Custom, Excise & Service Tax Tribunal
M/S Palm Tech India Ltd vs The Commissioner on 19 September, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench Division Bench Court I Appeal No: C/167/2007 (Arising out of Order-in-Appeal No.72/2006(V), Dated 06-10-2006 passed by Commissioner of C&CE(Appeals)Visakhapatnam) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Honble Mr. Madhu Mohan Damodhar, Member(Technical) 1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s Palm Tech India Ltd. ..Appellant(s) Vs. The Commissioner. C&C.E, Visakhapatnam ..Respondent(s)
Appearance Shri Rajesh Rawal, Advocate for the Appellant Shri P.S.Reddy, AR for the Respondent Coram:
Honble Ms.Sulekha Beevi, C.S., Member(Judicial) Honble Mr. Madhu Mohan Damodhar, Member(Technical) Date of Hearing : 10/08/2016 Date of decision: 19/09/2016 FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.,]
1. The facts, in brief, of this case are that the appellants, through their agent viz. M/s Lee and Mulhead Ltd., vide letter No. LM/VTZ/customs/150/98-99 dated 21.10.98, applied for registration under project contract for import of Plant and Machinery for setting up of Palm Oil Mill at Peddapuram, East Godavari Dist., A.P under Project Import Regulations, 1986. The supplier was M/s Salcon Engineering Sendrian Berhead, Malaysia. Along with their application, the Appellants had submitted project report, plan layout and process chart, list items etc., vide Government of India, Ministry of Agriculture, purchase order No.101 dated 25.4.98. The Government of India, Ministry of Agriculture, vide their letter dated 06.10.98 recommended to the Custom House to consider import of plant and equipment along with spares. As per Public Notice No.21/96, the Appellants submitted security deposit of 2% of CIF value which worked out to Rs. 12.47 Lakhs vide R.D.No.370, C.M.235 dated 22.10.1998.
1.1 The Appellants imported the equipment & spares through Vizag Port under cover of 3 consignments vide Bills of Entry Nos. 3508/12.11.98; 3509/12.11.98; and 3871/16.12.98, availing concession under PIR 1986. The detailed working sheets furnished had been verified with relevant invoices and purchase orders. On verification it was noticed that the firm had incurred Ringgits 1,400,000 towards design and engineering services the value thereof was considered includible in the assessable value of the imported plant and equipments under reference. Accordingly a show cause notice in F.No.S13(A)/1/98-AP dated 15.01.2001, answerable to the Deputy Commissioner of Customs, Visakhapatnam, was issued to the Appellants wherein it was proposed to finalise the assessments under the said Project Import scheme by including the design and engineering charges in the assessable value for calculation of duty.
1.2 The aforesaid Show-Cause Notice was adjudicated by the Deputy Commissioner of Customs, Customs House, Visakhapatnam vide the impugned Order No. 53/2001 dated 20.07.2001 wherein he held that the project may be finalized including design and engineering charges of RM 1,400,000/- in terms of Rule 9(1)(b)(iv) of Customs Valuation (Determination of price of Imported Goods) Rules, 1988.
2. On appeal, the Commissioner (Appeals ) rejected the appeal vide order dated 06.10.2006. Hence this appeal.
3. On behalf of appellant, the Ld. Advocate Shri. Rajesh Rawal opened his arguments by adverting to the purchase order, agreement and other related documents.
3.1 He submitted that the Appellant had placed Purchase Order No.101 dated 24.5.1998 on M/s. Salcon Engineering Sendrian Berhead, Malaysia (hereinafter referred to as SALCON) for supply of certain specific machinery and spares. The details of the machinery and spares were specified in the Purchase Order dated 24.5.1998 and since the goods were standard equipment and not customised goods, there was no necessity or requirement for M/s. SALCON to offer any design, technical specifications or drawings for the manufacture of these goods.
3.2 On 20.5.1998, the Appellant had entered into two agreements with M/s. SALCON, one with regard to the design, technical specifications and drawings and the other with regard to supervision and management of the project including testing and commissioning of the entire Palm Oil Mill.
3.3 The Appellant imported the equipment and spares through the Visakhapatnam port under cover of 3 consignments declared the value of the machinery imported and did not include in the value of imported plant and machinery, the amount of RM 1,400,000 which had been paid towards design and engineering services for the reason that design and engineering charges were not in connection with the imported equipment but only for setting up the palm oil mill as a whole.
3.4 It is the Appellants case, since the design and engineering charges were paid for the design of the entire plant as a whole as agreed in the Appellants agreement with M/s. SALCON dated 20.5.1998 and not for design of the imported goods imported under Purchase Order No. 101 dated 25.4.1998 and therefore the same is not includible in the value of the goods imported.
3.5 Goods imported by the Appellant were standard non-customised goods available in the international market, which were manufactured by companies such as alfa-laval etc. and no specific design, technical specifications or drawings were required to be supplied by M/s. SALCON for the manufacture of the imported goods. Consequently there was no requirement for M/s. SALCON to design the imported goods and there was also no agreement for design of the imported goods.
4. Ld. Advocate also placed reliance on following case laws.
1. Collector of Customs Vs Visakhapatnam Steel Project [1992(62)ELT-833(Tri).
2. Collector of Customs Vs Visakhapatnam Steel Project [1992(62)ELT-572(Tri).
3. Umbergaon Rubber(P)Ltd Vs Collector of Central Excise, [1992(62)ELT-576(Tri).
4. Gujarat Mineral Development Corpn Ltd. Vs CCE, & C Ahmedabad [2005(190)ELT-5(SC).
5. Commissioner of Customs(Import0 Mumbai Vs Jaypee Bela Cement [2008(227)ELT-292(Tri-Mum).
6. Bharat Forge Ltd Vs CCE, Pune-III, [2008(227)ELT-299(Tri-Mum).
5. On behalf of department, Ld AR Shri. P.S. Reddy reiterated the findings in the impugned order. He also placed reliance on the Honble Apex Court judgment in the Essar Gujarat case 2002-TIOL-44-SC-Cus.
6. Heard both sides.
7. On perusal of the two agreements both dated 20.05.1998 entered into between appellant and Salcon Engg.(SESB) Malaysia, the following aspects emerge.
i) In the supervision and management agreement the obligations of SESB include plan, prepare project management plan,supervise construction activity, establish , technical, administration, marketing organization structure, advice production planning, etc;
ii) This agreement also indicates that SESB will be responsible for causing periodical checking whether factory is being constructed by appellant in compliance with designs, specifications, standards and instructions. Further to also assist in procurement of required plant, machinery & equipment and advice appellant in order to ensure erection of factory according to standard and technical specifications laid down.
iii) As per first agreement, appellant was required to pay SESB lump sum of Ringgit Malayasia RM 1,700,000.
iv) Second agreement for Design, Technical specifications and Drawings, inter alia obliges SESB to design and provide complete technical drawings for a Palm Oil Mill. SESB would provide all specifications and drawings necessary to complete the constructions and commissioning of the Palm Oil Mill. SESB would also transfer complete know how in all aspects to the appellant to operate the palm oil mill.
v) As per second agreement, in consideration of SESB providing the services and transfer of technology, appellant, was required to pay lump sum of Ringgit Malayasia RM 1,400,000. In particular it is mandated that predominant amount of RM 1,050,000 will have to be paid upon receipt of the documents pertaining to the complete technical Specifications and Drawings.
8. It is seen that department has not proposed or demanded addition of lump sum amount of RM 1,700,000 mandated in the first agreement for supervision and management. What has been sought to be added to assessable value is RM 1,400,000 towards Design & Engineering charges mandated in second agreement. From the facts and circumstances of the case, it is evident that as per purchase order , SESB only would fabricate and supply all crucial machinery and equipment, for which appellant would have to pay lump sum of RM 5,566,840. However without the Design, Technical Specifications and Drawings, the erection/construction of the Palm oil Mill cannot actualise. Even in the supervision and the management agreement, the focus is on construction in compliance with designs, drawings, specifications etc.
9. We therefore are of the opinion that the lower authority has appreciated the facts and evidence in the correct perspective as seen from para 8 of impugned order which is as below;
I do not agree with the Appellants contentions that the design technical specifications and drawings charges should not be included in the assessable value of the imported machinery in terms of Rule 9 (1) (b) (iv) of the Customs Valuation Rules. It is a fact that the Appellants have entered into agreement with M/s Salcon Engineering Sendirian Berhad, Malaysia on 02.05.1998 for Design, Technical specifications and Drawings for a 30 Tons fresh fruit bunch per hour palm oil. Further it can be observed from the Annexure to the purchase order No. PO/101 dated 25.04.1998 placed on M/s SALCON at para 1. Obligation of M/s SALCON (a) Fabricate and supply all crucial machinery and equipment which are not available in India and at para (3) SALCON undertakes to remedy any defect resulting from design material or workmanship of the plant, material and machinery supplied by it under this order. Thus it can be construed that there was a clear nexus between the manufacture and supply of the said plant and machinery and the design, fabrication etc. of the said plant and machinery. It can be inferred that M/s SALCON was responsible for designing, fabrication of the plant and machinery. Far as the Appellants contentions that the supplier had purchased the goods and not manufactured themselves, are concerned, the same cannot be accepted. It is already explained above that M/s SALCON was responsible for designing, fabrication of the plant and machinery as per the purchase order No. PO/101 dated 25.04.1998. Hence, the design and engineering charges were required to be included in the assessable value for calculation of duty.
10. We find sustenance and support for the aforesaid conclusions in the case laws relied upon by appellant relate to cases with different facts/issues, and hence reliance thereon will nto help them. On the other hand, the Tribunal judgement in the case of Mahindra & Mahindra V Commissioner Customs reported in 2014 (312) ELT 545 (Tri- Mum), wherein the Tribunal referred and followed the ratio laid in the case of Gujarat Mineral Development Corporation Vs Commissioner 2005 (190) ELT 5 (S.C.). the relevant portion is extracted as under:
10.7 In the Associated Cement Companies Ltd case cited supra, a question arose whether intellectual property when put on a media is to be regarded as an article on the total transaction value of which customs duty is payable or the value should be split into two - one for the intellectual input and other for the media. The Honble Apex Court held as follows:
it is misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, paintings are also to be taxed. Valuable paintings are worth millions. A painting or a portrait may be specially commissioned or an article may be tailor made. This aspect is irrelevant since what is taxed is the final product as defined and it will be an absurdity to contend that the value for the purposes of duty ought to be the cost of the canvas and the oil paint even though the composite product, i.e., the painting is worth millions. In the said case , the apex Court further considered the issue whether design and engineering charges are loadable to the value of the goods imported when the goods are manufactured on the basis of design, engineering, specifications provided by the foreign supplier and held as follows:-
We are of the opinion that the Tribunal was right in holding that the agreement relating to purchase of equipment cannot be disassociated from other agreements and the authorities were right in loading the design and engineering charges by Rs.11.50 lakhs owe to the value of the imported equipment under Rule 9 read with Rule 4 of the Customs Valuation(Determination of the Price of Imported Goods) Rules, 1988.
10.8 Similarly in the case of Gujarat Mineral Development Corporation Ltd., Vs. CCE & C, Ahmedabad 2005 (190) ELT 5 (SC) a question arose before the apex Court whether the design and engineering charges going as input into manufacture are includible in the transaction value of the imported goods. In that case the apex Court held that the value of designs and engineering charges going as input into manufacture are includable in the taxable value of goods imported and remanded the matter back to the appellate Tribunal for reconsideration of their order wherein they had held that they were not so includible. A similar question arose in the case of Dabhol Power Company Vs. CC, Pune 2004 (171) ELT 354 wherein this Tribunal held that the value of services relating to drawings, data sheets, specifications, etc. were includible in the cost of equipment imported in terms of provisions of Rule 9 (1) (b) (iv) of the Customs Valuation Rules, 1988, since in the absence of these designs and engineering services the product could not have been manufactured.
10.9 In the light of the foregoing discussion and the case laws analysed above, we hold that the considerations paid to M/s Nichimen in terms of the agreements dated 20-11-98 and 4-1-2000 shall be added to the price actually paid for the imported goods in terms of Rule 9 (1)(b) (ii) and Rule 9 (1) (b) (iv) of the Customs Valuation Rules, 1988.
11. From the foregoing discussions, we find that there is no infirmity in the impugned order. In the result, the appeal is dismissed being devoid of merits.
(pronounced on 19/09/2016 in court) (MADHU MOHAN DAMODHAR) MEMBER(TECHNICAL) ( SULEKHA BEEVI, C.S.) MEMBER(JUDICIAL) dks ..dks 11