AI Structured Summary
Not yet generated for this judgment
Judgment
P.V. Subba Rao, J
M/s. IPM India Wholesale Trading Private Limited, Appellant filed these 70 appeals to assail the Order-in-Appeal, Impugned order dated 30.6.2022 passed by the Commissioner (Appeals) whereby he rejected the appellant’s appeals against 70 self-assessed Bills of Entry.
It needs to be pointed out that as per the decision of the Supreme Court in ITC Ltd. vs. Commissioner of Central Excise, Kolkata-IV, 2019 (368) ELT 216 (SC) an importer can also file an appeal against its self-assessed Bill of Entry before Commissioner (Appeals). If the importer self-assesses more duty than is due and pays it, it cannot file an application for refund and it has to first appeal against its self-assessed Bills of Entry.
The appellant imports and sells cigarettes. It imported MARLBORO GOLD brand cigarettes manufactured by Philip Morris Philippines Manufacturing Inc., PMPI from Philip Morris Products S.A. Switzerland, PMPSA. According to the appellant, it had entered into an agreement with PMPSA who bought cigarettes from PMPI and sold to the appellant but shipped the cigarettes directly from PMPI in Philippines to the appellant in India. PMPI raised an invoice on PMPSA while PMPSA raised an invoice on the appellant.
According to the appellant, it bought cigarettes on ‘Carriage Paid To’ (CPT) basis from PMPSA which, as per the internationally accepted terms of trade called as INCOTERMS, means the seller will be responsible to supply the goods and to arrange for and pay for the freight. CPT is the same as INCOTERM Costs & Freight (C&F). According to the appellant, during COVID pandemic, the shipping lines and routes were disrupted and therefore, it could not ship cigarettes and therefore, imported them through air cargo incurring much higher cost towards the freight over and above the price which it had paid to PMPSA for the cigarettes on CPT basis. On a specific query from the bench, learned counsel for the appellant clarified that although the appellant’s agreement was for price on CPT basis but no shipping had to be arranged (because it had imported them by air), no reduction was made towards the cost of shipping and the appellant paid the full amount and paid an additional amount to its supplier towards air freight. This additional amount is shown in the invoices of its supplier PMPSA as “Add. Recov. Freight”. PMPI showed this additional amount in its invoices raised on PMPSA which, in turn, showed it in its invoices raised on the appellant.
It needs to be pointed out that while PMPI billed PMPSA in US$, PMPSA, in turn, invoiced the appellant in equivalent Indian Rupees.
The appellant self-assessed the imported goods including the additional amount paid as ‘Add.Recov.Freight’ in the value in the Bills of Entry. Later, realising that air-freight could not have been included in the value beyond 20% of the FOB value as per the fifth proviso to Rule 10 of the Customs Valuation(Determination of value of Imported goods) Rules, 2007, Valuation Rules and the additional amount paid towards air freight was much more, it filed appeals to the Commissioner (Appeals) seeking modification of its self-assessment. The Commissioner (Appeals) rejected appeals. Aggrieved, these appeals are filed before us.
Submissions on behalf of the appellant
Shri B.L. Narasimhan, learned counsel for the appellant made the following submissions:
(i) The appellant imports and sells cigarettes in India. During the period to March to June, 2020 it had imported cigarettes from PMPSA which supplied the cigarettes manufactured by PMPI, Philippines but the cigarettes were sent from Philippines directly to India;
(ii) For this purpose, the appellant had entered into a distribution agreement with PMPSA according to which the cigarettes were to be supplied at carriage and freight (CFR) (also known as carriage paid to CPT) basis. The distribution agreement was supplemented by a price list dated 27 May, 2020 which indicated the price of the cigarettes on CPT basis. Although the price included both the cost of the cigarettes and the carriage up to the place of delivery, i.e. is Delhi, it was their understanding that they will be sent by ship. Due to disturbances in the shipping routes during COVID pandemic, the appellant had insisted for import of the goods by air;
(iii) Since the air freight was much higher than the sea freight, the appellant paid an additional amount towards the air freight treating the price agreed to on CFR basis as the cost of the cigarettes only i.e, FOB value;
(iv) The appellant paid excise duty taking the cost of the cigarettes and the additional amount paid towards freight as the assessable value;
(v) Later, realising that in terms of firth proviso to Rule 10 of the Valuation Rules only 20% of the FOB value could be added as the cost of freight and that the actual amount of freight paid was much more, the appellant realised that excess duty was paid;
(vi) Accordingly, the appellant assailed the self-assessed bills of entry before the Commissioner (Appeals) seeking to re-determine the assessable value with consequential relief of Rs. 1,50,65,124/- which was erroneously paid in excess as duty at the time of import. The Commissioner (Appeals) rejected the appeals and hence these appeals are filed;
(vii) The legal position is clear and in terms of the fifth Proviso to rule 10(2) of the Valuation Rules, if goods are imported by air only an amount of equivalent to 20% of the FOB value can be added to the assessable value and not the entire freight incurred; and
(viii) In their case, since the entire duty was paid they are entitled to refund. All appeals may be allowed and the impugned order may be set aside with consequential relief.
Submissions on behalf of the Revenue
Learned authorised representative for the Revenue supported the impugned order made the following submissions:
(a) The sequence of events in these 70 appeals is as follows.
PERIOD
EVENT
30.03.2020 to 29.06.2020
Filed 70 Bs/E for import of Cigarettes.
27.08.2020 to 04.09.2020
On self assessed Bs/E, appellant filed appeal with Commissioner (Appeal) for reassessment
30.06.2022
OIA No. CC-A-CUS-D-I-IMPORT-NCH-307- 376-2022-23 dt.30.06.2022, rejecting the party’s appeals
23.11.2022
Appeal filed in CESTAT
(b) The Appellant self-assessed the Bills of Entry but then appealed against their self assessment before the Commissioner (Appeals) in the light of judgement of Supreme Court in ITC Ltd. The intention of asking for re-assessment is to claim refund of what is according to them was excess duty paid on freight;
(c) At the time of import, the Bills of Entry were filed indicating the value of the goods as the CFR value (cum freight) indicated as CF (short form for CFR). The appellant has mentioned what they call ‘Add. Recov. Freight’ amount under ‘Misc. Charges’ in the Bill of Entry;
(d) In the invoice, the Incoterm (International commercial terms) mentioned is CPT New Delhi and CPT means ‘Carriage Paid To’. Thus, the invoice value includes cost of transportation upto New Delhi. In the invoice “Add. Recov. Freight” is shown and added to the assessable value. A comparison of the Bills of Entry and invoice in one case shows as follows:
Description in invoice
Amount in Rs.
Amount mentioned against declared column in B/E
MARLBORO GOLD
6,96,540.00
Inv. Val (Invoice value)
Add. Recov. Freight
9,53,386.56
Misc. charges
Total Value
16,49,926.56
Ass. val (Assessable value )
(e) The invoice was raised by PMPSA which sold goods manufactured by PMPI and shipped them to the Appellant;
(f) The country of origin of the goods was Philippines;
(g) The airway bills did not show the amount of freight but it only stated that freight was ‘prepaid’ and ‘as agreed’;
(h) The Commissioner (Appeals) stated that “FOB value of impugned goods was not available” and “no documentary evidence has been produced to substantiate this contention”.
(i) In its appeal before the Commissioner (Appeals), the Appellant had not submitted the distribution agreement and the price lists;
(j) All these documents have been submitted only as part of Appeal Memorandum filed before the Tribunal. In fact, the appellant has submitted copy of the invoice issued by PMPI to PMPSA [enclosed as Annexure-1], which is not part of Appeal Memorandum. The facts and documents which were not submitted before First Appellate Authority cannot be brought before this Tribunal;
(k) The appellant cannot raise a new ground before this Tribunal which is not of the appeal. Reliance is placed on Lohia Machines Ltd. vs. Collector, 1986 (25) E.L.T. 225 (Tribunal);
(l) The CPT price written on the invoices is the total price of goods including the ‘Add. Recov. Freight’ total amounting to i.e. Rs.16,49,926.56. The invoice does not give breakup of FOB price of goods + total freight;
(m) The submission of the appellant that CFR price mentioned was for transporting the goods by sea is totally baseless. The invoice shows CPT New Delhi, which means the Custom Station is Air Cargo Complex, New Delhi. Had it been Inland Container Depot, Tughlakabad or Patparganj, then the same would have been shown in the invoice as CPT ICD PPG or CPT ICD TKD;
(n) Article 4.2 of Distribution Agreement also shows that, “The terms of sale and delivery for all shipments of the Products shall be CFR New Delhi Airport, JNPT Nhava Sheva Port-Mumbai or another port in Mumbai (Incoterms 2000)”. Thus, when the invoice is showing CPT New Delhi, it is “CFR New Delhi Airport”. Thus, the argument that CFR price mentioned was for transporting the goods by sea is incorrect;
(o) The country of origin certificate and the airway bill show that the goods were sent directly from Philippines to India by air;
(p) Thus, the Appellant’s argument that “On account of change of transport from sea to air, additional freight cost are being added.” is totally incorrect;
(q) No prudent businessmen would transport goods from Philippines to Switzerland and from Switzerland to India. In fact, the documents prove that impugned goods were sent from Philippines to India, which goes to prove that Appellant is making wrong submissions before the Tribunal. The impugned goods are coming by air from Manila, Philippines to ACC New Delhi Airport India;
(r) Without prejudice to the above, relying upon the documents submitted by the appellant, it appears that the invoice is raised from Philippines to Switzerland and then, from Switzerland to India;
(s) In the invoice it is mentioned that “Payment to the account of Philip Morris products. SA, London, England.” Thus the payment towards this amount is going to PMPSA ENGLAND and not PMPSA (Switzerland) . To that extent the appellant’s submissions that “…goods were supplied by PMPSA Switzerland to the Appellant and the very same additional freight amount (INR 9,53,386.56) was recovered from the Appellant” is wrong;
(t) The value of goods mentioned in the invoice as “ CPT New Delhi” is inclusive of freight The freight is not separately shown and hence the appellant’s claim that total freight in the invoice has exceeded 20% is wrong;
(u) Article 4.1 of Distribution Agreement says that PMPSA shall sell the products to IPM at prices agreed by the parties from time to time. The Price List dated 27-05-2020 publishes the CFR prices w.e.f 01-05-2020. No mention of such publication of prices in Distribution agreement. Hence, the price list cannot be relied upon.
Findings
We have considered the submissions advanced by both sides.
The short question to be answered in this case is whether the appellant is entitled to the benefit of the fifth proviso to rule 10 of the Valuation Rules or not. If the appellant is entitled to the benefit of this proviso, then only air freight incurred by it to the extent of 20% of FOB value can be included in the assessable value and accordingly, the duty needs to be reassessed in all the 70 Bills of Entry.
The undisputed legal position is that the cost of transportation of the goods up to the place of importation needs to be included in the assessable value to the extent provided in the Rules. The relevant rule is rule 10 of the Valuation Rules and the relevant portion is reproduced below.
10.Cost and services. -
(1) I*******
(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include -
(a) the cost of transport of the imported goods to the place of importation;
(b) loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and
(c) the cost of insurance :
**********
Provided further that in the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not exceed twenty per cent of free on board value of the goods:
According to the appellant, it had imported cigarettes on CPT basis, i.e., cost plus freight basis. These goods should have been, according to the appellant, sent by ship for the CPT price which it had paid. However, due to Covid pandemic, the shipping routes were disturbed and in order to meet the market demand, it had imported the cigarettes by air. This required the supplier to incur additional costs to transport cigarettes, which it charged from the appellant. These have been shown as “Add Recov. Freight” in the invoices. According to the appellant, its supplier PMSA had not reduced any amount from the cost shown on CPT basis although the cost of transport by ship was no longer required. Therefore, effectively, what it paid to PMPSA, is the amount agreed to as per CPT basis plus the additional cost of air freight.
The Commissioner(Appeals) did not agree with the submissions of the appellant for the reason that the FOB value of the goods was not available and neither was the actual amount of freight paid to the airlines for transporting the cigarettes available. The relevant portions of the order is reproduced below:
“5.3. The core issued in this case is to be decided whether the additional freight as claimed to have been incurred on imports by Air instead of sea is includible in assessable value in excess of 20% of FOB value?
5.4. At outset, I note that FOB value of impugned goods is not available in the instant case. The Appellant has contended that their normal practice had been to declare value on CRF basis. Further, they have contended that ‘CFR’ value is invariably higher than FOB value and thus ‘Air freight’ can be limited to 20% of CFR in terms of Rule 10(2) of CVR 2007. However, I find that no documentary evidence has been produced to substantiate this contention. There is no documentary evidence to establish that value (excluding Add. Recov. Freight) corresponds to ‘CFR’ value. For reference, a sample invoice no.1066201100020244 dated 22.06.2020 for Bill of Entry No. 7973454 dated 22.06.2020 is reproduced below:
“5.4.1. I also note that in the Invoice, the "Incoterm' has been stated to be CPT New Delhi. 'CPT" refers to 'Carriage Paid To'. Thus the Invoice value includes cost of transportation upto Delhi. Although invoice indicates 'Add. Recov, Freight' amount but there is no documentary evidence to indicate that the amount corresponded to freight by Air only. Even the Airway Bill attached with the Appeal does not indicate 'freight' amount to substantiate the declaration made in 'invoice'.
5.4.2. Since no FOB value is available in this case, I find it difficult to apply Rule 10 of CVR 2007 in the present case. Moreover, I find that in light of Incoterm 'CPT to Delhi' being reflected in the invoice, the invoice value meets the definition of transaction value in Section 14 of the Customs Act 1962, which reads as under-
(1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf:
Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, Insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf:
Clearly, the price paid for the goods for delivery at place of importation (l.e. Delhi) is 'invoice value' and it has to be treated as transaction value. Adjustment of transaction value in terms of Rule 10 of CVR 2007 to provide only when FOB value is ascertainable which is not possible in present case.
5.5 The Appellant has relied upon case of M/s 3M India Ltd. [2006(198) ELT 545 (T- Bang.)] in support of their claim. However, I note that in 3M case, the FOB value could be arrived at by deducting freight & insurance amount shown separately. In present case no such details are available and thus FOB cannot be worked out to apply Rule 10 of CVR 2007. Thus the relied upon case is distinguishable.
5.6. In view of the above, the assessments in the impugned Bills of Entry need not be altered in given circumstances.”
Learned authorised representative for the Revenue supports the impugned order. His first assertion is that none of the documents show the FOB value of the goods and none of the documents, including the Airway Bill indicate, how much freight was actually paid to the airlines. The Airway Bill only mentions “freight as agreed”. The amount of freight is not ascertainable and therefore the fifth proviso to rule 10(2) (a) does not apply to this case.
His second submission is that as per article 4.2 of the Distribution Agreement between the appellant and its supplier, “The terms of sale and delivery for all shipments of the Products shall be CFR New Delhi Airport, JNPT Nhava Sheva Port-Mumbai or another port in Mumbai (Incoterms 2000)”. Thus, when the invoice shows CPT New Delhi, it is “CFR New Delhi Airport”, the amount shown in the invoices as ‘Add.Recov.Freight’ is not the freight of the goods and therefore, addition of only 20% of this amount in the assessable value is not correct.
His third submission is that the the Distribution Agreement does not refer to price lists but only mentions that the goods shall be sold “at price as agreed to”. The price lists which the appellant submitted also cannot be relied upon.
His fourth submission is that the appellant cannot take a new ground in this appeal which was not taken before the Commissioner (Appeals).
His fifth submission is that the appellant made a wrong submission that the goods were transported to Switzerland from Philippines and then from there to India when the goods were actually shipped directly from Philippines to India.
The fourth and fifth submissions of the learned authorised representative are not correct. The ground taken in the appeal by the appellant as well as before the Commissioner (Appeals) and argued by the learned counsel is only that 20% of the amount incurred as air freight by it and shown as “Add. Recov. Freight” in the invoices can be included. No new ground has been taken. Learned counsel for the appellant only submitted that the invoices were raised by PMPI to PMSA and further by PMSA to the appellant and that the goods were shipped directly from PMPI to the appellant on instructions of PMSA. Learned counsel did not say that the goods were transported to Switzerland as misconstrued by the learned authorised representative.
Learned authorised representative disputed the price lists submitted by the appellant but did not produce any evidence to show that they were incorrect. His submission is that since the Distribution Agreement says that the prices shall be “as agreed” and there is no indication of price lists, the price cannot be accepted. This submission cannot be accepted. The Distribution Agreement does not indicate that the prices shall be agreed to by the parties in any particular manner. If the parties concerned agree to them in the form of price lists sent by the supplier to the appellant, it is upto them. No stranger to their contract, including any official, have any locus standi to say whether they should be agreed to between them through price lists or in any other manner.
Another submission of the learned authorised representative of the Revenue is that since para 4.2 of the Distribution Agreement refers to sale on CFR New Delhi Airport, any price agreed to between the parties should be taken as price for sale including air freight up to Delhi. Therefore, the additional amount paid cannot be on account of freight. For the sake of clarity, we reproduce the relevant portion of para 4.2 below:
“4.2 Shipping Terms. The terms of sale and delivery for all shipments of the Products shall be CFR New Delhi airport, JNPT Nhava Sheva Port-Mumbai or another port in Mumbai (Incoterms 2000)or as the parties may otherwise agree from time to time. The method and route of shipment for all shipments of Products shall be as directed by IPM. Unless otherwise agreed in relation to any particular shipment, title to the Products shall transfer to IPM simultaneous with risk in accordance with the relevant incoterm. PMPSA shall invoice IPM upon shipment of the Products.”
This clause also says “or as agreed to by the parties”. The Distribution Agreement does not restrict it to sale only on CFR New Delhi airport. Therefore, the submission of the learned authorised representative is not correct.In fact, if the submission of the learned authorised representative that the additional amount paid by the appellant to its supplier is not for freight is accepted, then this amount cannot be included in the assessable value at all because nothing has been brought on record by the Revenue to show that this amount is relatable to some other costs which are includable in the assessable value. It must be noted that only such costs and services as are covered by rule 10 of the Valuation Rules can be included in the assessable value. The additional amount paid by the appellant is towards air freight according to it. Revenue has neither any contrary assertion or evidence regarding the nature of this amount paid by the appellant but its assertion is that it is not for freight. If that be so, it is not includable in the assessable value and it will result in lowering the assessable value and the duty liability far below what the appellant is claiming and he appellant will be entitled to much larger amount as a refund.
This brings us to the last question as to whether, based on the documents available on record, it can be said that the amount of freight is ascertainable so as to bring the assessment of these Bills of Entry within the ambit of the fifth proviso to rule 10(2) (a) of the Valuation Rules. Learned authorised representative submitted that the Airway Bill does not indicate the amount of freight and while the goods are sold on CPT basis, the FOB value is not separately indicated and so it is not possible to deduct the FOB value from the CPT to arrive at the freight element and restrict its inclusion in the assessable value to 20% of the FOB value.
Learned counsel for the appellant produced before us, the invoices raised on it by PMSA and by PMPI on PMSA. An amount as “Add.Recov.Freight” is included in both the invoices. In the invoice issued by PMPI to PMSA, it is included in USD and in the corresponding invoice issued by PMSA to the appellant, equivalent amount is indicated in Indian Rupees. The explanation of the appellant is that “Add.Recov.Freight” referred to is the additional recovery towards air freight. There is no assertion by the Revenue as to what this amount pertains to and how it is includable in the assessable value.
Learned counsel for the appellant has also produced before us a price list dated 28 May, 2020 for the period and another price list dated 12 August, 2020 for later period. The second price list shows the FOB value per unit as Rs. 635.29. During the relevant period, the CPT value per unit is indicated as Rs. 696.54 which is only slightly higher than the FOB value for the subsequent period. Based on these documents, we are satisfied that the CPT values for the relevant period were for transport by ship or rail. Air transport is far more expensive.
Now we have to examine whether the contention of the appellant that the amount shown in the invoices as ‘Add.Recov.Freight’ is the cost of air freight is correct or to accept the contention of the Revenue that it is not for air freight.
If we accept the contention of the appellant of “Add. Recov.Freight”, only an amount equal to 20% of the FOB value can be included in the assessable value and duty has to be re-determined.
If we accept the contention of the Revenue that it is not towards air freight and air freight has already been included in the CPT price, then, this amount cannot be included in the assessable value at all as there is no assertion by either side that it represents some other cost which is includable in the assessable value as per rule 10. This will reduce the duty payable on the goods.
Based on the available documents, we are convinced that this amount represents the air freight incurred by the appellant and of this only an amount equal to 20% of the FOB value can be included in the assessable value.
The last question is how to determine the FOB value since the invoices were raised on CPT basis. According to the appellant, this value on CPT basis was for transport by ship and although the goods were not transported by ship but were flown through air cargo for which an additional amount was paid, the appellant had paid the full amount indicated as CPT for the cigarettes to PMSA. If that be the case, the price has effectively been increased and the so called CPT price has become the defacto FOB price. The addition of the amount shown under ‘Add.Recov.Freight’ in the assessable value may be restricted to 20% of the CPT value shown in the invoices.
In view of the above, we allow all the appeals and remand the matter to the original authority for re-determining the duty payable on all the Bills of Entry in the manner indicated above.
[Order pronounced on 10/12/2024]