Custom, Excise & Service Tax Tribunal
Ansaldo Sts Transportation Systems vs Commissioner Of Customs on 16 October, 2015
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH
CHENNAI
Appeal No. C/32/2007
[Arising out of Order-in-Appeal C.Cus.763/06 dt. 23.10.2006 passed by the Commissioner of Customs (Appeals), Chennai]
Ansaldo STS Transportation Systems
India Pvt. Ltd. Appellant
Versus
Commissioner of Customs,
Chennai Respondent
Appearance:
Shri S. Murugappan, Advocate For the Appellant
Shri B. Balamurugan, AC (AR) For the Respondent
CORAM :
Honble Shri R. Periasami, Technical Member
Honble Shri P.K. Choudhary, Judicial Member
Date of Hearing : 27.5.2015
Date of Pronouncement : 16-10-2015
FINAL ORDER No.41423/2015
Per R. Periasami
The appeal is filed against Commissioner (Appeals) order dt. 23.10.2006.
2. The brief facts of the case are that the appellant, M/s. Ansaldo STS Transportation Systems India Pvt. Ltd. (formerly known as Union Switch & Signal Pvt. Ltd.) are engaged in supply and installation and commissioning of Railway Signalling Equipments. The appellants have imported various parts, components of railway signalling equipments from their related supplier M/s.Ansaldo Signal NV, Netherlands and its 100% owned subsidiaries i.e M/s.Union Switch and Signal Co. USA. Since both the appellant and the foreign company were found to be related, a case was registered in Special valuation Branch to examine the relationship and its influence on the transaction value. Pending completion of proceedings, provisional assessment was ordered with the deposit of 1% Extra Duty Deposit (E.D.D). Special Valuation Branch (Customs) called for the records, agreements and on verification it was noticed that appellant firm is a subsidiary of principal foreign company which holds 100% equity. M/s.Ansaldo Signal NV, Netherlands has their own subsidiary companies located in various countries which are listed below :-
* M/s.Union Switch and Signal INC, USA * CSEE Transport, France * M/s.Union Switch and Signal Pty, Australia * M/s.Union Switch and Signal Sdn.Bhd, Malaysia * AT Signal System AB, Sweden * Ansaldo Segnalamentro Ferroviorio S.P.A. Italy * Ansaldo Signal, UK * Ansaldo Transport Signalling Ltd. Ireland.
3. The appellants have entered into agreements with various subsidiary companies including the unit viz. M/s.Union Switch and Signal, Inc. USA for import of components and parts and also for technical knowhow, software maintenance, design and servicing etc. and also paid lump sum payments as well as royalty for technical knowhow etc. The adjudicating authority after following the principles of natural justice in the OIO dt. 21.4.2006 has held as under :
"1. The Importers, M/s.Union Switch and Signal Pvt. Ltd., Bangalore and the suppliers, M/s.Ansaldo Signal Nv, Netherlands and their subsidiaries are related in terms of Rule 2 (i), 2(2)(iv) and 2 (2) (v) of Customs Valuation Rules, 1988
2. The transaction value shall be rejected under rule 4 (3) (a) as well as rule 4(3)(b) of Customs Valuation Rules, 1988.
3. The transaction value shall be determined under rule 8 of Customs Valuation Rules, 1988, as given below :
* In respect of imports under B/E No.380858 dated 07-11-2002, the invoice value shall be loaded by the followings for MICROLOCK II-CPU - 294.2% for PPCB-non vital - 333.7% * In respect of imports made under B/E Nos. 51873 dt.
21-10-2003, 537122 dated 02-12-2003, 667918 dated 19-08-2004, 735697 dated 20-12-2004, 716915 dated 18-1-2004 and 704949 dated 26-10-2004, the invoice value shall be loaded by 7.5% * In respect of the goods (transmitters, receivers and tuning/matching units) imported from M/s.CSEE Transport under B/E Nos.318096 dt. 13-05-2002, 321314 dt. 22-05-2002 and 308929 dt. 15-04-2002, the invoice value shall be loaded by 44.4%. Invoice value of all other imports made from M/s. CSEE Transport, shall be loaded by 44.4%.
* Excepting for the above mentioned imports, the imports made from 1999 to 2002 shall be assessed based on the transfer pricelist pertaining to the year 2002 by disallowing discount if any extended.
* In respect of imports made from 2003 to 2005, the goods should be assessed based on the respective transfer pricelists by disallowing discount if any involved.
* Lumpsum fee of USD 4,90,000 and Royalty of Rs.16,19,623 shall be added to the transaction value of the imports made during the year 2004 from M/s.Union Switch and Signal Inc. USA, determined under rule 8 of CVR, 1988, in terms of rule 9 (1) (c) of Customs Valuation Rules, 1988.
* Lumpsum fee of rs.64,00,000/- shall be added to the transaction value of the goods imported from M/s.CSEE Transport, France determined under Rule 8 of Customs Valuation Rules, 1988, in terms of Rule 9 (1) (c) of Customs Valuation Rules, 1988."
4. On appeal by the appellant, the Commissioner (Appeals) upheld the impugned order and the appeal was rejected. Hence the present appeal.
5. Heard both sides. Ld. Advocate appearing for appellant have submitted a written synopsis and reiterated the grounds of appeal. He drew our attention to SVB circular No.50/2004-SVB dt. 1.12.2004 and submits that they have imported parts and components from the USA company which is a subsidiary of M/s.Ansaldo Signal NV, Netherlands. He submits that the adjudicating authority has not accepted the transaction value on the imported goods and loaded the invoice price based on the pricelist of 2002 and rejected the discounts. He submits that the period of imports is from 1999 onwards. The adjudicating authority ordered for loading of all the previous imports from 1991 to 2002 as per the pricelist of 2002. He drew our attention to agreement dt. 1.1.2004 annexed at page 77 of the paper book and referred to clause 9(2) (4) which are related to right to information, technical information, permission to use trade mark and also to provide necessary skill and training to their staff in relation to railway signalling equipments supplied by the foreign company. He drew our attention to second agreement which is called as "New General Services Agreement" entered into between Ansaldo Signal NV, Netherlands and with various group companies including appellant which is annexed at page 97 w.e.f. 1.1.2002. He submits that the adjudicating authority has agreed that no addition is required as far as the service agreement.
6. He drew our attention to third agreement dt. 27.6.2000 entered with one of group companies i.e. CSEE Transport S.A. and the appellant. He referred to clause (A) & (B) and submits that the appellant engaged in the business of designing, manufacturing, assembling, erecting and installing signalling and communication equipment and train control systems relating to the railways and both agreed to share the database and expertise and as per condition of the agreement, as consideration for the said transfer, the appellants have to pay Rs.64 lakhs to CSEE. He further submits that they have imported various components and parts of signalling equipments from their related group companies. He further submits that all the six group companies had independent transactions with appellant. Therefore, invoice price has to be accepted as transaction value. He drew our attention to page 188 to 191 of adjudication order (internal page 7 of OIO) wherein the adjudicating authority rejected the transaction value in respect of each Bill of Entry where the adjudicating authority made a comparative chart of the declared value and the price list and the difference for each of the imports made under the respective Bills of Entry imported from USA supplier as well as France. Price variation between the declared price and as per the price list is shown as 30.78% in respect of imports from CSEE Transport, France. In any transaction, normal discount of 30% should be allowed. He relied case law of Eicher Tractors Ltd. Vs CC Mumbai - 2000 (122) ELT 321 (SC).
7. Regarding loading of price in respect of MICROLOCK-II CPU and PPCB, the adjudicating authority loaded the percentage of 294.2% and 333.7% respectively. For other imports made from M/s.CSEE Transport, loading was allowed at 44.4%. He further submits that adjudicating authority ordered for loading of value as per the price list for the period 2002-05. He further submits that the adjudicating authority also directed for loading of the price for all the imports made between 1999 and 2001 based on the pricelist of 2002. He further submits that since the period involved is prior to 2007, the 1998 Customs Valuation Rules applies. He submits that there is no misdeclaration of the value or description and pleaded that discount should be allowed and the invoice price is to be accepted as transaction value.
8. Regarding the second issue on payment of lump sum amount and payment of royalty, on the technical knowhow etc., he submits that the adjudicating authority ordered for proportionate loading for the lump sum amount as well as royalty on the invoice price of the imported goods. He submits that as per Rule 9 (1) (c) of CVR, royalty payment can be added only if it is related to the goods imported and if it is a condition of sale. He further submits that in their case there is no condition of sale of goods in this case. Therefore no addition of royalty or lump sum is warranted. He submits that technical knowhow and royalty payment is only for the manufacture of final product and not related to the imported goods. He relied the following case laws :-
(1) UOI Vs Mahindra & Mahindra Ltd.
1995 (76) ELT 481 (S.C) (2) CC Vs Ferodo India Pvt. Ltd.
2008 (224) ELT 23 (SC) (3) Shasun Chemicals and Drugs Ltd. Vs CC Chennai 2010 (249) ELT 80 (Tri.- Chennai) (4) Vestas RRB India Ltd. Vs CC Chennai 2004 (178) ELT 336 (Tri.- Del.) (5) Engelhard Environmental Sys. India Ltd. Vs CC Chennai 2005 (189) ELT 155 (Tri.- Che.) Royalty and lump sum payments are nothing to do with import of goods and the department has not proved the case but it is only on presumption and assumption and the ingredients of rule 9 (1) (c) has not been satisfied. He submits that all these facts were also brought before the Commissioner (Appeals) and the same was not considered.
9. Ld. A.R appearing for Revenue reiterated the detailed finding of OIO as well as OIA. He submits that appellant is a 100% unit controlled by overseas firm and one of the directors is common. He further submits that this is not a case that appellant disclosed the relationship when they started importing the goods from the related persons since 1999 and not declared to the department. It is mandatory as per the Customs declaration that they have to declare that parties are related and produce all evidence before importation. In this case, it is the department who came to know about the related party imports in the year 2002. Only after department initiated proceedings, the appellant came out with facts and submitted agreements etc. one after another to show that they are related to the supplier. He drew our attention to para-1 of OIO and the findings. Adjudicating authority has correctly loaded as per price list as discount offered to them are only special discounts and there is no uniformity of any discount. Appellant could not produce any explanation for the variations of huge discounts and the variation is abnormal between the pricelist and the sale price. He also submits that there is huge difference between import price and the sale price to Indian Railways. He drew our attention to page 192 of OIO. Since appellant is a 100% subsidiary wholly owned by the principal i.e. M/s.Ansaldo Signal NV, Netherlands and they are having other subsidiary companies of both USA & France which are also fully controlled by the principal company. There is no third party transactions. Appellant also failed to prove any discount offered to any unrelated buyer. Therefore, the adjudicating authority has rightly denied the special discount and taken into consideration the price list for determining the transaction value. He submits that Rule 4(2) (b) of Valuation Rules is applicable to the appellant. As the sales are exclusive to the appellant and the discount are applicable only to the appellant which is special discount and not permissible under Rule 4 (2) (b).
10. Regarding technical knowhow and royalty, he reiterated the finding of adjudicating authority and the impugned order. The entire lump sum payments are related to imported goods as well as with domestically manufactured goods and the adjudicating authority has not loaded the entire lumpsum and royalty to the imported goods but only proportionately ordered for loading after excluding the domestically manufactured goods. Since appellant is importing only through their group companies Rule 9 (1) (c) is applicable.
11. We have carefully considered the submissions of both sides and examined the records. The issue in the present appeals relates to (i) whether the appellants are related persons to the suppliers of imported goods within the scope of Rule 2 (2) (vi) of CVR. (ii) whether the denial of special discount offered to the supplier and loading of value of the imported goods as per the list price for each of import items in terms of Rule 4(2) of CVR is correct or otherwise and (iii) whether the addition of lump sum fee and royalty paid to value of goods in terms of Rule 9 (1) (c) of CVR is correct or otherwise and (iv) whether the loading ordered for previous imports of 1999 to 2002 based on price list of 2002 is valid or otherwise.
12. On perusal of the order in original dt. 21.4.2006 passed by the Additional Commissioner of Customs (SVB) and the impugned order of Commissioner of Customs (Appeals), all the contentions and arguments and case laws put forth by the appellants before this Tribunal were identical to the submission made before L.A. We find both the adjudicating authority and LAA has dealt all the issues in detail in depth and discussed elaborately all the appellant's submissions and case laws in their well reasoned OIO of 20 pages of adjudicating authority and OIA of 32 pages by LAA.
13. On the issue of "Related person" the L.A.A in his impugned order at para 8 to 11 had discussed in detail. On perusal of statements of facts of appeal and other records, we find there is no dispute on the fact that M/s. Union Switch & Signal Pvt. Ltd. (presently known as Ansaldo STS Transport Systems India Pvt. Ltd.) Bangalore i.e. the appellant is a 100% subsidiary of M/s.Ansaldo Signal N.V. Netherlands. It is evident from the appellant's own letter dt. 20.5.2005 addressed to DC Customs (SVB) that M/s.Ansaldo Signal Netherlands under consolidation process acquired 7 companies under Ansaldo Signal NV as a single Global company. These companies are located across the world in USA, Canada, Korea, Maxico, Australia, India, Malaysia, Italy, France, China, Hong Kong, Venenzuela, U.K. Swedan and all these 7 companies are 100% owned subsidiaries of Ansaldo Signal NV Netherlands. After Globalisation and consolidation, M/s.Ansaldo Signal NV became a single market leader worldwide holding patent technology for manufacture of Railway Signalling Products i.e. Microlock II Electronic Interlocking Equipment, End of Train, Train Protection Warning System, and UM 71 Audio frequency Radio circuiting.
14. Further, we find that as a part of expansion of their operations in Asia Pacific Region they formed company in India in the year 1996. As admitted by the appellant in their above letter the Indian unit (i.e. appellant company) does the job by winning the contracts against global and open tenders for Railway Electronic Interlocking Signalling and the execution of these contracts and their only customer in India is Indian Railways. The appellant also confirmed that these products cannot be used by any other customer in India. As seen from para-9 of their appeal, once the contract is awarded by Indian Railways to the appellant they had started importing the goods from July 1999 onwards and they imported goods inter alia from their seven overseas 100% subsidiary group companies (overseas supplier) which are as under :-
(a) Union Switch and Signal Inc., USA
(b) CSEE Transport, France
(c) Union Switch and Signal Pty. Ltd., Australia
(d) Ansaldo Signal, UK
(e) Ansaldo Segnalamento Ferroviario S.P.A.
(f) Ansaldo Transport Signalling Ltd., Ireland and
(g) AT Signal Systems AB, Sweden Appellant also admitted in their letter that they have imported significant quantities of goods from USS Inc. USA and CSEE Transport, France which are subject matter of dispute in this appeal and imports from other subsidiaries are minimal. With the above corporate background, we find that the appellant and all the 7 subsidiaries group companies are fully owned and controlled by M/s.Ansoldo Signals NV and all the imports are made only from the said group companies and there is no outside translation. Therefore, the transaction between supplier and appellants cannot be at arms length or normal transaction. This is evident from their own declaration submitted to the Department in Annexure-I questionnaire filed by them at para 9 (a) (b) they have admitted that their principal holding company decides the corporate policy, design, specification, quality control, marketing, sub-licensing of patent, franchise etc. In view of the above undisputed facts, the appellants and suppliers are related persons and we uphold the adjudicating authority and lower appellate authoritys finding that the appellants and the foreign supplier are related persons in terms of Rule 2 (2) 9vi)of CVR 1988.
15. Now, we propose to discuss the issue of discount offered by the supplier to the appellant on the price of imported goods. The original adjudicating authority at pages 7 to 11 of his OIO had made detail Tabulation of price analysis of all the imports from 2001 to 2004 B/E wise, year wise, supplier wise with description, quantity, declared price and price as per price list 2002 and the difference. It is evident from the above tabulation that there is huge variation of price of the same item. The appellants contention is that the transaction is at arms length and the price list of 2002 is not comparable with invoice price without considering the discount. Since these Railway signalling equipments are patented products manufactured by the principal company through their 100% subsidiaries located at USA and France etc. and carry out for Railway signalling and interlocking system to various countries across the world and the Indian unit which is an 100% subsidiary of Ansaldo Signal NV place the requirements to their own subsidiary units located at USA & France as per the contract approved by Indian Railways. It is pertinent to see that there is no thirty party sale by the subsidiary companies to any independent buyer which is admitted by the appellants. Both the adjudicating authority and LAA have discussed at length in their findings at para 12 to 17 of OIA and applied the valuation rule sequentially and determined the value under Rule (8) by adopting the supplier transfer price list 2002. We find that the discount offered by their related 100% subsidiary to another 100% subsidiary is only a special discount just to boost profit margin. As already discussed above, these Railway signalling equipments Microlock-II and other equipments / components are manufactured only for themselves which are transferred from one subsidiary to another subsidiary for commissioning their contract with various Railways. The declared price by showing a huge discount is nothing but a special discount limited to the appellant i.e. a 100% subsidiary unit and the appellant accepted the fact that there is no other suppplies of these products to any unrelated buyer in India. Therefore, the appellants reliance on the Honble Supreme Court decision in the case of Eicher Tractors Ld. Vs CCE (supra) and the Tribunal decision in the case of Tata Consultancy Services Vs CC (supra) pertains to when the transactions are at arms length and when there is no special consideration, where court held discount of 23% for price list to be accepted. The said decisions not applicable to the present case as the "special circumstances" is established in this case and the discount is not available to anybody except appellant. As per Rule 4 (2) (c) of CVR the transaction value is acceptable only where the sale does not involve special discount limited to exclusive agent/person. In the present case, it is established beyond doubt that the discounts offered are exclusive discounts only to the appellant who is 100% subsidiary of the principal company. Therefore, the appellants contention that they are eligible for discount of upto 30% for the transfer price is not acceptable. Accordingly, we hold that the L.A. order of the rejection of discount and loading of invoice price to different % for each imports made from their related suppliers is liable to be upheld.
16. As regards the addition of lump sum fee and royalty amount to the value of imported goods under rule 9 (1) (c) of CVR the appellants main contention is that these payments are not addable on the imported goods as it is not condition of sale of imported goods. We find that the lower authority dealt this issue in detail at paras 18 to 23 of OIA and gave clear findings on the appellant's arguments and citations relied by the appellants. The adjudicating authority in his findings at page 15, 16, 17 and 18 of OIO brought out at length on lumpsum payment made towards Technical Knowhow of USD 10,00,000 and royalty of @ 5% made to their principal supplier U.S.S and also explained various clauses of agreements. The appellants main contention that these payments are related to Technical Knowhow on the goods manufactured indigenously through sub-contractor and not related to the imported goods. It is pertinent to see the agreement dt. 1.1.2004 the relevant clauses are reproduced as under :-
"1.Definitions :
* (a) "technical information shall mean and any of the following:
* (i) Schematics for the printed circuit boards (PCB) and MICROLOCK and MICROLOCK II card file back plane * (ii) PCB layouts for the PCB and MICROLOCK I card file back plane * (iii) Detailed mechanical drawings for the PCB * (iv) MICROLOCK and MICROLOCK II card file and back plane * (v) Additional detailed design documentation, which may describe the structure, interconnection and operation of the MICROLOCK and MICROLOCK II (..........) * (c) "US & S Software" shall mean software developed and or owned by LICENSOR relating to MICROLOCK and MICROLOCK II and furnished to LICENSEE pursuant to the terms of this Agreement.
(..........) * (2) License : LICENSOR hereby grants to LICENSEE the non-exclusive right to use the technical information and US & S Software. This agreement also witnesses the arrangement between the parties, where under the LICENSEE is permitted to use any brand name trademark belonging to the LICENSOR to the extend it is required for manufacturing, distribution or using MICROLOCK and MICROLOCK II. Also the LICENSOR agrees that the licensee shall have the right to sublicense the technical information and US & S Software to such third parties as may be approved by the LICENSOR subject to other terms and conditions of the agreement."
It is evident from the above definition that the technical knowhow is directly related to the Microlock and Microlock II which is the patented product of their principal company. The goods imported are various components i.e. CPU, PCB, Relays, Software etc. of Microlock-II. It is relevant to see the copy of literature of Microlock-II. Wayside Control System submitted by the appellant in Annexure A at page 41 of paper book. The description of Microlock-II is reproduced as under :-
"Depending upon the particular application, wayside control systems could be quite complex with large quantities of relays and/or electronic component wired into wayside bungalows and control cases.
To simplify wayside control system installations while increasing their capabilities, flexibility and economy of installation and operation, Union Switch & Signal has consolidated vital and non-vital control logic, data transmission and coded track circuits into a single package with the MicroLok II Wayside Control System.
General Description The US & S Microlok II Wayside Control System has the flexibility and all of the capabilities required to control wayside configurations ranging from an end-of-siding to a double-track universal crossover. It combines vital logic, non-vital logic and coded track circuits into one easy-to-maintain card file, capable of efficiently performing a number of diverse functions, including :
* Signal lighting * Vital interlocking control * Train detection * OS track circuits * Coded track messaging * Code system for non-vital control and indications * Cab signalling * Event recording It is evident from the above technical description that the Microlock-II Railway Signal Interlocking Control System is nothing but a set of vital and non-vital logic data transmission communication system in the form of programmed coded circuit built in PCB, CPUs Relays etc which the appellants imported from their related supplier and the entire knowhow and royalty payments are for these patented products. As already discussed in the preceding paragraphs the knowhow, design, drawings and importation of Microlock-II are required for implementing the contract entered with Indian Railways which is evident from the copy of agreement (Contract No.SIG/WS/Contract/292 dt.2.2.2004) signed by Railways and the appellant. The preamble of agreement is reproduced as under :
"ARTICLES OF AGREEMENT made this Day of 2004 between the President of India acting through the Chief. Sig & Telecomm. Engineer (Construction), North Central Railway, Allahabad herein after called the 'Railway' of the one part and M/s.Union Switch & Signal Pvt. Limited, SLV Complex, AVC Compound # 35,80 Feet Road, IV Block, KORAMANGALA, BANGALORE hereinafter called the 'Contractor' of the other part :
WHEREAS the Contractor has agreed with the Railway for the performance of the works of Design, Manufacture, Supply, Installation, Testing and Commissioning of Solid State (Electronic) Interlocking System at Aharaura Road, Kailahat, Pahara, Jhingura, Vindhyachal, Birohe and Jigna station of Mughasarai Allahabad section of Allahabad Division of N.C. Railway.
As seen from the above, the scope of work covers every activity of design, manufacture, supply, installation, testing and commissioning of signalling system. The term used in the above contract "Solid State (Electronic) Interlocking System" is nothing but "Microlock-II Railway Signal Interlocking Control System" . The same were imported by the appellants form their related another 100% owned subsidiary. It appears the appellants deliberately chosen not to quote the branded name "Microlock-II" instead described in general as "Solid State Electronic System". The L.A have excluded that portion of amount of lump sum & royalty related to certain items manufactured through their sub-contractor locally and added proportionately to the imported goods based on the appellants data. Therefore, there is no justification on the appellants contention that the entire payments are related to manufacture of only indigenous goods. It is apparent that there appears that there is no manufacture and sale of indigenous components as all these are only PCB, CPU & relays, electronic circuits etc. The agreements confirm that knowhow is directly related to imported goods i.e. Microlock-II and other components without these imported components the contract has no value and cannot be put to use. The appellants rely upon the Apex Court decision in the case of Mahindra & Mahindra Ltd. (supra) and the Tribunal decisions in the case of Denso Kirloskar Industries P.Ltd. (supra), Shasun Chemicals and Drugs Pvt. Ltd (supra) and India Japan Lighting Ltd. (supra) are clearly distinguishable and not applicable to the facts of the present case as the above case law relates to Technical Knowhow for setting up of new plant and machinery for manufacture of excisable products. In the present case, the principal holding company i.e Ansaldo Signals NV 100% controls all the subsidiaries for the sole purpose of promoting their business of railway signal interlocking system. The appellant being one of the 100% subsidiary and the supplier is another 100% subsidiary of the same holding company entered into their arrangement only for the purpose of implementing the contract with Indian Railways. We find that the whole and planning mechanism is a single package but vivisected in various heads for flow back of the money to their principal company. If it is looked into macro level there is no buyer and no seller it is one arm of the same company transacts with other arm of the same company. The appellants' claiming the transactions are at arms length is beyond justified and beyond the scope of law as far as determining value under Customs Act. Similarly, the payments made by the appellant to CSEE towards data services is on also of identical pattern and we hold that for the reasons explained above the same is liable to be included. As regards the appellants' contention that out of total amount of Rs.64,00,000/- as consideration for providing data base, they have remitted only Rs.59,36,354/- as they have availed only part of service as already dealt by LAA and no concrete evidence produced by the appellant except workings. Therefore, the said payment is liable to be added to the value of imports.
17. In this regard, the Honble Supreme Court in the case of CC (Prev.) Ahmedabad Vs ESSAR Gujarat Ltd. (supra) clearly held that Technical Knowhow and lump sum shall be includible in the value of imported goods. The relevant paragraph of Apex Court decision is reproduced as under :-
"27. Therefore, the payment of DM 10,100,000 was? being made for the transfer of technology under the Process Licence Agreement entered into with Midrex. The services mentioned hereinabove are to be part of Licensing Agreement with Midrex. This agreement was a pre-requisite for finalisation of the contract with TIL to purchase the plant at Emden. The licence is not merely a permission to use the plant, but also to provide technical know-how to make the plant functional and also to improve the capacity of the plant by incorporating Hot Briquetting system. As all these services were to be rendered under the Process Licence Agreement with Midrex, the amount payable to Midrex as part of the Process Licence fee has to be included in the value of the plant. It has also to be borne in mind that these services were being rendered in order to improve the capacity of the plant by incorporating Hot Briquetting facilities.
28. So far as payment of DM 23,100,000 is concerned,? this sum is to be paid for Technical Services. A sum of DM 2,200,000 was payable for theoretical and practical training. This sum cannot be added to the value of the plant in any way. The sum of DM 23,100,000 payable for engineering and consultancy fee as specified in the agreement includes services like basic engineering and re-engineering for relocation of the existing plant at Hazira, India and basic engineering package for Hot Discharge and Hot Briquetting System and also preparation of necessary technical documents and hand over the same to the representatives of Essar in Austria. V.A. was also to provide specialist supervision of dismantling of the plant at Emden and also supervision of the plant, preparation of test report etc. Along with this, V.A. undertook to supply support services such as accommodation, logistics and transport and any other technical assistance needed by the collaborator and also training the engineers and personnel in similar plant. It also agreed to render various services in India. The technical services will cover, inter alia, -
"2.3 Technical services related to the relocation of the plant?from Emden to Hazira and simultaneously considering the incorporation of Hot Discharge and Hot Briquetting facilities.
2.3.1. Assisting ESSAR in the arrangement of laboratory and?plant scale tests on Indian raw materials (terms and conditions for the plant scale test are to be agreed directly between ESSAR and the owner of the plant where the test is intended to be carried out;
- Supervision of the test and interpretation of the test results.
2.3.2 Auditing of all the documentation available at Emden to?determine the nature and extent of missing documents/information (if any) as described in Annexure I. Documents/Information will mean, without exception, all the drawings, manuals, diagrams, calculations and records, etc. available at Emden, ESSAR will make available the documents to the extent available at Emden.
2.3.3 Assessment of Process Related Units and facilities? (equipment, machinery, piping, instrumentation, electrics and control system, related wear and spare parts) as available at Emden, jointly with ESSAR AND MECON and confirm the suitability of these facilities for refuse as such as evidenced at Emden or alternatively establish the extent of revamping/replacement/debottle-becking between dismantling and re-installation. Details of plant and equipment audit are described in Annexure II.
2.3.4 Engineering services for Process Related Units. For the?Hazira DR Plant, the basic process design parameters and ambient conditions will be different from that originally applicable and used for the design of the two modules at EMDEN. For electrical and instrumentation equipments the basic concept of the control system of the existing DR plant will be retained. The EMDEN Design Criteria and the Hazira Design Criteria are stipulated in Annexure III of this Agreement.
Collaborator will perform all process calculations on the basis of the design criteria applicable for Hazira and perform the re-engineering work to the extent required simultaneously considering the incorporation of Hot Discharge and Hot Briquetting facilities.
2.3.4.1 Prepare complete list of all new, missing equipment,? machinery, electrics, instrumentation, refractories, insulation, lubricants, chemicals, catalyst to be procured, modified erected and commissioned as well as a list of wear and spare parts for the first two years of operation, all with engineering specifications, sufficient to enable ESSAR to arrange timely procurement COLLABORATOR will assist ESSAR in providing technical clarifications during evaluation and negotiations with vendors.
2.3.4.2 Prepare a list of items requiring re-conditioning, along?with relevant specifications for these items. Nature and extent of re-conditioning will also be specified by COLLABORATOR which will be further discussed and agreed with ESSAR and MECON in accordance with Article 3.3.2.
2.3.5 Establish jointly with ESSAR and MECON, a division list?identifying those equipments, machinery, material and parts which can be procured in India or have to be imported. COLLABORATOR will provide a list of Vendors/manufacturers for refurbishing or procurement of all import items and MECON will provide a list of indigenous items.
2.3.7 Preparation and issue of new and re-engineered?drawings/documents/calculations/manuals for Process Related Units as necessary with sufficient details to enable ESSAR to procure equipment, prepare fabrication drawings and fabricate structures, erect, test, start up and commission the Process Related Units. The details of such drawings and documents are given in Annexure IV."
29. There are various other clauses relating to? civil engineering technical specifications, documentation and also inspection and check sizing of motors, reduction gear and hydraulics of Service Units etc. It is difficult to hold that the entire payment of engineering consultancy fee to V.A. will have to be added to the imported plants. But the plant was sold on as is where is basis. So whatever expenditure was needed to be incurred for dismantling the plant and making it ready for delivery has to be added to the value of the plant. The specialist supervision for dismantling of the plant anpod also engineering and consultancy services for this purpose will have to be added to the value of the imported plant. But this apart, other services rendered cannot be treated as adding in any way to the value of the plant. Since there is no clear indication as to how the various services have been valued separately, 10% of the amount of DM 23,100,000 should be added to the value of the plant on this account."
The ratio of the Apex Court decision is squarely applicable to the present case as the technical knowhow, lump sum payment, royalty are part of condition of executing the contract with Railways and certainly it is a condition of sale of imported Microlock-II components to the appellant falls within Rule 9 (1) (c) of CVR and includible in the invoice price of imported goods.
18. Further the Tribunal in the case of Electronic Corporation of India Vs CCE (supra) clearly held that technology fee are exclusively for the ECIL only and includible in the invoice price. The relevant paragraph is reproduced as under :
"21. The drawings, designs etc. imported by ECIL no doubt incorporated the trent technology so reverently spoken of by the counsels before us. In the absence of this technology, M/s. ECIL could not or would not be able to put the machines together from the components imported by them. This technology fee by whatsoever title called, was thus dutiable. Duty evaded by M/s. ECIL therefore is legally recoverable.
22. An?argument was made by Shri Parasurampuria that the responsibility to pay the fees for the technology was on ECIL-RPIL and not on ECIL, and therefore there was no call for loading of prices of imports made by ECIL. We have brought out about the circumstances in which the fees were agreed to be charged and paid and therefore do not wish to go into this argument except to state that ECIL-RSPL was only a child of convenience and at all times the physical imports were made and obligations were undertaken only by ECIL.
23. Both?counsels stated that the quantum of duty confirmed in the impugned order was wrongly calculated. The show-cause notice alleged that the value of imported drawings/designs was US$ 10,90,000 equivalent to Rs. 3,75,23,700/-. Duty demanded consequently was Rs. 1,34,42,174/-. The Commissioner in the impugned order reduced the addable value to US$ 5,55,000 equivalent to Rs. 1,86,91,800/-. In spite of the reduction in the quantum of addition by about 50%, he proceeded to confirm the duty as mentioned in the show-cause notice. Time and again both counsels termed this error as lack of application of mind and sought the appeal to be allowed on this ground alone. We have seen the figures quoted in the show-cause notice and the impugned order. The show-cause notice alleged the payment of US$ 10,90,000 equivalent to INR 3,75,23,700/-, the order speaks of US$ 5,50,000 equivalent to INR 1,86,91,800/-. The amount confirmed i.e. Rs. 1,34,42,174/-, however, remained the same in the impugned order. The appellants mentioned in the written submission that even if the higher figure is taken, it would come to US$ 9,90,000 and not US$ 10,90,000. We find nothing in the proceedings to support this plea. We however find that the figure of US$ 10,90,000 occurs in para 3.1 of the show cause notice. The fact that this amount is confirmed consciously also comes out in the corrigendum dated 13-12-1999 to the Order-in-Original. The impugned order does not show that the reduction of quantum of license fee was preceded by any discussions warranting such reduction. We would to revert to this aspect later."
The above decision is squarely applicable to the present case. Further we find that the original authority has meticulously worked out the amount and clearly apportioned in proportionate amount to the cost of imported components involved and indigenous components at the ratio of 49 : 51 and added only proportion of the amount of lump sum and royalty amount to the transaction value for each year of transaction of imported goods. Therefore, we hold that the lump sum fee, royalty paid to U.S.S.CSEE are includible in the invoice value.
19. As regards the appellants contention that L.A. direction to determine the value of the goods imported in 1999 to 2001 based on transfer price list of 2002.We find that the appellant knowing fully well that they are 100% subsidiary of Ansaldo Signal NV and the supplier company is also is a 100% subsidiary of the same holding company but failed to disclose to the Customs at the time of importation of goods from their related persons. It is only the Department in 2002 came to know the facts of related party. We are surprised to know that the appellant being a multinational company knowing the legal requirements failed to disclose the facts before importation nor filed any declaration on the related party transactions and imported goods from 1999 to 2001 which are mandatory requirement for assessment and clearance of goods but chose to suppress the above facts and paid customs duty on the declared value. It is abundantly clear that but for the departments efforts, this could not have been brought to light. Therefore, we have no hesitation in holding that since the appellants had suppressed the facts of their related party transaction the adjudicating authority had rightly ordered for determination of value of all the imports made in 1999 to 2001 based on the Transfer price list of 2002.
20. In view of foregoing discussions and findings and by respectfully following the Apex Courts and Tribunal decision referred above, we hold that
(i) the appellants and the suppliers are related in terms of Rule 2 (i), 2(2) (iv) and 2 (2) (v) of CVR.
(ii) The adjudication order of rejection of discount and declared value and redetermination of value under Rule(8) and loading of price is upheld.
(iii) The lump sum fee and royalty payments made to USS and CSEE are includible in the value of imported goods as arrived by the L.A.
(iv) The re-determination of value of past imports of 1999-2001 ordered by LA is upheld.
21. Before parting, we record our appreciation to the both original Adjudicating Authority and the Lower Appellate Authority for their well reasoned OIO dt. 21.4.2006 of 21 page and OIA dt. 23.10.2006 of 32 pages meticulously and systematically discussed each issue threadbare in their findings.
22. Accordingly, the impugned order is upheld and the appeal is rejected.
(Pronounced in open court on 16.10.2015)
(P.K. CHOUDHARY) (R. PERIASAMI)
JUDICIAL MEMBER TECHNICAL MEMBER
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