SVB LOAD - PRESUMPTION OF 8% PROFIT MARGIN - ARCELOR MITTAL CASE IS NOT A BENCHMARK FOR ALL RELATED
As we are aware, whenever the importer is related to Foreign supplier, the question of SVB load will arise. In below recent case, which is decided during this week by Hon’ble CESTAT, Mumbai we can understand ;
1. Eventhough Foreign supplier has only 39% share holing in Indian Entity (two employees of the suppliers are Directors in Indian entity ) and the importers are partners of the Joint Venture as per the agreement both are related. The argument of “ Indian importer has 61% share holing and both are not related “ is rejected by CESTAT i.e it is upheld that they are Related Parties.
2. Arcelor Mittal case can’t be a base for all related party SVB loading. Arcelor is a renowned seller of steel and not capital goods and therefore it is inappropriate and arbitrary to adopt 8% of profit margin for capital goods import.
3. It was not established that the Foreign supplier company had posted higher profit percentage. Without providing any such data simple rejection of the declared profit margin is not acceptable. Moreover department has not adduced any evidence of any contemporaneous imports so as to indicate under valuation by Importers.
4. Loading of value by 1% in respect of imported capital goods i.e. slitting line, which is already included in the value declared is sufficient
5. Google India Pvt. Ltd. Vs. Commissioner of Customs SVB Chennai 2015 (315) (ELT) 449 (Tri-Chennai) declared profit margin of 1% is acceptable and Customs presumption of general profit percentage 8% as observed in Arcelor Mittal case can not be applied to all the cases
M/S. MAHINDRA STEEL SERVICE CENTRE LTD VERSUS CC (IMPORT) MUMBAI
CUSTOM APPEAL NO. 86540/2013
Dated: - 14 August 2019
1.The Appellants M/s, Mahindra Steel Service Centre Ltd, imported goods from M/s. Metal One Corporation, Japan. The Original Authority, Joint Commissioner of Custom, SVB, enquiry into the valuation and has come to the conclusion that the buyer and seller are related and therefore the transaction value requires to be rejected and assessable value requires to be loaded by 7% in terms of Rule 8 of Customs Valuation Rules, 2007. Appeal filed by the Appellant was rejected by Commissioner Appeals vide Order dated 13.12.2012.
2. Learned Counsel for the Appellants submits that the foreign exporter nearly holds 39% stake in the Appellants; majority stake of 61% is held by Mahindra & Mahindra. Therefore, in terms of Rule 2(2) of custom Valuation Rules 2007, the Appellant and foreign supplier are not related. Learned Counsel further submits that the supplier has procured capital goods manufactured by M/s. Nittetsu Denji Techno Company Ltd Japan and supply to the Appellants including 1% margin; in terms of Rule 11 of Customs Valuation Rules 2007 manufacturers invoice is of great importance; the foreign suppliers is only facilitating the export from Japan and are earning a margin of 1% on the same. As per the ratio of tribunal decision in Google India Pvt. Ltd. Vs. Commissioner of Customs SVB Chennai 2015 (315) (ELT) 449 (Tri-Chennai) declared profit margin of 1% is acceptable, whereas the original authority has presumed that general profit percentage would be 8% as observed in Arcelor Mittal case. Learned Counsel submits that no details of import has been furnished; Arcelor Mittal is a renowned seller of steel and not capital goods and therefore it is inappropriate and arbitrary to adopt 8% of profit margin. The Learned Counsel further submits that he bonafide of the Appellants are established by the fact that department accepted the value of steel coils imported by them from the same exporter, Metal One, as the price of steel coils is same as that of the coils sold to unrelated parties, therefore, the transaction value needs to be accepted.
3. Learned AR for the department has reiterated the findings of OIO and OIA.
4. Heard both sides and perused the records of the case. We find that the lower authority has held that the foreign supplier and the Appellant are related parties in view of Rule 2(2) (ii), which states that persons shall be deemed to be related only if “they are legally recognised partners in business”. We find that the foreign suppliers and the Appellants are partners of the Joint Venture; as per the agreement the importers and suppliers are partners in business; two employees of the suppliers, that is Metal One Corporation, are nominated as directors of MSSCL. Therefore, we find that as found by the original authority the foreign suppliers and the Appellants are related.
4.1 However, we find that the adjudicating authority and the Appellant authority have sought to load the value of imported goods at a flat 8% of profit margin. The original authority has stated to rely on Arcelor Mittal. However, no details have been furnished. As submitted by the Appellants we find that the goods dealt by Arcelor Mittal and the supplier of the Appellants are not same. Under the circumstances loading of 8% is arbitrary. It is on records that for one year the profit margin of the supplier of the Appellants was recorded to be 2.4%. We find that the reasons given by the Original Authority for not accepting the same are not satisfactory, as it was not established to the supplier company and had posted higher profit percentage, if any. Without providing any such data simple rejection of the declared profit margin is not acceptable. Moreover department has not adduced any evidence of any contemporaneous imports so as to indicate under valuation by Appellants.
4.2 We find that Tribunal in the case of Google India Pvt. Ltd. (supra) held that nominal profit element was required to be added and not 10% profit margin. Moreover department has not adduced any evidence of any contemporaneous imports so as to indicate under valuation by Appellants. We find that Tribunal has observed as follows (para 13):
These goods are procured by the supplier from various sources and centralized at USA and resupplied to their affiliated companies including the appellant as per the specific requirement. It is not the case of the Revenue that M/s. Google Inc. USA supplied these goods to any third parties other than their own affiliated companies at higher price. Therefore, it is evident that in order to maintain the standard and quality of the equipments, and also the uniformity of the prices and to maintain continuous availability of goods, the procurement is centralized by the supplier by maintaining a centralized procurement, warehousing, quality, inspection etc. and thereafter supply to their various affiliated companies, including the appellant. Therefore, it is evident that the goods supplied to the appellant is not for making any profit. The lower authority has ordered for loading of 10% on notional basis which is purely based on the trade practice. We find that in terms of the Valuation Rules, notional profit element shall be added to the invoice price for arriving at the transaction value. Therefore, taking into consideration the above facts, we find that the loading of 10% profit margin on the invoice value appears to be on the higher side. We are of the considered view that since the appellant is a STPA unit and also taking into the fact that the imports made by the appellant from the supplier i.e. Google Inc. is only for the purpose of development of software and export and also taking into consideration the principal supplier has not sold these goods to any third party but supplied to their affiliated companies only, loading of a nominal profit of 1% (one percent) on the declared value would be suffice.
We find that the circumstances of both the cases are similar and the ratio is applicable. Therefore, we find that loading of value by 1% in respect of imported capital goods i.e. slitting line, which is already included in the value declared is sufficient. The impugned order requires to be modified to that extent.
5. In view of the above, the appeal is allowed and impugned order is modified to the extent as discussed above.