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CASE NO.: Appeal (civil)  8667-8670 of 2002

PETITIONER: Commissioner of Customs, Maharashtra

RESPONDENT: M/s Galaxy Entertainment (I) P. Ltd. & Ors

DATE OF JUDGMENT: 08/05/2007

BENCH: S.H. KAPADIA & B. SUDERSHAN REDDY

JUDGMENT: J U D G M E N T

with Civil Appeal No. 7453 of 2003

KAPADIA, J.

                A short question which arises for determination in these  civil appeals filed by the Department under Section 130-E of  the Customs Act, 1962 against the decision of Customs Excise  and Gold (Control) Appellate Tribunal ("the Tribunal") dated  4.7.2002 is: whether technical and installation fee amounting  to Rs. 59 lacs was required to be loaded in the assessable  value of a 20-Lane Bowling Alley equipment imported in  October, 1998 by the assessee-Galaxy Entertainment (I) Pvt.  Ltd.? 2.      The assessee imported 20-Lane Bowling Alley from            M/s AMF Bowling Inc. based in USA for installation in their  premises situated at Phoenix Mills Compound, Lower Parel,  Mumbai-400013. On 18.5.1999, a show cause notice was  issued in which it was alleged that the assessee had grossly  undervalued the said equipment by declaring the price at             US $ 15000 CIF as against the normal price of US $ 30000 for  a lane. According to the show cause notice, the assessee had  disguised part of the cost of the equipment as Technical and  Installation Fee which was payable to the subsidiary of the  foreign supplier, M/s AMF Bowling (I) Pvt. Ltd., amounting to  Rs. 59 lacs payable over a period of three years. According to  the show cause notice, prior to the importation of the above  equipment, similar equipment was imported into India during  1997-98 by nine different assessees. According to the show  cause notice, in those nine cases the value of the equipment  worked out to US $ 30000 per lane. Consequently, according  to the Department, the said equipment, in the present case,  stood undervalued, hence, liable to confiscation subject to  payment of redemption fund.  3.      The demand was confirmed by the Adjudicating  Authority. It was held by the Adjudicating Authority that the  declared price at the rate of US $ 15199 per lane was highly  discounted price and there was no reason for granting  discount of 45% to the assessee. According to the Adjudicating  Authority, the said equipment was undervalued and it was  further disguised under what is called as technical and  installation fees paid at the rate of Rs. 5.90 per game for one  million customers of the assessee over a period of three years.  That agreement was dated 20.8.1998. The Adjudicating  Authority arrived at the figure of Rs. 59 lacs on the aforestated  basis and included the said amount in the assessable value of

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the equipment. The Adjudicating Authority came to the  conclusion that the cost was artificially divided with the  intention of evading payment of customs duty. In the  circumstances, the Adjudicating Authority held that the  transaction value under Rule 4(1) of the Customs Valuation  (Determination of Price of Imported Goods) Rules, 1988  ("Customs Valuation Rules") cannot be taken and accordingly,  the Adjudicating Authority invoked Rule 5(1)(c) of the Customs  Valuation Rules and called upon the assessee to pay duty on  the price calculated at the rate of US $ 30000  x  20  +   Rs.1.41 lacs per lane as Installation Charges, which M/s  Capital Leisure Pvt. Ltd. had paid, amounting to Rs. 28.33  lacs.  

4.      Aggrieved by the aforesaid decision of the Adjudicating  Authority, the matter was carried in appeal by the assessee to  the Appellate Tribunal. The Tribunal came to the conclusion  that in the present case there was no undervaluation and,  therefore, there was no reason to deviate from the valuation  under Rule 4(1). According to the Tribunal, the declared value  of the equipments at the rate of US $ 15199 per lane was the  negotiated price. According to the Tribunal, there was no  suppression as the Technical and Installation Agreement  dated 20.8.1998 was post-clearance agreement. According to  the Tribunal, the facts of the present case stood clearly  covered by the judgment of this Court in the case of Basant  Industries  v.  Additional Collector of Customs, 1996 (81)  E.L.T. 195. Consequently, the appeal was allowed by the  Tribunal. Hence, these civil appeals have been filed by the  Department.

5.      We do not find any merit in these civil appeals. In the  present case, there were nine imports of the said equipment  during the year 1997-98. One such import was made by       M/s Capital Leisure Pvt. Ltd., New Delhi. In that matter, the  cost came to US $ 30000 per lane. This transaction has been  taken by the Department as the basis of valuation under Rule  5(1)(c). However, the import from USA by M/s Capital Leisure  Pvt. Ltd. was of   6-Lane Bowling Alley. We have examined all  the nine transactions. None of those transactions exceeded 8- Lane Bowling Alley. In the present case, the assessee has  imported 20-Lane Bowling Alley. It is the largest in Asia. M/s  AMF Bowling Inc., USA, wanted to promote the game in India.  The records indicate hectic bargaining for 20-Lane Bowling  Alley by the assessee. In the circumstances, the Tribunal was  right in coming to the conclusion that the cost per lane at                  US $ 15000 was a proper negotiated price. In the  circumstances, in our view, the matter is fully covered by the  judgment of this Court in the case of Basant Industries  (supra). Further, there is no merit in the contention advanced  on behalf of the Department that the cost of the equipment  was deliberately bifurcated and that the Technical and  Installation Charges Agreement dated 20.8.1998 was a  disguise to arrive at the true value of the import. In this  connection we find that, the foreign supplier had its subsidiary  in India; that subsidiary was M/s AMF Bowling (I) Pvt. Ltd.. It  is not the case of the Department that the said subsidiary was  a bogus company. As stated above, the equipment was  supplied by M/s AMF Bowling Inc., USA which wanted to  promote the game in India. As stated above, 20-Lane Bowling  Alley was the biggest in Asia. The foreign supplier wanted the  said equipment to be installed properly. The said equipment  was a synthetic item. To install that item required specialized  knowledge. That expertise was available with M/s AMF  Bowling (I) Pvt. Ltd. (subsidiary of the foreign supplier). As a

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matter of promotion, the Technical and Installation Charges  Agreement dated 20.8.1998 stipulated raising of revenue for  next three years by charging a fee of Rs. 5.90 per game for one  million games bowled aggregating to Rs. 59 lacs. Therefore,  that agreement had no nexus with the sale proceeds of the  equipment paid by the assessee to M/s AMF Bowling Inc.,  USA. The post-clearance agreement was revenue generation  agreement. Rs. 59 lacs was not a quantified amount. Rs. 59  lacs was calculated on the basis that one million games were  likely to be bowled in the next three years. That risk was taken  by M/s AMF Bowling (I) Pvt. Ltd.. Even under Rules of   Interpretation to the Customs Valuation Rules, post-clearance  agreements are excluded. Further, even under the order of the  Adjudicating Authority the validity or the genuineness of the  Agreement dated 20.8.1998 is not doubted. In fact, in M/s  Capital Leisure, the department has also taken into account  the cost of Technical and Installation services at Rs. 28.33 lacs  which in the present case is Rs. 59 lacs. As stated, in the case  of M/s Capital Leisure the transaction was concerning            6-Lanes Bowling Alley, whereas here we have 20-Lanes.In the  circumstances, we do not find any infirmity in the impugned  judgment of the Tribunal. One cannot compare the impugned  transaction with the transaction which M/s AMF Bowling Inc.,  USA had with M/s Capital Leisure Pvt. Ltd.. We find no merit  in the argument advanced on behalf of the Department that  the Technical and Installation charges was a disguise to cover  the true cost of the equipment. There is no evidence of any  flow-back or extra-consideration deflating the price and,  therefore, there was no reason to include Rs. 59 lacs in the  assessable value of the equipment. In our view, Rule 4(1) of  the Customs Valuation Rules was applicable and the  Department had erred in invoking Rule 5(1)(c) of the said  Rules.  

6.      For the aforestated reasons, we find no infirmity in the  impugned judgment of the Tribunal dated 4.7.2002.  Accordingly the civil appeals are dismissed with no order as to  costs.