. v. CC (Tribunal)	Used to illustrate that transaction values are not comparable when quantities/commercial levels differ (comparison of 24 sets v. one set).	The Tribunal relied on this authority to support the proposition that the appellant (a regular trader importing large quantities) cannot be compared to sporadic independent importers; commercial levels differ, so Rule 5 comparison was inapplicable.
Elite Packaging Industries v. CCE (Tribunal)	Authority on inapplicability of similar goods test where quantities/grades differ (illustrated by 500 MTs v. 34 MTs comparison).	The Tribunal cited this decision to show that the department was wrong to apply a similar goods test when quantities and grades were not comparable, reinforcing the view that Rule 5/Rule 6 comparison was inappropriate here.
Punjab Niryat Ayat Pvt. Ltd. v. CC (Tribunal)	This judgment was relied upon by the appellants (specific principle not detailed in the opinion).	The opinion records that the appellants relied on this decision; the Tribunal did not discuss or apply particulars from this judgment in the reasoning recorded.
Polyvinyl Industrial Corpn. v. CC (Tribunal)	This judgment was relied upon by the appellants (specific principle not detailed in the opinion).	Recorded as relied upon by appellants; the Tribunal's written analysis does not set out a specific application of this decision.
Eicher Tractors Ltd. v. CC, Mumbai (Supreme Court)	Listed among authorities relied upon by the appellants (specific use not elaborated in the text).	The opinion notes reliance but does not explicate how Eicher Tractors was applied in the Tribunal's analysis.
Basant Industries v. Additional Collector of Customs, Bombay (Supreme Court)	Principle that a stray instance of a higher imported value should not be adopted while ignoring attendant circumstances.	The Tribunal invoked this Supreme Court observation to support the conclusion that isolated higher prices quoted for independent importers should not justify rejecting the transaction value when other circumstances point otherwise.

Court's Reasoning and Analysis

The Tribunal proceeded in a structured manner:

It began by accepting the undisputed factual premise that the appellant and the foreign suppliers were related under the relevant provisions of the Customs Act and the Customs Valuation Rules; this necessitated examination under Rule 4(3) (i.e., consideration of whether relationship influenced price).
The Tribunal reviewed the investigative findings: the original authority found price variations ranging 21%–51% and computed an average difference of 39.67% (although a paragraph in the original order incorrectly stated 35.67%). The original authority proposed to load 50% of the average difference (approx. 20%). The Commissioner (Appeals) reduced this to 17.83% based on an arithmetical correction.
The Tribunal examined the contractual background: collaboration and product supply agreements established that pricing was to be “mutually agreed” and “depending upon prevailing market driven prices, demand by customers etc.” The appellants' own submissions explained their pricing methodology: price negotiation based on market requirements, quantity and competition; invoices adjusted on FOB/CIF basis after deducting margins, sales tax/octroi and duty; transfer-pricing methodology described in their filings; and that GIPL assumed exchange, customs duty and receivable risks.
Given the contractual terms and the appellants' explanations, the Tribunal concluded there was a clear factual basis to find that prices were determined by market-driven negotiation rather than by relationship-based transfer distortions — i.e., the relationship did not demonstrably influence price.
The Tribunal placed significant weight on the disparity in commercial level and quantity: GIPL was a regular large-volume importer (year-by-year quantities were detailed, e.g., 1,648,894 units in 2000–2001), whereas independent buyers' imports were sporadic and small (e.g., three independent buyers importing 80,000; 80,000; and 90,000 on specific dates). Because Rule 5 requires consideration of commercial level and quantity, the Tribunal found these differences made comparisons inappropriate.
The Tribunal applied the legal principle (supported by Atco and Elite Packaging precedents) that transaction values of traders/dealers cannot be directly compared with transaction values of actual users when commercial levels and quantities differ materially; similarly, a similar-goods test is inapplicable where quantities/grades are not comparable.
Given also that personalization was performed by the appellant in India (while direct imports by unrelated buyers included personalization costs in supplier's price), the Tribunal found an additional reason why prices to unrelated buyers were higher and thus not directly comparable for valuation purposes.
Bringing these factual and legal strands together, and invoking the Supreme Court's observation in Basant Industries that isolated higher values should not be adopted while ignoring attendant circumstances, the Tribunal concluded that the conditions for applying Rule 5 (and for rejecting the transaction value under Rule 4(3)) were not satisfied in the appellant's case.

Holding and Implications

Core Ruling: The appeal is allowed; the transaction value is accepted and there are no grounds to reject it.

Implications:

Direct effect on the parties: The Tribunal set aside the assessment approach that rejected the transaction value and applied a loading; the appellant's transaction value is to be accepted and the appeal is allowed with consequential relief (i.e., the appellants obtain relief from the loading that had been applied).
On legal precedent/new rule: The opinion does not purport to lay down a novel principle; it applies established principles (including those from Atco, Elite Packaging and Basant Industries) to the facts and concludes that Rule 5 conditions for comparative valuation were not met. The judgment does not state that it establishes a new binding precedent beyond its fact-specific conclusions.

This summary was prepared exclusively from the supplied opinion text. No information beyond the text was added.

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Gemplus India Private Limited v. Commissioner Of Customs, Chennai

[Order per : T.K. Jayaraman, Member (T)]. - The appellants challenge the impugned order of the Commissioner (Appeals) dated 30-6-2003 wherein she has ordered that the transaction value of the sim cards imported by the appellant should be loaded by 17.83%. In the above order, the Commissioner (Appeals) has upheld the loading of the value by the original authority. However, she modified the loading factor of 20% fixed by the original authority to 17.83% as the appellants contended that there was an arithmetical mistake in the original authority’s order. The appellants have come before this Tribunal contending that the transaction value has to be accepted and there should not be any loading at all.

2. Shri B.V. Kumar, the learned Advocate appeared for the appellants and Smt. Shobha L. Chary, the learned JCDR for Revenue.

3. The appellants, M/s. Gemplus India Private Ltd. (GIPL in short), imported sim cards from their holding company M/s. Gem Plus SA and other related units. The fact that the appellants and the foreign suppliers are related is not in dispute. In view of the above fact, Rule 4(3) of the Customs Valuation Rules, 1988 had to be adopted. Revenue conducted investigations on the basis of the information supplied by the appellants and came to the conclusion that the relationship between the appellant and the foreign suppliers has actually influenced the facts. The original authority came to the conclusion that the variation in price offered to the appellant and other independent buyers in India ranges from 21% to 51%. On the basis of the data supplied by the appellants themselves, the original authority arrived at a figure of 39.67% as the average difference in price. This average is wrongly mentioned in para 6 as 35.67%. But in para 11 of the OIO, the correct figure of 39.67% has been indicated. The Adjudicating Authority rejected the transaction value and proposed to load the invoice value by 50% of the average actual difference, which is actually 20% (50% of 39.67%). Strangely, the appellants took advantage of the wrong figure mentioned in page 5 and were successful before the first Appellate Authority to reduce the loading factor to 17.83%. Be that as it may, the appellants challenge the very loading itself. The learned Advocate urged the following points :

(i) The Commissioner (Appeals) has not followed the provisions of Rule 4(3) of the Customs Valuation Rules, 1988. She has taken into consideration the data as mentioned in the OIO rather than the records and the documents submitted before her.

(ii) The appellants, after they receive purchase order for sim cards, undertake personalization of such cards as per customer’s requirement in their premises. After such personalization, the ‘Specimen Card’ is sent to their Principals in Singapore. Based on the ‘Specimen Card’, the overseas supplier develops the ‘Master’ which is shown to the customer in India. After approval by the customer in India, the overseas supplier ships the consignment in accordance with the purchase order. In respect of sim cards imported directly by unrelated buyers, the personalization of cards is carried out by the oversees suppliers at the manufacturing stage itself. In view of the above fact, the cost of personalization of cards directly imported by unrelated buyers is included in the value of the cards imported by them. As such, the price of the cards imported by the unrelated buyers is higher than the cards imported by the appellants.

(iii) The other reasons for the difference in price are as under :

(a) Sales Tax/Exchange Rate Advantage

(b) Bulk order and as such better negotiation

(c) Price negotiation by supplier due to urgency of the order.

(iv) While comparing the identical goods imported by unrelated buyers, the lower authority has taken into consideration only a particular quantity and variety of sim cards imported by the appellants on a particular date with that imported by unrelated buyers. In other words, he has taken into consideration, the Sim card Gemex 8K which was imported by the appellants on a particular date and amounting to 10,000, 40,000 & 20,000 nos. respectively while comparing it with the total quantities imported by the unrelated buyers viz. Bharti Mobile, BPL Cellular and BPL Mobile. The lower authority should have taken into account the total imports made by the appellants in a financial year and compare it with the imports made by unrelated buyers in India during the same financial year to arrive at the quantity level of imports.

(v) During the financial year 2000-2001, the appellants have imported Sim card Gemex 8K to the tune of 10,02,145 nos. valued at Rs. 14.29 crores approximately. If other types of cards are also taken into account, the number would be far higher. However, the lower authority had not taken into consideration this fact to arrive at the quantity level of imports.

(vi) From the above, it is very clear that the lower authority has not followed correctly Rule 5 of the Valuation Rules in re-determining the assessable value. The learned Advocate relied on the following judgments :

(a) Elite Packaging Industries v. CCE - (T)

(b) Punjab Niryat Ayat Pvt. Ltd. v. CC - (T)

(c) Polyvinyl Industrial Corpn. v. CC - (T)

(d) Eicher Tractors Ltd. v. CC, Mumbai - (S.C.)

(vii) The transaction value of the imports made by them as traders/ dealers cannot be compared with the transaction value of the imports made by the actual users. Reliance is placed on the decision in the case of Atco Industries Ltd. v. CC - (T).

4. The learned JCDR referred to the relevant provisions in the Customs Valuation Rules and said that the lower authority has fairly taken into consideration the fact of personalization of sim cards and the quantity imported by the appellants in allowing 50% of the average price variation as loading factor of the transaction value of the appellants. Referring to the figures mentioned in the OIO, she stated that all these data have been supplied by the appellants themselves. A perusal of the figures reveal that even though the other unrelated buyers had imported higher quantity of sim cards, the price charged to them also is much higher. Therefore, there is no substance in the appellants’ plea that because of higher commercial level, the price charged to them is lower. According to her, the loading of the transaction value at 17.83% is correct and the decision has to be upheld.

5. We have gone through the records of the case carefully. The undisputed fact is that the appellant and the foreign supplier are related as per the Customs Act/Customs Valuation Rules, 1998. The next question is to decide whether the relationship has affected the price of the imported goods. In order to appreciate the issue involved in this case, we furnish the following facts :

6. The appellant, Gemplus India Private Ltd. is a company incorporated in India. Gemplus SCA is a company incorporated in France. Gemplus Technologies Asia Pte. Ltd. (GTA in short) is a company incorporated in Singapore. There is a collaboration agreement between the appellant (GIPL) and Gem Plus SCA. The collaboration Agreement is for the following purposes :-

(i) Personalization of smart cards (software encoding)

(ii) Research & Development in software for the group

(iii) Local production of smart cards, if and when the market shall justify it.

As per the collaboration agreement, Gemplus SCA shall provide to GIPL, technical know how and other assistance. There is a Product Supply Agreement between the appellants viz. GIPL and GTA, Singapore. Before undertaking the manufacture of smart cards in India and other related services, GIPL wanted to test the market conditions prevailing in India by importing sim/smart cards software and hardware from GTA and its subsidies. For the above purpose, the appellant entered into a Product Supply Agreement with GTA. This is the background for the import of sim cards by the appellant. In this appeal, we are mainly concerned with valuation of the imported goods. The following is the relevant clause regarding the price of the imported goods.

3. The price at which the products, cards and services are imported by GIPL from GTA shall be as mutually agreed upon by the parties hereto, depending upon the prevailing market driven prices, demand by customers etc.

4. The price as finalized between the parties and as specified by GTA shall be paid by GIPL within 60 days (or as when it is required without any interest for the delayed period of receipt of the goods and invoice raised by GTA on GIPL for a particular consignment.

7. From the above, it is very clear that the price of the imported items is mutually agreed between the supplier and the importer depending upon the prevailing market driven prices, demand by customers. In their letter to the Deputy Commissioner (Special Valuation Branch), the appellants have stated that “on the basis of the market requirement, quantity, price and the competition that prevails, the price is negotiated and finalized on purely principal to principal basis. The orders to our suppliers are processed based on the purchase order received from our customers with quantity and price. Our supplier invoices us on FOB/CIF basis after deducting the necessary margin, sales tax/octroi and duty. The pricing methodology adopted is based on OECD transfer price Guidelines. Gemplus India takes risk of exchange variation, customs duty risk, receivable risk, direct expenses of salesmen/operations (including Travel and Communication) and other risk of local tax variations on its own account”. They have also stated in the questionnaire submitted to the DC, Customs, the methodology of transfer price in the case of the imported products. This method is indicated as Transfer pricing-Priceless method. It is stated that as per this method, the price taken into account is the customer’s sales price negotiated by the sales person with the external (non group) customer. A specific margin is fixed by the Tax Department for each range of products. Therefore, there is not any basis to come to the conclusion that the relationship between the foreign supplier and the appellant has influenced the price of the imported goods. The quantity of sim cards imported by the appellant is as follows :

Year	Quantity
1997-98	2650
1998-99	153800
1999-2000	1745506
2000-2001	1648894
2001-2002	2100724

The details of imports by other importers are as follows :

Name of the party	Quantity imported	Date
1.Bharati Mobile	80,000	13-6-2000
2.BPL Cellular	80,000	24-2-2001
3.BPL Mobile	90,000	30-3-2000

Comparison of the figures revealed that while the appellant imported 16,48,894 sim cards in the year 2000-2001, for the same period, all the other independent buyers imported 2,50,000 cards only. In view of the above reason, it is very difficult to compare the prices of the cards imported by the appellants and the other independent buyers. The appellant, who has a Product Supply Agreement with the supplier, is a regular importer whereas the imports of others are very negligible. We cannot expect the same prices in both the cases by reason of difference in commercial level and quantity of imports. Moreover, in order to apply Rule 5 of the Customs Valuation Rules, we have to take into account the commercial level and the quantity of goods being valued. As rightly contended by the appellant, the transaction value of the imports made by them as traders/dealers cannot be compared with the transaction value of the imports made by the actual users. In other words, Commercial levels are not comparable. The Tribunal, in the case of Atco Industries Ltd. v. CC - (T), held that the transaction value in respect of 24 sets of balances cannot be compared with the invoices pertaining to only one set in applying Rule 5. In the case of Elite Packaging Industries v. CCE - (T), the Hon’ble Tribunal was concerned with imports by the appellants of 500 MTs. The import price was sought to be confirmed by the department with another import made by yet another importer in respect of only 34 MTs. It was held that the department was wrong in having applied by similar goods test under Rule 6 read with Rule 5(1)(b). The Tribunal held that not only the quantities were different but even the grades were different and so similar goods test was not applicable. The appellants have also urged the point that in respect of cards directly imported by unrelated buyers, cost of personalization is included in the value of the cards imported by them. As such, the price of the said cards imported by them is higher than the cards imported by the appellants.

8. In summing up, we observe that :-

1. Though the appellant and the foreign supplier are related, the price of the imported goods is fixed based on market driven prices leading to the conclusion that the relationship has not influenced the price.

2. The appellants regularly import the goods in huge quantities for testing the market conditions. In doing so, they function as traders of the goods imported. But, the independent buyers who imported goods directly are actual users. The trader and the actual user are not at the same commercial level.

3. The quantity of import by independent buyers is quite negligible compared to the quantity of imports by the appellant. Imports of independent buyers are sporadic in nature. Imports of the Appellant are regular.

4. With regard to the direct imports by the independent buyers, the personalization has been done by the foreign supplier. Hence, the price in respect of direct import is higher than that of the appellants.

9. In view of the above, the conditions for applying Rule 5 of the Valuation Rules are not satisfied. In Basant Industries v. Additional Collector of Customs, Bombay - (S.C.). It has been observed that stray instance of imported higher value not to be adopted totally ignoring other attendant circumstances.

10. In view of the above observations, there are no grounds to reject the transaction value. We allow the appeal with consequential relief.

Gemplus India Private Limited v. Commissioner Of Customs, Chennai

Structured Summary of the Tribunal Opinion (per T.K. Jayaraman, Member (T))

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Revenue's (Respondent's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Gemplus India Private Limited v. Commissioner Of Customs, Chennai

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