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Judgment
J.P. Devadhar, J.—Rule. Rule returnable forthwith. By consent of parties, taken up for final hearing.
Although several relief''s are claimed in this writ petition, counsel for the Petitioner has restricted his argument only to challenge the order passed by the Customs, Excise & Service Tax Appellate Tribunal (''CESTAT for short) on 12-5-2010, whereby the Petitioner is directed to make pre-deposit of Rs. 30,00,00,000/- for entertaining the appeal against the order-in-original dated 4-3-2009. By the said order-in-original dated 4-3-2009, duty amounting to Rs. 97,15,00,054/- has been confirmed and equal amount of penalty has been levied u/s 114-A of the Customs Act, 1962.
Relevant facts are that: the Petitioner-company incorporated under the Companies Act, 1956 is a wholly owned subsidiary of Skoda Auto AS, a company incorporated under the laws of Czech Republic (''Skoda'' for the sake of convenience).
In the year 1999, Skoda made an application before the Foreign Investment Promotion Board (''FIPB'' for short) seeking permission to establish a unit for manufacture and sale of cars in India. The proposal was to manufacture 45000 cars over a period of 5 years. On receiving the requisite approval from the FIPB, the Petitioner-company was incorporated under the provisions of the Companies Act, 1956 as a 100% subsidiary of Skoda to establish a car manufacturing unit in India. The FIPB approval records lump sum payment of US $ 45 million by the Petitioner to Skoda for transfer of technology. It further records that Skoda will disinvest upto 8-10% of its equity capital in favour of Indian investors over a period of 2-4 years and till disinvestment no royalty shall be payable and after disinvestment, royalty @ 6% of cost manufacture and of 8% on exports shall be permitted. Import of capital equipments, components and raw materials were allowed as per the import policy prevailing from time-to-time.
In accordance with the approval granted by the FIPB, the Petitioner set up a factory at Waluj for manufacture and sale of car by importing car kits from Skoda. In January 2004, the said factory was shifted to the Maharashtra Industrial Development Corporation Area at Aurangabad. During the period from September 2001 to October 2001, following key agreements were entered into by and between Skoda and the Petitioner, viz.:
(a) Foreign Collaboration Agreement dated 26-9-2001;
(b) Supply Agreement dated 1-10-2001;
(c) Importer Agreement dated 26-9-2001; and
(d) Technology Transfer and Trade Mark Licence Agreement dated 1-10-2001 (''TTA'' for short).
As per the TTA dated 1-10-2001, the Petitioner was liable to pay to the Skoda a lump sum consideration of US $ 45 million in six different installments. Accordingly, payments were made to Skoda in installments for providing technical assistance to the Petitioner in setting up the manufacturing plant by deputing technical personnel, engineers and representatives from Skoda to India for training the Petitioner''s personnel on subjects like research, development production, quality purchasing, information technology etc.
In the year 2002, a questionnaire was issued to the Petitioner by the Department of Industrial Promotion and Policy (''DIPP'' for short) seeking information on technology imported by the Petitioner. Since the raw materials required for manufacture of cars were imported from Skoda, a related person within the meaning of Rule 2(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (''1988 Rules'' for short), a detailed application was filed with the Special Valuation Branch (''SVB'' for short) for determination of the assessable value of goods imported by the Petitioner from Skoda, a related person.
The Deputy Commissioner of Customs in the SVB after considering all material facts, including the clauses in the TTA dated 1-10-2001, by his order-in-original dated 10-6-2003 held that US $ 45 million paid as per TTA was in no way relatable to the value of the car kits to be supplied by Skoda to the Petitioner and that the transaction value declared in the invoice be accepted. Accordingly, invoice value was accepted and assessment orders were passed in respect of the car kits imported by the Petitioner from Skoda from time-to-time.
By a show-cause notice dated 14-5-2004, the Office of the Commissioner of Customs & Central Excise, Aurangabad called upon the Petitioner to show-cause as to why the Petitioner should not be held liable for service tax for receiving technical services on payment of US $ 45 million in installments as per TTA dated 1-10-2001. According to the Commissioner of Customs, transfer of technology under the agreement dated 1-10-2001 was in the nature of services in relation to advice, consultancy or technical assistance in the discipline of engineering and, therefore, liable to service tax under the category of "Consulting Engineering Services". The Petitioner filed reply opposing the claim of the Commissioner of Customs. However, the claim of the Petitioner was rejected and service tax has been levied and collected from the Petitioner from time-to-time amounting to Rs. 11,54,83,829/- on account of receiving technical services by paying US $ 45 million to Skoda.
In September 2004, the factory premises of the Petitioner at Aurangabad were visited by the Officers of Directorate General of Central Excise Intelligence (''DGCEI'' for short) and various incriminating documents were seized. Statements of various persons were also recorded. On the basis of the material found during the course of search and the statements made by various persons, a show-cause notice was issued on 31-1-2008 calling upon the Petitioner to show-cause as to why the amount of US $ 45 million paid by the Petitioner to Skoda should not be considered as part of the value of the raw materials imported from Skoda. The Petitioner filed detailed reply denying all the allegations made in the show cause notice.
By an order-in-original dated 4-3-2009, the Commissioner of Customs confirmed the duty amounting to Rs. 97,15,00,054/- and further imposed penalty in the equivalent amount u/s 114-A of the Customs Act, 1962. By the said order, penalty was also levied against the ex-Managing Directors as well as the Chartered Accountants of the Petitioner.
Challenging the aforesaid order, appeals were filed before the CES-TAT with an application seeking waiver of pre-deposit. By the impugned order dated 12-5-2010, the CESTAT has directed the Petitioner to make pre-deposit of Rs. 30,00,00,000/-. Challenging the aforesaid order, present writ petition is filed.
Mr. Dad a, learned Senior Advocate submitted that once the GATT valuation cell by its order dated 10-6-2003 held that US $ 45.00 million does not form part of the value of the car kits imported by the Petitioner from Skoda, it was not open to the customs authorities belatedly seek to include the said amount in the value of the car kits imported by the Petitioner from Skoda. He submitted that the Commissioner had held that M/s. Price water house Coopers Private Limited (''PWC for short) was instrumental in drafting fraudulent agreement and had imposed penalty on PWC. The Tribunal, however, held that there is no evidence to show that the PWC had planned /assisted to ensure that there is undervaluation and accordingly waived pre-deposit of penalty imposed upon PWC. Once it is prima facie found that PWC has not committed any illegality, then, it must be held that, prima facie, the Petitioner has not committed any illegality.
Mr. Dada further submitted that the Tribunal directed the Petitioner to deposit Rs. 30 crores which would be around 75% of the total duty payable. Thus, according to the Tribunal the duty that can be sustained is Rs. 40 crores and 3/4 of Rs. 40 crores would be Rs. 30 crores which the Tribunal has directed the Petitioner to deposit. In the present case, during the course of investigation the Respondents have recovered from the Petitioner about Rs. 42 crores (approximately). Moreover, admittedly the Petitioners have paid Rs. 11.54 crores as service tax as the Respondents have considered that the payment of US $ 45.00 million to Skoda was towards availing technical services. Thus, the Revenue has already recovered more than the amount due and payable and, therefore, the Tribunal was not justified in directing pre-deposit of Rs. 30 crores.
Counsel for the Petitioner further submitted that out of the demand of Rs. 97.16 crores confirmed by the Commissioner, Rs. 23.5 crores relates to the goods cleared under provisional assessment and unless the provisional assessments are finalized the question of recovering the duty on those goods does not arise at all. In this connection, reliance is placed on the decision of the Apex Court in the case of Commnr. Central Excise and Customs, Mumbai and Others Vs. I.T.C. Ltd. and Others, .
Apart from the above, it is contended on behalf of the Petitioner that even if the alleged demand is prima facie found sustainable, then the CVD portion of the balance demand after excluding the demand relating to provisionally assessed imports would be proportionately around Rs. 38.60 crores, the credit of which the Petitioner is entitled to. Therefore, since Rs. 42 crores (approximately) has been recovered as deposit, Rs. 11.54 crores as service tax, demand of Rs. 23.5 crores relates to the assessment which is yet to be finalized and the Petitioner is entitled to the credit of CVD amounting to Rs. 38.60 crores, Tribunal was not justified in directing pre-deposit of Rs. 30 crores.
Mr. Sethna, learned Senior Advocate appearing on behalf of the Respondents submitted that the Tribunal, after analyzing the decision of the Commissioner and after considering the material seized during the course of search, has by a reasoned order directed the Petitioner to make pre-deposit of Rs. 30 crores. He submitted that in view of the fraud practiced, the Petitioner is not entitled to any relief in the present petition.
We have carefully considered the rival submissions.
The basic argument of the Petitioner is that the amount of US $ 45.00 million paid to Skoda has been held by the Special Valuation Cell far back in the year 2003 as not relatable to the value of the car kits imported/to be imported by the Petitioner and the assessment orders passed pursuant to the said order have attained finality. Hence, the Commissioner was not justified in holding that the amount of US $ 45.00 million represents the value of the car kits imported by the Petitioner.
Perusal of the order of CESTAT shows that the Tribunal was prima facie satisfied that the materials gathered subsequent to the decision of the SVB clearly show that the payment of US $ 45 million was with a view to evade customs duty on car kits imported by the Petitioner. The prima facie reasons recorded by the Tribunal are:
(a) FIPB approval was sought by Skoda to set up a unit in India to manufacture 45,000 cars over a period of 5 years by importing car kits. The approval was granted subject to the condition that no royalty shall be payable to Skoda as long as they hold 100% equity shares of the Petitioner.
(b) Payment of US $ 45.00 million under Technology Transfer Agreement has been worked out on the basis of per car kit to be imported by the Petitioner for manufacturing 45,000 cars over a period of 5 years. The TTA was to end when assembly contracts were to end, which means that the payment of US $ 45 million is relatable to the car kits to be imported.
(c) Cost sheet relating to imports found during the course of search shows that US $ 1000 has been shown as lump sum payment.
(d) The Managing Director and the Senior Manager of the Company did not have any clear idea as regards the TTA even though the Company was importing car kits and assembling the same in terms of the agreement.
(e) Chairman of the Petitioner had signed the agreement on behalf of Skoda which shows that both the parties treated themselves as one and the same.
(f) List of technical documentation received shows that the technical documentation continues to be received till 2007, where as in the letter of Skoda to the Petitioner dated 2-2-2004, the entire technical documentation under TTA has been provided before that date.
(g) Work sheet containing details of the CIF value of the imported car kits found during the course of search refers to 1418 Euros, out of which 907 Euros is to go to Skoda which is equal to US $ 1000. Though the work-sheet was unsigned, no explanation was given as to who and why the said work sheet was prepared.
(h) Separate work-sheet showing lower cost was prepared for the purpose of SVB is supported by different work sheets recovered during the course of search.
(i) Tribunal prima facie found that the Commissioner was right in holding that the OF value of car kits in SKD/CKD condition is less than the cost accrued to Skoda.
(j) Pricing structure of car kits supplied to Croatia and Solvenia were entirely different.
(k) Petitioner being a 100% subsidiary of Skoda any profits made would go to Skoda and by claiming US $ 45.00 million as capital expenditure, the Petitioner was to save income tax as well as customs duty.
(1) the fact that transfer pricing file had a different work-sheet showing different working and the work-sheets in German language recovered shows a lump sum payment of 1000 US $ goes to show that claim made before SVB that the value was not affected by the relationship and it was supplied on cost plus basis was obviously not correct.
(m) amount paid as per the TTA has been capitalized by Petitioner. Once that amount is capitalized while allocating depreciation for the purpose of costs of the car assembled, automatically the amount paid towards TTA gets allocated to a car. Thus, the Petitioner took an additional cost of US $ 1000 into account for the purpose of costing in addition to the amount paid under the TTA.
From the aforesaid reasons, it cannot be said that the decision of the Commissioner is devoid of any merit. Incriminating material gathered subsequent to the decision of the SVB prima facia show that all material facts were either not placed before the SVB or altered subsequently.
As regards the financial hardship, the Tribunal took note that the Petitioner had cash and bank balance of more than Rs. 127 crores as on 31-12-2009 and sundry debtors had to pay about more than Rs. 75 crores. Out of the above 75 crores, Volkswagen Group alone was required to pay more than Rs. 47 cores and the Petitioner belongs to the same group.
Admittedly, the Petitioner during the course of investigation has deposited about Rs. 42 crores. After taking into consideration the amount of Rs. 11.54 crores paid as service tax, the balance amount recoverable comes to Rs. 43.63 crores. When service tax is collected on the amount of US $ 45 million, whether the Commissioner was justified in treating the said amount of US $ 45 million as part of the value of car kits imported by the Petitioner is a question to be decided at the final hearing of the appeal. However, out of the balance amount of Rs. 43.63 crores, exercise of discretion by the Tribunal in directing the Petitioner to deposit Rs. 30 crores cannot be said to be unreasonable in the facts of the present case.
The argument of the Petitioner that out of the demand of Rs. 97 crores, demand of Rs. 23.5 crores relates to goods cleared under provisional assessment is also without any merit, because, if the imported goods were found to be cleared by suppressing material facts and resorting to undervaluation and while recovering duty that escaped on the assessments which are finalized, it is open to the Revenue to recover the duty which escaped assessment on account of undervaluation by finalizing the assessments which are provisional. In the present case, it is contended that the provisional assessments have been finalized but the same is disputed by the Revenue.
Similarly, the argument that the Petitioner is entitled to CVD amounting to Rs. 38.5 crores and, therefore, the Petitioner cannot be subjected to pre-deposit is also unacceptable, because, taking credit would arise only when the duty is paid. In the present case, it is the case of the Revenue that the amount of US $ 45 million paid to Skoda under the Technology Transfer Agreement was in fact part of the value of 45,000 car kits supplied by Skoda to the Petitioner from time-to-time and that amount has been recovered from the customers by adopting different accounting methods.
In these circumstances, we see no merit in the petition and accordingly the writ petition is dismissed with no order as to costs. However, the time to deposit the amount of Rs. 30.00 crores is extended by further period of six weeks from today.