Invoice prices are presumed valid unless the Department provides cogent evidence of undervaluation.

1. The respondent assessee herein had entered into an agreement dated 1-11-1995 with one M/s. Rohm Hass Company (hereinafter referred to as “M/s R&H”). In this agreement, the assessee was to import the product known as Mencozeb Technical 85% at US $2.10 per kg, CIF, Mumbai. Large quantities of the aforesaid product were imported by the assessee from M/s R&H under the said agreement. The agreement also provided that the assessee was to be the sole distributor for the aforesaid product and it was given the task of advertising and promoting the sales of the said product in India. The assessee has been filing the bill of entry for the purpose of import duty, disclosing the aforesaid price at US $2.10 per kg which was paid by the assessee to M/s R&H.

2. It came to the notice of the appellant Revenue that prior to the aforesaid agreement dated 1-11-1995, which was entered into between M/s R&H with the assessee, M/s R&H had similar arrangement with M/s Indofil, which is a division of M/s Modipon Ltd. The agreement with M/s Indofil was entered on 3-5-1965 which continued up to 31-10-1995 and on termination of the agreement between M/s R&H and M/s Indofil, arrangements were entered into by M/s R&H with the assessee on 1-11-1995.

3. The Revenue found that M/s Indofil had paid the price of the product at US $2.71 per kg, CIF, Mumbai during the period from December 1994 to March 1995 and US $2.85 per kg for the period from August 1995 to February 1996. Since M/s Indofil had purchased the same product from the same manufacturer viz. M/s R&H at a higher price i.e. US $2.85 per kg during August 1995 to February 1996, the Revenue took the view that the assessee had misdeclared the price by showing it at US $2.10 per kg. On that basis, show - cause notice was issued stating that as to why the transaction value was not treated as US $2.85 per kg. The demand in the show - cause notice was confirmed by final order in original after eliciting the response from the assessee. The assessee challenged this order by filing appeal before the Customs, Excise and Service Tax Appellate Tribunal (Cestat) and Cestat has allowed the said appeal.

4. A perusal of the order of the adjudicating authority would show that the assessee was treated as related person of M/s R&H and for this reason the price at US $2.10 per kg shown in the invoices was discarded as to be the transaction value. R.2(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules , 1988 defined “related persons” which reads as under:
“2. (2) For the purpose of these Rules, persons shall be deemed to be ‘related’ only if—
(i) they are officers or directors of one another’s businesses;
(ii) they are legally recognised partners in business;
(iii) they are employer and employee;
(iv) any person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other,
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or (viii) they are members of the same family.
Explanation I.—The term ‘person’ also includes legal persons.
Explanation II.— - Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purpose of these Rules, if they fall within the criteria of this sub-rule.” (emphasis supplied)

5. As per the Revenue, the arrangement between M/s R&H and the assessee gets covered by clause (v) of R.2(2) as according to the Revenue, M/s R&H directly or indirectly co