M/S APPOLLO TYRES LTD.versusTHE COLLECTOR OF CUSTOMS AND ANR.

A                          MIS APPOLLO TYRES LTD.
                                v.
                THE COLLECTOR OF CUSTOMS AND ANR.

                               DECEMBER 10, 1996·

B                     [S.P. BHARUCHA AND S.C. SEN, JJ.]

          Customs Ac~ 1962 : Section 14

          Customs duty-Goods imponed-Assessable value--Detennination of
c         Customs Valuation Rules 1963 : Rule B-Applicability of

           Assessee setting up a tyre manufacturing plant-Entering into an agree-
    ment for know how-Appointment of purchase agent under the agreemenr-In
    tenns of the agreement goods purchased through Agent-Goods made to
D   specifications and not purchased off the shelf-Goods purchased by Agent
    directly in the name of Assessee after approval by latte,.._Service charges paid
    by the Assessee for procurement of goods-Held not includible in the asses-
    sable value of goods.

          The appellants were setting up a plant for the manufacture of-tyres. ·
E They entered into an agreement with General Tyre International Company
  under which the General Company was appointed its agent for procure·
  ment of equipment, machinery, spares, accessories and raw materials
  required for. the plant. Under the terms of the agreement, for items to be
  procured for the appellants, the General Company was to obtain quota-
F lions from the appropriate suppliers and submit them, with its recommen·
  dations to the appellants for final approval. Approved goods were to be
  purchased directly in the name of the appellants. Besides payment for
  goods, transportation charges and insurance premia, the appellants
  agreed to pay procurement charges @ 3% of the FOB value of the items
G of equipment. Accordingly, the appellants procured through the in·
  strumentality of the General Company ten items of equipment which were
  cleared on the basis of their invoice value. Thereafter, the assessable value
  of these items of equipment was recomputed and enhanced by adding to
  the invoice value thereof the procurement charges thereof i.e. to say 3% of
  the FOB value of each items of equipment. The assessee's appeal to the
H Central Board succeeded, and therefrom the Revenue went in appeal to
                                          802
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        APPOLLO TYRES LID. v. COLLECTOR OF CUSfOMS [BHARUCHA, J.]      803

the Central Excise and Gold(Control) Appellate Tribunal. The Tribunal        A
held that as the imported goods were machinery made to specification and
not off the shelf, the assessable value thereof could be determined only
under Rule 8 of the Customs Valuation Rules by the best judgment method
and no other. Consequently it held that the proctire'!tent charges paid by
the assessee was not an irrelevant factor In determining the assessable      B
value of the goods. The appellant·assessee preferred appeal before this
Court.

        Allo'!1ng the.appeal, this Court

       HELD : It is difficUJt to accept the Tribunal's reasoning that the C
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 or the
agreement had been rejected. It was the case of Revenue that to the value
mentioned in those invoices 3% should be added by reason of the terms of D
the agreement. A best judgment assessment, therefore, was not called for
and had not been made. The provisions of the agreement show beyond any
doubt that the value of the items of equipment was not enhanced thereby.
Consequently, the order of the Tribunal is set aside and that of the Central
Board of Excise and Customs is restored. [806-D-E; 809-C]                    E
        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2704 of
1987.

     From the Judgment and Order dated 12.2.87 of the Customs Excise
and Gold (control) Appellate Tribunal, New Delhi in A.No.1330 of 1981-A.     F
        J. Vellapally, Ms. Amrita Mitra and Ravinder Narain for the Appel-
!ant.

     K.N. Bhatt, Additional Solicitor General and P. Parmeswaran for the
Respondents.                                                                 G
        The Judgment of the Court was delivered by

     S.P. BHARUCHA, J. Under appeal is the judgment and order of the
Customs, Excise and Gold (Control) Appellate Tribuna~ New Delhi. The
Tribunal allowed the appeal of the Revenue setting aside the order of H
    804                  SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A Control Board of Excise & Customs and restoring the order of the Collec-
    tor of Customs, subject to the modification or reducing the quantum of
    penalty.

          The appellants were setting up a plant for the manufacture of tyre.
B 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
C   Article 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
D   GENERAL for procurement of 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 senjces, including
    inspection at the supplier's manufacturing site, furnishing for such supply
E   of all necessary documentation, guarantees, data and manuals relating to
    and customarily supplied with, for installing, testing, operating and main-
    taining such equipment and machinery and the details as to the needs and
    procurement of spare parts and accessories therefor. Prior to placing of
    any firni order for purchasing any equipment, machinery, spares, acces-
F   sories, or raw materials, GENERAL shall obtain quotations from respon-
    sible qualified suppliers thereof and shall submit quotations and
    GENERAL'S recommendation to ATL for final approval and authoriza-
    tion to place such order's but no orders shall be placed by GENERAL
    unless approved and authorized in writing by ATL.

G         5.2 Unless otherwise mutually agreed in any given transaction, all
    equipment, machinery, spares, accessories, and raw materials purchased
    by GENERAL, in pursuance of ARTICLE 5.1 for ATL, shall be pur-
    chased by GENERAL directly in the name of ATL and ATL shall pay
    for the same including shipping, transportation charges and insurance
H   premiums.
     APPOILO TYRES LTD. v.' COI.LECTOR OF CUSTOMS [BHARUffiA, J.]      805

CONDITIONS OF PROCUREMENT SERVICES :                                          A

     5.3 GENERAL agrees to observe the following norms in ~espect of
procurement se;>ices to be rendered under this Article. :

       · (c) For the obligations concerning optional procurement services
 preferred to in this Article, ATL agrees· to pay GENERAL., in U.S. $ three   B
 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 reqnest.

      (d) The amount payable under Article 5.3 (c) shall be paid against      C
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.                             D

      The appellants procured through the instrumentality of General ten
items of equipment. The same were cleared on tbe basis 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 E
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 callse notice was confirmed.
The appellants appeal to the Central Board succeeded, and therefrom the
Revenue went in appeal to the Tn'bunal.
                                                                              F
      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 G
        'lJJ.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 terrns of S.14 ( 1) (d) of the Act. The Board was
        dearly in error in assuming that "there is overwhelming evidence
        suggesting that these goods were normally available for sale in the H
    806                  SUPREME COURT REPORTS (1996) SUPP. 9 S.C.R.

A           course of international trade." The evidence is all to the contrary.
            The assessable value cannot, in the circumstances be determined
            under S.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 deter-
B           mination of assessable value by best judgment. Such a determina-
            tion cannot be arbitrary but should take all relevant factors into
            account. The commission payable or paid to M/s General Tyre is
            not an irrelevant factor in any such determination. Nor is it serious-
            ly contested that the commission was disclosed at any stage of the
c           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
E   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
F   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 contain quotations
    from the appropriate suppliers and submit such quotations, with its recom-
    mendations, to the appellants for final approval, and no orders may be
    placed by General unless fmal approval is accorded by the appellants. The
G   agreement provides that such items of equipment shall be purchased
    directly in the name of the appellants and the appellant's 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
H   a consolidated invoice to be submitted by General.
                 APPOLLOTYRF.SLTD. v. COLl..ECTOROFCUSfOMS[BHARUCHA,J.J             807


-                   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 appel-
                                                                                           A



             lants would see the quotations submitted to General by the various sup-
             pliers and would approve the same. They provide that the purchases from
                                                                                           B
             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
             computed on the basis of 3% of the value of each of the items of equip-
             ment. 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.                                                    C
                    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.                                    D
             T.N.A.                                                    Appeal allowed.




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