SKP Tax Alert
20 May 2015 | Volume 8 Issue 4
Imports from a related party at a discounted price may be acceptable if appropriately justified

We would like to share a recent judgment delivered by the Mumbai Tribunal (Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai) on the valuation of imports from related parties outside India.

Facts in brief
The assessee, Beekoff Automation Pvt Ltd, is a 100% subsidiary of its overseas entity and was importing automation parts from the overseas entity. The import price for the automation parts was at a discount of 35-45% of the list price of the overseas entity. The assessee submitted that an independent dealer in India was receiving the same goods from this overseas entity at a discount of 30-35%. The assessee had agreed to undertake the additional task of providing after-sales support services to customers in India, which was not agreed upon with the independent dealer in India; hence, there was a difference in discount. If the discount given to the independent dealer would be applied to the case of the assessee, an additional customs duty would be payable by the assessee.

The adjudicating authority did not consider the submissions made by the assessee and it was held that the import price of the independent supplier is to be considered and additional customs duty is payable.

The Commissioner (Appeals) upheld the order of the adjudicating authority stating that the data of identical/similar goods was not provided by the assessee and accepting the import price of the assessee was not justified.

Ruling
The Mumbai Tribunal acknowledged the fact that an additional discount was given to the assessee since it had agreed to undertake after-sales support service for customers in India. CESTAT stated that it is a normal, commercial practice to give discounts and the lower authorities have failed to assess and apply the Valuation Rules in a sequential manner. CESTAT also stated that the whole issue had been dealt with in a very casual manner without examining the evidence, circumstances and Valuation Rules. Accordingly, the case was remanded again to the lower authority for taking the appropriate legal view on the matter.

In addition, CESTAT held that since the matter was not finalised within a period of four months from the reply to the questionnaire, there was no requirement to pay the extra duty deposit (EDD) of 1% as per Circular No. 11/2001-Customs dated 23 February 2001 and the judgment of E I DuPont India Pvt Ltd vs Union of India (TS-313-HC-2014(BOM)-CUST).
SKP's comments

The recent judgment of the Mumbai Tribunal has emphasised that the terms of the contract, arrangement between the related parties, price of imports, etc. play an important role while arriving at an arm's length price for payment of customs duty. It may not be necessary that the price at which a third party imports must be accepted/considered the appropriate price for imports in case of related parties as well. Also, if the related party's import price is lower than a third party's import price, the rationale for the lower price must be appropriately justified and proved to the authorities.

Also, in light of this judgment and the precedence of the E I DuPont and the Customs Circular, if the valuation is not finalised by the authorities within four months of replying to the questionnaire, then it is necessary to evaluate if importers should stop paying the 1% EDD.

We hope you find the above information useful. In case of any clarifications, please feel free to write to us at skp.tax@skpgroup.com.

SKP
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ABOUT THIS TAX ALERT
This SKP Tax Alert contains general information existing at the time of its preparation only. It is intended as a news update and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This tax alert is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and also refer to the source pronouncement/documents on which this tax alert is based. It is also expressly clarified that this tax alert is not a solicitation or an invitation of any sort whatsoever or a source of advertising from SKP Group or any of its entities to create any adviser-client relationship.

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