Custom, Excise & Service Tax Tribunal
Commissioner Of Customs, Chennai vs M/S. Godrej Agrovet Limited on 17 July, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
C/46/2004 (Departments Appeal)
C/167/2011 (Assessees Appeal)
(Arising out of Order-in-Original No. 188/2002 dated 21.11.2002 passed by the Commissioner of Customs, Chennai)
Commissioner of Customs, Chennai
M/s.Godrej Agrovet Limited Appellants
Vs.
M/s. Godrej Agrovet Limited
Commissioner of Customs, Chennai Respondent
Appearance
Shri M. Rammohan Rao, JC (AR) for Revenue
Shri R. Parthasarathy, Advocate for the Assessee
CORAM
Honble Shri R. Periasami, Technical Member
Honble Shri P. K. Choudhary, Judicial Member
Date of Hearing / Decision: 17.07.2015
Final Order No. 41538-41539 / 2015
Per R. Periasami
Both the assessees appeal and Revenues appeal are taken up together as the issue is arising out of a common adjudication order passed by Commissioner of Customs, Chennai.
2. The brief facts of the case are that the appellants filed Bills of Entry No. 38635 dated 16.7.1998 and No. 51857 dated 11.9.1998 for clearance of ID sterilizer doors with matching flanges and twin screw press (P5) excluding motor, gear and coupling C/W Hydraulic System as machinery for palm oil extraction. The machineries are classifiable under Headings 8479.20 and 8479.90. The investigation carried out by the Special Investigation Branch (SIIB) revealed that the assessee M/s. Godrej Agrovet Ltd. (GAVL, for short) entered into an agreement with Sun Consultant India Pvt. Ltd. (SCI for short) for setting up of palm oil plant in India. Initially, as per the agreement, SCI was to undertake supply of equipments, machineries both imported and indigenous for the Palm Oil Extraction Plant. Subsequently, GAVL placed purchase orders for supply of spares for a total value of RS.1,67,660/- as the unit price for the twin screw press (P5) c/w hydraulic system at RM 98000 and stock type centrifuge at RM 56,000/-. Subsequently, SCI amended the terms and that the assessee-importer had to import the machineries directly from the Malaysian supplier. Accordingly, GAVL imported goods from M/s. Technomas SDN, Malaysia (TSDN, for short). It was alleged that the appellant entered into contract with SCI and SCI in turn had agreement with M/s. Chemical Construction International Pvt. Ltd. (CCL, for short). In turn CCL signed MOU with TSDN for supply of basic drawings, designs and also for installation, erection and commissioning of palm oil plant. The appellants have quoted payments in the purchase order in the following manner:-
1.
Design/engineering charges used for manufacture of imported equipments
Rs.27,32,000/-
2.
Technical know-how fees
Rs.50,00,000/-
3.
Cost for unloading on site storage and erection
Rs.30,00,000/-
4.
Cost for supply of equipment
Rs.162.68 lakhs
a.
Cost of imported equipment
RM1,54,000
b.
Spares for imported equipment
RM13,660
3. Show-cause notice dated 30.9.2001 issued to the appellants alleging to include the amount paid towards design / engineering charges used for manufacture of imported equipment and technical know-how fees of Rs.50 lakhs to the invoice value on the ground that SCI is the sister concern of CCL who will solicit orders from the supplier TSDN for establishing palm oil plant for GAVL and SCI shall assign the same to CCL and CCL in turn has signed MOU with TSDN. By way of assigning agreement, CCL undertook to supply both imported and indigenous equipment and CCL will provide both imported and indigenous equipment and will ask GAVL to place order directly and open LC on TSDN, Malaysia and import equipments as per CCL recommendation. The equipment imported was manufactured using the design provided by TSDN on behalf of CCL. TSDN only designs the required imported equipment and the equipments are manufactured by other companies in Malaysia and supplied to GAVL on the recommendations of CCL. The cost of designs and drawing provided by TSDN would be remitted by CCL to TSDN and CCL in turn will bill from GAVL.
4. CCL will use the technical documentation support of plant. TSDN supplied know-how to CCL for process of manufacture of final product using the assembled equipment. CCL reimbursed TSDN for the design, engineering carried out by TSDN for manufacture of import part of the equipment. CCL also reimburses for technical documentation assembling chemical of the plant. CCL also reimburses for TSDN for technical now how.
5. Commissioner of Customs, in the impugned order dropped the demand of RS.91,801/- in respect of Bill of Entry No. 51857 and he held that Rs.27.32 lakhs paid by GAVL to TSDN through CCL is includible in the assessable value of goods covered by both Bills of Entry under Rule 9(1)(b)(iv) read with Rule 9(1)(c) of Rule 4 of Customs Valuation Rules, 1988 under Section 14 of Custom Act, 1962. The adjudicating authority had also held that Rs.50 lakhs towards technical know-how documentation fees towards drawings and designs for erection and start up, commissioning cannot be added under Rule 9(1)(c). He confirmed Rs.12,81,308/- towards the differential duty of customs on the differential value of loading of Rs.27.32 lakhs in the assessable value. He ordered for finalization of provisional assessment and also ordered for confiscation of the goods and allowed redemption on payment of fine of Rs. 8 lakhs and imposed penalty of Rs. 2 lakhs on the assessed-importer and also ordered for enhancement of bank guarantee executed by the appellant towards differential duty, fine and penalty.
6. Hence the appellant preferred appeal No. C/167/2011 against the impugned order pertaining to loading of Rs.27.32 lakhs and demand of differential customs duty, fine and penalty. Revenue preferred appeal No. C/48/2004 against dropping / non-inclusion of Rs.50 lakhs in the transaction value relating to technical know-how and documentation fees, drawings, designs and erection and commissioning of oil plant.
7. Heard both sides and perused the records.
8. The learned counsel for the assessed submitted detail synopsis and made his submissions. He submitted that the inclusion of Rs.27.32 lakhs in the transaction value on imported capital goods under Rule 9(1)(b)(iv) read with Rule 9(1)(c) of Customs Valuation Rules, 1988 is not sustainable. Consequently, the demand of differential duty is also not sustainable. He submits that GAVL intend to set up a palm oil plant in India for which they have entered into an agreement with SCI for supply of items both imported as well as indigenous, technical services and installation, erection of palm oil plant. He further submitted that SCI is a sister concern of CCL. Due to certain regulatory requirements i.e. RBI regulations, Sales Tax Registration etc. SCI had assigned the said contract to CCL. CCL had signed MOU with TSDN in the year 1994 for the basic engineering for manufacture and procurement of equipments as well as for the right to use the know-how, expertise and knowledge in construction of said plant in India. The said MOU was entered in the year 1994. Three years before the import took place and the said MOU is not restricted to GAVL. The appellants have rights and know-how are clearly stipulated in the said MOU. He drew attention to MOU agreements dated 2.9.1994 at pages 149 to 157. He explained in detail with reference to the scope of MOU contained in clause 1.5, 1.6, 1.7 where the definition of plant, basic engineering, the workshop, drawing, technical documentation has been spelt out. He submits that MOU is for the complete setting up of palm oil plant in India. He submits that as per the definition of basic engineering, it covers to two components Part (a) and (b). Part (a) relates to providing necessary drawings and specifications, data at the tendering stage and Part (b) covers at project execution stage, after CCL being awarded the project, where TSDN shall provide all detail drawings and specifications for execution of palm oil project in India. As per the specific clause in MOU on basic engineering, he submits that goods relates to cover all execution of the palm oil mill project in India and the said basic engineering nowhere relates to the engineering, designs of imported machinery covered under the present Bills of Entry.
9. He further submits that as per clause 1.7, workshop drawing is prepared indigenously by CCL on the basis of basic engineering design submitted by TSDN for manufacture of equipment indigenously. He further submits that the definition of technical documentation clearly relates to information required for assembling of a plant and structures, pipelines etc. and not related to the imported machinery.
10. He also drew our attention to Appendix I at page 155 of the paper book and referred to clause 1.1 to 1.4 wherein the scope of basic engineering has been spelt out and it relates to only technical description of the plant and components and layout drawings of plant, assembly drawings of the plant, painting and installation of materials, specifications etc. Therefore, he submits that the basic engineering spelt out in Appendix I and in MOU is nowhere related to the imported goods but related to setting up of palm oil plant in India which is purely post-importation activity. He drew our attention to 3.2 of the MOU where obligations of the CCL has been spelt out clearly. CCL will prepare the workshop drawings and also manufacture equipment indigenously based on the drawings and also procure the equipment. The basic engineering and design charges relate to indigenous design of plant and also relates to workshop design developed by CCL. Further, he submits that the GAVL has never entered with any agreement with TSDN. They have placed purchase orders directly with TSDN for import of only these two machineries i.e. sterilizer door and twin pins. Thee drawing and design charges paid by CCL to TSDN is not relatable to the imported goods. There is no agreement between CCL and TSDN or GAVL and CCL. There is no specific clause to the effect that charges are payable as a condition of sale of imported goods.
11. The counsel submits that as per Rule 9(1)(b)(iv) of Customs Valuation Rules, 1988, the adjustment of value is in relation to imported goods. Rule 9(1)(b)(iv) relates to engineering development or workshop design and sketches undertaken elsewhere than in India and such engineering is necessary for production of the imported goods. He stated that workshop drawings developed by CCL which is approved by TSDN is not related to the imported goods but only related to manufacture of equipments in India therefore that Rule 9(1)(b)(iv) is not applicable. Rule 9(1)(c) is applicable only if the agreement stipulates as conditional sale of goods. In the present case, there is no direct agreement with GAVL and TSDN. There is no payment made on these charges whereas the Department has invoked Rule 9(1)(b)(iv) by taking into third party payments. The payments made by GAVL to CCL are not payments to third party. Department failed to prove with any evidence whether such payments are directly linked to the present import. He drew our attention to the invoice at page 101, 116 where the description of goods has been clearly spelt out. He also drew our attention to engineering drawings exhibited at A1 to A19 of the paper book which all relates to basic drawing of the plant, layout and location of machineries and their floor diagram. These engineering drawings are not related to equipments which are covered under the present Bills of Entry.
12. Regarding the Revenue appeal on technical know-how, he submits that the adjudicating authority has rightly excluded. He drew our attention to MOU agreement at clause 1.9 at page 150 the technical know-how relates to the entire payment of oil mill and not related to the imported machineries. The learned counsel submitted that the adjudicating authority has rightly not included. He relied on the following case laws:-
(a) Associated Cement Companies Ltd. Vs. Commissioner of Customs - 2001 (128) ELT 21 (SC)
(b) TISCO Vs. Commissioner of Central Excise 2000 (116) ELT 422 (SC)
(c) Birla Perucchini Ltd. Vs. Commissioner of Customs 2008 (221) ELT 436
(d) Commissioner of Customs Vs. Vishakhapatnam Steel Project 1992 (62) ELT 572
(e) Commissioner of Customs Vs. Ferodo India Pvt. Ltd. 2008 (224) ELT 23 (SC)
(f) Panalfa Dongwon India Ltd. Vs. Commissioner of Customs 2003 (155) ELT 287 (Tri. LB)
(g) Polar Marmo Agglomerates Ltd. Vs. Commissioner of Customs - 2003 (155) ELT 283 (Tri. LB)
(h) Hoerbiger India Pvt. Ltd. Vs. Commissioner of Customs 2003 (156) ELT 62 (Tri. LB)
(i) Collector of Customs Vs. Essar Gujarat Ltd. - 1996 (88) ELT 609 (SC)
(j) Saint Gobain Glass India Ltd. Vs. Commissioner of Customs, Chennai 2014-TIOL-1406-CESTAT-MAD1995 (76) ELT 481 (SC)
(k) BPL Display Device Ltd. Vs. CC Civil Appeal No. 1729/2001
(l) Union of India Vs. Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (SC)
13. Learned AR for Revenue reiterated the findings of the adjudicating authority insofar as the inclusion of the value of drawing and design. He reiterated the grounds of appeal for the Revenues appeal regarding the inclusion of technical know-how fees. He submits that as per the agreement between GAVL, SCI, CCI and TSDN, the main objective for the whole scheme is to set up a palm oil plant in India. It is in the nature of package sale and forms a condition of sale of goods. He drew attention to the definition 1.2, 1.4, 1.5, 1.6, 1.7 and 1.9 of the MOU between CCI and TSDN. He submits that from the definitions it is very clear that the entire agreement is only to set up a complete palm oil mills in India to the potential buyer of the plant from CCI. He also drew attention to clause 2.1.1 of the MOU which clearly stipulates the sale of basic engineering for manufacture and procurement of equipments, palm oil mills plant, delivery of assembly, documentation as well as granting CCI right for using this know-how. He also drew attention to clause 3.1.2 where in the MOU itself break-up of the amount payable for each category was clearly included for procurement of equipment. He referred to clause 3.30 and 3.31 which stipulates the basic fee for supply of basic engineering, know-how and other technical documentation. He further submits that as per clause 4.1.1 of the MoU wherein TSDN gave the exclusive right to CCI to set up palm oil project mills India and as per clause 6.1.2 the element of secrecy has been built in which is binding on the CCI not to disclose or transfer the information to third parties and submits that the payment towards drawing and engineering is also related to supply of goods by TSDN.
14. He further relied on the agreement signed by SCI with CCI for the referred clause 2, 3, 7, 12 and 13. He also relied on letter dated 27.10.1997 at page 142 of paper book of SCI to GAVL wherein paragraphs 3 to 6 are relevant where SCI is confirming technology and the designs of TSDN and the equipment imported from Malaysia from TSDN. As per paragraph 6 of the letter, SCI has clearly intimated the complete break-up of the cost of each piece of equipment. He also relied on letter of indent dated 29.10.1997 at page 166. He also drew attention to the reply to the show-cause notice by the assessee at page 154 of the assessees paper book. In paragraph 2.8 it is mentioned that the assessee had initially signed contract with SCI and subsequently it was signed by CCI and therefore CCI becomes part of the main contract. There is a nexus between GAVL and CCI and the technology is transferred to GAVL. SCI disappeared from the scene after assigning the contract to CCI. He also relied on RBI letter at page 158 and 159 wherein the beneficiary is GAVL and the amounts paid by GAVL is towards engineering fees and technical know-how and is ultimately for TSDN. He also referred to letter dated 8.9.1998 between TSDN and GAVL where the TSDN has clearly confirmed that their equipment is tailor made for GAVL based on their designs and technology. He further submits that Rule 9(1)(b)(iv) and 9(1)(e) are very wide enough to include the amounts paid on basic engineering and technical know-how. If the technology was not transferred there is no use of supply of sterilizer doors and other equipments imported from TSDN. He relied on the following case laws:-
(a) Andhra Petrochemicals Ltd. Vs. Collector of Customs, Madras - 1997 (91) ELT 349
(b) Welspun Maxsteel Ltd. Vs. Commissioner of Customs (Import), Mumbai - 2015 (317) ELT 514
(c) Elmrad Hydro Drive Inc. Vs. Commissioner of Customs - 2008 (228) ELT 461
(d) Commissioner of Customs Vs. Mahendra Suiting Ltd. 2008 (226) ELT 747
(e) Uptron Colour Picture Tube Ltd. Vs. Commissioner of Customs, Mumbai - 2001 (130) ELT 156
(f) Collector of Customs Vs. Essar Gujarat Ltd. 1996 (88) ELT 609 (SC)
Therefore, he submits that both basic engineering and design charges and technical know-how paid through CCI to TSDN are includible in the transaction value on the imported goods under Rule 9(1)(b)(iv) and 9(1)(e) and technical know-how is covered under Rule 9(1)(c).
15. Learned counsel appearing for the appellant in his rejoinder countered the arguments of the learned AR and submits that schematic chart showing the flow of payments from GAVL to SCI / CCI then to TSDN and also from GAVL to TSDN. He submits that out of the total payment of Rs.3,00,78,000/- made by GAVL to SCI/CCI part of which is only Rs.26 lakhs assumed to have been paid to TSDN by CCI. The cost of the imported equipment is only Rs.30.78 lakhs. He submits that there is no evidence of any payment made by SCI/CCI to TSDN. Even assuming, as per MoU between CCI and TSDN, CCI may have paid RM2,60,000 = Rs.26 lakhs in Indian Rupees. When the total cost of the equipment is only Rs.30.78 lakhs, the department proposing to add Rs.27.32 lakhs to Rs.30.78 lakhs, and also proposing to add Rs.50 lakhs paid by GAVL to CCI towards imported goods under Rule 9(1)(c) is not correct.
16. He drew attention to the purchase order placed with SCI which is in Annexure VIII at pages 59 to 61. Items 1 to 19 are neither imported nor related to any of the items that are imported. He submits that they have categorically brought out the various clauses and detailed break-up of technical know-how and detail engineering as per Annexure VIII of the purchase order. They have explained in detail the technical know-how and engineering wherein it is specifically mentioned through diagrams and manuals and the category equipment details clearly shows the list of fabricated equipment in India. He further submits that as per Annexure the basic engineering will consist of the equipment which is fabricated at site. Nowhere it is specified that the design and engineering are also for the import of equipments. Pages 61 to 63 of paper book all relates to basic engineering of plant, layout, testing etc and not related to imported goods.
17. He further submits that the Department has failed to produce any single evidence to prove that all these are related to imported goods i.e. ID sterilizer door, screw press P5 and centrifuge. He submits that it is only a presumption and not based on the facts and evidence. He countered all the citations relied by Revenue particularly the case of Andhra Petrochemicals (supra) and Essar Gujarat (supra). He drew our attention to para 10 to 14 where the facts are directly related to the imported goods by a package deal. He further submits that para 57 of the Andhra Petrochemicals (supra) cannot be read in isolation. Similarly, Essar Gujarat (supra) relied by Revenue has no application to the facts of the present case. He relied on the decision of the Honble Supreme Court dated 3.5.2006 in C.A. No. 1729/2001 in the case of BPL Display Device. Similarly, the Honble Supreme Court has reversed the decision of Uptron. Learned counsel also submitted Rules 9(1)(b)(iv), 9(1)(e) and 9(1)(c) are not applicable to the facts of the present case.
18. Learned AR in his rejoinder submits that when the package of agreement between interested parties, the assessee through CCI and TSDN clearly shows the nexus and the evidence of remittance is not required to be established.
19. We have carefully considered the submissions of both sides and also examined the various records, agreements and MoUs, purchase orders, letter of indent submitted by both sides in the form of paper book and the drawings and designs. The basic issue in the present case relates to loading of charges paid by the assessee towards basic engineering, design, drawing and technical know-how paid to CCI on the imported equipments i.e. ID sterilizer doors, Screw Press P5 and centrifuge imported under two Bills of Entry. The adjudicating authority, in the impugned order, loaded the value of Rs.27.32 lakhs paid towards engineering and design fees to the transaction value of the imported equipments and dropped loading of Rs.50 lakhs pertaining to technical know-how. The assessees appeal pertains to loading of Rs.27.32 lakhs whereas the Revenues appeal relate to the dropping of Rs.50 lakhs towards technical know-how fees by the adjudicating authority.
20. On perusal of the records and various agreements relied by both sides, we find that the appellant have entered into agreement with SCI for setting up of palm oil plant in India. For easy understanding, we reproduce the schematic flow diagram:
GAVL SCI/CCI TSDN
Appellant Indian Intermediary Overseas supplier
Direct Input
1. The purchase Order placed by GAVL to SCI/CCI consists of the following:-
i. Supply of equipment made in India Rs.192.68 lacs
ii. Technical know-how fee Rs.50.00 lacs
iii. Detail Engineering Rs.27.32 lacs
iv. Imported Equipment Rs.30.78 lacs
-----------------
Total Rs.300.78 lacs ----------------- (Rs. 270 lacs excluding value of imported goods)
2. There is no evidence of any payment made by SCI/CCI to TSDN. However, as per the MoU between CCI and TSDN, CCI may have paid Malaysian Ringgit 2,60,000/- (about Rs.26,00,000/-). The SCN and order state without any basis that which was paid by GAVL to CCI would in turn be remitted to TSDN.
3. The payments made by GAVL to TSDN are the following:-
i. Bill of Entry No. 38637 dt. 16.7.1998 Rs.13,34,445/-
ii. Bill of Entry No. 51857 dt. 11.9.1998 Rs.17,44,077/-
----------------
Total Rs.30,78,552/-
-----------------
21. On perusal of agreements and records, we find that as per original agreement the Indian entity SCI agreed to set up the palm oil plant to the appellant and it includes imported as well as indigenous machinery and equipments installation and erection of palm oil plant. Thereafter the SCI assigned the said contract to CCI another Indian entity who signed MoU with TSDN, Malaysia for technology transfer as well as for setting up of palm oil plant in India to any potential buyer in India only through CCI. On perusal of the records, we find that the appellant GAVL was to procure the equipment only from SCI. Due to RBI restrictions of opening of LC, SCI requested the appellant to place order directly with TSDN Malaysia only for three equipments i.e. ID sterilizer doors, screw press P5 and Centrifuge. By virtue of this understanding, the appellants placed purchase order with TSDN for import of these three equipments. There is no direct agreement entered into between the appellant with TSDN for any transfer of technical know-how or for supply of engineering and design or for installation and erection of the palm oil plant.
22. We have carefully seen the copy of relevant agreements entered into between GAVL with SCI and agreement by SCI with CCI and the MoU dated 2.9.1994 signed between CCI with TSDN. The original MoU was signed in 1994 whereas the present import was made in 1997 98. The value of goods declared as per the invoice for both the Bills of Entry is Rs.30,78,552/- whereas Revenue proposed to add supply of engineering and design charges and technical know-how fees to arrive transaction value.
23. We now propose to examine the first issue relating to loading of design and engineering charges as confirmed by the adjudicating authority in the impugned order. The adjudicating authority heavily relied on the MoU signed between CCI and TSDN and linked this with agreement signed between the assessee with CCI and concluded that even though the amount was paid to the Indian counterpart i.e. CCI towards engineering charges which is nothing but payment to TSDN for supply of engineering and design.
24. On perusal of the MoU dated 2.9.1994 between CCI and TSDN, we find that the scope of the MoU at clause 2.1.1, 3.1.2 and 3.2 are relevant and the same are reproduced as under:-
2.1.1 The sale basic engineering for manufacture and procure equipment palm oil mills plants, delivery of assembly documentation as well as granting to CCI the right for using this know-how, experience and knowledge in construction of such plants in India.
3.1.2 For such contracts furnish CCI with Basic Engineering, Know-how and other technical documentation specified in Appendix I for palm oil mills of 3T to 10T FFB per hour to this MOU.
3.2 CCI undertakes to:
3.2.1 Detailing of workshop drawings for plant units on the basis of Basic Engineering received by them from THAS 3.2.2 Present to THAS the workshop drawings for checking 3.2.3 Manufacture the equipment according to the checked workshop drawings 3.2.4 Enable THAS to visit the factories in which the equipment will be or is manufacture for inspection of the quality of the manufactured equipment.
3.2.5 Manufacture and / or procure all the equipment and components from goods materials, according to THAS specification or closest equivalent.
25. We reproduce the relevant clauses i.e. 1.2, 1.4, 1.5., 1.6, 1.7, 1.8 and 1.9 relating to the Terms of the agreement as under:-
1.2 Purchaser The potential buyer of plants from CCI 1.4 Contract The future contracts which will be concluded between purchaser and CCI in India 1.5 Plant Complete palm oil mills to be set up in India 1.6 Basic Engineering Basic Engineering will consist of:-
a. Tendering stage THAS will provide all necessary drawings and specification and also datas and details of equipment for CCI to do a cost estimate b. Project execution stage on CCI being awarded the project THAS shall provide all detailed drawings and specifications for execution of palm oil mill project in India 1.7 Workshop drawing Drawings worked out by CCI on the ground of basic engineering for manufacture of equipment of the plants 1.8 Technical documentation Documentary informations necessary for assembling of plants 1.9 Know-how Technical informations and knowledge in written and / or oral form to construct, assemble and operate palm oil mills
26. As seen from the above clauses, the definition of basic engineering has two components (a) TSDN will provide necessary drawings and specification at the tendering (b) they will submit detail drawing specifications for execution of palm oil project in India.
27. Read with this definition, we find that Appendix I of the MoU explains in detail the scope of basic engineering, know-how and technical documentation of palm oil mill project. Clause 1 of Appendix I is reproduced as under:-
1. BASIC ENGINEERING SHALL INCLUDE 1.1 Technical description of the process equipment and components 1.2 Layout drawings of the plant units 1.3 Assembly drawings of the plant units 1.4 Painting insulation materials specification structural staging supports and foundation loads of plant and equipment
2. KNOW-HOW SHALL INCLUDE 2.1 General description of the technology for palm oil mills 2.2 Operating instruction 2.3 Service instruction 2.4 Safety and fire safety instruction 2.5 Pre-start-up tests instruction 2.6 Process start-up instruction 2.7 Equipment testing instruction
3. TECHNICAL DOCUMENTATION SHALL INCLUDE 3.1 Complete list of technical description of all component plant equipment 3.2 Protection against corrosion 3.3 Complete specification of all pumping and handling equipments 3.4 Complete specification of pipings 3.5 Complete specification of valves 3.6 Complete specification of instrumentation 3.7 Requirement of utilities for the process 3.8 Effluent specifications and treatment and disposal 3.9 List of spares
28. From the above it is evident that the basic engineering and design supplied by TSDN to CCI relates to lay out drawings of the palm oil plant, assembling and drawing of palm oil plant. Clause 3 of Appendix I provides a complete list of documentation, specifications, piping, valve, instrumentation for the entire setting up of the palm oil plant. Nowhere in the MoU there is any mention that the design, basic engineering designs are related to the imported goods in question. It is pertinent to state that the appellant GAVL has entered into contract with SCI vide No.1182 dated 28.11.1997. As per this contract, they placed revised purchase order dated 9.3.1998. As per this contract between GAVL and SCI, the supply of equipment to be made in India for an amount of Rs.1.92 crores, technical know-how fee of Rs.50 lakhs, the detail engineering of Rs.27.32 lakhs. On perusal of the terms and conditions the original contract order No. 1182 dated 28.11.1997 as per Annexure VIII of the contract lists out various clauses including technical know-how, equipment, plant layout and detail engineering at S. Nos. 20 to 25 explains the list of details of engineering which is reproduced under:-
EQUIPMENT
20) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions.
21) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions.
22) Weights and foundation details for supporting equipments of for additional steel structure
23) Shop test certificate of each functional equipment PLANT LAYOUT AND PIPING
24) Final equipment layout with exact position with reference points for actual erection and positioning of foundations
25) Detailed pipes and valves specifications
a) Process lines
b) Utility lines
c) ETP
29. From the above specifications, it is evident that the basic engineering clearly relates to complete lay out designs of palm oil plant set up by SCI. By virtue of assignment vide letter dated 15.6.1998 as submitted by the appellant in reply to show-cause notice the original purchase order No. 1182 was entered with SCI has been assigned to CCI as CCI had technical collaboration with TSDN. From the above purchase order 1182 and letter of intent dated 9.3.1998, established that the basic engineering charges is not exclusively related to designs supplied by TSDN for setting up of palm oil plant but includes the designs prepared by CCI in India which is termed as workshop designs which based on the basic engineering design supplied by TSDN.
30. We also find that the entire designing of palm oil plant and lay out consist of both indigenous as well as imported and majority of the equipments are indigenously procured or made by CCI as per their own design. Except these three equipments which are imported by the appellant from TSDN, all other equipments and structurals were built indigenously. Therefore, it is apparent that the fee paid towards basic engineering is not related to TSDN but it includes for the designing done by CCI. We also perused the designs, drawings which is appended to the appeal memorandum. On a perusal of the drawings and designs, we find that the designs are related to complete construction and layout of palm oil plant with flow diagrams, flow chart and layout of each plant and machinery in the palm oil plant. Therefore, we hold that basic engineering designs charges paid by the appellant to CCI cannot be construed that the entire design fees has been in-turn paid back to TSDN by CCI.
31. We find that there is nothing on record to establish any payments made between CCI and TSDN towards the design fees etc. except it is provided in the clause 3.1.2 of the MOU. Further, it is seen from the contract between appellant and SCI/now CCI that nowhere it is shown or agreed that the appellant has to pay the engineering charges towards the imported equipment or it is a condition of sale. In the absence of any evidence Revenue cannot assume that amount paid by the appellant to CCI an Indian counterpart was directly related to engineering design charges and design charges towards imported goods. Further, we find that this is not the case of a related transaction between the supplier i.e. TSDN and GAVL. The appellant directly placed purchase order with TSDN for supply of impugned goods covered in the Bill of Entry. No doubt this import has been made as per the recommendations of the SCI/CCI and this cannot be construed that GAVL and TSDN are related unless it is established with clear evidence. There is no agreement between GAVL and TSDN for transfer of know-how or supply of goods or payment of royalty. The appellant imported the impugned equipments goods from TSDN Malaysia as per their purchase order No. 1239 dated 9.1.1998.
32. In order to include any addition of amount in the transaction value, it should fall within the scope of Rule 9(1)(b)(iv) of Customs Valuation Rules. It is relevant to reproduce the said sub Rule as under:-
(b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely:-
(i) materials, components, parts and similar items incorporated in the imported goods;
(ii) tools, dies, moulds and similar items used in the production of the imported goods;
(iii) materials consumed in the production of the imported goods;
(iv) engineering, development, art work, design work and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods As evident from the above provisions, Rule 9 is invocable for adjustment of the price if it is not included in the transaction value. Clause 9(1)(b)(i)(ii) and (iii) are not relevant to the present issue. Clause (iv) relates to engineering, development, art work, design work and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods. As we have already explained above, the basic engineering and design charges paid are clearly related to setting up of plant and not related to manufacture or production of the imported goods. Revenue contended that TSDN Malaysia is not the actual manufacturer of the said equipments and they in turn got the goods from others based on the design supplied by TSDN. On perusal of the letter dated 8.9.1998 (Ref. page 187) written by TSDN to the appellant, it is evident that the supplier clearly confirmed that the imported equipments are tailor made for the appellant plant based on their design and engineering. The value of the equipment is as per the invoice. TSDN also confirmed that the original manufacturer invoice from whom the TSDN procured the said equipment are not applicable. From this it is evident that even if TSDN has provided the design for manufacture of the imported equipment to original manufacturer at Malaysia, the invoice price of TSDN is inclusive of all cost and designs etc. In the absence of any other vital corroborative evidence that the appellants have paid separately to the supplier towards the design charges for manufacture of the said imported equipment at Malaysia, the invoice price is to be accepted as transaction value for the purpose of assessment. We have already held that the basic engineering fee charges paid by the appellant to CCI are not related to the imported goods. In this regard, we rely on the decision of the Honble Supreme Court in the case of TISCO Vs. CCE (supra) wherein the Honble Supreme Court has held that drawings and documents used for construction, erection and assembling are not includible in the assessable value. The relevant paragraphs are reproduced as under:-
11. A perusal of the order of the Tribunal shows that it has mainly proceeded on two sets of reasoning for holding against the appellant. Firstly, the Tribunal has examined the applicability of Rule 9(1) (b) (iv) and formed an opinion that benefit thereof was not available to the appellant. By reference to the Interpretative Note to Rule 4 it has held that to the extent the drawings and technical documents were referable to the manufacture and sale of the imported equipments, their value was liable to be included in the value of the equipments and material imported and inasmuch as separate values thereof have not been shown the entire value of 12.5 million DM of technical documentation covered by contract DM 301 was liable to be included in the value of the equipments. Secondly, the Tribunal has held the provisions of Rule 9(1)(e) being attracted and coming into play for the purpose of determining the valuation of the equipment and materials imported on the reasoning that the drawings and engineerings were compulsorily purchasable by the appellant along with the equipment and materials and hence the value of the two was liable to be clubbed. Shri Ashok Desai, the learned senior counsel for the appellant has vehemently attacked the correctness of the reasoning employed by the Tribunal and has submitted that the Tribunal has gone totally amiss in interpreting the rules and judging the case thereunder. It was submitted by Shri Ashok Desai that the interpretation as placed on the rules by the Tribunal is not correct. We will presently test the correctness of the contention so advanced.
12. Section 12 of the Customs Act is the charging section. Section 14 provides for the duty of customs being chargeable on any goods by reference to their value. In exercise of the powers conferred by Section 156 of the Customs Act, 1962 the Central Government has framed Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. Clause (f) of Rule 2 defines transaction value to mean the value determined in accordance with Rule 4. Under Rule 3 either the value of imported goods shall be the transaction value or if it cannot be determined then the same shall be determined by proceeding sequentially through Rules 5 to 8. Rule 4 provides that the transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India adjusted in accordance with the provisions of Rule 9. Under Rule 9, the value or price of certain cost and services is liable to be added to the transaction value while determining the value of the imported goods. Rule 9, insofar as relevant and to the extent referred to by the Tribunal is extracted and reproduced hereunder:-
9. Cost and services. - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, -
xxx ?????????xxx ??????xxx
(b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely :-
(i) materials, components, parts and similar used in the production of the imported goods;
(ii) tools, dies, moulds and similar items used in the production of the imported goods;
(iii) materials consumed in the production of the imported goods;
(iv) engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods;
xxx ??????xxx ??????xxx
(e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.
xxx ??????xxx ??????xxx (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data.
(4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule.[emphasis supplied].
xxx xxxxx xxxxxx xxx xxxxx
14. A bare reading of Rule 9(1)(b) shows that it refers to the value of the four specified goods and services supplied by the buyer free of charge or at a reduced cost for use in connection with the production and sale of imported goods to the seller and to the extent that such value has not been included in the price actually paid or payable. To illustrate, the seller may have manufactured equipments of a design, drawings whereof were made available by the buyer say by engaging an independent expert agency in the country of the seller. Although the seller has not incurred any expenditure on the technical/engineering design of the equipment manufactured by it yet the price paid for securing the engineering designs and drawings will be a component of the value of the equipment manufactured. In spite of the price for the services rendered by the expert agency having been paid by the buyer, the value thereof is liable to be added to the value of the imported goods for determining the transaction value. In the case at hand it is nobodys case that the buyer had supplied any goods or services free of charge or at reduced cost for use in connection with the production and sale for export of imported goods. All the exercise done by the Tribunal in scrutinizing the documents forming subject matter of contract DM 301 so as to classify them into three categories stated earlier in this judgment was therefore uncalled for. SNP had purchased the entire steel plant equipment from an Italian supplier more than six years before the transaction in question had taken place with the appellant. Such documents must have accompanied the equipments and materials made available to SNP by the Italian supplier of SNP. It cannot be comprehended and certainly it is not the case of the Revenue that the technical documents were supplied or made available by the Italian supplier to SNP either free of charge at the instance of the appellant or cost thereof was incurred wholly or partially by the appellant.
15. Clause (e) of sub-rule (1) of Rule 9 is attracted when the following conditions are satisfied :-
(i)??There is a payment actually made or to be made as a condition of sale of the imported goods by the buyer to the seller or to a third party :
(ii) Such payment, if made to a third party, has been made or has to be made to satisfy an obligation of the seller; and
(iii) Such payments are not included in the price actually paid or payable.
16. It is nobodys case that the seller had an obligation towards a third party which was required to be satisfied by it and the buyer (i.e. the appellant) had made any payment to the seller or to a third party in order to satisfy such an obligation. The price paid by the appellant for drawings and technical documents forming subject matter of contract DM 301 can by no stretch of imagination fall within the meaning of an obligation of the seller to a third party. There was also no payment made as a condition of sale of imported goods as such. Rule 9(1) (e) also, therefore, has no applicability.
17. So far as Interpretative Note to Rule 4 is concerned it is no doubt true that the Interpretative Notes are part of the Rules and hence statutory. However, the question is one of their applicability. The part of Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of imported goods. To illustrate, if the seller has undertaken to erect or assemble the machinery after its importation into India and levied certain charges for rendering such service the price paid therefore shall not be liable to be included in the value of the goods if it has been paid separately and is clearly distinguishable from the price actually paid or payable for the imported goods. Obviously, this Interpretative Note cannot be pressed into service for calculating the price of any drawings or technical documents though separately paid by including them in the price of imported equipments. Clause (a) in third para of Note to Rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be charges for construction, erection, assembly etc. of imported goods. Alternatively, even on the view as taken by the Tribunal on this Note, the drawings and documents having been supplied to the buyer-importer for use during construction, erection, assembly, maintenance etc. of imported goods, they were relatable to post-import activity to be undertaken by the appellant. Such charges were covered by a separate contract, i.e. contract MD 301. They could not have been included in the value of imported goods merely because the value of documents referable to imported equipments and materials was mixed up with the value of those documents which were referable to equipment which was yet to be procured or imported or manufactured by the appellant : the value of the latter category of documents also being neither dutiable nor clubbable with the value of imported goods. The Tribunal has not doubted the genuineness of the contracts entered into between the appellant and SNP. Rather it has observed vide para 10.2 of its order that entering into two contracts (MD 301 and MD 302) was a legal necessity. The Tribunal has also stated that it was not recording any finding of skewed split up. Shri Ashok Desai, the learned senior Counsel for the appellant has pointed out that under Chapter Heading 49.06 of the Customs Tariff Act, 1975 plans and drawings for engineering and industrial purposes being originals drawn by hand as also their photographic reproductions on sensitized papers and carbon copies thereof are declared free from payment of customs duty. Sub-rules (3) and (4) of Rule 9 clearly provide that additions to the price actually paid or payable is permissible under the Rules if based on objective and quantifiable data and no addition except as provided for by Rule 9 is permissible.
18. The abovesaid reasons demolish the edifice on which the order of the Tribunal is based. However, still the only thing that remains to be considered is whether there has been under valuation of blast furnace equipment covered by the contract MD 302. It is a pure and simple case of finding out the price actually paid or payable for the goods the phrase as occurring in Rules 2(f), 4 and 9, so as to find out the transaction value and levy duty thereon under Sections 12 and 14 of the Customs Act. One of the allegations made in the show cause notice given to the appellant was of the blast furnace equipments (BFE) having been undervalued by transferring a part of the value of the equipments to the value of engineering documents and drawings. In substance the show cause notice alleged the blast furnace equipment having been under valued by artificially excluding therefrom the value of technical documents. According to the Revenue such documents are even otherwise and in ordinary course supplied by the seller to the buyer. Because of the absence of such documents the goods sold being equipments would be of no use at all but the appellant had so manipulated the single transaction by bifurcating the single content into two documents so as to under value the blast furnace equipments by transferring a part of the value of such equipments to the value of engineering documents and drawings. The gist of the allegation is under valuation of blast furnace equipment. Shri Kirit Raval, the learned Additional Solicitor General has submitted that from the stage of the show cause notice till before the Tribunal the Revenue has kept its plea alive. Vide para 7 of its order the Tribunal noted this plea of the Revenue but did not go into it as the Tribunal considered it not necessary in view of other findings arrived at. The learned Additional Solicitor General submitted that if this Court may not sustain the order of the Tribunal then in all fairness the Revenue should be allowed an opportunity of substantiating its plea of under-valuation followed by such other relief to which it may be entitled in the event of its succeeding on its plea. We find merit in this submission. In our opinion on the order of the Tribunal being set aside the matter needs to be sent back to the Tribunal for examining on merits the above said plea of the Revenue which was refused to be gone into earlier on account of its having been found to be unnecessary.
19. The appeal is allowed. The impugned order of the Tribunal is set aside. The case is sent back to the Tribunal to entertain and examine the plea of the Revenue if the contract DM 302 is undervalued on the basis of the material already available on record. The Tribunal shall consistently with the observations made and findings recorded in this judgment hear and dispose of the appeal before it within a period of six months from the date of communication of this order. The bank guarantee furnished by the appellant shall be kept alive and the amount deposited shall also continue to remain in deposit till the date of decision by the Tribunal whereafter the bank guarantee and the deposit shall be dealt with consistently with the order of the Tribunal.
33. The ratio of the above Apex Courts decision is squarely applicable to the present case as already discussed above the drawing and designs are clearly relatable to the layout of palm oil plant and are not related to the imported goods.
34. The Tribunal in the case of Birla Vs. Commissioner of Customs, Mumbai (supra) and the decision of the Special Bench of the Tribunal in the case of Collector of Customs Vs. Vishakapatnam Steel Plant (supra), on an identical case, the Tribunal held that cost of engineering and design are not includible in the value of imported goods. Further, we find that the adjudicating authority proposing to load the entire engineering fees of Rs.27.32 lakhs to the imported equipment, in this regard, we find that the cost of the imported equipment is only Rs.30.78 lakhs, this implies that as per Revenue more than 100% loading of the invoice of the imported goods. The reliance placed by learned AR for Revenue, particularly the case of Essar Gujarat (supra) has not relevance to the facts of the present case and all the case laws are distinguishable.
35. Therefore, respectfully following the above decision, we hold that the engineering fees of Rs.27.38 lakhs paid by the appellants to CCI is not includible in the imported goods. Accordingly, the demand of differential duty confirmed in the impugned order is liable to be set aside. Consequently, the confiscation and penalty are also set aside.
36. As regards Revenues appeal, we find that Revenue contended that technical know-how fee of Rs.50 lakhs paid to CCI should be added to the transaction value of the imported goods whereas the adjudicating authority has dropped the proceeding in respect of technical know-how fees. On perusal of paragraph 29.1 and 29.2 of the impugned order, the adjudicating authority has clearly dealt the issue and held that technical know-how relates to post-importation activity and further held that it is not includible in the transaction value. In this regard, as already discussed in the preceding paragraph and on perusal of the documents, agreements between the appellant and SCI/CCI and MoU between CCI and TSDN, the technical know-how fees is not relatable to the imported goods and also it is not a condition of sale of the imported goods. Therefore, as rightly held by the adjudicating authority, Rule 9(1)(c) is not applicable to the present case. In this regard, this Tribunal in the case of Saint Gobain Glass India Ltd. Vs. Commissioner of Customs, Chennai 2014-TIOL-1406-CESTAT-MAD = 2014 (310) ELT 757 (Tri. Chennai), on identical issue held that design fees, transfer of technology know-how for manufacture of goods are not relatable to the imported goods and allowed the appeal. While allowing the appeal, the Tribunal relied on the Honble Supreme Courts decision in the case of Toyota Kirloskar Motor Pvt. Ltd. The relevant paragraphs are reproduced as under:-
9. We find that the Honble Supreme Court in the case? of Toyota Kirloskar Motors Pvt. Ltd., (supra) held that the transaction value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of import and the Honble Court dismissed the appeal filed by the Revenue and upheld the order of the Tribunal. In that case, Revenue contended royalty and know-how fees were to be added in the invoice value of the capital goods in terms of Rule 9(1)(c) of the Customs Valuation Rules, 1988 as it had a direct nexus to the imported goods as the same go into the manufacture of licensed vehicles and spare parts. The Tribunal held that in the agreement to the import of goods, there is nothing indicating that royalty payment is a condition of the sale of imported goods. It is observed that as regards royalty which goes under ordinary assistance relevant article of the agreement stipulates that upon request the foreign supplier shall furnish to the importer such technical know-how, information, data relating to the licensed products. The licensed products are the automobile to be manufactured in India under the agreement as well as specific parts. It is to be seen that the technical know-how, information etc. to be furnished are for studying the feasibility of Local Parts manufacturing, for manufacturing of local parts, for production preparation of licensed products etc. What is important that none of assistance is in relation to the goods under import.
10. For the purpose of the proper appreciation of the? case, the relevant portion, in the case of Toyota Kirloskar Motors Pvt. Ltd. (supra) are reproduced below :-
The transactional value must be relatable to import of?31. goods which a fortiori would mean that the amounts must be payable as a condition of import. A distinction, therefore, clearly exists between an amount payable as a condition of import and an amount payable in respect of the matters governing the manufacturing activities, which may not have anything to do with the import of the capital goods.
Article 4 provided for additional assistance in respect of?32. the matters specifically laid down therein. Technical assistance fees have a direct nexus with the post-import activities and not with importation of goods.
It is also a matter of some significance that technical?33. assistance and know-how were required to be given not as a condition precedent, but as and when the respondent makes a request there for and not otherwise. Appendix C of the agreement relates to manufacture of local parts which evidently has nothing to do with the import of the capital goods. Appendix D again is attributable to construction of plant; production preparation; and pilot production and production model, wherewith the import of capital goods did not have any nexus.
We may furthermore notice that Interpretative Note appended?34. to Rule 4 also plays an important role in a case of this nature which reads as under :
Note to Rule 4 Price actually paid or payable The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods. The payment need not necessarily take the form of a transfer of money. Payment may be made by way of letters of credit or negotiable instruments. Payment may be made directly or indirectly. An example of an indirect payment would be the settlement by the buyer, whether in whole or in part, of a debt owed by the seller.
Activities undertaken by the buyer on his own account, other than those for which an adjustment is provided in Rule 9, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller. The costs of such activities shall not, therefore, be added to the price actually paid or payable in determining the value of imported goods.
The value of imported goods shall not include the following charges or costs, provided that they are distinguished from the price actually paid or payable for the imported goods :
(a) Charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment;
(b) The cost of transport after importation;
(c) Duties and taxes in India.
The price actually paid or payable refers to the price for the imported goods. Thus the flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value. The said rule clearly states that the charges or costs?35. envisaged there under were not to be included in the value of the imported goods subject to satisfying the requirement of the proviso that charges were distinguishable from the price actually paid or payable for the imported goods.
Interpretation of the said rule came up for consideration?36. before a Bench of this Court in Tata Iron & Steel Co. Ltd. v. Commissioner of Central Excise & Customs, Bhubaneswar, Orissa - [(2000) 3 SCC 472], wherein it was held :
...This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods. To illustrate, if the seller has undertaken to erect or assemble the machinery after its importation into India and levied certain charges for rendering such service the price paid there for shall not be liable to be included in the value of the goods if it has been paid separately and is clearly distinguishable from the price actually paid or payable for the imported goods. Obviously, this Interpretative Note cannot be pressed into service for calculating the price of any drawings or technical documents though separately paid by including them in the price of imported equipments. Clause (a) in the third para of the Note to Rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be charges for construction, erection, assembly etc. of imported goods. Alternatively, even on the view as taken by the Tribunal on this Note, the drawings and documents having been supplied to the buyer-importer for use during construction, erection, assembly, maintenance etc. of imported goods, they were relatable to post-import activity to be undertaken by the appellant... Yet again a three-Judge Bench of this Court in?37. Union of India and Others v. Mahindra and Mahindra Ltd., Bombay [(1995) Supp. (2) SCC 372], opined :
...Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements reflect the real State of affairs. It is, no doubt, open to the Revenue to allege and prove that the apparent is not the real and that the price for the sale of the CKD packs is not the true price, and the price was determined by reckoning or taking into consideration the lump sum payment made under the collaboration agreement in the sum of 15 million French Francs.... It was furthermore held :
On an evaluation of the relevant clauses in the?9. collaboration agreements and the attendant circumstances, we are of the view that the concurrent judgments of the High Court at Bombay do not merit interference in this appeal. The crucial aspects appearing in the case are that the parties were dealing at arms length, that the seller and the buyer have no interest in the business of each other, that, ordinarily, the technical know-how of the machine can take in the assembly thereof, that the CKD packs and spares were supplied to the respondents by the collaborator not at a concessional price but at the price at which they were sold to others, that, as agreed to by the respondents, the option was entirely with the respondents to order the parts as per their requirements, that there was no obligation on the respondents to purchase CKD packs at all, that long before the supply of the CKD packs and spares, the royalty due to the collaborators was paid, that there is no material to show that the supply of the CKD packs or spares weighed with the parties in fixing the payments under the collaboration agreement but, on the other hand, the collaboration agreement for the technical know-how and the supply of CKD packs and spares are independent commercial transactions; in other words, there existed no nexus between the lump sum payment under the agreement for the technical know-how and the determination of the price for supply of CKD packs or spares. It is by highlighting the above aspects that the learned Single Judge and the Division Bench concluded that the contention that the price quoted in the invoices tendered by Mahindra & Mahindra (respondents) does not reflect the correct price because a part of the value of imported packs and components was already received by foreign collaborator while determining the consideration of 15 million French Francs cannot be accepted, and the collaboration agreement does not support the claim nor was there any material available to the Assistant Collector to warrant such a conclusion, and, therefore, resort to Section 14(1)(b) of the Act and Rule 8 of the Customs Valuation Rules is clearly incorrect and unsustainable and the Assistant Collector was bound to accept the price mentioned in the invoices for the purpose of assessing the customs duty. It may be true, as has been contended by the learned?38. Additional Solicitor General, that Rule 9(1)(c) of the Rules had not been taken into consideration therein, but the same does not make much difference.
For the views we have taken, we are of the opinion that the?39. CESTAT cannot be said to have committed any error in arriving at its decision in the impugned judgment. There is, thus, no merit in this appeal, which is dismissed accordingly. In the facts and circumstances of the case, there shall, however, be no order as to costs.
11. The ratio of the Honble Supreme Court decision is? squarely applicable to the facts of the present case, as the manufacture of Float Glass and the payment of royalty on the sale of finished goods. It is clearly evident from the agreement that Article 3 provides transfer of technology relating to Float Process. It has no relation to import of capital goods. In fact, the agreement relates to process, know-how, techniques of manufacturing of Float Glass. In terms of Rule 9(1)(C) of the CVR, 1988, the royalty fee and licence fee must be related to the sale of capital goods as a condition of importation of goods, which the appellant is required to pay directly or indirectly as addition of importation of goods. In the absence of any such condition in the agreement and also considering the fact that the royalty and the licence fee are related to the manufacture of Float Glass by the appellants for which the technology know-how is supplied by M/s. SGV, France, inclusion of royalty on the assessable value of the imported capital goods does not arise. Rule 9(1)(C) is not applicable in the appellants case as the said licence fee and royalty is nothing to do with the imported capital goods nor it is a condition for sale of imported capital goods.
37. Therefore, following the decision of the Honble Apex Court, we do not find any infirmity in the order passed by the adjudicating authority insofar as for not adding the technical know-how fees in the transaction value. The Revenue appeal is liable to be rejected.
38. In view of the foregoing discussions, we hold that both engineering & design charges and technical know-how fees are not includible in the assessable value and Rule 9(1)(b)(iv), 9(1)(c) and 9(1)(e) are not applicable and we hold that the invoice price is to be accepted as the actual transaction value.
39. Accordingly, the impugned order to the extent of demanding differential duty on design and engineering charges is set aside and the assessees appeal is allowed. The Revenues appeal on technical know-how fee is rejected.
(Dictated and pronounced in open court)
(P.K. CHOUDHARY) (R. PERIASAMI)
Judicial Member Tehnical Member
Rex
36