1. The appellant was, at the relevant time, an importer of various plastic goods, mainly manufactured by Hoechst AG West Germany. It was also at the same time an indenting agent of M/s. Chemie Export Kontor GmbH, West Germany (Chemexco for short) for the sale in India, Nepal and Bhutan of products made by Hoechst. The appellant was entitled to an agent's commission of 2% on all sales of the product mediated by it between Chemexco and the buyer. There is no dispute that the appellant was not getting this commission on goods which it imported directly from Chemexco for stock and further sale. The Department came to know that the appellants entered into a collaboration agreement with Hoechst for manufacture of high density polyethylene in India. The agency agreement for supply of product manufactured by Hoechst for the appellant through Chemexco was already registered with the Special Valuation Branch of the Custom House and that consequent on coming to know of the collaboration for manufacture the records of imports by it were placed under scrutiny. According to the department, this showed that despite the appellant being specifically instructed by letter 3rd November, 1987 to ensure provisional assessment of imports made by it from Chemexco the goods were finally assessed.
2. Notice was issued to the appellant following scrutiny. The notice alleged that the failure to indicate in the bills of entry filed for import that the appellant was an agent of the supplier showed wilful suppression of the fact of the relationship, which led to the appraising group finally assessing the bills of entry. The notices further alleged that the difference in price between the goods imported by the appellant and those by others amounted to as much as 11.2%. It therefore proposed to increase the value of the goods of the appellant to this extent to recover duty accordingly, based upon the invoices for imports made between 1986 and 1989. Notice also proposed imposition of penalty. The importers raised various contentions in reply. It said that it was not related to either Chemexco or Hoechst and that there was therefore no suppression in its mentioning in the bills of entry that it was not a related person, the notice was therefore barred by limitation having been issued beyond six months from the relevant date.
It further contended that there was no evidence to show that the difference of 11.2% related to the period when the imports was made. It pointed out that the notice cited instances of imports of 1986 to 1989, either prior to or after the period during the appellant imported the goods.
3. The Collector, in his order, did not accept the contention that the notice was barred by limitation. He said that but for the appellant's failure to declare in the bills of entry that it was a related person, the goods would not have been finally assessed. He found the appellant to be related person with Chemexco in view of the provisions of the agreement between Chemexco and the appellant. Therefore, he said that the price will have to be determined not under Clause (a) of Sub-section (1) of Section 14 but under Clause (b) of Sub-section read with Clause (a) of Rule 3 of the Valuation Rules for the period prior to 16th August, 1988. He found that for the period after 16th August, 1988 the transaction value was not acceptable because the appellant and Chemexco were directly or indirectly controlled by Hoechst. Therefore he said that the transaction value is required to be adjusted under Rule 9(1)(a)(i) of the Customs Valuation Rules. He accepted the contention that the notice did not cite instances of imports at higher prices during the relevant period by other buyers and that therefore 11.2% additional proposed could not be made. He said however that since the price at which the appellant imported the goods were lower than the prices at which others imported by 2% which was the agent's commission which was paid by in the case of other imports but not paid in by the appellant for its own imports. He therefore enhanced the assessable value by 2%. He also imposed a penalty of Rs. 1.00 lac. Hence this appeal.
4. Advocate for the appellant raised the contentions as were raised before the Collector. We shall first deal with the limitation. He contends that there is no evidence to show that the circular issued in 1987 of the Special Valuation Branch requiring provisional assessment of the goods imported by the appellant from Chemexco had been communicated to the appellant. He further contend that in any event the fact of the appellant being indenting agent of Chemexco was known to the Department from 1987 onwards. The appellant did not indicate in the declaration attached to the bill of entry that it was a related to person because it believed and still believes that it was not related person. There was therefore no suppression.
5. The Departmental Representative says that the fact that the appellant not shown in the declaration that it was a related person shows that it suppressed the fact of relationship and that extended period of limitation would be available, notwithstanding the fact that the Department may have been aware earlier of the agent.
6. Paragraph 5 of the notice invoking the extended period which reads as follows: It was found that M/s. PIL did not declare their relationship with M/s. CHEMEXCO in the (Bill) of Entry listed in the annexure II and cleared all the consignments on final assessment basis. When M/s.
PIL had an agency agreement with M/s. CHEMEXCO and were well aware that a Provisional Assessment circular was issued on 3.1.1987 by SVB of this Custom House providing for assessment of imports by them from M/s. CHEMEXCO on provisional basis, they should have made correct declaration as agent/distributor and not as "otherwise than as ordinary importers or buyers." This amounts to wilful suppression of a material fact. Had they declared their true relationship, the Bills of Entry would have been assessed provisionally, pending further investigation by the Special Valuation Branch.
7. It is thus evident from the above reproduction of notice, that in November, 1987 the Custom House knew that, the appellant entered into an agreement with Chemexco and that because of their orders had been issued to provisionally assess the goods. Therefore, when the imports were made by the appellant, the Custom House was not only aware that the appellant was the agent of the importers but had taken steps for investigating into the matter and pending their completion to keep the assessment provisional. If there was a failure to assess the goods provisionally, the failure was much more of the Departmental officers, who are charged with carrying out instructions of their own Custom House. Apart from this, from the extract of the notice noted above, it would appear that the appellant had stated that it was connected with the importer otherwise than as an ordinary importer or a buyer.
Paragraph 4 of the declaration to be signed by the importer reads as follows: (b) Collaborator entitled to the use of the trade mark, patent or design, The importer is required to strike out whatever is inapplicable. From the notice, it appears that the appellant had struck out the first two clauses, but not struck out the third and had also scored out the word 'not' in the first line. It had, in effect, said that it was connected with the import otherwise than as an ordinary importer. Therefore, it says that the agent otherwise than as ordinary importers or buyers. We do not think possible to accept that the appellant had suppressed the fact of its agency. The fact that it was an agent was already known to the Department from the agreement, in its declarations it has indicated that it was importing otherwise than as ordinary importers or buyers.
The notice is barred by limitation.
8. On merits too, it has to be held that the appellant was not related to the supplier. The Collector has relied upon Clauses 1.2, 3.1, 3.3 and 4.1 of the agreement to say that the two were related. These clauses provided respectively the appellant is appointed by Chemexco as its exclusive indenting/commission agent to canvas orders for the sale of the products. It shall advertise the products in an appropriate manner. Type and extent of advertising efforts should be determined by mutual agreement. It shall assist in protecting the Chemexco's interest and that the manufacturers of the products with regard to patents, trademarks and other property rights and of any possible infringements of such rights and report any adverse conduct affecting the sales. The last condition 4.1 stipulates that Chemexco will supply the product under its general sales condition and that in mediating sales for Chemexco, the appellant shall furnish these as the basis for such sale.
We fail to see how each of the condition or all of them read together show the buyer to be related person. The appointment of appellant as agent does not by itself make a related person. Its advertising the product is as much for its benefit as for that of the supplier.
Rendering brand information or any assistance in protecting in the matter of patent and proprietory rights does not establish a commercial relationship between the two parties. The fact that conditions of sale prescribed by the supplier had to be intimated to the buyer is in accordance with the note of commercial practice and had no special significance. Therefore, a plain reading of the agreement does not convince us that the two persons to have been related according to Section 14, as it then stood, has to be the mutuality of interest to each other. We do not see how mutuality of interest is established in the clauses of the agreement. The contention, emphasised by the departmental representative, that the increase in the sale or business would benefit both and this constitutes mutuality of interest is unconvincing. This condition would hold true of a relationship between a buyer and seller for stock and sales. It has been held by this Tribunal in Premnath Diesel Pvt. Ltd. v. Collector of Customs, Calcutta that a sole distributor as an indenting agent will 9. It is possible that despite the supplier of the buyer being related, the assessable value could be subjected to increase on the basis that other persons have imported the goods at higher price. This is what the Collector attempts to do. He accepts that during the period when the notice has been issued, there is no evidence of import of goods at the enhanced value proposed at 11.2%. He however says that the commission of 2% which have been included in the assessable value of goods imported by other importers which was not imported in the case before him, the appellant should be added, that too the maximum price in fact, it was not necessary to first hold that the appellant was related before determining the price. In other words, if the appellant was getting the goods at lower than the prices at which many other importers were getting from the same suppliers, the price at which the majority of importers were getting would be the assessable value under Clause (a) of Sub-section (1) of Section 14. This is what the Collector attempt to add the commission of 2%. The notice however does not go on the basis that 2% commission has to be added. It says that the price charged to the appellant is less by 11.2% that for the other independent importers. It said that in the case of third party imports appellant gets agency commission of 2% which is included in invoice price, whereas in the case of import by it the agency commission is not included in the invoice price. Thus, benefit in price in excess of the 2% has also been given as difference in various cases is as much as up to 2%. (emphasis ours). The last sentence, it appears to us, says that it is only the difference in price which is in excess of 2% paid as agency commission which is as much as up to 11.2% and it is propose to add to the value of imports.
10. The Departmental Representative argues that this sentence means that this 2% form part of the difference of 11.2% between the two sets of prices. A plain reading of the sentence does not give such an impression. There is no break up in either of the annexure to the show cause notice of the difference in price. Copies of the relevant invoices were also not available. Therefore, it is not possible for us to agree that enhancement of the price proposed in the notice included the agency commission of 2%. On the contrary, the notice seems to suggest that this 2% is not included in the difference in price. It would thus follow that by the addition of 2% agency commission to the assessable value, the Collector has travelled beyond the scope of the notice and increased the value on the basis of factors which it had not been proposed would be done.
11. The order cannot be sustained on this score. Hence we do not address our- selves for the other specific arguments on valuation advanced by the appellant.
12. Appeal allowed. Impugned order set aside. Consequential relief, if any.