UNION CARBIDE INDIA LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioners are a Company incorporated under the provisions of the Indian Companies Act and are engaged in the business of manufacturing and selling dry cell batteries, chemicals and plastics, agricultural pesticides and several other products. At the relevant time, 60% of the paid-up share capital of the petitioners was held by the American company, known as Union Carbide Corporation. The said American company is engaged in carrying on manufacturing, selling and trading operations worldwide, and among various products manufactured and exported is a product known as 'Sevin-Carbaryl Technical'. The product is used in the formulation of various kinds of insecticides pesticides. In or about February 1969, the petitioners commenced importing the said product for their own use against Actual Users' licences granted in favour of the petitioners for the purpose of formulating pesticides at the plant set up by the petitioners at Bhopal in Madhya Pradesh. The imports from the American company took place on principal-to-principal basis without involving any concession or rebate in the price of the product.

(2.) In the year 1973, the petitioners received an offer from the American company for supply of 4,000 tons of Sevin at the rate of 71.4 U.S. cents per lb. F. A. S. United States ports. The Ministry of Petroleum and Chemicals permitted the petitioners to accept the said offer on condition that 50% of the material so imported by the petitioners would be made over to the State Trading Corporation at the same price. Am import licence dated December 29, 1973 was granted to the petitioners in respect of the said import with a condition that 50% of the imports would be delivered to the State Trading Corporation on high-seas at cost price without charging any commission. Accordingly, an agreement was entered into between the petitioners and State Trading Corporation on January 24, 1974, under which the petitioners agreed to transfer to S.T.C. 2,000 metric tonnes of Sevin at the price of 71.4 U.S. cents per lb. It was also agreed that the State Trading Corporation shall bear half of the expenses relating to Letter of Credit charges, interest and such other expenses as may be mutually agreed upon from the date the Letter of Credit is opened till the delivery of the shipping documents. The agreement was extended for one more year by an Addendum dated June 16, 1975, and a further licence dated February 22, 1975 was also issued to the petitioners for the import of Sevin during 1975 and 1976 on the same terms and conditions as the earlier licence.

(3.) In respect of the imports made by the petitioners under the licence bearing a condition of 50% diversion to the State Trading Corporation, the Customs Authorities insisted on loading 2% of the invoice price not only in respect of imports made by the petitioners for their own use, but also in respect of the quantities meant for the State Trading Corporation. The petitioners paid duty under protest and thereafter filed the refund applications. The refund applications were disallowed and the petitioners carried appeals to the Appellate Collector, but all the appeals were rejected and an appeal against the order dated May 13, 1975 was dismissed only on the ground that the petitioners failed to furnish documentary evidence in support of the claim. An appeal against the order dated June 9, 1975 was disposed of holding that the import by an independent importer showed a commission of 2% payable to the petitioners and that represented the assessable value under Section 14(1)(a) of the Customs Act. In respect of an order dated March 13, 1975, the appeal was dismissed on the ground that the petitioners were related to the supplier and the amount paid by independent importers represented the price under Section 14(1)(a) of the Act. An appeal against the order dated July 8, 1975 was dismissed on a finding that the appellants did not disclose the basis on which the Customs Authorities had loaded the invoice value, and that there was no order or direction of the Customs under which the invoice value had been so loaded, and therefore, there was no material on record on the basis of which the same could be entertained. Against the four orders passed by the Appellate Authority, the petitioners preferred four revision applications before the Government of India. One of the revision application was disposed of by the Central Government by an order dated September 15, 1977 and the matter was remitted back to the competent authority on the ground that the invoice and the bill of entry were not recorded and the Government could not verify on what basis 2% had been loaded to the invoice value. The proceedings after remand are still not disposed of. The remaining three revision applications were disposed of by a common order dated July 27, 1979. The revisional authority came to the conclusion that no commission was allowable to the petitioners in respect of the imports and it would not be correct in law to load 2% to the invoice value. On this finding, the revisional authority ought to have allowed all the three revision applications, but the revisional authority felt on scrutiny of the record that the case fell within the purview of Rule 5 of the Customs Valuation Rules, 1963 read with Section 14(1)(b) of the Customs Act, and therefore, the loading of 2% to the invoice value was proper. The revisional authority held that the petitioners were a 'branch-cum-distributor' of the American company and the expenses ordinarily incurred by the petitioners in that capacity ought to be included while determining the value of imported goods. It was also held that though the expenses incurred by the petitioners in their capacity as 'branch-cum-distributor' have not been analysed, still it would be reasonable to assume that 2% would not be on high side or unreasonable. The order of the revisional authority is under challenge in this petition filed under Article 226 of the Constitution of India.