10 December 1996
Supreme Court
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M/S APOLLO TYRES LIMITED Vs THE COLLECTOR OF CUSTOMS & ANR.

Bench: S.P. BHARUCHA,S.C. SEN
Case number: Appeal Civil 2704 of 1987


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PETITIONER: M/S APOLLO TYRES LIMITED

       Vs.

RESPONDENT: THE COLLECTOR OF CUSTOMS & ANR.

DATE OF JUDGMENT:       10/12/1996

BENCH: S.P. BHARUCHA, S.C. SEN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      S. P. BHARUCHA. J.      Under appeal  is the judgment and order of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi. The Tribunal allowed the appeal of the Revenue setting aside the order of Central Board of Excise & Customs and restoring the order  of   the  Collector   of  Customs,   subject  to  the modification or reducing the quantum of penalty.      The  appellants   were  setting  up  a  plant  for  the manufacture of tyres. They entered into an agreement for the supply of technical know-how, documentation and the like. On the same  day they  entered into  a second  agreement  which noted that  the second  party to the agreement, General Tyre International Company,  had for  many years been engaged and had acquired  vast experience in the manufacture of tyres as well as  the design, engineering and equipment of plants for the same.  The agreement  in Articles-5 stated, so far as is relevant:      OPTIONAL PROCUREMENT SERVICES: 5.1  ATL shall  have the  option and  right to  call for the services of GENERAL for procurement or any one or more items of  equipment,   machinery,  spares,   accessories  and  raw materials required  for the  PLANT, which  ATL may  elect to purchase, and GENERAL shall arrange for obtaining quotations and for  rendering or  all the  related services,  including inspection at  the supplier’s manufacturing site, furnishing for such  supply of all necessary documentation, guarantees, data and  manuals relating to and customarily supplied with, for installing,  testing,  operating  and  maintaining  such equipment and  machinery and the details as to the needs and procurement of  spare parts  and accessories therefor. Prior to placing  of any  firm order for purchasing any equipment, machinery, spares,  accessories, or  raw materials,  GENERAL shall obtain quotations from responsible qualified suppliers thereof  and   shall   submit   quotations   and   GENERAL’s recommendations to  ATL for final approval and authorization to place  such orders  but no  orders  shall  be  placed  by GENERAL unless approved and authorised in writing by ATL. 5.2  Unless  otherwise   mutually  agreed   in   any   given transaction, all  equipment, machinery, spares, accessories,

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and raw  materials purchased  by  GENERAL  in  pursuance  of ARTICLE 5.1  for ATL, shall be purchased by GENERAL directly in the name of ATL, and ATL shall pay for the same including shipping, transportation charges and insurance premiums.      CONDITIONS OF PROCUREMENT SERVICES: 5.3  GENERAL  agrees  to  observe  the  following  forms  in respect of  procurement services  to be  rendered under this Article:      c) For  the obligations  concerning      optional    procurement    services      referred to  in this  Article,  ATL      agrees to  pay GENERAL,  in U.S.  $      three per  cent  (3%)  on  the  FOB      value of  such imported  equipment,      machinery, and/or raw materials for      which    GENERAL    has    rendered      procurement services to ATL against      ATL specific written request.      d) The amount payable under Article      5.3 (c)  shall be  paid  against  a      quarterly consolidated  invoice  to      be  submitted   by  GENERAL   after      having  taken  into  accounts  such      invoices  of   supplies  with   two      copies thereof  in respect of which      dispatches have  been completed  by      GENERAL  and   goods  received  and      approved  at   ATL’s  PLANT.   This      payment shall  be  effected  within      ninety (90)  days from  the date of      receipt   of    the    consolidated      invoices by ATL from GENERAL.      The appellants  procured through the instrumentality of General ten items of equipment. The same were cleared on the basic of their invoice value. Thereafter a notice was served upon the  appellants asking  them  to  show  cause  why  the assessable value  of these  items of equipment should not be recomputed and  enhanced so  as to add to the invoice values thereof the  procurement charges thereof, that is to say, to add 3%  of the FOB value of each item of equipment. The show cause notice  was confirmed.  The appellants  appeal to  the Central Board  succeeded, and  therefrom the Revenue went in appeal to the tribunal.      Paragraph-4 of the Tribunal’s order records its reasons for setting aside the order under appeal before it. It reads thus:      "On merits,  we  observe  that  the      goods (various  items of machinery)      but manufactured  against  specific      orders.  (Counsel’s   letter  dated      20.7.79 to the Collector of Customs      and Central  Excise). There  is  no      question, therefore, of a "price at      which  such   or  like   goods  are      ordinarily sold or offered for sale      for delivery  at the time and place      of importation"  in terms  of  5.14      (1) (d)  of the  Act. The Board was      clearly in  error in  assuming that      "there  is   overwhelming  evidence      suggesting that  these  goods  were      normally available  for sale in the      course of international trade." The      evidence is  all to  the  contrary.      The assessable value cannot, in the

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    circumstances be  determined  under      5.14  (1)   (a).  Seeing  that  the      imported goods  were machinery made      to specification  and not  off  the      shelf, the  assessable value on the      imports could  be  only  determined      under  rule   8  of   the   Customs      Valuation Rules  and no other. That      Rule provides for the determination      of   assessable   value   by   best      judgment.  Such   a   determination      cannot be arbitrary but should take      all relevant  factors into account.      The commission  payable or  paid to      M/s  General   Tire   is   not   an      irrelevant  factor   in  any   such      determination. Nor  is it seriously      contested that  the commission  was      disclosed  at   any  stage  or  the      proceedings before  the  assessment      of the various imports to duty. We,      therefore,     find,     in     the      circumstances, that  the  order  of      the Board  is not  correct. It  is,      therefore, set aside."      We find  it  difficult  to  appreciate  the  Tribunal’s reasoning when  it  states  that  the  assessable  value  of machinery made  to specifications  and not purchased off the shelf can only be determined by the best judgment method and no other.  The Tribunal, apparently failed to take notice of the fact  that this  was  not  a  case  where  the  invoices produced by  the appellant had been rejected or, indeed, the agreement aforementioned.  It was  the case  of the  Revenue that to  the value  mentioned in  those invoice 3% should be added by  reason of  the terms  of  the  agreement.  A  best judgment assessment,  therefore, was  not called for and had not been made.      Now, the  agreement provides  that the  appellant shall have the  option and  right to  call  for  the  services  of General for  the procurement  of items of equipment required for the  tyre  plant  and  for  rendering  services  related thereto. It  provides that in the case of items of equipment which the  appellants call  upon General to procure, General shall obtain  quotations from  the appropriate suppliers and submit such  quotations, with  its recommendations,  to  the appellants for  final approval,  and no orders may be placed by  General   unless  final  approval  is  accorded  by  the appellants.  The  agreement  provides  that  such  items  of equipment shall  be purchased  directly in  the name  of the appellants and  he  appellants’  would  pay  for  the  same, including shipping,  transportation  charges  and  insurance premia. For  the procurement services the appellants’ agreed to pay  General  3%  of  the  FOB  value  of  the  items  of equipment, the  payment to  be made  against a  consolidated invoice to be submitted by General.      Clearly, this  was an  agreement by  which General  was appointed the  purchasing agent of the appellants in respect of such  items of  equipment for  the tyre  plant  that  the appellants opted  to purchase through the agency of General. The  provisions   aforementioned  make  it  clear  that  the appellants would  see the quotations submitted to General by the various  suppliers and  would  approve  the  same.  They provide that  the purchases from the suppliers would be made by the  appellants. They  provide that  what the  appellants would pay  to General was a commission or remuneration to be

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computed on  the basis  of 3%  of the  value of  each of the items of  equipment. These  provisions show beyond any doubt that the  value of  the items  of equipment was not enhanced thereby. We,  therefore, cannot  accept the reasoning of the Tribunal.      In the  circumstances, the appeal is allowed, the order under appeal is set aside and the order of the Central Board of Excise and Customs is restored.      There shall be no order as to costs.