Custom, Excise & Service Tax Tribunal
Appeal Nos. C/96 & 97/07 vs Commissioner Of Customs (Import) on 12 October, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL No.C/96, 97 & 432/07 (Arising out of Order-in-Original No.130-132/2006/CAC/ CC(I)/ADP/Gr.VB & VA dated 3/11/2006 passed by Commissioner of Customs (Imports), Mumbai) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.R. Chandrasekharan, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see :No 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 :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy: Seen of the Order?
4. Whether Order is to be circulated to the Departmental :Yes authorities?
====================================================== Appeal Nos. C/96 & 97/07 Mahindra & Mahindra Ltd.
Ramesh U. Prabhu Appellants
Vs.
Commissioner of Customs (Import),
Mumbai Respondent
Appeal No. C/432/07
Commissioner of Customs (Import),
Mumbai Appellant
Vs.
Mahindra & Mahindra Ltd., Respondent
Appearance:
Shri.V. Sridharan, Advocate for appellants
Shri.K.M. Mondal, Special Consultant, for respondent
CORAM:
Honble Mr. S. S. Kang, Vice President
Honble Mr. P.R.Chandrasekharan, Member (Technical)
Date of Hearing : 25/08/2011
Date of Decision : /10/2011
ORDER NO
Per: P.R. Chandrasekharan
These appeals are directed against Order-in-Original No.130-132/2006/CAC/CC(I)/AKP/Gr.VB & VA dated 03/11/2006 passed by the Commissioner of Customs (Imports), New Customs House, Mumbai. As they involve a common issue, they are taken up together for consideration and disposal.
2. The facts arising for consideration in the case are as follows:
2.1 M/s. Mahindra & Mahindra Ltd. (Mahindra in short) are manufacturers of motor vehicles and parts thereof falling under Chapter 87 of the Central Excise Tariff. The Director General of Central Excise Intelligence (DGCEI in short) received intelligence to the effect that M/s. Mahindra had under-valued certain goods imported by it and, therefore, they visited the factory of M/s. Mahindra at Nasik on 31/08/2004. During the visit, it was found that M/s. Mahindra had not declared the assessable value of the imported goods correctly inasmuch as they had not included the assessable value of design and engineering charges in the value of the imported goods. Therefore, a detailed investigation was undertaken on the imports made by M/s. Mahindra. Investigation revealed that M/s. Mahindra intended to develop a new vehicle under its Scorpio vehicle programme. Pursuant to this, they entered into two separate agreements with M/s. Nichimen Corporation, Japan (Nichimen in short). These agreements were as follows:
i) Agreement bearing No.IDAM/REV/RUP/02 dated 20/11/98 (referred to as design agreement) for technical consultancy, design and engineering of models, soft tools and soft jigs/fixtures and assembly fixtures for the Scorpio vehicle programme . Charges payable for this by M/s. Mahindra to M/s. Nichimen were Japanese % 17,78,20,000.
ii) Agreement bearing No.AIAM/REV/RUP/03 dated 20/11/1998 (referred to as supply agreement) for supply of 34 prototype Body-in-White (BIW in short) and 2 sets of panels for the Scorpio vehicle programme and charges payable for by M/s. Mahindra to M/s. Nichimen was Japanese % 8,91,80,000.
2.2 Scrutiny of the above agreements and the bills of entry relating to imports made by M/s. Mahindra revealed that M/s.Mahindra did not include design and engineering charges of models, soft tools, soft jigs/fixtures and assembly fixtures, etc. in the assessable value of BIW and panels. A statement of Shri R.U. Prabhu, Dy. General Manager ( Capital Purchase of M/s. Mahindra was recorded on 07/09/2004 wherein he, inter alia, stated that the object of the design agreement was the design and engineering of models, soft tools, soft jigs/fixtures and assembly fixtures required for Scorpio vehicle programme and a consideration of Japanese %17,78,20,000 was paid for this. He further stated that M/s. Mahindra had paid Japanese % 8,91,80,000 to M/s. Nichimen as a consideration for supply of 34 BIWs and 2 sets of panels. In his subsequent statement dated 08/09/2004 Shri R.U. Prabhu, inter alia, stated that for the manufacture of BIWs, M/s. Nichimen had first produced the panels and these panels were then assembled together to form BIWs and in order to produce these panels and BIWs, M/s. Nichimen had designed and produced models, soft tools, soft jigs/fixtures and assembly fixtures, which were used to impart due shape to the said panels.
2.3 As part of the investigation, a statement of Shri Jagannathan Vasudevan, Head (Programme Management) of M/s. Mahindra was recorded on 15/10/2004 wherein he inter alia admitted that the BIWs and panels were actually manufactured by M/s. Chibha in Japan on behalf of M/s. Nichimen, who, in turn, had supplied the same to M/s. Mahindra and the design and engineering of the models, soft tools, soft jigs/fixtures and assembly fixtures too were done by M/s. Chibha, Japan. He further informed that the design and engineering information pertaining to the BIWs and panels was provided by M/s. Mahindra to M/s. Nichimen and that the design and engineering of the said BIWs and panels was carried out by M/s. Hawtal Whiting Design & Engineering Co. Ltd., England (HW in short) by the engineers of both M/s. Mahindra and HW. He also informed that the initial styling of BIW and panels was done by the engineers of M/s. Mahindra in India and subsequently the design house facility of HW was used by engineers of both M/s. Mahindra and HW. He also admitted that the design and engineering of said BIW was carried out by HW, England and fine tuned in India by the engineers of M/s. Mahindra and these engineering designs and specifications were given to M/s. Nichimen for the manufacture of the said BIWs by using soft tools, soft jigs/fixtures, at M/s. Chibha, Japan.
2.4 Investigation further revealed that HW was an international consultancy agency specializing in automotive design and engineering and product development and M/s. Mahindra had entered into an agreement with HW on 22/10/1996 for concept and feasibility - design and engineering of the IDAM vehicles. As per this agreement, all designs, models, technical documentation, calculations, data and other information was developed or produced by HW for M/s. Mahindra in pursuance of the project. The scope and duration of the project as per the agreement was concept and feasibility design and engineering of the IDAM vehicle as represented by the already approved full size clay model by M/s. Mahindra. The team to undertake the above project was located at the premises of HW in England and they were to carry out the work within an estimated period of 21 weeks. In consideration for the information supplied and services rendered by HW under this agreement, M/s. Mahindra paid to HW an amount of UK # 5,41,786. M/s. Mahindra also entered into a supplemental agreement dated 04/11/1996 as per which HW was required to provide consultancy services in respect of Computer Aided Design (CAD) exterior surface development and in consideration for the information supplied and services rendered by HW under this agreement M/s. Mahindra was required to pay an amount of UK # 1,80,332.
2.5 In addition to the above M/s. Mahindra had also entered into an agreement with M/s. Nichimen on 04/01/2000 for design changes and as a consideration for providing design changes, M/s. Mahindra was required to pay to M/s. Nichimen an additional amount of Japanese % 52,395,100. Thus, the total charges payable for design, engineering and development of model, soft tools, dies, soft jigs/fixtures by M/s. Mahindra to M/s. Nichimen amounted to Japanese % 23,02,15,100.
2.6 A statement of Shri B. Bhaumik, General Manager (Scorpio Project) was also recorded by the investigating agencies on 14/10/2004 wherein Shri. Bhaumik admitted that the design and engineering of the models, soft tools, soft jigs/fixtures and assembly fixtures was carried out by M/s. Nichimen, Japan and the same were required for preparing the said models and panels. Shri Bhaumik in his further statement dated 26/10/2004 admitted that M/s. Mahindra had a one time requirement of 34 Nos. BIWs and 2 sets of panels for testing and validation of various kinds and the order for the supply of BIW and panels was executed by M/s. Nichimen and the actual design and engineering of models, soft tools, soft jigs/fixtures and assembly fixtures was carried out by M/s. Chibha at Japan. He further confirmed that the concept and feasibility design and engineering of the said BIWs was executed by HW, UK with the participation of M/s. Mahindra at HWs facilities in UK.
2.7 Thus, M/s. Mahindra entered into a supply agreement with M/s. Nichimen for supply of 34 BIWs and two sets of panels and as per the agreement M/s. Mahindra was required to inform M/s. Nichimen of any further requirement over and above the said 34 BIWs and 2 sets of panels. Further, in terms of the agreement, soft jigs and pressing and hammering tools were required to be dismantled and disposed of six months after the completion of last shipment of BIW and panels.
2.8 Scrutiny of bills of entry relating to imports made by M/s. Mahindra revealed that M/s. Mahindra did not include in the assessable value of the goods imported, the amounts of UK # 7,21,366.75 paid to HW for the design and engineering of BIW and panels and Japanese % 23,28,10,165 paid to M/s. Nichimen towards design and engineering of models, soft tools, soft jigs/fixtures and assembly fixtures. In terms of Rule 4 read with Rule 9 (1) (b) (ii) and rule 9 (1) (b) (iv) of the Customs (Valuation) Rules, 1988 read with Section 14 of the Customs Act, 1962, the aforesaid amounts were required to be added to the assessable value of 34 BIWs and 2 sets of panels inasmuch as the same were manufactured by using models, soft tools, soft jigs/fixtures and assembly fixtures by M/s. Nichimen/Chiba, Japan.
2.9 An importer of goods into India is required to file a declaration in form Annexure-I along with the bill of entry for the same in terms of provisions of Section 46 of the Customs Act, 1962. As per serial no. 21 of the said declaration, the importer is also required to declare cost and services not included in the corresponding invoice value of such imported goods as per Rule 9 of the Customs (Valuation) Rules, 1988. However, M/s. Mahindra did not declare/disclose Japanese % 23,28,10,165 paid to M/s. Nichimen and UK # 7,21,366.75 paid to HW against Sl.no. 21 of the Annexure I submitted by them along with the bill of entry. Thus, it appeared that M/s. Mahindra had contravened the provisions of Section 14 of the Customs Act, 1962 read with provisions of Rules 4, 9 (1) (b) (ii) and 9 (1) (b) (iv) of the Customs (Valuation) Rules, 1988 with an intent to evade payment of Customs duty. It thus appeared that M/s. Mahindra had understated the assessable value of the 34 BIWs and panels imported with an intention to evade proper amount of Customs duty. The said goods were imported through different Customs Ports, viz., Nhava Sheva, Air Cargo Complex, Mumbai and New Customs House, Mumbai.
2.10 On completion of investigation, three show-cause notices were issued by the ADG, DGCEI, Mumbai, answerable to the respective Commissioners ( in charge of port of import). However, vide Notification No.55/2006-Cus(NT) dated 26/05/2006, the adjudication of the three show-cause notices was assigned by the CBEC to the Commissioner of Customs, New Customs House, Mumbai. The three show-cause notices issued sought to demand differential duty and interest thereon and impose penalty under Section 112 (a) of the Customs Act, 1962 and the details of the show-cause notices are as given below:
S.No. SCN No.& date Period of import Duty demanded (Rs.) No. of BIW No. of Panel 01 DGCEI/MZU/I&ISC/30-57/04 dated 14/12/2004 Dec. 1999 to July 2000 5,11,13,730 17 1 02 DGCEI/MZU/I&ISC/30-57/04 dated 28/10/2004 August 1999 to October 1999 1,86,24,298 07 03 DGCEI/MZU/I&ISC/30-57/04 dated 08/04/2005 June 1999 to July 2000 2,53,01,70 10 Total 9,50,39,788 34 2.11 After receipt of replies to the show-cause notice and grant of personal hearing, the Commissioner of Customs, New Customs House, Mumbai, adjudicated the three show-cause notices vide the impugned order. The Ld. Commissioner confirmed the demand for differential Customs duty amounting to Rs.7,78,67,696/- after holding that the balance amount of Rs.1,71,72,092/- is time barred (beyond the extended time limit of 5 years). The Commissioner further held that no interest is payable under Section 28AB of the Customs Act, 1962 on the duty demanded since the importer had already paid the differential amount of customs duty even before the issue of show cause notice. The Commissioner also held that 34 BIW and one set of panels, which were imported, totally valued at Rs.17,76,27,591/- were liable to confiscation under Section 111 (m) of the Custom Act, 1962 and since the goods were not available for confiscation, the Commissioner imposed a fine of Rs. 3 Crore in lieu of confiscation. The Commissioner imposed a penalty of Rs.1.5 Crore on M/s. Mahindra under Section 112 (a) of the Customs Act, 1962 and a penalty of Rs.5.00 lakhs on Shri. R.U. Prabhu, Dy. General Manager (Capital Purchase) of M/s. Mahindra under Section 112 (a) of the Customs Act, 1962. Hence, M/s. Mahindra and Shri R.U. Prabhu are in appeal before us against the impugned order. (Appeal Nos.C/96 & 97/2007).
3. The department also filed an appeal against the impugned order against the non-levy of interest under Section 28AB of the Customs Act, by the Ld. Commissioner. The ground urged in the departments appeal is that Section 28AB of the Customs Act was amended with effect from 11/05/2001 making it applicable to all types of cases of short levy. However, in cases involving fraud, collusion, suppression of facts, willful misdeclaration, etc. interest was chargeable under section 28AB with effect from 28/09/1996 (when the said section came into force), i.e., even before 11/05/2001. In the case under consideration, the import took place prior to 11/05/2001 (during June 1999 to July, 2000) and there was a mis-declaration of the value of the imported goods by suppression of material facts. Therefore, interest was chargeable as per the provisions of Section 28AB at the material time and the Commissioner erred in not charging interest on the amount of duty confirmed. Hence, the department is also in appeal before us. (Appeal No.C/432/07).
4. The Ld. Counsel for the appellants makes the following submissions:
4.1 Duty demand has been confirmed under Section 28 of the Customs Act. In the instant case, the duty was paid by M/s. Mahindra in terms of bills of entry, which were assessed at the time of importation. Thus, it was not a case of duty being not levied, not paid, short levied or short paid. Section 28 of the Customs Act, provides for issue of a notice for recovery of duties, which are not levied or paid or short levied or short paid or erroneously refunded. Since at the time of importation, the bills of entry were assessed, if the department was aggrieved of the assessment, they should have reviewed the order of assessment first. As assessment in the bills of entry is an appealable/reviewable order, action should have been taken by the department for review of the bills of entry under Section 129D of the Customs Act. In the instant case, no such review has been done and the department has straightaway issued a notice under Section 28 of the Customs Act, seeking to demand differential duty, which is not sustainable in law.
4.1.1 In support of the above convention, the Ld. Counsel relies on the judgment of apex Court in the case of CCE Vs. Cotspun Ltd., reported in 1999 (113) ELT 353 (SC) wherein the apex Court held that show-cause notice under Section 11A of the Central Excise Act, cannot be issued contrary to approved classification list. Similarly in the case of CC, Mumbai Vs. K.C. Shah & Others, reported in 2004 (64) RLT 314 (T), this Tribunal had held that where final assessments have not been reviewed under Section 129D, notice of demand under Section 28 cannot be issued.
4.1.2 The Ld. Counsel further relies on the judgement of the apex Court in the case of Priya Blue Industries Ltd., Vs. CC, reported in 2004 (172) ELT 145 (SC) wherein the apex Court held that in a case where the importer has not challenged the order passed while assessing the bill of entry, the refund claim is not maintainable. The Ld. Counsel also relies on the judgment of the apex Court in Additional CCE Vs. Mahindra & Mahindra Ltd., reported in 2000 (120) ELT 290 (SC) wherein it was held that even when demand is sought to be raised under Section 11A of the Central Excise Act, 1944, the principle laid down in Cotspun case will apply and if there is an approved price list, notice under Section 11A is not maintainable. Since Section 28 of the Customs Act are pari materia with the provisions of Section 11A of the Central Excise Act, 1944, the apex Courts decisions in Cotspuns case and Mahindra & Mahindras case cited above would apply.
4.1.3 In the light of the above judgement, it is his contention that the show-cause notices issued under proviso to Section 28 are not maintainable in the absence of an appeal against the bill of entry which had been finally assessed by the department. Therefore, the Ld. Counsel argues that the impugned order-in-original is liable to be set aside in its entirety as the same has been issued without jurisdiction.
4.2 The second argument adduced by the Ld. Counsel relates to payments made to HW. Vide the impugned order, the Ld. Commissioner has confirmed a duty demand of Rs.2,37,68,213/- on the value relating to payments made to HW, UK. The appellant received only rough concept sketches (drawings) in running length from HW, UK and with the aid of these sketches, not even a single component could be made. From the contract entered into with HW and terminology used therein, it can be seen that it was for a project for concept and feasibility of design and engineering of IDAM vehicle as represented by the already approved full size clay model by M/s. Mahindra. On receipt of the sketches, the engineers of M/s. Mahindra carried out detailed design and engineering at Mumbai and it was these detailed designs and engineering, which were forwarded to M/s. Nichimen for making prototype of BIWs/panels. In other words, it is the appellants contention that the sketches/drawings received from HW, UK were only concept/lay out sketches and with these not even a single component could be made and, therefore, the amount paid to HW cannot be included in the value of BIW in terms of Rule 9 (1) (b) (iv) of the Customs (Valuation) Rules, 1988. The Ld. Counsel submits that it is on record that the appellants engineers worked in India for 1 = years on the sketches supplied by HW and prepared detailed engineering drawings for manufacturable and assembleable components for the vehicle. They had prepared designs of nearly 500 components and 250 assembly drawings, which clearly shows that engineering design of the vehicle was undertaken in India and it was these drawings and designs, which were given to Nichimen, Japan in the form of DAT tapes to enable them to make the prototypes according to M/s. Mahindras specifications.
4.2.1 The extensive engineering done in India cannot be referred to as some preliminary work as held by the Commissioner. Therefore, the question of adding the amount paid to HW, UK, in the value of the prototype bodies received from M/s.Nichimen, Japan cannot arise. Rule 9 (1) (b) (iv) of the Customs (Valuation) Rules deals with (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. Thus, the said clause deals with assists, which are necessary for the production of imported goods. Thus, this clause can be invoked only when the assists are necessary for the production of imported goods and it should be undertaken elsewhere than in India. It is their contention that the sketches obtained from HW, UK cannot be held to be necessary for the production of the imported goods. These sketches had to be further developed by undertaking extensive work for a long period of time, which was done in India. Therefore, by no stretch of imagination, the concept layout sketches received from HW could be considered as necessary for production of imported goods as envisaged under Rule 9 (1) (b) (iv) and, therefore, the question of including payments made to HW in the assessable value of the bought out bodies imported from Nichimen, Japan, does not arise.
4.2.2 The Ld. Counsel also relies upon the following case laws in support of the above contention:
i) SRF Ltd., Vs. CC, 2003 (161) ELT 721 (T)
ii) GE Plastic India Ltd., Vs. CC 2004 (169) ELT 46 (T) The Ld. Counsel further submits that reliance placed by the adjudicating authority on the judgment of the apex Court in the case of Gujarat Mineral Development Corporation Ltd., Vs. CCE & C reported in 2005 (190) ELT 5 (SC) is not applicable to the facts of the present case and is thus misplaced. Similarly reliance placed by the Ld. Commissioner on the judgment in Andhra Petrochemicals Vs. CC, Madras reported in 1997 (90) ELT 275 (SC) is also misplaced as the facts are distinguishable.
4.3 The assessable value per body as computed in the show-cause notice works out to Rs. 49 to 51 lakh per BIW. On the other hand, the complete vehicle is being sold in the market in the price range of Rs. 6 to 8 lakhs, which proves that there is something fundamentally wrong in the values computed in the show-cause notice.
4.4 The total payments made to M/s. Nichimen for the BIWs/panels also created an intellectual property right (IPR) in favour of the appellants, which can be exploited in India apart from the tangible bodies. Hence, total payment/aggregate consideration cannot be assessable value. The agreement with M/s. Nichimen indicates that the appellants were in the process of development and planning for manufacture and marketing of a new vehicle under the trade name Scorpio and the preamble to the agreement dated 20/11/1998 clearly evidences to this fact and para 7 (1) of the supply agreement and para 6 (1) of the service agreement clearly states that both parties have acknowledged and agreed to the fact that this is a design, engineering and prototype building programme . Prior to the imports under consideration, there was no body/vehicle named as Scorpio existing anywhere in the world. The body was created by Nichimen, Japan at the appellants request and pursuant to the agreement with the appellants. The design of Scorpio body was for the first time registered under the Design Act, 2000 in India by the appellants as evidenced from the copy of the certificate issued in this regard. The certificate enumerates various novelty aspects in the design of the Scorpio body. For a design to be registered, it must be both new and original. Thus an IPR in the body was created for the first time ever which at all times vested in the appellants. This is clear from clause 13 relating to intellectual property right in the agreement (dated 20/11/98) wherein it is provided that:
The technical information generated/developed/ obtained by Nichimen and/or its sub-contractor pursuant to this agreement shall become the sole and exclusive property of M&M, and Nichimen nor its sub-contractor shall not be entitled to use the same for any purpose other than for the purpose of this agreement and shall not be entitled to apply for and register industrial property in its own name, either in or outside India.
However, Nichimen and its sub-contractor may furnish the information to the press tool die maker, nominated by M & M, if it seems helpful for design of hard tools to be manufactured by the Press tool die maker.
4.4.1 Therefore, the design as applicable to the body created by Nichimens efforts is the real intellectual property right. The IPR to reproduce a body is a distinct right, existing apart and separately from the physical body as such. Even if all the imported bodies-in-White/panels were destroyed, the right to reproduce vested solely with the appellants in view of clause 13 of the service agreement and clause 19 of supply agreement read with Section 11 & 15 (1) (a) of the Designs Act, 2000. Thus the payments made to Nichimen created two things - first, the tangible BIWs and panels and second an intangible property to be registered in favour of M/s. Mahindra. Since the payments made to Nichimen is for both, the payment made for the IPR cannot be included in the value of BIWs since such a right is distinguishable from the tangible BIW and panel. In other words, the argument of the appellant is that when they made payment to Nichimen it was for (i) BIW and panel and (ii) right to get the design registered in India and exploit it further. Therefore, the payment towards IPR cannot be part of the value of the goods, which have been imported.
4.5 The payment for right to manufacture bodies in India is not related to the imported goods, but rather to the bodies to be manufactured in India, which are not in existence at the time of import of the consignments under valuation. Therefore, the prototype bodies cannot be valued more than the fully finished body sold in India. The appellants have paid duty on bodies at an assessable value, which is around Rs.10 lakhs per body excluding insurance and landing charges. Under no circumstances, it can be suggested that the value of the bodies on which the duty has already been paid is unreasonable when the value of fully built Scorpio vehicle was in the range of Rs.6 to 8 lakhs when sold in India.
4.5.1 As per interpretative note to Rule 9 (1) (c) of the Customs (Valuation) Rules the royalties and license fees may include among other things, payments in respect of patents, trademarks and copy rights. However, the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value.. This interpretative note makes it very clear that the payments made for the right to reproduce cannot be part of the customs value, whether it be under Rule 9 (1) (c) or 9 (1) (b).
4.6 The reliance placed by the department in the case of Associated Cement Companies Ltd., reported in 2001 (128) ELT 21 (SC) is of no help as the case pertained to valuation of drawings imported through a courier. In that case, the Supreme Court held that IPR when put on a media is to be regarded as an article and duty is payable on the total transaction value since 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. In other words in the Associated Cement Companys case, the articles imported were copyrighted goods whereas in the case of imports under consideration, they are prototype goods incorporating registrable IPR like Design or Copy right and the transaction value would be only the material cost and will not include the value of IPR.
4.7 Indian Income tax formed part or ingredient of the amount paid to M/s HW and such amount cannot form part of the assessable value. As per the agreement entered into with HW, no income tax was to be deducted at source by the appellants and the same was paid to Government of India on behalf of HW. This amount was part of the amount paid to HW. Such amount of taxes should be excluded while arriving at the assessable value and customs duty cannot be levied on the whole consideration. This is an established practice followed by the Special Valuation Branch of the Customs/GATT Valuation Cell. Interpretative note to Rule 4 specifically provides for exclusion of duties or taxes in India from the assessable value of the goods imported. The said rule does not distinguish between direct taxes and indirect duties. It simply refers to duties and taxes of whatsoever nature. Therefore, any payment made by way of taxes on behalf of the foreign supplier has to be excluded while arriving at the cost of transaction for levy of Customs duty and the Counsel relies on the advisory opinion 3.1 of WCO in this regard.
4.8 The apportionment and consideration paid to Nichimen should be over 150 bodies and not merely 34 bodies and two panels. The soft tools, soft jigs and fixtures developed by Nichimen, Japan, were capable of producing 150 pieces, which is their usual/normal capacity and capability. This position has been confirmed by Nichimen; therefore, when the cost is apportioned, it has to be done based on the capability of the tools and not on the basis of the goods actually supplied. CBEC Circular dated 23/01/1996 also confirms how the cost has to be apportioned in the case of patterns, which are used in the manufacture of castings. The said circular clarifies that where there is any difficulty in apportioning the cost of pattern, apportionment can be made depending on the expected life and capability of the pattern and the quantity of castings that can be manufactured from it and thus working out the cost to be apportioned per unit. In the instant case, even though the appellant had imported only 34 bodies and 2 panels for testing and validation, Nichimen were capable of producing 150 bodies and therefore, the cost towards such tools, jigs, fixtures etc. should be apportioned over 150 bodies and not 34 bodies/2 panels as has been done in the instant case. Therefore, the proposal in the show-cause notice apportioning the entire cost on 34 BIWs/2 panels is against well settled principles of valuation.
4.9 The show-cause notice was issued by the DGCEI without jurisdiction. Though the show-cause notice has been issued in terms of Notification No.31/2000-Cus (NT) dated 09/05/2000, the said notification does not specify any area in respect of which the Additional Director General could have issued the notice. The counsel relies on the judgments of this Tribunal in the following cases:
i) C.K. Geever Vs. CC (Seaports-Imports, 2009 (235) ELT 304 (T)
ii) Copier Force India Ltd., Vs. CC (I) Chennai, 2009 (235) ELT 282 (T) In the light of these decisions, the present show-cause notice issued by ADG, DGCEI, Mumbai is without jurisdiction even in respect of imports made through Mumbai port, Mumbai Airport and Nhava Sheva port.
4.10 Notification 31/2000 was given retrospective effect vide section 92 of the Finance (No.2) Act, 2009. As per explanation to the said Section 92, it has been declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if the said notification had not come into force retrospectively. In view of the said explanation, no penalty can be imposed on the appellants and in identical circumstances in the past, where retrospective validation was done (along with an identical explanation) it has been held that no penalty can be imposed and the Counsel relies on the following judgements:
i) Chemo Pulp Tissues Vs. CC 2000 (119) ELT 715 (T-LB)
ii) CCE Vs. Ranga Vilas GS & W Mills 2002 (149) ELT 742 (T-LB)
iii) Shaw Wallace Vs. CCE 2003 (156) ELT 406 (T) 4.11 There is no suppression of facts involved in the instant case and, therefore, any demand of Customs duty beyond the normal period is barred by limitation. The appellants were under the bona fide belief that payments made to HW cannot be added to the value of the prototype bodies since the connection was too remote and in any case, the sketches supplied by HW were not necessary for the production of the imported goods. The rulings in the case of SRF Ltd & GE Plastics, cited supra holding that such value cannot be added under Rule 9 (1) (b) (iv) also confirmed the belief of the appellants. In such circumstances there was no suppression or willful mis-statement of facts with an intention to evade duty and, therefore, the duty demand cannot be confirmed invoking the extended period of time and only the duty demand for the normal period of limitation can sustain. It is further argued that the BIWs and panels imported by the appellants were required for validation and testing only. Since they are not goods, they are not liable to Customs duty at all. Prototypes are not goods as has been held in the context of Central Excise Act, 1944 in Richardson & Cruddas (1972) Ltd., Vs. CCE reported in 1992 (57) ELT 336 (T). The ratio of the above decision is applicable to the facts of the present case. Since in the present case, the goods imported are prototypes, they cannot be considered as goods liable to Customs duty.
4.12 The demand for countervailing duty (Addl. Customs duty) paid under section 3 of the Customs Tariff Act, 1975, cannot be made under the proviso to Section 28 as the appellants had taken Modvat/Cenvat credit of the entire countervailing duty and there cannot be any suppression for the same.
4.13 The whole dispute pertains to interpretation of law where certainly two views are possible. Under such circumstances, the appellant cannot be faulted when subsequently it was found that the belief held by the appellants was untenable in law.
4.14 The confiscation of goods and imposition of fine in lieu thereof is untenable in law. In this case, the goods are not available for confiscation and they were cleared on payment of proper duty and the clearance was not provisional. Therefore, imposition of fine is not warranted and relied on the following judgements:
i) Shiv Kripa Ispat Vs. CCE 2009 (235) ELT 623 (T-LB)
ii) Bombay High Court order in Customs Appeal No.70 of 2009 in CC Vs. Rishi Ship Breakers
iii) Bombay High Court Order in Customs Appeal No.66 of 2009 in CC Vs. Finesse Creations 4.15 Lastly, no penalty is imposable as there was no suppression or mis-statement of facts. In any case, penalty cannot exceed 25% of the duty demanded since the duty demanded has already been paid prior to the passing of the impugned order.
4.16 As regards the penalty imposed on Shri R.U. Prabhu, Dy. General Manager, the Counsel submits that he acted only on behalf of the company and acted bona fide and in accordance with the well settled customs practices and procedures and had not acted in breach of customs procedures or in any manner which would render the goods liable to confiscation, or abetted such action. In any case, there is no material or evidence cited in the impugned order to prove that Shri R.U. Prabhu abetted in the evasion of duty by the importer in any way and, therefore, penalty imposed under Section 112 (a) is not sustainable in law.
5. The special consultant appearing for the Revenue made the following submissions:
5.1 The procedure for assessment under the Central Excise Act is very different from that under the Customs Act. Prior to 1995, assessment on the excise side used to be made on the basis of prior approval of classification list and price list under Rules 173 B & C of the Central Excise Rules, 1944. These were amended in 1995. In the amended provision prior approval of classification list and price list has been dispensed with. In the Cotspun Ltd case relied upon by the appellant, the honble apex Court has noticed the changed position in law and in para 16 thereof has observed as follows:
We are informed that the position in law has. changed since the year 1995 or thereabout. We have not considered these altered provisions. Nothing that we have said in this judgment shall ipso facto apply thereto. In the light of these observations, the ratio of the judgment in Cotspun Ltd. case has no relevance. In a subsequent judgment in Easland Combines Vs. CCE, Coimbatore, reported in 2003 (152) ELT 39 (SC) , the honble apex Court held that the judgment in Cotspun Ltd case was not a good law. The consultant further argues that like the amendment to Section 11A of the Central Excise Act, 1944, vide Finance Act, 2000, there was no need for any amendment to Section 28 of the Customs Act, 1962 and, therefore, the question of any retrospective validation similar to Section 110 of the Finance Act, 2000, in the Customs Act, did not arise at all.
5.2 The Special Consultant points out that on the Customs side, the assessment of duty is made first either under Section 17 or section 18 and then clearance is given under Section 47. The clearance under Section 47 cannot be said to be final as can be seen from the definition of assessment under sub section 2 (2) of Customs Act, 1962, which reads as follows:
Assessment includes provisional assessment, reassessment and any order of assessment in which the duty assessed is nil.
5.3 In a Customs case, short levy or non-levy can be detected only after clearance of the goods. Therefore, for raising any demand under Section 28 of the Customs Act, there is no requirement of reviewing the assessment order on the bill of entry. The demand can be straightaway raised within the prescribed time limit under Section 28 and this position of law has been upheld by the honble apex Court in the case of UOI Vs. Jain Shudh Vanaspati Ltd., reported in 1996 (86) ELT 460 (SC). In that case, the honble apex Court held as follows:
It is patent that a show cause notice under the? provisions of Section 28 for payment of Customs duties not levied or short-levied or erroneously refunded can be issued only subsequent to the clearance under Section 47 of the concerned goods. Further, Section 28 provides time limits for the issuance of the show cause notice thereunder commencing from the relevant date; relevant date is defined by sub-section (3) of Section 28 for the purpose of Section 28 to be the date on which the order for clearance of the goods has been made in a case where duty has not been levied; which is to say that the date upon which the permissible period begins to run is the date of the order under Section 47. The High Court was, therefore, in error in coming to the conclusion that no show cause notice under Section 28 could have been issued until and unless the order under Section 47 had been first revised under Section 130.
5.4 This decision of the apex Court has been consistently followed by the Tribunal in the case of Venus Enterprises Vs. CCE, Chennai 2006 (199) ELT 661 wherein it was held that the issue of show-cause notice under Section 28 of the Customs Act for demand of short levy without reviewing the assessment order is quite legal. When this was challenged before the honble High Court of Madras, the honble High Court held that the law is settled that a show-cause notice under the provisions of Section 28 of the Customs Act for payment of Customs duties not levied or short levied or erroneously refunded can be issued only subsequent to the clearance of the goods under Section 47 of the Customs Act, otherwise Section 28 (1) of the Customs Act will become unworkable and redundant. This judgement of the Madras High Court was challenged before the apex Court and the apex Court dismissed the SLP as reported in 2007 (209) ELT A061 (SC). The Special Consultant also relies on the decision of this Tribunal in the case of ITI Ltd., Vs. CC, ACC, Mumbai in order No.A/253/08/C-I/CSTB dated 09/05/2008 wherein it was held that the issue of show-cause notice under Section 28 for recovery of erroneous refund is sufficient to meet the requirement of law.
5.5 As regards the contention of the appellant regarding the jurisdiction of ADG, DGCEI, Mumbai, for issue of show-cause notice in the present case, the Special Consultant submits that only three show-cause notices have been issued by the ADG, DGCEI, Mumbai. Vide notification No.31/2000-Cus (NT) dated 09/05/2000 (as amended), the Central Government has appointed officers of DGCEI as officers of Customs and invested in them all the powers exercisable by an officer of Customs. As per sub Section (2) of Section 1, the Customs Act extends to the whole of India. From this, it is automatically follows that the DGCEI officers, who have been made officers of Customs will have all India jurisdiction. Therefore, non-mention of jurisdiction in the notification does not mean that the DGCEI officers have no jurisdiction at all. Even if it is assumed that ADG DGCEI, Mumbai, does not have all India jurisdiction, it cannot be disputed that he has jurisdiction over Mumbai zone. In the present case imports have been made through three Custom Houses, namely, New Customs House, Mumbai, Jawahar Customs House, Nhava Sheva Port and Air Cargo Complex, Sahar, Mumbai, which fall within the jurisdiction of Mumbai zone. Therefore, the show-cause notices issued by ADG, DGCEI are perfectly in order and legally valid. When a similar contention was raised before this Tribunal in the case of OMI Textile Vs. CC & CE, Nashik, reported in 2004 (174) ELT 180, this Tribunal rejected the said contention by holding that the DGCEI officers have been appointed as Customs Officers by the Central Government and, hence, there is no lack of jurisdiction in so far as the issue of show-cause notice is concerned.
5.6 As regards the contention of the appellant that costs and services pertaining to models, jigs and fixtures cannot be added to the assessable value of the 34 prototype BIWs and 2 sets of panels for the reason that soft models were basically resin models of the concerned parts and these were neither tools nor moulds and were not used in the production of imported goods, the Ld. Consultant submits as follows:
5.7 On a careful reading of all the agreements with M/s. Nichimen, Japan and HW, England, it will be clear that the concept and feasibility design and engineering of the BIW was executed by HW, England and this was essential for making of the BIWs. With the help of these designs and engineering details, M/s. Mahindra approached Nichimen, Japan to make the prototype BIWs. M/s.Nichimen, Japan in turn, sub-contracted the work to Chibha, Japan to make the BIWs. First soft models were made of resin to enable easy modifications in the design. For making these soft models, soft tools were fabricated by Chibha, Japan. The designs and engineering details along with soft models, tools, jigs and fixtures were further used to make panels, which were fabricated/assembled/welded into bare metallic bodies called Bodies-in-white (BIWs) at Chibha Japan. These BIWs and panels were eventually supplied by Nichimen, Japan to M/s. Mahindra, who then manufactured the Scorpio vehicles with the help of BIWs and panels. Therefore, there is no doubt that the payments made to HW and Nichimen were connected only with the manufacture/fabrication of the imported BIWs and panels. Hence, these payments have to be added to the cost of BIWs and panels in terms of Rules 9 (1) (b) (ii) and 9 (1) (b) (iv) of the Customs (Valuation) Rules, 1988.
5.8 The Ld. Consultant relies on the judgment of the honble apex Court in the case of Andhra Petrochemicals Vs. CC, Madras, 1997 (90) ELT 275 (SC). In this judgement, the honble apex Court held that designs and engineering charges are loadable when the goods imported are specially manufactured on the basis of design and engineering specifications provided by the foreign supplier to the third party who have actually manufactured the goods. In the present case, the design and engineering drawings were supplied by HW, England to M/s. Mahindra who after making improvements supplied the same to Nichimen, Japan, who got the BIWs and panels made by Chibha, Japan. The only difference, if at all, in the present case is that instead of sending the designs and engineering drawings directly to Nichimen, Japan by HW, England, the same were sent to Nichimen, Japan via India, i.e., through Mahindra. This, in no way alters the factual position that the design and engineering drawings were made outside India by HW and eventually supplied to M/s. Nichimen/Chiba, Japan, who manufactured the BIWs and panels using the said designs and engineering drawings.
5.9 The Ld. Special Consultant also relied on the judgment of Gujarat Mineral Development Corporation Ltd., Vs. CCE & C 2005 (190) ELT 5 (SC) wherein the honble apex Court held that design and engineering charges are addable to the assessable value of the goods manufactured.
5.10 In the Dabhol Power Company Vs. CCE, Pune, case reported in 2004 (171) ELT 354 (T-Del), an identical issue came up for consideration by the Tribunal. In that case, the LNG project was manufactured/assembled by a foreign vendor on the basis of drawings, data sheets, designs and engineering specifications, etc. of an offshore service contractor and there was constant co-ordination between the vendor and the off shore contractor. The Tribunal held that the value of services rendered by the offshore contractor should be included in the value of the goods as per Rule 9 (1) (b) (iv) of the Customs Valuation Rules, 1988. The case under consideration is quite similar. Therefore, the design and development work done by HW, UK and supplied by M/s. Mahindra to Nichimen, Japan, who in turn got the goods manufactured through M/s.Chibha, Japan and there was regular co-ordination between the technical experts of the importers, the offshore service contractor HW, UK and the foreign vendor M/s. Nichimen, Japan. Therefore, following the logic adopted in the case of Dhabol Power Company, the charges paid to HW, UK are rightly addable in the assessable value of BIW and panels under importation.
5.11 The Ld. Consultant submits that the reliance placed by the appellant in the case of GE Plastic India Ltd. and Dalal Consultants & Engineers Ltd. for non-inclusion of the cost of engineering drawings pertains to a totally different set of facts. In those cases, the engineering drawings were prepared in India and were supplied to the foreign supplier of the imported goods. Therefore, it was held that the provisions of Rule 9 (1) (b) (iv) are not attracted but in the case under consideration, the facts are entirely different. The designs and engineering drawings were prepared by HW, UK and they were supplied to the manufacturer of BIW in Japan, after making modifications/improvements. Thus, the activity of designs and engineering drawings have taken place outside India and, therefore, the provisions of Rule 9 (1) (b) (iv) are clearly attracted.
5.12 As regards the contention of the appellant that the income tax amount deducted by way of TDS should be excluded while arriving at the assessable value of the goods under importation, the Ld. Consultant submits that this contention has no merits. He submits that as per the agreement entered into with M/s. Nichimen, all taxes/levies by the Indian Income tax authorities on Nichimen shall be borne by M/s. Nichimen and any increase thereon shall also be borne by M/s. Nichimen and any decrease will be to the benefit of M/s. Nichimen. M/s. Mahindra shall deduct the withholding tax assessed on Nichimens income and pay the same to the Indian Income tax authorities. It is thus clear that M/s. Mahindra paid income tax on behalf of the Nichimen on the latters income in India. Therefore, the amount of income tax paid to the Central Government from the total payment made to Nichimen cannot be deducted while arriving at the assessable value of the imported goods. So is the case in respect of income tax payments in respect of HW. Such payment of taxes, duties, etc. are reciprocal. Whatever taxes, duties, etc. are payable in India will be paid by M/s. Mahindra and wherever similar taxes are payable in England, it will be paid by HW. Therefore, the contention that interpretative note to Rule 4 of Customs Valuation Rules, 1988 provides for exclusion of duties and taxes in India from the transaction value has no basis because the income tax is a direct tax and it is not on the goods whereas Rule 4 and the interpretative note thereto refers to taxes payable on the imported goods.
5.13 As regards the contention of the appellant that when they acquired the BIW and panels and made payment thereto, it was in respect of two things - (i) for the supply of goods and (ii) for the right to get the design registered in India and exploit it further, this submission is without any merit. Neither the design agreement nor the supply agreement provided for any such thing. On the contrary, it can be seen from the agreement itself that intellectual property is the sole and exclusive property of M/s. Mahindra. From clause 13 relating to intellectual property/title of the agreement, it is clear that no consideration was paid to Nichimen, which was attributable to the so-called intellectual property and, therefore, the submissions of the appellant that payments related to the goods as well as intellectual property rights has no basis whatsoever and merits to be rejected out right.
5.14 The Ld. Special Consultant submits that there was suppression and willful mis-statement on the part of the importer M/s. Mahindra in the instant case and, therefore, the extended period of time has been rightly invoked for demand of duty. An importer of goods into India is required to file a declaration in Form Annexure - I along with the bill of entry for the same in terms of Section 46 of the Customs Act, 1962. As per the serial No. 21 of the said declaration, the importer is required to declare costs and services not included in the corresponding value of such imported goods as per Rule 9 of the Customs Valuation Rules. Despite this requirement, M/s. Mahindra did not declare Japanese % 23,28,10,165/- paid to Nichimen, Japan, and UK # 7,21,366.75 paid to HW, UK either in sub serial No. (d) or in sub-serial no. (k) of the said declaration, thereby suppressing the fact of payments made to Nichimen and HW. In the annexure-I, there is a declaration which is required to be signed by the importer which says that information furnished above is true, complete and correct in every respect. There is a further declaration that the importer will undertake to bring to the notice of the proper officer, any particulars which subsequently comes to his knowledge which will have a bearing on valuation. This declaration was signed by the importer. However, at no stage the importer brought to the notice of the Customs the fact of payments made to Nichimen and HW. But for the intelligence received and developed by DGCEI, this fact would not have come to the notice of the department. The law requires the importer to give the details of payments made in connection with the imported goods. It is not for the importer but for the Customs to decide whether any charges are required to be included in the value of the imported goods. Further, the importer in this case is a well known corporate body. They cannot be presumed to be unaware of the requirements of law. Thus, it is a clear case of suppression of facts and mis-declaration of value with intent to evade Customs duty. In respect of similar four other cases, the appellant admitted the duty liability before the honble Settlement Commission and discharged the duty liability along with interest. In the light of these, the Special Consultant submits that the appellant/importer suppressed the facts and willfully mis-stated the facts with an intent to evade customs duty and, therefore, the duty demand confirmed invoking the extended period of time is valid and correct in law.
5.15 As regards the confiscation of imported goods and imposition of fine in lieu thereof, the Ld. Special Consultant relies on the judgment of the honble Supreme Court in the case of Weston Components Ltd., Vs. Commissioner 2000 (115) ELT 278 (SC). Though in that case the goods were allowed under a bond, the honble apex Court nowhere held that its decision in that case will not be applicable to a case where clearance has been obtained without furnishing any undertaking or bond and, therefore, even though the goods were not available for confiscation, the Commissioners decision to confiscate the same and impose a fine in lieu of confiscation is valid in law.
5.16 The Ld. Special Consultant further submits that penalty of Rs.1.5 Crore on M/s. Mahindra has been correctly imposed under Section 112 (a) of the Customs Act, 1962 inasmuch as the goods were held liable for confiscation under section 111 (m) of the Customs Act for under-stating the value of the goods imported. Similarly, the penalty of Rs.5.00 lakhs was imposed on Shri. R.U. Prabhu, for his omissions and commissions with respect to the import of BIWs and panels. Shri. Prabhu had filed the bills of entry and furnished the declarations in form Annexure-I. Therefore, he was guilty of suppression of fact of payments made to Nichimen and HW and, therefore, he has been correctly imposed with penalty.
5.17. As regards the departmental appeal, the Ld. Special Consultant submits that Section 28AB of the Customs Act came into force on 28/09/96 wherein interest on duty confirmed was made applicable in cases involving fraud, collusion, suppression of facts, willful mis-statement, etc. The said section was amended on 11/05/2001 so as to make the provisions applicable in all types of cases of short levy. In the present case, clearances took place prior to 11/05/2001. Further, it was a case of mis-declaration of value of imported goods by suppressing material facts. Therefore, the provisions of Section 28AB could be rightly invoked for recovery of interest on the duty demanded and the Ld. Commissioner made an error in not charging interest on the amount of duty confirmed. Therefore, the impugned order of the Commissioner relating to non-levy of interest on the duty confirmed requires to be set aside and the appeal of the department in that regard allowed.
6. We have considered the rival submissions very carefully.
7. Regarding the contention of the appellant that the demand of duty under Section 28 of the Customs Act, 1962 is not sustainable because the department did not review the assessments made in the bills of entry at the time of importation under Section 129D does not have any legal basis. The same issue came up before the honble apex Court in the case of UOI Vs. Jain Shudh Vanaspati Ltd case cited supra and the honble apex Court observed as follows:
It is patent that a show cause notice under the? provisions of Section 28 for payment of Customs duties not levied or short-levied or erroneously refunded can be issued only subsequent to the clearance under Section 47 of the concerned goods. Further, Section 28 provides time limits for the issuance of the show cause notice there under commencing from the relevant date; relevant date is defined by sub-section (3) of Section 28 for the purpose of Section 28 to be the date on which the order for clearance of the goods has been made in a case where duty has not been levied; which is to say that the date upon which the permissible period begins to run is the date of the order under Section 47. The High Court was, therefore, in error in coming to the conclusion that no show cause notice under Section 28 could have been issued until and unless the order under Section 47 had been first revised under Section 130.
7.1 From the above decision of the Supreme Court it is clear that when there is a short levy or non-levy or short payment or non-payment or erroneous refund, show-cause notice under Section 28 for recovery of duty can be issued and the proceedings are sustainable. A similar view was taken by this Tribunal in the case of Venus Enterprises cited supra wherein this Tribunal observed as follows:
We have gone through the records of the case carefully and heard both? sides. The appellants imported certain items by filing 11 Bills of Entry. After assessment and clearance, certain investigations were conducted which revealed undervaluation of the goods. We are of the view that the issue of show cause notice under Section 28 of the Customs Act is quite legal to demand short levy in the light of the investigations conducted subsequent to the clearance. If the contention of the appellants that no demand notice can be issued without reviewing the order of assessment, then Section 28 would become redundant. Hence we do not accept the ld. Counsels contention that no show cause notice under Section 28 can be invoked after clearance of the goods by enhancing the declared value.
7.2 The said decision of the Tribunal was challenged before the honble High of Madras and the honble High of Madras upheld the decision of the Tribunal and observed as follows:
With regard to question No. 1, the law is well settled that a show cause notice under the provisions of Section 28 of the Act for payment of customs duties not levied or short-levied or erroneously refunded can be issued only subsequent to the clearance of the goods under Section 47 of the Act vide Union of India v. Jain Shudh Vanaspati Ltd. [1996 (86) E.L.T. 460 (S.C.)]. Therefore, as rightly held by the Tribunal, if the contention of the appellants counsel that when the goods were already cleared, no demand notice can be issued under Section 28 of the Act is accepted, we will be rendering the words where any duty has been short-levied as found in Section 28(1) of the Act as unworkable and redundant, inasmuch as the jurisdiction of the authorities to issue notice under Section 28 of the Act with respect to the duty, which has been short-levied, would arise only in the case where the goods were already cleared. In view of the clear finding with regard to the misdeclaration and suppression of value, which led to the under-valuation and proposed short-levy of duty, we do not see any lack of jurisdiction on the part of the adjudicating authority to issue notice under Section 28(1) of the Act. 7.3 The SLP filed against the order of the Madras High Court was also dismissed by the honble apex Court reported in 2007 (209) ELT A61 (SC). The reliance placed by the appellant on the Cotspun case and Mahindra and Mahindra case cited supra does not help their cause because these decisions pertains to interpretation of section 11A of the Central Excise Act. When there are decisions by the honble apex court, the honble high court of Madras and this Tribunal directly on the scope of section 28 of the Customs Act itself, there is no need to refer to any decisions pertaining to Central Excise Act at all. Therefore, we reject the contention of the appellant that the show-cause notices issued demanding duty short levied under Section 28 of the Customs Act, after assessment of the bills of entry is not valid in law. In other words, we uphold the right of the revenue to demand duty short levied or paid or not levied or paid or erroneously refunded under section 28 of the Customs Act, 1962. Thus there is no infirmity or illegality in the instant case as far as demand of duty made under section 28 ibid is concerned.
8. The next contention of the appellant relates to the competency of the ADG, DGCEI to issue show-cause notice in the instant case. The contention of the appellant is that even though the officers of DGCEI have been appointed as officers of Customs vide Notification No.31/2000-Cus (NT) dated 09/05/2000, the said Notification does not indicate any area of jurisdiction and, therefore, the show-cause notice is vitiated. We do not find any merit in this argument. An identical issue came up for consideration of this Tribunal in the case of OMI Textile Vs. CC&CE, Nashik, 2004 (174) ELT 180. In the said case, the Tribunal observed as follows:
The Central Government appointed the DGCEI officers as customs officers and we see no lack of jurisdiction insofar as issue of show cause notice is concerned.
8.1 Further a Larger Bench of this Tribunal in the case of Konica Trading Co. Vs. CC, Jaipur reported in 2004 (170) ELT 51I held that DRI officers can issue show-cause notices once they are appointed as Customs officers. In the instant case, the DGCEI officers have been appointed as Customs Officers under Section 4 of the Customs Act. Therefore, following the ratio of Konica Trading Co. case citied supra, the DGCEI officers can also issue show-cause notices and their jurisdiction cannot be questioned at all. The only objection of the appellant seems to be that in Notification No.31/2000, the area of jurisdiction of the DGCEI officers has not been specified. If no area is specified, it has to be presumed that the jurisdiction is all India. In any case, in the instant case the show-case notices have been issued by the ADG, DGCEI, Mumbai, whose area of jurisdiction covers the entire Mumbai zone. In the instant case the imports have been taken place through various ports /airport situated in the Mumbai zone. Therefore, even though notification 31/2000 does not specify any jurisdiction, the ADG, DGCEI, Mumbai can issue show-cause notices with respect to offences/violations, which have been taken place within his jurisdiction. Hence, we do not find any infirmity or lack of jurisdiction in the show-cause notices issued by the ADG, DGCEI, Mumbai in the instant case. Appellant has placed reliance on Devilog Systems India Vs. CCE, Bangalore, reported in 1995 (76) ELT 520 (Kar) decided by the honble High Court of Karnataka. The facts of that case are quite different. In that case, the goods were imported through Madras Port but cleared for home consumption through ICD, Bangalore. The show-cause notices were issued by the Asst. Commissioner of Customs, IAD, Madras, who was assigned the audit functions of ICD, Bangalore. There was no notification conferring powers on Asst. Commissioner, Madras for the purpose of issue of notice under Section 28 in respect of imports through ICD, Bangalore and, therefore, the High Court held that there was lack of jurisdiction for issue of show-cause notices. No such situation exists in the instant case. The ADG, DGCEI, Mumbai, has been appointed as an officer of Customs and has been vested with all the powers of the officer of Customs. Thus the facts of the instant case are quite distinct and distinguishable and the judgment of the honble High Court of Karnataka in Devlilog Systems case has no relevance whatsoever to the facts under consideration. In fine, we hold that the ADG, DGCEI, Mumbai has jurisdiction to issue show-cause notices in the instant case and the contention to the contrary by the appellant has no merits whatsoever and accordingly, we reject the same.
9. The next issue for consideration is whether the payments made by the appellant to HW, UK amounting to UK # 7,21,366.75 and to Nichimen, Japan amounting to Japanese % 23,28,10,165 is liable to be included in the assessable value of 34 BIWs and one panel imported by the appellant under the provisions of Rule 9 (1) (b) (ii) and 9 (1) (b) (iv) of the Customs Valuation Rules, 1988 or not. These payments have been made to HW, UK and to Nichimen, Japan in terms of the agreements dated 22/10/96 and supplemental agreement dated 4/4/1997 with HW and agreements dated 20/11/98 and supplemental agreement dated 4/1/2000 with Nichimen, Japan.
9.1 It will be useful to reproduce the extracts from the relevant agreements so as to put the issues in proper perspective:-
Extracts from the agreement with HW dated 22-10-1996.
CONTRACT AGREEMENT CONCEPT AND FEASIBILITY DESIGN AND ENGINEERING OF THE IDAM VEHICLE Entered in to on 22nd October, 1996.
WITNESSETH WHEREAS, Mahindra is a manufacture and exporter inter alia of 4 wheel drive vehicles;
AND WHEREAS HW is an international consultancy specialising in automotive design, engineering and product development;
AND WHEREAS Mahindra has approached HW for concept feasibility engineering assistance on a 2/4 wheel drive vehicle;
AND WHEREAS HW is willing to provide Mahindra with the necessary study and assistance therefor;
AND WHEREAS the Parties have thought it expedient to put forth the terms and conditions in writing as hereinafter appearing.
ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms have the following meanings:
1.1 PROJECT shall mean the concept and feasibility phase of the programme. The details of the Project are as provided in Article 2 and in Appendix A hereto.
1.2 STAFF means 1.3 INFORMATION means all designs, models, technical documentation, calculations, data and all other information developed or produced by HW for Mahindra in pursuance of the Project.
ARTICLE 2 SCOPE AND DURATION OF PROJECT 2.1 The total Project shall consist of the concept and feasibility design and engineering of the IDAM vehicle as represented by the already Mahindra approved full size clay model. The team to undertake this programme phase shall be comprised of both HW and M & M staff and shall be located at HW premises for an estimated twenty-one (21) weeks. For details of work scope see Appendix A. ARTICLE 3 SERVICES AND INFORMATION TO BE PROVIDED BY HW 3.1 HW shall supply Mahindra with the data specified in Appendix A in order that Mahindra may use the Product to the best advantage without delay.
3.2 HW shall at the request of Mahindra, permit a reasonable number of personnel designated by Mahindra to have the opportunity to study the design and assist in the Project at HW premises pursuant of Article 7.
3.3 HW shall arrange to make available qualified personnel for consultations with Mahindra personnel. Cost for round trips, meals, lodging and other expenses of Mahindras personnel sent for liaison shall be borne by Mahindra.
3.4 All products, documentation and materials delivered to Mahindra by HW will be produced to the appropriate HW standards, unless otherwise mutually agreed in writing.
3.5 The Information to be provided to Mahindra shall be fully reflected in the Project which HW shall conduct and be provided to Mahindra as required, by means of exchange of documents, forwarding of drawings, electronic data and reports to Mahindra, or through the visits of Mahindras personnel to HW during the period of the Agreement.
ARTICLE 4 PAYMENT 4.1 In consideration of the Information supplied and services rendered by HW under this Agreement, Mahindra shall pay to HW the amount as shown below.
The budgeted cost, in Pounds Sterling, for the project is # 541,786 ARTICLE 5 HWS WARRANTIES 5.1 HW warrants that any feasibility drawings connected with the Project will be included in the engineering information, and be reasonable and proper information to enable Mahindra or HW to further develop on future projects.
ARTICLE 12 TAXATION 12.1 All the taxes (including Income Tax), duties and other charges arising in India will be borne by Mahindra. Further all taxes, duties and other charges arising outside India will be borne by HW.
12.2 All customs duties and taxes incurred as a result of importing vehicles. Components or data into the UK or India shall be borne by Mahindra. HW shall obtain prior written consent of Mahindra for incurring such expenditure.
12.3 All other taxes and similar charges which may occur in UK as a result of entering into this Agreement shall be paid by HW.
12.4 Value Added Tax which may be imposed by the Government of India with respect to this Agreement shall be borne by Mahindra..
Extracts from the agreement with HW dated 4th November, 1996.
CONTRACT AGREEMENT CAD SURFACE DEVELOPMENT Entered into on 4th November, 1996 WITNESSETH WHEREAS, Mahindra is a manufacture and exporter inter alia of 4 wheel drive vehicles;
AND WHEREAS HW is an international consultancy specialising in automotive design, engineering and product development;
AND WHEREAS Mahindra has approached HW for CAD surface development on a 2/4 wheel drive vehicle;
AND WHEREAS HW is willing to provide Mahindra with the necessary study and assistance therefor;
AND WHEREAS the Parties have thought it expedient to put forth the terms and conditions in writing as hereinafter appearing.
ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms have the following meanings:
1.1 PROJECT shall mean CAD surface development. The details of the Project are as provided in Article 2 and in Appendix A hereto.
1.2. STAFF means ..
1.3 INFORMATION means all designs, models, technical documentation, calculations, data and all other information developed or produced by HW for Mahindra in pursuance of the Project.
ARTICLE 2 SCOPE AND DURATION OF PROJECT 2.1 The total Project concerns the complete CAD development of the IDAM concept clay as previously produced by Hawtal Whiting. For detailed description see Appendix A. The Total Project time shall be targeted for Twelve (12) weeks as per Article 6 herein below. Time shall be of the essence of the contract. HW shall execute the Project in accordance with the Schedule agreed and as per Appendix A hereto.
ARTICLE 3 SERVICES AND INFORMATION TO BE PROVIDED BY HW 3.1 HW shall supply Mahindra with the data specified in Appendix A in order that Mahindra may use the Product to the best advantage without delay.
3.2 HW shall at the request of Mahindra, permit a reasonable number of personnel designated by Mahindra to have the opportunity to study the design and assist in the Project at HW premises pursuant of Article 7.
3.3 HW shall arrange to make available qualified personnel for consultations with Mahindra personnel. Cost for round trips, meals, lodging and other expenses of Mahindras personnel sent for liaison shall be borne by Mahindra.
3.4 All products, documentation and materials delivered to Mahindra by HW will be produced to the appropriate HW standards, unless otherwise mutually agreed in writing.
3.5 The Information to be provided to Mahindra shall be fully reflected in the Project which HW shall conduct and be provided to Mahindra as required, by mans of the exchange of documents, forwarding of drawings, electronic data and reports to Mahindra, or through the visits of Mahindras personnel to HW during the period of the Agreement.
3.6 The release of information to Mahindra shall be on full payment being received up to that point in time.
ARTICLE 4 PAYMENT 4.1 In consideration of the Information supplied and services rendered by HW under this Agreement, Mahindra shall pay to HW the amount as shown below.
The cost as a budget estimate total is #225,414.
The total costs reflect a 14 week duration although an aggressive project duration of 12 weeks is targeted. The total is generated from a weekly cost of #16,101. Should manning levels change during the 14 weeks, the costs will be amended retrospectively..
9.2 The contention of the appellant is that HW provided only sketches in respect of the project on the clay model supplied by Mahindra and these sketches were brought into India by the engineers of Mahindra and those had to be worked upon for more 1= years to convert them into usable engineering drawings based on which the BIWs and the panels could be manufactured. The engineers of Mahindra in India worked upon these sketches and produced 750 engineering drawings, which were then sent to Nichimen, Japan for further use. In other words, the appellant contends that there is no proximate nexus between the engineering sketches supplied by HW and import of goods from Nichimen, Japan and, therefore, the cost of the engineering sketches provided by HW cannot be included in the assessable value of BIWs and panels manufactured and supplied by Nichimen, Japan.
9.3. The agreement dated 22/10/96 related to concept and feasibility design and engineering of the IDAM vehicle and these included designs, models, technical documentation, calculations, data and all other information developed or produced by HW for Mahindra. The project consisted of concept and feasibility design and engineering of the IDAM vehicle as represented by the already Mahindra approved full size clay model and was undertaken by a team comprising of both HW and Mahindra staff and the project was conducted at the premises of HW in UK. The information developed by HW was conveyed to the appellant M/s.Mahindra by exchange of documents, forwarding of drawings, electronic data and reports to Mahindra, or through the visits of Mahindras personnel to HW during the period of agreement. HW is an international consultant specializing in automotive design engineering and project development. Similarly, in the case of supplemental agreement entered into on 04/11/96 it was for CAD surface development on a 2/4 wheels drive concept clay. It is inconceivable that M/s Mahindra engaged HW, an international consultancy specialising in automotive design, engineering and product development and paid them a huge amount of UK # 7,21,366.75 only for some preliminary sketches which has no nexus with the production of Scorpio Vehicle production. The terms and agreement of the contract entered into with HW completely belies this proposition. Shri Bhaumik, General Manager (Scorpio Project) in his statement given on 26/10/2004 has, inter alia, admitted that the concept and feasibility design and engineering of BIW was executed by HW with participation from Mahindra and it was carried out at their facilities in UK. Similarly, in the context of supplemental agreement Shri Bhaumik has stated that the CAD (Computer Aided Design) surface development envisaged in the said agreement is basically defining complex surfaces accurately for the purpose of exact reproduction in tooling. CAD surface is developed on computer. He has also admitted that the CAD surface development of the IDAM vehicle exterior style definition is a part of BIW design. Sri Jagannathan Vasudevan, Head (Programme Management) in his statement dated 15-10-2004 has categorically admitted that the design and engineering information pertaining to the BIWs and panels was provided by M/s. Mahindra to M/s. Nichimen and that the design and engineering of the said BIWs and panels was carried out by M/s. Hawtal Whiting Design & Engineering Co. Ltd., England (HW in short) by the engineers of both M/s. Mahindra and HW. Therefore, the contention of the appellant that the engineering sketches provided by HW, UK has no proximate nexus to the manufacture of BIWs and panels is totally contrary to the terms and conditions of the agreement entered into with HW and also the statements given by the Project General Manager and Head (Program Management), who have very clearly admitted that the feasibility design and engineering and the CAD surface development provided by HW had a close nexus with design and production of BIW. As per the statement of Sri. Vasudevan, while the initial styling of BIWs and panels was done by the engineers of Mahindra in India, subsequently, the design house facility of HW was used by the engineers of both Mahindra and HW. He has further admitted that the design and engineering of said BIWs was carried out by HW England and fine-tuned in India by the engineers of Mahindra and these engineering designs and specifications were given to M/s Nichimen for the manufacture of BIWs by using the soft tools and soft jigs/fixtures at M/s. Chibha, Japan. From these statements all the top officials of the appellant company, who were concerned with the project and also from the terms and conditions of the agreement entered into with HW, it is clear that the designs and sketches provided by HW had proximate nexus with the design and manufacture of BIWs and panels imported from Japan and these were used in the manufacture of those products. Therefore the contention of the appellant regarding lack of proximate nexus does not have any basis whatsoever and is rejected in toto.
9.4 Rule 9 (1) (b) of the Customs Valuation Rules, 1988 reads as follows:-
(1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, -
a)..
(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.
9.5 A perusal of the Rule 9 (1) (b) (iv) indicates that it includes engineering, development, art work, design work and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods. From the wordings used in the said Rule, it is clear that the rule does not make any distinction whether the items referred to therein should have proximate nexus for the production of goods or not. So long as they are necessary for the production, their cost can be included in the cost of products imported. Further, clause (iv) covers a wide range of products/services such as engineering, development, art work, design work, and plans and sketches . While some of them may have proximate nexus to the production process, others might not have any such nexus. What is required to be seen is whether they are necessary for the production of imported goods. So long as they are necessary for the production of imported goods and they are developed in a place other than in India, their cost is includible in the transaction value of the imported goods in terms of Rule 9 (1) (b) (iv) of the said Customs Rules. In the instant case, in respect of engineering designs and surface development designs provided by HW these have been undertaken in UK in terms of the agreement. As confirmed by the statements of top officials of the appellant firm, these designs, whether they be sketches or plans, have been used in the production of BIWs, which were imported. It is not necessary that they have to be used as such or they need to be fine-tuned before further use. So long as the sketches, plans and drawings have been used in the manufacture of BIWs, whether directly or indirectly, it does not make any difference. From the evidences available on record, it is amply clear that the drawings, designs, sketches, plans, etc. supplied by HW, England in the instant case have actually been used in the manufacture of BIWs and panels by M/s Nichimen, Japan and, therefore, their cost is includable in the value of BIWs and panels imported from Japan and we hold accordingly.
9.6 The appellant, during the course of argument, made a point that the drawings and designs (supplied by M/s HW, UK) were exempt from payment of customs duty when imported from abroad at the relevant time. There is a fallacy in this argument. To a specific query from the Bench, how these designs, drawings and sketches were brought into India from UK, it was clarified that they were brought by the engineers, who had been sent to UK. The appellant did not file any bill(s) of entry for importation of these goods and it is obvious that these drawings and sketches were brought in the personal baggage of the officials, who visited UK. When goods are brought as part of baggage, they are assessable to customs duty not in their respective chapters or headings but as baggage under Chapter 98 of the Customs Tariff. The duty exemption limit for personal baggage, even now is only Rs.25000/- and above this limit, duty is payable at a flat rate. In the instant case, the goods are valued at more than # 7.5 lakhs, which is far in excess of the exemption limit for goods, brought under baggage. Further, engineering drawings and sketches cannot be considered as bona fide baggage so as to attract any duty exemption. Therefore, import duty at the tariff rate(s) as provided for in the Customs tariff would have been attracted, if proper declarations had been made. No such thing appears to have been done. Similarly, when a question was put as to how the designs further developed in India were sent to M/s Nichimen, Japan, it was informed that this had been sent by e-mail or through CDs, which were carried across by the staff of Mahindra. It is, thus, obvious that the import of engineering drawings /sketches from HW, U.K. and export of these engineering drawings and designs to Nichimen, Japan have not been declared to the Customs authorities at any point of time.
10. Coming to the agreement entered into between the appellants and M/s Nichimen, there were three agreements between Mahindra and Nichimen, Japan. One was for the supply of 34 BIWs and two panels for the Scorpio programme for which a sum of JY 8,91,80,000 was paid and which was included in the taxable value of the BIWs and panels imported. The second agreement dated 20/11/98 was Technical Consultancy & Engineering Agreement for the design and engineering of MODELS, SOFT TOOLS AND SOFT JIGS/FIXTURES for the development of prototypes for the Scorpio programme involving a payment of Japanese Yen 177,820,000. The third agreement was a supplemental agreement dated 4/1/2000 for engineering and design changes involving a payment of JY 5,23,95,100. It will be useful to see relevant terms and conditions in respect of these agreements. The relevant extracts from the 2nd and 3rd agreements are reproduced below:-
Agreement No.IDAM/REV/RUP/02 dated 20/11/98 Technical Consultancy & Engineering Agreement.
AND WHEREAS M&M has approached, NICHIMEN for the design and engineering of models, soft tools and soft jigs/fixtures for development for the Scorpio programme.
AND WHEREAS NICHIMEN has expressed its willingness for the design and engineering of models, soft tools and soft jigs/fixtures for development for the Scorpio programme.
1. DEFINITIONS
a) SCORPIO PROGRAM shall mean two or four wheel drive utility vehicles to be manufactured by M&M under the IDAM Project.;
..
i) WORK shall mean the design and engineering of MODELS, SOFT TOOLS and SOFT JIGS/ FIXTURES as set forth in Clause 3 SCOPE OF WORK.
2. PURPOSE OF THIS AGREEMENT It is acknowledged by the Parties that the purpose of this agreement is to set out the following:
a) The responsibilities and obligations of NICHIMEN for providing technical services of design, engineering and development of MODELS, SOFT TOOLS and SOFT JIGS/ FIXTURES for the Scorpio Program as per the data & information provided by M&M set forth in Clause 4 of this Agreement.
b) The responsibilities and obligations of M&M for providing all necessary data and information on schedule (including DESIGN CHANGE notice) and make payment as per the terms and conditions of this Agreement.
c) The responsibilities and obligations of M&M for acquiring the technical services of design, engineering and development of MODEL, SOFT TOOLS & SOFT JIGS/FIXTURES for the SCORPIO PROGRAM by NICHIMEN as per the data and information provided by M&M set forth in clause 4 of this Agreement.
d) The responsibilities and obligations of NICHIMEN for destroying the MODELS, SOFT TOOLS 7 SOFT JIGS/FIXTURES after completion of WORK for the SCORPIO PROGRAM as mentioned in Point 2.a) & 2.b).
3. SCOPE OF WORK
1. NICHIMEN will employ or cause to employ the following process for the design and engineering of MODELS, SOFT TOOLS and SOFT JIGS/ FIXTURES based on its or its sub-contractors experience and know-how.
(a) To receive fully surfaced & trimmed CAD data in CATIA format form M&M
(b) To establish preliminary assembly process with inputs from M&M.
(c) To establish optimum die tip angle and binder developments, if applicable. The tip angle and binder development in case of all MAJOR PANELS shall be same as that to be followed by M&M Die maker for PRODUCTION TOOLS as far as possible.
(d) To check manufacturing feasibility in terms of optimum die tip angle and binder development, as far as possible and give feedback to M&M.
(e) Generated CNC cutter path data by CAM PROGRAMMING.
(f) Design and engineer MODELS representing panel shape, (tip angle and binder surface development.)
(g) Design and engineer a complete draw die set for each part by using this CNC cutter path data, if it is applicable.
(h) Design and engineer CNC programs for trim lines and holes for cutting the panels on Laser Cutting machine.
(i) Design and engineer any support stand required for each panel for laser cutting machine.
(j) Design and engineer Hammer blocks from CNC data for any flanging operation.
(k) Check weldability and fitability of all panels, which forms the body shell and provide feedback of changes required in the panel drawings to ensure weldability and fitability, and give feedback to M&M.
4.
5. ..
6. ENGINEERING CHANGES i. Both the Parties have acknowledged and agreed the fact that this is a design, Engineering, prototype building program and there are bound to be design changes from time to time during development stage.
ii. As per the time schedule, two (2) ENGINEERING CHANGE are expected during design stage. However M&M shall be allowed to request one additional ENGINEERING CHANGE i.e. total three ENGINEERING CHANGES are allowed if required.
iii. ENGINEERING CHANGES will be incorporated in such manner as that all the DESIGN CHANGE which are informed and delivered to NICHIMEN on or before the respective deadline date, as mentioned in the time schedule of Annexure-A, will be incorporated to the nest batch of the WORK.
.
9. CONSIDERATION In consideration of TECHNICAL CONSULTANCY & ENGINEERING along with technical services provided by NICHIMEN, M&M shall pay to NICHIMEN a consideration of a sum of One hundred seventy seven million eight hundred twenty thousand Japanese Yen (J% 177,820,000) by telegraphic transfer with the following terms of payment.
The charges for the total scope of work is as follows,
i) Charges payable for Design, Engineering & Development charges of MODEL, SOFT TOOL DIES SOFT JIGS / FIXTURES in the sum of Japanese Yen One hundred seventy seven million eight hundred twenty thousand (J% 177,820,000) in the following instalments:
10. TAXES All income taxes in respect of the payments by M&M pursuant to this agreement levied / to be levied by the Indian income tax authorities on NICHIMEN, shall be borne by NICHIMEN. The parties understand that the current rate of taxation is 20%. Any increase in the rate of taxation shall be borne by NICHIMEN and any decrease in the rate taxation will be to the benefit of NICHIMEN.
M&M shall deduct said withholding tax assessed on NICHIMENs income and pay the same amount to Indian income tax authority. M&M shall provide the originals of the tax deduction certificates to NICHIMEN within one month after deduction of said withholding tax. Any benefits received on account of such certificates as a result of Avoidance of Double Taxation Treaty between Government of India and Japan, shall be to the account of NICHIMEN.
All taxes (including income tax) levied outside India, on such amounts payable to NICHIMEN shall be borne and paid by NICHIMEN.
..
13. INTELLECTUAL PROPERTY/TITLE The technical information generated/developed/obtained by NICHIMEN and / or its sub-contractor pursuant to this Agreement shall become the sole and exclusive property of M&M, and NICHIMEN nor its sub-contractor shall not be entitled to use the same for any purpose other than for the purpose of this Agreement and shall not be entitled to apply for and register industrial property in its own name, either in or outside India.
However, NICHIMEN and its sub-contractor may furnish the information to the Press tool Die maker, nominated by M&M, if it seems helpful for design of hard, tools to be manufactured by the Press tool die maker..
10.1 A relevant extract from the supplemental agreement dated 04/01/2000 relating to the engineering design changes are reproduced below:-
Now it is agreed by and between the parties as follows:
I. Nichimen shall carry out design change as requested by M&M in accordance with the specifications set out in Data Cartridge tapes numbers from 1 through 10, which shall be provided by M & M to Nichimen.
II. As consideration for providing the design change, M&M shall pay to Nichimen an additional amount of JY 52,395,100. Pursuant to the foregoing, clause 9 of the Main agreement shall be modified to read as under:.
10.2 The appellants contention for the exclusion of payments made to Nichimen, Japan, under the two agreements cited above is that if this value is included in the assessable value of the goods under importation, then the assessable value per body will work to Rs. 49 to Rs. 51 lakh whereas the complete vehicle is being sold in the market at a price ranging from of Rs.6 to 8 lakhs. Therefore, there is something fundamentally wrong in the value computed in the show-cause notice. An additional argument has also been made that the payments made to Nichimen also created IPR in favour of the appellant, which can be exploited in India apart from tangible bodies and, hence, total payments made/aggregate considerations paid to Nichimen cannot be considered in the assessable value of the goods imported. The agreement dated 20/11/98 is for technical consultancy and engineering and the purpose as per clause 2 of the agreement is for providing technical services of design, engineering and development of models, soft tools and soft jigs/fixtures for the Scorpio program. Without these models, soft tools, soft jigs/fixtures, the prototypes could not have been developed and without prototype, the commercial production of Scorpio vehicles in India subsequently could not be undertaken. In any product development project, the production of prototype entails a very high cost. Once the prototype is developed and commercial production commences, the economies of scale of production brings the cost of production down. Therefore, comparison of the cost of production of the prototypes with that of commercially produced vehicle is meaningless as the two are not comparable at all. They represent two different categories of products altogether. The products under assessment are the BIWs and panels which are the prototypes. In the manufacture of these BIWs and panels, the models, soft tools, soft jigs/fixtures have been used and payments have been made for the same. Therefore, the argument that the cost of design, engineering and development of models, soft tools, soft jigs, fixtures, etc. should not be included in the cost of the goods imported has no basis whatsoever and has to be out rightly rejected as devoid of logic and merits. Rule 9 (1) (b) (ii) specifically states that the cost of tools, dies, moulds and similar items used in the production of imported goods should be added to the transaction value to arrive at the taxable value of the goods. Rule 9 (1) (b) (iv) covers cost of engineering, development, art work, design work, and plans and sketches for the production of the imported goods. In the instant case the appellant has paid a sum of J% 230,215,100 for the technical consultancy and engineering services provided by Nichimen for the design, engineering and development of models, soft tools, soft jigs/fixtures for the Scorpio programme. Without these models, soft tools, soft jigs/fixtures, the BIWs and panels which were imported could not have been produced at all. Therefore, these costs have to be necessarily added to the value of the imported goods for the purpose of levy customs duty in terms of the provisions of Rule 9 (1) (b) (ii) and (iv) of the Customs Valuation Rules and we hold accordingly.
10.3 The next contention of the appellant is that the payment made to Nichimen is not only for the product but also for the IPR involved in the goods and the appellant has registered the design of the body subsequently in India under the Designs Act, 2000. This contention of the appellant is not tenable for the following reasons.
10.4 According to clause 9 of the agreement dated 20/11/98, the payment has been made for the technical consultancy and engineering along with technical services and not for any IPR. Therefore, in terms of the agreement entered into between two parties it is clear that consideration, which has been paid by the appellant to Nichimen under the agreement dated 20/11/98 and supplemental agreement dated 04/01/2000 is only for technical consultancy and engineering along with technical service and not for anything else. No doubt, there is a clause which states that the technical information generated/developed/obtained by Nichimen and or its sub-contractor pursuant to the agreement shall become the sole and exclusive property of Mahindra and Nichimen or its sub-contractor shall not be entitled to use the same for any purpose other than for the purpose of the agreement. When M/s Mahindra engaged Nichimen and its sub-contractors for the design, technical consultancy and engineering for the manufacture of BIWs, even without the specific clause relating to the IPR, the IPR in the goods would have accrued to M/s Mahindra. The IPR claimed by Mahindra is the copy right in design of the vehicle in terms of the Copyright Act and the Designs Act. The design registered by the appellant in the instant case is the design of the Land Vehicle as can be seen from certificate of registration dated 7-8-2001. The vehicle is comprised of not only the body, but also the glass, mirror, lights, the structure of the chassis, tyres, etc. and all these form part of the design of the vehicle. Therefore, the design registered by the appellant is different from the design of the body for the simple reason that the design of whole vehicle is distinct and different from the design of the body even though the latter may form part of the former. That does not mean that the latter and former are the same in design. Further, in the case of IPR, there are two important concepts - that is - authorship and ownership. As per section 17 of the Indian Copyright Act, 1957, in the case of work created at the instance of another for a valuable consideration, the ownership belongs to the provider of such valuable consideration. Similarly in the case of design, the design can be registered by the proprietor of the new or original design under section 5 of the Designs Act, 2000. Further under section 2(j) of the said Act, proprietor of the design, where the author of the design, for a good consideration executes the work for some other person, means the person for whom the design is so executed. In the case under consideration, the copy righted work or the engineering design work has been undertaken at the instance of M/s Mahindra by M/s Nichimen for a consideration and therefore, M/s Mahindra are the owners of copy right or the proprietor of the design under the law. Therefore, under the Indian laws, even without a specific provision in the contract, M/s Mahindra can duplicate or reproduce the design or article covered by the design. Thus, merely because the Nichimen has produced the design in the instant case, it does not mean that they can claim the ownership of the IPR in the design. Therefore, clause 13 relating to IPR/title has to seen as a clarificatory/explanatory clause so as to remove any doubt/confusion in the matter. Therefore, merely because there is an IPR clause in the agreement, it does not mean that the payment made is for the IPR. If the appellant so desired that part of the consideration was for IPR, there was nothing which prevented them from specifying the consideration for the IPR separately. In the absence of any such specification, it has to be presumed that the consideration has been paid for the goods/services under import. Clause 9 of the agreement with M/s Nichimen very clearly states that the consideration is for the technical consultancy and engineering along with technical services provided by Nichimen. This is further amplified in sub-clause (i) of clause 9 which reads as charges payable for design, engineering and development charges of MODEL, SOFT TOOL, DIES, SOFT JIGS/FIXTURES in the sum of Japanese Yen ... Further Rule 9(1)(b)(iv) covers costs and services paid for engineering, development, art work, design work, and plans and sketches. All these services enumerated in the rule have IPR in them. But the rule does not make any distinction between the IPR content of the work vis-`-vis the non-IPR content. The total cost involved for these services have to be added to the price paid or payable in determining the transaction value irrespective of whether the payment made is for IPR and non-IPR. The appellant has quoted several extracts from books relating to IPR in support of their contention. However these have no bearing to the facts of the case in view of the specific wordings of the agreement contained in clause 9 relating to consideration and also the wordings of Rule 9(1) (b) (iv) of the Customs Valuation Rules. Accordingly we reject the contention of the appellant that the consideration paid to M/s Nichimen has to be apportioned between IPR and non-IPR and only the consideration for non-IPR is to be added to the price to arrive at the transaction value.
10.5 There is one more reason for holding the above view. As per Rule 9(1)(c) of the Customs Valuation Rules, royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent such royalties and fees are not included in the price actually paid or payable have to added to the price to arrive at the transaction value. Royalties and licence fees are in the nature of payments for use of intellectual property. Since as per the appellants contention, the payments made for IPR is as per the agreement entered into with Nichimen, it is a condition of sale of the imported goods. Further as per Rule 9(1)(e) all other payments actually made or to be made as a condition of sale of the imported goods by the buyer or seller are to be included in arriving at the transaction value. Therefore, any payment made by the buyer to the seller for IPR as a condition of sale of the imported goods will also get included in the transaction value of such goods. Therefore, as per the contention of the appellant, if the IPR relating to the design is contained in the 34 BIWs and panels (under the IPR laws for a design to be registered should be contained in the goods by way of shape, size, form, etc.), then the payment for the same has to be part of the transaction value of the goods imported. Viewed from this angle also, there is no way the payments made to M/s Nichimen under the technical consultancy and engineering including technical services can be excluded from the value of goods imported.
10.6 In Tata Consultancy vs. State of Andhra Pradesh [2004(178)ELT 22], the Supreme Court while holding canned software recorded on floppy/CD/hard drive to be goods on which sales tax was leviable made the following observations:-
A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes and marketed would become goods. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just the media which by itself has very little value. The software and the media can not be split up.As in the case of paintings or books or music or films, the buyer is purchasing the intellectual property and not the media..
The conclusion emerging is that a product can not be segregated in terms of the intellectual input and the medium in which it is stored. Similarly in the case of Accel Frontline Limited [2008 (227) ELT 313(AAR)], the Advance Ruling Authority held that data recorded on a medium has to be regarded as a composite goods and it can not be given dual identity, once as data, and then separately in terms of medium in which it happens to be recorded.
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 # 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. The next argument of the appellant is that the tools, moulds, etc. which were designed and developed by Nichimen were capable of producing 150 Nos. of BIWs and panels whereas they have actually imported only 34 BIWs and one panel and while distributing the cost, the capability of moulds and dies should be taken to account. In terms of the agreement, Nichimen supplied only 34 BIWs and one panel and thereafter, they were required to destroy these moulds and panels. In other words, the soft tools, moulds, jigs/fixtures etc. developed by Nichimen were used for the production of only 34 BIWs and one panel and, therefore, the cost of these goods etc. has to be apportioned over only for 34 BIWs and one panel and not based on the capability of what could have been produced, using the moulds and dies. Clause 2(d) of the agreement dated 20-11-1998 specifically casts the responsibility and obligation on M/s Nichimen for destroying the MODELS,SOFT TOOLS AND SOFT JIGS/FIXTURES after completion of WORK for the SCORPIO PROGRAM.
11.1 The appellant has relied on CBEC circular dated 23-1-96 and certain judgments in this regard. The said circular deals with a situation when castings are made from the patterns supplied by the buyer. The circular clarifies that apportionment (of the cost of the pattern) has to be done on the basis of expected life and the capability of the patterns and the quantity of castings that can be manufactured from it. The said circular specifically states that in cases where there is difficulty in apportioning the cost of pattern, apportionment can be made depending on the expected life and capability of the pattern and the quantity of castings that can be manufactured from it and thus working the cost to be apportioned per unit. This clarification has been given to deal with a situation where the exact number of units that can be produced with the pattern is not known. In that context it was stated that expected life and capability of the pattern should be taken into account. That is not the situation obtaining in the present case. The number of BIWs/panels that were manufactured with the aid of models, soft tools, soft jigs/fixtures in the case was clearly known. Further, there was a condition that the moulds, tools, jigs/fixtures, etc. should be destroyed after the programme is over. The total quantity of goods manufactured with the aid of these goods were 34BIWs and one panel. Thereafter, the moulds, tools, etc. were destroyed. Therefore, the cost of the moulds, tools, jigs/fixtures has to be distributed over the 34 BIWs and one panel and not on the basis of any assumed/estimated capability. The judicial decisions cited by the assessee dealt with situations mentioned in the Boards circular. When the said circular itself is not applicable to the facts of the present case, the orders cited by the assessee has no relevance and the argument has to be rejected outright.
12. The next issue for consideration is the appellants claim for exclusion of income tax paid by the appellant on behalf of the foreign vendor from the taxable value of the goods imported. The appellant claims that in terms of the agreement entered into with M/s Nichimen, they have discharged the income tax liability of Nichimen by deducting the tax at source (TDS). In the case of agreement with M/s HW, UK, the appellant has paid the income tax on behalf of the foreign vendor. It has been argued that as per the interpretive notes to Rule 4, the value of the imported goods shall not include duties and taxes in India provided they are distinguishable from the price actually paid or payable for the imported goods.
12.1 The appellant argues that duties and taxes in India will include all types of duties and taxes including Income Tax, which is payable by the appellants on behalf of the foreign supplier of the goods. They have also relied on Advisory opinion issued by the WCO in this regard. The WCO advisory opinion merely states that since the duties and taxes of the country of importation are by their nature distinguishable from the price actually paid or payable, they do not form part of the Customs value. What is being determined under Section 14 read with the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, is the price paid or payable for the imported goods. All the elements which are provided for in the rules, whether for inclusion or exclusion relates to the price paid or payable. Therefore, the duties and taxes in India referred to in the interpretative note to Rule 4 should also be relatable to the goods. In other words, only those duties and taxes, which are related to the imported goods can be deducted while arriving at the taxable customs value. If duties and taxes paid have no nexus with the goods, then no deduction can be permitted towards such duties and taxes. Income tax is a tax on income and it is not a tax on goods. Irrespective of nature of the income, income tax is payable, whether it is on account of supply of goods or supply of services or on account of other activities. Merely because the appellant is liable to deduct the tax at source in terms of the Income tax laws, it does not mean that the income tax is paid for or on the imported goods. The liability to pay income tax is on the person earning income, which is the foreign supplier. Merely, because the appellant is obliged to deduct the tax at source and pay to the exchequer on behalf of the foreign supplier, it does not mean that the tax is payable by the appellant buyer/importer or the tax is on the goods. Different aspects of a transaction can be levied to different types of taxes. As has been held by the honble apex Court in the case of Federation of Hotels and Restaurants Association Vs. UOI 1989 (3) SCC 634- different aspects of a transaction can be subjected to different taxes, if the law so provides. As has been succinctly stated in the said case subject which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects..
Thus there is no merit in the claim for exclusion of income tax paid on behalf of the foreign supplier from the value of the imported goods as such tax is not relatable to the goods under supply. Accordingly we find no merit in this contention and reject the same .
13. In the light of the foregoing discussion and analysis, it has to be held that charges amounting to UK # 7,21,366.75 paid to M/s. HW, UK , in terms of the concept and feasibility design and engineering of the IDAM vehicle agreement dated 22-10-1996 and CAD surface development agreement dated 4-11-1996 and the charges amounting to Japanese % 23,28,10,165 paid to M/s Nichimen, Japan, in terms of the technical consultancy and engineering agreement dated 20/11/98 and supplemental agreement dated 04/01/2000 have to be added to arrive at the transaction value of the 34 BIWs and one panel imported by the appellant, in terms of provisions of Rule 9 (1) (b) (ii) and Rule 9 (1) (b) (iv) read with Rule 4 of Customs Valuation Rules, 1988, and section 14 Of the Customs Act, 1962 and we hold accordingly. Accordingly the duty demand of Rs. 7,78,67,696/- after re-determination of value at Rs.17,76,27,591/- as aforesaid made in the impugned order has to be sustained and we do so.
14. The next issue for consideration is whether extended period of time could be invoked in the instant case for demand of duty. The appellant has contended that there was no suppression of facts and, therefore, extended period of time could not have been invoked at all for demand of duty. This argument is without any merit whatsoever. Along with bill of entry, the appellant was required to file a declaration in form Annexure-I along with the bill of entry as per the provisions of Section 46 of the Customs Act, 1962. This annexure is in terms of provisions of Rule 10 of the Customs Valuation Rules, 1988. Against Sl.No.21 of the said Annexure, the importer has to declare the cost and services not included in the invoice value (Rule 9). The said Sl No. reads as follows:-
21. Cost and services not included in the invoice value (Rule 9):
(a) Brokerage and commission
(b) Cost of containers
(c) Packing cost
(d) Cost of goods and services supplied by the buyer
(e) Royalties and licence fees;
(f) Value of proceeds which accrue to the seller
(g) Freight
(h) Insurance
(i) Loading, unloading, handling charges
(j) Landing charges
(k) Other payments, if any.
If the appellant had paid certain amounts to the foreign supplier on account of these charges, which has not been included in the invoice value, the particulars of the payments had to be declared before the Customs authorities, so that the Customs authorities can decide whether the exclusion made in the value is correct or not. Further in the said annexure-I, there is a declaration to be made by the importer stating that that the information furnished is true, complete and correct in every respect. The declaration further provides that the importer undertakes to bring to the notice of the proper officer any particulars, which subsequently comes to his knowledge which will have a bearing on valuation. In the instant case, the appellant/importer did not declare the various charges paid to HW, UK and Nichimen, Japan towards various services rendered. Thus, there is a willful mis-declaration made by the appellant with an intent to evade payment of appropriate customs duty. Therefore, the argument of the appellant that in the instant case, the extended period of time could not be invoked to demand differential customs duty has no basis whatsoever and we totally reject the claim of the appellant in this regard.
15. The next issue for consideration is confiscability of the goods and imposition of redemption fine in lieu of confiscation. In this case, the Ld. Commissioner has held that the goods are liable for confiscation and has imposed a fine of Rs.3.00 Crore in lieu of confiscation. Under Section 111 (m) of the Customs Act, whenever there is a misdeclaration of value or any other material particulars relating to the goods under importation, such goods are liable to confiscation. In the instant case, there was a misdeclaration of value in respect of 34 BIWs and one set of panel and, therefore, the goods were rightly held as liable to confiscation. However, since the goods were not available physically, no actual confiscation would have been possible. When the goods are not available for confiscation, imposition of fine under Section 125 of the Customs Act can not be made unless the goods had been previously released under bond. Section 125 of the Customs Act states that whenever confiscation of any goods is authorised by this Act, the officer adjudging it may give to the owner of the goods or from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as he deems fit. There is no seizure of goods in this case and consequently no confiscation either. In the absence of actual confiscation, the question of payment of fine in lieu of confiscation does not arise and, therefore, the imposition of redemption fine of Rs.3.00 Crore on the appellant in lieu of confiscation is not tenable in law and has to be set aside.
16. The department has also filed an appeal (C.No. 432/07) against the order passed by the Commissioner on the ground that the Commissioners finding that interest is not liable to be paid in this case as the clearances took place prior to 11/05/2011, is incorrect in law. Section 28AB (effective from 28-9-96 and as it stood at the relevant time) of the Customs Act provided for levy of interest on duty short paid or short levied or not paid or not levied or erroneously refunded, in case involving fraud, suppression of facts, collusion, willful misdeclaration or violation of any provisions of Act with an intent to evade duty, etc. In the instant case the imports have taken place during the period from June 1999 to July 2000. Therefore, interest on duty demanded under section 28 of the Customs Act (invoking the extended period of time) is leviable under Section 28AB, in cases involving suppression, fraud, collusion, etc. In other words, wherever short payment or non-payment of duty is on account of suppression, collusion, willful mis-statement, etc. interest was leviable under section 28. Thus, the order passed by the Commissioner holding that the appellant importer is not liable to pay interest under Section 28AB of the Customs Act is legally incorrect and therefore, this finding relating to interest needs to be set aside and the departmental appeal in this regard ought to be allowed.
17. The next issue for consideration relates to imposition of penalty on the appellant under Section 112 (a) of the Custom Act. The Commissioner has imposed a penalty of Rs.1.5 crore on the appellant under Section 112 (a). The appellant has contested that imposition on two grounds. Inasmuch as the appellant has paid the duty demanded prior to the passing of the order, the penalty cannot be exceed 25% of the duty demanded. Another ground which they have adduced is that Notification No.31/2000-Cus (NT) was given retrospective effect and the action taken validated vide Section 92 of the Finance Act, 2009 and an explanation was also provided therein stating that Explanation. for the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable if the said notification had not come into force retrospectively.
17.1 It is the contention of the appellant that since Notification No.31/2000 was validated by aforesaid provisions of Finance Act, 2009, penalty could not be imposed on the appellants for the period prior to 2009 and they have relied on the judgements of this Tribunal in the case of Chemo Pulp Tissues Vs. CC reported in 2000 (119) ELT 715 (T-LB) and CCE Vs. Ranga Vilas GS & W Mills, 2002 (149) ELt 742 (T-LB). The case laws relied upon by the appellant pertain to a totally different situation altogether. In the Chemo Pulp Tissues and Ranga Vilas cases cited supra, the facts are altogether different. Vide clause(1) of section 112 of the Finance Act, 2000, it was provided that no credit of any duty paid on high speed diesel oil shall be deemed admissible during the period from 16-3-95 to the date on which the said Finance Act, 2000 received Presidential assent. An explanation was provided in Section 112 for non-imposition of penalty in case the credit has been taken wrongly prior to Finance Act, 2000 coming into force. If anybody had taken the credit wrongly, then they were not eligible for the same. However, taking of such inadmissible credit was not made punishable if the credit had been taken prior to the coming into force of Finance Act, 2000. In other words, in those cases there was a doubt or dispute regarding admissibility of Cenvat credit and if anybody had taken the credit wrongly, the credit was not admissible and had to be reversed; however, such availment of credit was held to be non-punishable, in view of the dispute involved. The facts in the present case are different and distinguishable. Rule 9 of the Customs Valuation Rules, 1988 existed in the statute from 1988 onwards, and the said rule provided for inclusion of costs and services incurred, if any, in the transaction value of the goods imported, if such costs and services were relatable to the manufacture of the imported goods and such costs and services were incurred in a place other than India. The said Rule 9 was very much in existence at the time of importation of the goods in the instant case and it has not been amended in any manner, with retrospective effect. If any importer did not include the costs and services as provided for under Rule 9, then non-inclusion would have attracted penal action under Section 111 and 112 of the Customs Act, irrespective of who issued the show-cause notice. It is not the issue of show-cause notice which determines the liability to penalty. Liability to penalty arises if the goods are liable to confiscation under Section 111. None of these sections has been amended in any way with retrospective effect so as to bring in its purview mis-declaration of value as a punishable offence under the aforesaid sections. In the instant case what has been validated by the Finance Act, 2009 is the action taken by DGCEI officers in respect of issue of show-cause notices for Customs violations. This has nothing to do with the confiscability of the goods, if they had been imported in violation of the provisions of Customs Act. Therefore, in the instant case, the penalty has been rightly imposed under Section 112 (a) by the adjudicating authority for mis-declaration of value and consequent evasion of customs duty by deliberately suppressing material facts. The appellant has also made a point that penalty cannot be exceed 25% of the duty liability. In the instant case, the penalty imposed is only Rs. 1.5 Crore and the duty liability, which is confirmed is Rs.7,78,66,696/-. Thus, the penalty imposed is less than 25% of the duty liability confirmed. Therefore, we do not find any merit in the contentions raised by the appellant and the same are rejected.
18. The last issue for consideration is whether Shri R.U. Prabhu, Dy. General Manager of the appellant company is liable for penalty under Section 112 (a) of the Customs Act or not. Shri R.U. Prabhu was only an employee of the appellant and he did not stand to gain personally by making the wrong declarations. In as much as the appellant has been penalised, we are of the view that penalty on Sri. Prabhu is not warranted and accordingly we set aside the same.
19. In sum, we uphold the confirmation of demand of differential duty amounting to Rs.7,78,67,696/- under Section 28 of the Customs Act, 1962. We also hold that the appellant/importer is liable to pay interest thereon at appropriate rates on the said differential duty amount under the provisions of Section 28AB of the Customs Act, 1962. We uphold the liability to confiscation of the goods under the provisions of 111 (m) of the Customs Act, 1962. Inasmuch as the goods are not available for confiscation, we set aside the redemption fine of Rs.3.00 crore imposed on the appellant in lieu of confiscation. We uphold the imposition of penalty of Rs.1.5 Crore on the appellant M/s.Mahindra & Mahindra Ltd. under Section 112 (a) of the Customs Act, 1962. We set aside the penalty imposed on Shri R.U. Prabhu, Dy General Manager (Capital purchase) of Mahindra & Mahindra Ltd.
20. The appeals are disposed of in the above terms.
(Pronounced in Court..) (S.S. Kang) Vice President (P.R. Chandrasekharan) Member (Technical) pj 1 11