2005 (98) ECC 105 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

West Regional Bench -- Mumbai

Ms. Jyoti Balasundaram, Vice President and Shri Moheb Ali M., Member (T)

Mercedes Benz India Ltd.

Versus

Commissioner of Customs (Appeals) Mumbai

Application No. C/MA(Ors.)2459/04-Mum in Appeal No. C/1021/98-Bom

[Arising out of Order-in-Appeal No. 166/98.AP(VLJCH) dt. 22.7.98 passed by Commissioner of Customs (Appeals), Mumbai]

Order No. A/1672/WZB/2004/C-I, dt. 20.10.2004, M/867/WZB/2004/C-I, dated 19.11.2004, Certified on 23.11.2004

Valuation (Customs)

Valuation of the second-hand machinery under Rule 8 of the Custom Valuation Rules is not permissible without first ruling out transaction value provided in Rule 4.

Manufacture

Second-hand machinery -- There cannot be a manufacture of second-hand machinery.

Valuation (Customs)

Second-hand machinery -- Depreciation method made uniformly applicable to second-hand machinery. When its value cannot be determined under Rule 4 of Valuation Rules cannot be found fault with.

Valuation (Customs)

Second-hand machinery -- Customs-transaction between related person -- Rule 4(2) and Rule 4(3) of the Valuation Rules -- Transaction value can be rejected in related party transaction only when the relationship influenced the price, that there is no evidence to arrive at such a conclusion.

Appeal rejected

PRESENT :

Shri D.B. Shroff, Advocate for the appellant.

Shri K.K. Srivastava, JDR for the respondent.

Cases Cited :

1. CC Chennai v. Motor Industries, 2002 (149) ELT 1070 (Tri.)............................. [Para 13]

2. Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai, 2000 (72) ECC 673 (SC) [Paras 5 & 12]

3. Gajra Bevel Gears v. Commissioner of Customs, Bombay, 2000 (68) ECC 39 (SC) [Para 13]

4. Multi Arco (India) Pvt. Ltd., 2003 (156) ELT 238 etc........................................ [Para 13]

5. Rajendra Mills Ltd. v. Commissioner of Customs, 1997 (90) ELT 68 (Trib.) [Paras 5 & 11]

6. Sampurna Graphics, 2004 (164) ELT 464....................................................... [Para 13]

7. Tolin Rubbers Pvt. Ltd. v. Commissioner of Customs, Cochin, 2004 (163) ELT 289 (SC) [Paras 5 & 12]

Per : Moheb Ali M.

The Miscellaneous application seeking to change the cause title from M/s. Mercedes Benz India Private Ltd. to Daimler Chrysler India Private Ltd. is allowed cause title is changed accordingly and the appeal is taken up for disposal.

2. Briefly the facts are that the appellants imported a consignment of second-hand capital goods viz. spot welding equipment for body shop in CKD conditions from their principals M/s. Daimler Benz, Germany and sought its clearance declaring that they are related to the supplier. The value declared was Rs. 2,17,83,331. Under Rule 4(2) of Customs Valuation Rules transaction value shall be accepted provided that the buyer and the seller are not related or when the buyer and seller are related the transaction value is acceptable for customs purposes under the provisions of such Rule (3). The original adjudicating authority rejected the transaction value and determined it under Rule 8 of Valuation Rules. While doing so he applied the method of valuation of second-hand machinery prescribed by the Government in its Circular No. F. 403/124/86-Cus. VI dated 19.11.87. The contents of this circular are not repeated here. Suffice it to say that the circular prescribes that the original price of the machinery should be taken for the purpose of allowing depreciation, to a maximum extent of 70% depending on the age of the machine.

3. The method adopted by the original authority was assailed by the appellant before Commissioner (A), who in the impugned order upheld the order of the lower authority. Hence, the appeal.

4. Heard both sides.

5. The Ld. Advocate Shri D.B. Shroff for the appellants pleaded that the lower appellate authority erred in approving the method of valuation adopted by the assessing officer; that though the lower authority held that examination of the circumstances of the sale of the imported goods in question indicate that the relationship did influence the price at which goods are offered for sale he failed to indicate what those circumstances are; that transaction value can be rejected in related party transaction only when the relationship influenced the price; that there is no evidence to arrive at such a conclusion; that in the case of Rajendra Mills Ltd. v. Commissioner of Customs, 1997 (90) ELT 68 (Trib.) the Tribunal held that the guidelines issued by the Government in regard to Valuation of second-hand machinery cannot take precedence over Valuation Rules; that the certificate given by Bureau Vrita certifying that the price at which goods are offered for sale is fair has not been found to be false; that in any case the lower authorities accepted other conclusions in the said certificate except the fair value of the machine indicated therein; that in the case of Eicher Tractors Ltd. v. Commissioner of Customs, Mumbai, 2000 (72) ECC 673 (SC) : 2000 (122) ELT 321 (SC) the Apex Court held that transaction value under Rule 4 can be rejected only when the conditions stated therein are not satisfied; that in the case of Tolin Rubbers Pvt. Ltd. v. Commissioner of Customs, Cochin, 2004 (163) ELT 289 (SC) the Apex Court held that valuation of second-hand machinery under Rule 8 is not permissible without first ruling out transaction value provided in Rule 4 of Customs Valuation Rules.

6. The Ld. SDR supported the findings of the Commissioner.

7. Heard both sides and perused the case law.

8. Valuation of second-hand machinery is beset with problems. That no two second-hand machineries can be either identical or similar, that no two consignments of scrap can be identical or similar or for that matter no second-hand cars can be identical or similar is a well propounded theory supported by case law on the subject of valuation. The problem gets confounded when such second-hand machinery is transacted between related persons. That the present case is one where the buyer and seller are related is an admitted fact.

9. Transaction value between such parties is governed by Rule 4(2) and 4(3) of Valuation Rules, Rule 4(3) says inter alia that where the buyer and seller are related the transaction value is acceptable for Customs purposes under the provisions of sub-Rule (3). Sub-rule 3 says:

"(a) Where the buyer and seller are related the transaction value shall be accepted provided that the examination of the circumstances of the same and the imported goods indicated that the relationship did not influence the price;

(b) In a sale between the related persons the transaction value shall be accepted whenever the importer demonstrates that the declared goods being valued closely approximately values ascertained on or about the same time;

(i) the transaction value of identical goods or of the similar goods in sales to unrelated buyers in India;

(ii) the deducted value of identical goods or similar goods;

(iii) the computed value of identical or similar goods.

Provided etc.".

We observe that the appellant except saying that the relationship has not influenced the price despite the relationship between the buyer and seller has not adduced any evidence required in (3) (b) quoted above in support of his contention that the declared value has to be accepted. We appreciate that it is well nigh impossible for him to do so for the simple reasons that the same type of machines may not have been bought or sold and even they are bought and sold the Department can easily refute that fact by saying that no two second-hand machineries are identical or similar.

10. The lower adjudicating authority gave two reasons as to why the circumstances of the sale are such that the declared value has to be rejected. Firstly he says that the machineries have been imported from persons other than the manufacturer or producer of the machinery and secondly the importers have not furnished the manufacturers invoice of the machine. That there cannot be a manufacture of second-hand machinery is another matter. We have to reject the appellants' contention that attending circumstances of the sale have not been brought out by the lower authorities before rejecting the declared value.

11. The Ld. Advocate heavily relied on the decision of the Tribunal in the case of Shree Rajendra Mills. In that case as in this a Chartered Engineer's certificate was produced, but was rejected by the authorities who went on to value the goods on the basis of original value of the machine giving appropriate depreciation. The Tribunal felt that arriving at the value under Rule 8 is not permissible quote "without having brought on record any facts in regard to the element of under-valuation on the part of the appellants the authorities should not have resorted to Rule 8 for valuation". Apart from the fact that no charge of under-valuation has to be pressed for rejecting a transaction value, which can be rejected for any of the reason stated in Rule 4(2) the Tribunals observations emanated from a different set of circumstances. To cite one, the case before the Tribunal in Rajendra Mills is not one of related party transaction. The ratio therefore does not apply.

12. Coming to the decision of the Apex Court in Tolin Rubbers Pvt. Ltd. relied upon by the appellants we observe that the Hon'ble Supreme Court rightly observed that resorting to depreciation method (best Judgment method under Rule 8) without adverting to Rule 4(2) is not permissible. The authorities below adverted to Rule 4(2) and then proceeded to value the goods under Rule 8 in the absence of any evidence tendered by the importer as per sub-Rule 3(b) to Rule 4 of Valuation Rules. The appellant also relied upon in Eicher Tractors Ltd. case. We observe that the ratio laid down there does not advance the appellants' case.

13. In the case of Gajra Bevel Gears v. Commissioner of Customs, Bombay, 2000 (68) ECC 39 (SC) : 2000 (115) ELT 612 (SC) the Apex Court approved the method of Valuation suggested by the Department Revenue vide its Circular dated 19.11.1987, it is not important that the said circular was issued prior to the enactment of Valuation Rules, 1988. The Tribunal in a host of cases (a) Sampurna Graphics, 2004 (164) ELT 464 (b) CC Chennai v. Motor Industries, 2002 (149) ELT 1070 (Tri.) (c) Multi Arco (India) Pvt. Ltd., 2003 (156) ELT 238 etc. approved the depreciation method for arriving at the value of second-hand machinery. After all any rational way of fixing the value, under Rule 8, which gives uniform treatment to all similar/identical cases should be welcome. That the value cannot be determined under any of the preceding Rules to Rule 8 in the present case has been well brought out by the lower authorities Rule 8 says that the value under this rule shall be fixed using reasonable means consistent with the principles and general Provisions of Valuation Rules. Depreciation method made uniformly applicable to second-hand machinery, when its value cannot be determined under Rule 4 cannot be found fault with.

14. We also observe that the Technical Committee on Customs Valuation (Customs Corporation Council) happened to study the issue of Valuation of second-hand cars (in the present case second-hand machinery) and was of the opinion that the depreciation method is an approved way of arriving at the value of second-hand cars. The study made a pointed reference to the difficulties faced in arriving at the value in such cases particularly when the transaction is between two individuals.

15. In the light of our observations above we find that the order of the lower appellate authority cannot be found fault with.

16. The appeal is rejected.

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