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PETITIONER: HYDERABAD INDUSTRIES LTD.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT:       18/01/2000

BENCH: N.Santosh Hegde, R.C.Lahot, S.P.Bharucha.

JUDGMENT:

     SANTOSH HEGDE, J.

     The only question that arises for our consideration in these  appeals  is  whether the service charges  payable  to Minerals  and  Metals  Trading Corporation (for  short  the MMTC)  by the appellant for the importation of raw asbestos made  by  them,  is includible in the  assessable  value  of import  as provided in the Customs Act and Customs Valuation (Determination  of Price) Rules, 1988 or not.  The appellant is  a manufacturer of asbestos cement products for which  it uses  raw  asbestos  which is mainly imported  from  foreign countries.   Under  the provisions of the Import and  Export Policy of the Government of India, the MMTC is designated as a  canalising agent for the said purpose.  The MMTC  imports the  raw  asbestos  in  bulk purchasing the  same  from  the foreign sellers.  It then enters into sale agreement on what is  known as high seas sales basis with the various users of raw  asbestos.  Consideration paid by the purchasers of  the raw  asbestos  from the MMTC (which includes the  appellant) includes  apart from the purchase value incurred by the MMTC an  additional  sum equivalent to 3.5 per cent of the C &  F value  of  the imports as service charges.  On  applications being  made for refund based on a claim that service charges collected by the MMTC cannot be subjected to levy of customs duty,  the appellant, who suffered adverse orders before all the authorities below including the Customs, Excise and Gold (Control)  Appellate  Tribunal, has preferred these  appeals before  us.   The  argument of the appellant is  that  these service  charges  do not constitute part of the  transaction value,  hence  are not liable to be added to the  assessable value  because the transaction between the appellant and the MMTC  is analogous to that of an agency transaction,  though in  fact there is no agreement of agency.  It is also argued before  us that the service charges levied by the MMTC is in the nature of buying commission which commission according to  the appellant is not includible in the assessable  value in  view of the exclusion provided in Rule 9(1)(a)(i) of the Valuation Rules.

     On  behalf  of the respondents, it is  contended  that there  is  no relationship of a principal and  an  agent between  the  appellant  and the MMTC and that  the  service charges  collected by the latter cannot be equated with  the commission  that  is payable to an agent.  The stand of  the

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respondent  Union further is that these goods of which  MMTC was the owner were sold to the appellant on a high seas sale basis  for consideration which included apart from the  cost paid  by the MMTC to its foreign seller the service  charges payable to it.

     The  undisputed facts which are to be noticed for  the purpose  of  disposal of these appeals are as follows :   To cater  to  the needs of the users of raw asbestos, the  MMTC calls  for  global  tender  and  after  identifying  foreign supplier it purchases the raw asbestos in bulk which is sold in  high  seas  sales to various users of raw  asbestos  for which  the  MMTC charges apart from the  sale  consideration paid by it to the foreign buyer an additional sum as service charges.    It  is  an  admitted   fact  that  there  is  no relationship  of  a  principal  and  an  agent  between  the purchaser  like  the  appellant  and  the  MMTC.   The  MMTC admittedly  does not buy the raw asbestos for and on  behalf of any particular consumer of raw asbestos in India.  On the contrary,  it  makes a bulk purchase to cater the  needs  of various  consumers  of the raw asbestos in India and  it  is only  after  the  goods are sold on the basis of  high  seas sales,  the goods become the property of the purchasers like the appellant.

     The  argument  of  agency is obviously  put  forth  to invoke   the  benefit  of   exemption  granted  to   buying commission  under  Rule 9(1)(a)(i) of the  Valuation  Rules referred  to  above.  This rule excludes the amount paid  as buying  commission from the cost and services which is  to be  included  in  determining  the  transaction  value.   To attract  this  exclusion, the appellant seeks to  rely  upon Interpretative  Note  to Rule 9 which reads thus :  In  Rule 9(1)(a)(i), the terms buying commission means fees paid by an importer to his agent for the service of representing him abroad  in  the  purchase of the goods being  valued.   The appellant  wants  this  Court  to  firstly  equate  service commission  to  buying commission, then on this basis  to treat  MMTC as an agent.  It is not possible to accept  this argument  of  the  appellant for more than one  reason.   As already  noticed, there is no relationship of principal  and agent  between  the appellant and the MMTC nor is there  any agreement between the parties to pay buying commission nor has  the  MMTC  agreed with the appellant  to  represent  it abroad in the purchase of raw asbestos.  Material on record, on the contrary, shows that the MMTC on its own goes through the process of identifying the foreign supplier from whom it purchases  the  goods  in  question   on  its  own   without representing  any  particular buyer in India and  sells  the same to the purchaser on high seas sales basis to the Indian buyers  like  the  appellant.   Purchase by  MMTC  from  the foreign  seller  and  subsequent sale by it  to  the  Indian buyers  are independent of each other.  Therefore, MMTC when it  includes  service charges in its sale consideration,  it does   not   include  the   same  as  buying   commission. Therefore, this contention of the appellant is rejected.  It is  lastly contended on behalf of the appellant that by  the inclusion  of service charges in the assessable value of the imported goods, the Customs Authorities have imposed a heavy and  unreasonable burden on them.  We are not impressed with this argument either.  Assuming the burden of duty is heavy, this  Court has held that the same cannot be avoided on that ground.   That  apart,  it  must  be  noticed  that  if  the appellant  had  been permitted to import  independently,  it would  have  incurred substantial expenses in identifying  a

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foreign  supplier and negotiating the terms of the sale with the  said supplier.  Further, we should also take notice  of the  fact by virtue of the high seas sales through which the appellant  purchased the raw asbestos from the MMTC, it  has derived  the benefit of avoiding the payment of sales tax on these  goods.   These  facts are sufficient  to  reject  the contention  of  the  appellant  raised   on  the  basis   of unreasonableness  of the levy.  For the above reasons, these appeals fail and are dismissed with costs.