Customs, Excise and Gold Tribunal - Mumbai
Reliance Industries Ltd. vs Commissioner Of Customs on 19 November, 2004
Equivalent citations: 2005(98)ECC658
ORDER
Jyoti Balasundaram, Vice President
1. The above appeals arise out of the order of the Commissioner of Customs, Mumbai by which he -
(a) determined the assessable value of the Purified Terephthalic Acid segment of the plant, hereinafter referred to as the PTA plant) and Paraxylene plant of M/s. Reliance Industries Ltd. (hereinafter referred to as RIL) at Rs. 56 crores (equivalent to US$ 53.34 Million)
(b) determined the assessable value of the Paraxylene Plant at US$ 30.95 Million
(c) added US$ 12.05 Million being the value of items covered by the third list (Energy Centre)) to the assessable value of the imported plant and machinery (this amount includes US$ 4.8 Million towards escalation)
(d) added US$ 24.60 Million being the amount of know-how fees to the assessable value of the imported plant and machinery and directed that the duty on the know-how fees be calculated at the rate of duty and exchange rate as on the date of first B/E ie. B/E No. 12854 dated 30.12.85
(e) directed that the duty should be computed on project rate as prevailing at the relevant time under the Tariff Item 84.66 and directed that the value in foreign currency shall be converted into Indian Rupees at the exchange rates prevailing on the date of filing of the Bill of Entry in respect of the items in question.
2. The assessments were directed to be finalised accordingly and differential duty of Rs. 40.14 crores was demanded from M/s. RIL. He, however, dropped the charge of mis-declaration of capacity and value of plant and machinery imported by RIL and also dropped the proposal for confiscation and penalty.
3. RIL is in appeal against the confirmation of duty demand consequent upon enhancement of declared assessable value of PTA plant, Paraxylene plant and the third list items, while the department is in appeal against the dropping of demand for differential duty except to the extent of Rs. 40.14 crores confirmed, and confiscation and penalty and also against the extension of Project Import benefit to RIL.
4. The brief facts of the case are that RIL was granted an Import Licence No. P/C.G.2099040/D/E/95/II/85/CGIII/L/S dated 27.6.1985 in terms of Import Export Policy 1985-88 which entitled them to import capital goods as per list attached for CIF value of Rs. 70,70,30,300/-. The quantity as well as value were limiting factors for the purpose of clearance from Customs, in the said licence. The list of equipments permitted to be imported was annexed to the licence. The said licence was amended on 15.1.86 to include within its over all scope and value further items which have been described both in show cause notice as well as in the impugned order as "third list" or Energy Centre. By another amendment dated 24.8.87, the face value of the import licence was enhanced, as requested by RIL, to Rs. 76,69,37,000/-. Based on this licence, RIL applied for registration of its contract for procurement of capital goods with the Customs Authorities; the contract was registered under the applicable Project Import Regulations; the capital goods in question were, thereafter, imported under 491 Bs/E in between the period December 1985 to Sept. 1989. The goods were examined and allowed clearance by provisional assessment of the Bills of Entry, upon M/s. RIL executing a bond for provisional assessment. With the help of the imported items, M/s. RIL set up a plant for manufacture of PTA in Patalganga, Gujarat, wherein it also manufactured raw materials for the manufacture of PTA
5. Investigations were conducted with regard to the validity of the imports made by M/s. RIL in terms of the Capital Goods Import Licence issued to it with particular reference to actual capacity of the plant which according to the department was relevant for determining the validity of the imports, eligibility for Project Import benefits as well as for the value of the goods and it was found that the capacity of the plant imported exceeded the capacity for which machinery/equipments were permitted to be imported as per the licence. Show cause notice dated 11.5.90 was thus issued to M/s RIL proposing to deny the Project Import benefit to the imports made under the licence dated 27.6.85, proposing recovery of differential duty which was computed by enhancing the declared assessable value of the imported plant and equipments on the basis of a comparison of the capacity as found in the course of investigation and that mentioned in the industrial licence issued to M/s. RIL. The notice alleged, interalia that under the said import licence, M/s. RIL were permitted to import a plant capable of manufacturing 75,000/- M.Ts. per annum of PTA, that for this purpose, M/s. RIL were required to manufacture only 51,000 M.Ts per annum of raw material, that the capacity of the plant was much higher than the permitted capacity of 75,000 M.Ts per annum, that the plant which ought to have been used only for the purpose of manufacturing raw materials for captive consumption in the PTA plant, and was to be raw material feed system, was in fact an independent plant capable of manufacturing naphtha in excess of the permissible quantity of 51,000 per annum. The notice alleged that both plants were imported unauthorisedly and were not covered by the licence both in terms of description as well as their value, that the duty was to be paid separately on the 3rd list items. The differential duty amount was calculated by denying concessional rate of duty under Project Import Regulation and the value was determined by adding the value of the 3rd list items as well as 50% of the technical know-how fees and the exchange rate applied for conversion of the currency into Indian Rupees was the one prevailing in September, 1989 when the imports were completed. The notice also proposed confiscation of the plant and penalty upon M/s. RIL.
6. The allegations in the notice have been summarised under 9 heads in para 3 of the impugned order of the Commissioner which is reproduced as below:-
"(i) It has been alleged that the PTA plant imported by M/s. RIL is beyond the scope of the import licence, is not covered by the import licence and is thus an unauthorised import. This charge is based on the allegation that the capacity of the PTA plant allowed to be imported under the import licence was 75,000 metric tons per annum (hereinafter referred to as MTA) whereas M/s. RIL appeared to have imported a PTA plabt with much higher capacity than 75,000 MTA. Therefore, the imported plant does not appear to be one for which the import licence was issued and for which project contracts were registered with the custom house (paragraphs 10.01 to 10.03 of the show cause notice).
(ii) Value of the PTA Plant is misdeclared because the value declared is for a plant with capacity of 75,000 MTA whereas the plant imported has much higher capacity. Hence value of PTA plant is required to be enhanced.
(iii) The paraxylene plant imported by M/s. RIL is beyond the scope of the import licence and is an unauthorised import because M/s. RIL were allowed to import an intermediate plant i.e. 'raw' 'material feed system' for production of paraxylene for captive consumption for production of PTA whereas the plant actually imported by M/s. RIL is an independent paraxylene plant, which is not covered by the import licence and which was not registered with the Custom House for the purpose of benefit of concessional rate of duty under the Project Regulations. (Paragraphs 10.04, 10.05 of the show cause notice.)
(iv) The paraxylene plant declared by M/s. RIL as 'Raw Material feed System' is not covered by the import licence for another reason namely that M/s. RIL needed a paraxylene plant of the capacity of 51,000 MTA for production of PTA of 75,000 MTA. The paraxylene plant actually imported by M/s. RIL is of a much higher capacity than 51,000 MTA and a plant different from the one for which the import licence was issued and for which project contracts were registered with the custom house for concessional rate of duty. (Paragraph 10.08 of the show cause notice).
(v) The value of the Paraxylene Plant has been misdeclared because the value declared was for an intermediate plant of much smaller capacity whereas the Plant imported is an independent Plant with much higher capacity. Hence value of the Paraxylene Plant is required to be enhanced.
(vi) Equipment and machinery imported by M/s. RIL against the third list of C.G.licence No.P/C.G./2099040/D/E/95/H/85/CG III L/S dated 27.06.1985 does not appear to be covered by the import licence in terms of the value limitation of the import licence and Customs duty has not been paid on this equipment and machinery.
(vii) The knowhow fee of US$ 24.60 million (the technical knowhow fee of US$ 19.8 million for PTA and US$ 4.8 million for paraxylene plant (total US$ 24.60 million) is required to be included in the assessable value for assessment of duty. The show cause notice proposed the addition of only US$ 12.30 i.e. only half the amount of the total knowhow fee, to the assessabel value as there is no break up for basic engineering, design, drawings etc.
(viii) The equipment and machinery imported by M/s RIL for PTA plant and for paraxylene plant did not appear to be eligible for the benefit of concessional rate of duty under the project regulations.
(ix) The exchange rate for the purpose of calculation of duty should be the one prevailing in September, 1989 when imports of the projects were completed and the last consignment imported."
7. The importers filed reply to the show cause notice. The Adjudicating Authority framed the following 8 issues for determination in para 28.01 of the order which reads as under:-
"(i) Whether the PTA plant imported by M/s. RIL is covered by the import licence or it is an unauthorised import? Whether the licence was granted for a plant of specified capacity?
(ii) Whether the import licence for Paraxylene Plant (raw material feed system) was issued for import of a paraxylene plant or only for an intermediate plant meant for producing goods only for internal consumption for manufacture of PTA? Whether the paraxylene plant imported is covered by the licence. Whether the import of paraxylene plant is contrary to the import licence because the capacity of the paraxylene plant is higher than the plant permitted under the licence? Was the licence granted for import of a plant of a specific capacity?
(iii) Has there been mis-declaration of value of PTA and Paraxylene plant and is it required to e enhanced for assessment purposes because the capacity of the plant is higher than 75,000 MTA and 51,000 MTA?
(iv) Whether the benefit of concessional rate of duty under the project regulations is available to the PTA and the paraxylene Plant and goods imported under OGL?
(v) Whether the import of items covered by the third list described as 'Energy Centre' is covered by the licence and whether their value is required to be added to the assessable value of imported goods for the purpose of assessment of duty?
(vi) Whether the amount paid for knowhow fee is required to be included in the value of the imported goods for the purpose of assessment of duty?
(vi) What would be the relevant date for determining the exchange rate for the purpose of assessment?
(viii) Whether any fines, penalties are required to be levied on M/s. RIL".
8. In the proceedings before the Commissioner, M/s. RIL denied liability for the payment of differential duty by contending that the imports made by it were covered both in terms of description as well as value by the licence issued to it, which according to them, did not lay down any capacity restriction. They relied on several decisions of the Courts and of the Tribunal including the Tribunal's order dated 29.9.95 in their own case, wherein, the department's plea that capacity restriction should be read into the import licence granted to them for an earlier import of another plant, was rejected. M/s. RIL contended that there was no ground either for treating the imports as unauthorised or for denying Project Import Licence benefit. As regards issue of valuation and separate duty liability for third list items required for setting up of 'Energy Centre', M/s RIL submitted that the department's own investigation conducted through H.M.Customs Authorities, UK had established the correctness of the price paid by them for the goods in question and that since the declared assessable value was based on the actual consideration paid for the goods, there was no legal justification for enhancement of the declared value based on theoretical calculations with regard to capacities or with regard to break-up of values of various individual equipment's price of the plant. They also submitted that there was no legal authority for including the know how fees in the assessable value of the equipments as the agreement for supply of equipments and agreement for technical know how fees were independent and distinct contracts. As regards applicable exchange rate, it was their contention that what was relevant for purpose of applying exchange rate is the date of actual import and not the rate prevailing on completion of the entire project imports as proposed in the notice. The notice was adjudicated by the Commissioner, who upheld the plea of M/s RIL that the imports were covered by a specific import licence issued, following the ratio laid down by the Tribunal in their earlier case. On this basis, the benefit of Project Import to the imports was also extended. The value of the imports of PTA plant and paraxylene plant was however enhanced only for the purpose of assessment but with project import benefit. The value of the third list was determined separately on a notional basis and the entire amount of know how fees was added to the value of the imported plant and machinery. Duty was thereafter calculated by adding the value of know how fees to the first B/E which was filed on 13.12.85. It was also held that the rate of exchange prevailing on the dates of filing of the various Bills of Entries for the respective items, was relevant. The charge of mis-declaration was set aside and assessment was ordered to be finalised on the above basis and the demand was quantified at Rs. 40.14 crores. Both sides are in appeal against the above order.
10. The matter was argued at length before the Tribunal on 23/2/04 to 27/2/04 and on 11/3/04 We will be dealing with the submissions made by both sides while examining the finding on each individual issue in dispute before us. Written submissions filed by both sides after the conclusion of the hearing will also be dealt with while recording our findings.
11. The following 7 issues arise for consideration in this appeals:
(i) Whether the Import Licence issued to M/s. RIL covers the imports made by them and consequently whether the imports are valid and authorised?
(ii) Whether the imports were under- valued or liable to be assessed at a value higher than the declared assessable value?
(iii) Whether the third list items are covered by the Import Licence in terms of the restriction on value and whether duty is to be recovered separately on their notional value ?
(iv) Whether the concessional rate of duty applicable to project imports will be available to import of PTA and Paraxylene plant and goods imported under OGL ?
(v) Whether know how fee is includible in the assessable value of the imported equipments ?
(vi) What is the relevant date for the purpose of application of exchange rate for assessment purpose ?
(vii) Whether any redemption fine or penalty is called for on account of the above ?
12. We proceed to deal with each of the aforesaid issues seriatim:
Issue No.(i) :- Whether the licence covers the import in question and consequently whether the imports are valid and authorised?
It is the case of the department that the import licence issued to M/s. RIL does not cover the imports in question for the reason that the licence, if interpreted purposively, covered capital goods made for setting up of a PTA plant for the capacity of 75,000 per annum whereas the goods actually imported were of much higher capacity. While it is an accepted position that the description of the capital goods appearing in the list annexed to the licence does not mention any capacity, the contention of the ld.Sr.Counsel for the department is that such a capacity restriction should be read into the licence by the application of doctrine of purposive interpretation, with reference to the correspondence and other documents such as application made by M/s. RIL to the Secretariat for Industrial Approvals (SIA) for issue of industrial licence and for approval of foreign collaboration, application made to the Company Board under Monopolies & Restrictive Trade Practices Act, application for issue of import licence, SIA'a letter of intent and approval of import of capital goods, approval of project cost by MRTP as well as its approval of enhancement of project cost, and the industrial licence granted to M/s RIL. On the other hand, it is the argument of M/s. RIL that the issue is no longer res-integra , having been settled by the Apex Court in their favour in their own case reported in 2000(115)ELT 15(S.C) wherein, in the context of a similar situation, the Supreme Court had dismissed the department's appeal against the Tribunal's order wherein the plea of the doctrine of purposive interpretation as urged by the department in that case for reading of a capacity restriction in the import licence by reference to the industrial licence, was not accepted. It was the submission of the ld.counsel for M/s. RIL, that the import licence described the various equipments by name and do not refer to any capacity, that the licence had to be read on its own terms and it was not permissible for Customs Authorities to go beyond the licence, that the jurisdiction of Customs authorities was only to determine whether the said licence covered the imported goods with reference to description and value of the equipment actually imported; that it was undisputed that the quantity and description of the goods actually imported tallied with the quantity and description of the goods given in the list annexed to the import licence and therefore, there was no justification for Customs authorities to hold that the imports were not covered by the licence. He emphasized that despite the detailed investigation made by the Customs department, the Licensing authority has not considered it necessary either to amend the licence or cancel or suspend the same and as long as the licence was in force, it was valid for import made licitly in terms of description and value shown therein. He contended that the attempt to go beyond the licence by referring to antecedent correspondence between the importer and licensing authorities had already been held to be untenable in the importer's own case, in which the Apex Court followed the ratio of its decision in the case of Tarachand Gupta & Bros. 1983(13)ELT 1456(S.C.) and held that the validity of an import had to be determined only with reference to the description given in the licence.
13. The ld.Sr.Counsel for the department sought to distinguish the earlier order of the Tribunal in the importer's own case on the following grounds:-
(i) that the dispute in the earlier case was whether a particular entry in the list annexed to the import licence permitted the import of 4 complete machines or import of 4 frames only, while in the present case the dispute was not on the number of machine or the interpretation of the list on that account, but the dispute was whether the description contained in the list was specific so as to identify the goods which were to be imported
(ii) that the judgment of the Supreme Court in the earlier case was rendered in the context of a finding recorded by the Tribunal on the alternative submission justifying the actual production capacity vis-a-vis the capacity mentioned in the industrial licence, which was not so in the present case.
14. We have given our careful consideration to the submissions made by both sides. We find that the basic question raised in the earlier case, was identical to the one before us in this case. In the earlier proceedings, the dispute was whether it was permissible for the Customs authorities to read a capacity restriction contained in the industrial licence into the import licence by reference to the antecedent correspondence including the application for issue of capital goods licence for the purpose of considering a particular entry in the list annexed to the licence. It was the department's contention that such antecedent correspondence in that case was to the effect that M/s. RIL desired to import 4 machines and not 8 machines. The department relied upon item No. 7 in the import licence which referred to the letter of intent/industrial licence to manufacture POY of 25,000 M.Ts which could be manufactured with only 4 machines and the capacity would far exceed 25,000 M.Ts if the licence was construed as permitting import of 8 machines. Our attention was invited to para 64 of the Tribunal's order, wherein, the department had urged a purposive interpretation of the licence by seeking to read capacity restriction into import licence. We find that both the Members of the Bench passed separate concurring orders specifically dealing with the above submission of the Revenue and had rejected this approach in clear terms. While ld.Member(Technical) had concluded in para 73 of the order that the scope of the licence was to be determined on the basis of the description therein, and not with reference to correspondence with other authorities, ld.Member(Judicial) came to the same conclusion in para 12.3 and 12.4 of his order, which reads as under:-
"12.3.1 The Ld advocate for the appellants, has pleaded that any licence for import of any item is issued for a specific purpose which the prospective importer is supposed to divulge while applying for the same, and the licence so issued should be deemed to have been issued for that specific purpose, and as such , each such licence has to be given its purposive interpretation, and items figuring in the licence, be read and interpreted in the backdrop of what has been represented before the licensing authority and the purpose for which the said authority issued the licence. To substantiate this submission, the Ltd advocate has referred to the judgment of the Supreme Court in Roche Products Ltd v. Collection of Customs, 1990 (28) ECR 298 (SC). Elaborating on the same, and applying the said theory of Purposive Interpretation, the Ld advocate has referred to entry in Column No. 7 in the subject licence, and has pleaded that the subject licence is issued in relation to the Industrial licence granted to the RIL, and has permitted import of such of the Capital Goods, as are sufficient to meet the target as endorsed in the industrial licence. He has then referred to the know how Agreement and the Engineering Information Agreement, entered into by the RIL with the DU PONT USA, and has pleaded that the guaranteed nominal plant capacity at the initial set up was at least 10,000 MT per annum for A quality feed yarn of specified denier 129/34, 170/34 and 255/34, and with industrial Licence also being for 10,000 MT per annum, the RIL were granted licence for import of 3 new machines. In his submission at a subsequent stage, at the request of the RIL, the production capacity was enhanced by 15,125 MT per year, certifying the total production capacity at 25,125 MT per year, and when three machines initially permitted import could meet with the then production capacity of 10,000 MT per year, the requirement for the production of excess 15,125 MT per annum, could not be more than 4 additional machines, and in any case, not the one for 8 machines, and hence, even the licensing authority would not have permitted import of 8 machines and the licence as issued, should be construed to mean import of only 4 machines. It is also his submission that denierage has never been the criteria for ascertaining the production capacity of the plant . He submits that viewed from this angle, the interpretation as is given by the customs authority, to the said licence, gets confirmed. He further pleads that if the intention was to import 8 machines, the RIL could have straight away demanded a licence accordingly. He further pleads that mere description as is made in item A4 and A5 to A23 would not be significant to convey the contrary, when even the MSN shows that the word "spinning machine" includes spinning frames, and A4 could be read as meaning only 4 spinning frames, as duly opined by Mr. Vaishnav. Description in A5 to A23, also may not convey any other significant meaning as in the earlier licences also, the components for three machines were separately mentioned.
12.3.2 The Ld advocate for the Respondents, has however, while challenging the theory of purposive interpretation, submitted that the customs authority has merely to see that the import is valid and has referred to the meaning of the word "Valid Import" as given in para 323 of the Hand Book of Import and Export Procedure, to plead that when the import confirms the licence as to description, quantity and value of the goods imported; the same has to be taken as the valid one. According to them the Supreme Court's judgment in Re: Roche Products (supra) will have no bearing on the issue here, which even otherwise deals with the facts which are entirely different from those there. One the merits of the submissions from the appellant, the Ld advocate has pleaded that column 7 in the licence has no significance except to show that the importer of the Capital Goods, holds an Industrial Licence for production of such of the goods, for which the machinery under CG licence are to be imported. He points out that, when the subject licence was issued, the production capacity of the RIL was already enhanced to 25,125 MT per annum, and the Industrial Licence had already stood endorsed accordingly, and even then, the subject licence, does not refer to such enhanced capacity. If the capacity as endorsed was the criteria to be disclosed to the customs authority, to ascertain the validity of import, and interpret the licence accordingly, entry in column 7 would have been suitably worded. The Ld advocate then pleads that if the production capacity was the criteria for determining the importability of the number of machines, then, it is on record, that, with three machines as initially imported, they had achieved the production capacity of over 18,000 MT per annum, and it was on the strength of such excess production, that their capacity was enhanced to 25,125 MT per annum, and with all the figures available, the requirement could hardly be of one or two extra machines, and even then, besides the subject licence, they have been given a licence for one more new machines to be imported under the second phase of initial set up. In his submission, even going by what is pleaded, the production capacity in relation to yarn is always calculated in relation to it denier age and the RIL have always represented their production in relation to 40 denier. For this purpose, he refers to their application dt. 24.11.80, as also the reply dt. 28/10/88 from Mr. L N Doshi. Jt Secretary, Department of Chemicals and Petrochemicals, Ministry of Industries, sent to the adjudicating authority on some query raised by him in the course of adjudication proceedings. He has also referred to other documents, where for other Industrial Undertakings engaged in manufacture of similar items, the calculation is made with reference to 40 denier yarn. It is pleaded that the quantity products would be more if yarn of higher denierage is produced. In this submission, the capacity of each machine is assessed at 2500 MT annually, on 40 denierage yarn and calculated accordingly, the capacity of the plant with the machines installed could hardly come to 30,000 MT per year, which is within the allowable limit and licence, even if given a purposive interpretation, does not go contrary to the capacity indicated in the Industrial licence.
12.3.3 The theory of Purposive Interpretation, of the licence is not convincingly established by any precise backing. The decision of the Supreme Court in Re: Roche Products Ltd (Supra) appears to have been based on a different issue, and that too, is not in relation to interpretation to be given to the licence as issued by the licensing authority. In the said Judgment, the Hon'ble Supreme Court were expressing their opinion on the effect of clearance on payment of fine, of the goods ordered confiscation, and non-permissibility for utilization of the goods for the purpose other than the one to which the same were imported. The issue here, however, is, whether any particular entry as to the description of the goods, be gives a meaning other than the one it ostensibly conveys, by examining the purpose for which the import is permitted, more particularly when the basic use of the item imported, and the purpose for which they are imported namely, manufacture of PFY is not under challenge, and the issue is whether 4 machines or 4 machines plus components, which on due assembly, may result in making additional 4 machines, have been permitted import. That part, even if the said theory of purposive interpretation is accepted, application thereof by the customs authority in interpreting any specific licence issued by the licensing authority, is open to several hazards, the principal one being, that in so doing they might cross the barrier and lead them to a stage where they may protrude over the jurisdiction of the licensing authority and advertently or inadvertently sit in judgment over what has been decided by the licensing authority, and as already indicated above, that is not approved even by the Supreme Court (Re: Tarachand Gupta - supra) as also the Bombay High Court (Re: Lokash Chemicals - supra) and Re: Bussa Overseas and properties (P) Ltd (also supra).
12.3.4. Even on the applicability of the said theory, the submissions made, would not lead to conclude the issue in the way as is pleaded by the Ld advocate for the appellants. Grant of an Industrial Licence, is governed by the Industries Development and Regulation Act, 1951, which is an Act meant to provide for development and regulation of certain industries. Section 11 and 11A thereof provide for grant of Industrial Licence. Para 90 of the Hand Book of Import and Export Procedure, 1984-85 provides as an eligibility criteria, for an Actual User (Industrial) to import Capital Goods, to hold an industrial licence issued under the said Act. Nowhere, however, it is found that the production capacity as endorsed in the Industrial Licence will control or have any material bearing on the size of the Capital goods to be imported under the Import Licence. Even assuming that to be so, para 100 of the Hand Book provides that the application would be scrutinized by Project Approval Board, but does not mention that the customs authority would re-examine the same at the time of clearance of goods imported under the specific licence. This is point is already dealt with earlier and need not be elaborated again. From the provisions discussed hereinabove, however, there is nothing apparent to indicate that the import licence, is controlled by what is mentioned in the industrial licence. Entry in column 7 in the licence has therefore to be read as indicating the licence holder's eligibility to hold the Capital Goods licence and not in any way restrict or circumscribe the importability of the item for which a specific licence is given, 12.3.5 Assuming that the capacity as indicated in the Industrial licence has some bearing, it requires to be examined whether the capacity endorsed is in absolute terms as is pleaded by the appellants or is related to denierage as submitted by the respondent. It appears from what is brought on record in the letter from Mr. L N Doshi, Jt Secretary, Department of Chemicals and Petrochemicals dated 28/10/87 that some industrial establishments had exceeded their licensed capacity as mentioned in their industrial licence, and it was pleaded that this was on account of their having declared the production capacity in terms of finer denier whereas actual production was of coarser denier year, and in 1977, the question similar to the one posed here had arisen where it was decided that the production capacity would always be in terms of specified denier and it was further held that if the actual production exceeded that declared capacity, if the excess was because of production of coarser denier, the same would not be taken as violation of the terms of industrial licence. This approach of the concerned authority thus negatives the plea of the Ld Advocate for the appellant that the capacity mentioned is in absolute terms and not in relation to denier. When the capacity mentioned in the industrial licence has to be ascertained in terms of denierage of the yam, the question is what is the declaration from the RIL. In their application dated 24/11/80, the RIL have declared their production capacity on the basis of 40 denier yarn. In their applications for substantial expansion, dated 24/6/81 also the enhancement in the capacity by 15,125 MT per annum is sought on the basis of 40 denier yarn. The capacity as endorsed on the industrial licence issued to the RIL has therefore, to be taken as based on 40 denier yarn. Dr. James D Geerdes, President of Geerdes International claiming to be a world recognised Industrial Adviser and Consultant in technical and other matters, based in Virginia, USA, has examined the plant of the RIL at Patalganga at the request from Chentex Fibre Inc and has submitted detailed technical report along with his affidavit dated 27/6/88, where besides other things, he has given calculation and has concluded that production capacity per machine for 40 denier yarn would be 2540 MT per annum and for 12 machines installed, it would be 30,480 MT annually and considering safety factor, the production capacity for entire plant would be taken as 25,000 MT per year. Dr. Geerdes was made available during the adjudication proceedings but was not cross examined. Dr. Geerdes also seems to have referred the matter for expert opinion to Prof. JE Mechntyre, Professor of Textile Industries, University of Leeds in United Kingdom, and the said professor McIntyre, has vide his letter dated 5.7.88 endorsed the views expressed by Dr. Geerdes. Dr. J N Nigam, Director Shri Ram Institute of Industrial Research, Delhi, has also sworn an affidavit dated 5/11/88, enclosing his report prepared after visit to the Patalganga Plant of the RIL, and after discussing various technical aspects, has prepared a table indicating production capacity of the entire installed plant, on different denierage under Indian condition and for 40 denier yarn, has assessed the plant capacity at 26860 MT per year. These and also the other evidences, thus duly indicate that the plant capacity at 40 denier yarn, would not be exceeding 25,125 MT per annum, and in view thereof, it cannot be held that the machines imported are beyond the capacity as specified in the industrial licence, and on application of the theory of Purposive Interpretation the items imported cannot be taken as going beyond what has been permitted under the subject licence.
12.3.6 The Knowhow Agreement and Engineering Information Agreement strongly relied upon by the appellants also do not provide any assistance to them. What has been guaranteed thereunder is the "minimum" production and not the "maximum". The wordings in Annexure 'C' in the Engineering Information Agreement to the effect. "The nominal plant capacity will be at least 10,000 tons/year (30.3 tons/year) of A quality.."Substantiates the above observation. From this, therefore, it cannot be held that the plant capacity (with three machines) was of 10,000 MT per annum, irrespective of denier. The facts indicate that the same plant has actually produced over 18,000 MT per year and based on the same, the capacity under industrial licence has stood enhanced.
12.4 Taking all these aspects into consideration, therefore, the points urged by the Ld Advocate for the appellants do not lead to establish that the subject licence should be taken to be permitting import of only 4 reconditioned spinning machines.
15. It is clear from the above that the alternative contention of M/s. RIL Concerning the actual capacity of the plant being within the licensed capacity was examined only after recording of the clear finding on the first submission, namely that the capacity restriction imposed in the industrial licence could not be read into the import licence. It is also significant that the Supreme Court upheld the Tribunal's order solely with reference to the first contention viz. whether the Customs Authorities had jurisdiction to go beyond the description of the goods for the purpose of determining the legality of the imports and did not consider it necessary to go into the capacity aspect at all. The basic issue involved in the earlier case and in the present one is, therefore, similar. In both cases, the licences issued to M/s. RIL contain the description of the plant without reference to the capacity. The only limiting factors in the licence in both the cases are the description as given in the lists annexed to the licence and the over all value of the equipments imported thereunder. Both licences give particulars of industrial licence issued under the IDR Act, 1951. In both the cases, the stand of the department is that the licenced capacity of the plant as indicated in the industrial licence should be read into import licence for the purpose of determining whether or not the import is legal and authorised. In both the cases, it has been the contention of the department before the Tribunal that the licence should be interpreted purposively with reference to the antecedent correspondence leading to the issue of the import licence. A careful and detailed reading of the earlier order of the Tribunal and Supreme Court judgment confirming the said order leads us to conclude that the ratio laid down by the Apex Court in the earlier RIL order was that the validity of the import has to be judged with reference to the plain language of the licence and that the Customs authorities have no jurisdiction to read the capacity restriction into the licence, merely because the licence referred to the industrial licence in which the licenced capacity of the plant which was to be set up by using imported equipment, was stipulated. The so called distinguishing factors cited by the ld.counsel for the Revenue do not affect the ratio emerging from the earlier judgment. The finding recorded by the Tribunal in the earlier case with regard to the actual capacity is over and above the clear finding that the capacity of the plant was wholly irrelevant for purpose of deciding the scope of the import licence, as no such restriction had been laid down in the import licence itself, as seen from paras 68 and 73 of Member(T)'s order in the earlier RIL appeal (reproduced below):-
"68. This position of law has been followed by the Tribunal in several decisions cited by Shri Bhatt. These have been referred to in paragraph 25 supra. We respectfully follow the approach taken in these cases and reject the stand taken in the appeal that the Collector was in error in relying upon the judgment of the Bombay High Court in the case of Lokash Chemical Workers which was not germane of the case before him. The issue there as also in the instant case was whether it is open to interpret the scope of the import licence and hold the import of goods covered by the licence as not valid by going behind it and beyond it by looking into other factors. In the Lokash case it was the import trade control policy. Mere it is the correspondence which the respondents had addressed to the S.I.A, Department of Industry and ICICI in connection with licence and obtaining of foreign exchange loan as preparation for applying for capital goods licence. Once a licence is issued by the licensing authority, the Customs authorities have to only see whether that covers the goods or not. This is the view taken by the Bombay High Court which has been correctly followed by the Collector. The stand taken in the appeal that the said judgment was not germane to the case of RIL before the Collector is unacceptable and is rejected by us.
73. In the appeal several grounds have been raised which are by way of reiterating the points contained in the departmental note considered by the Collector but rejected by him while dropping the charges raised in the show cause notice. These pertain to the point canvassed by Shri Raghavan Iyer during his arguments about the purposive interpretion of the import licence issued for the reconditioned spinning machines in preference to the strict or grammatical interpretation. For this purpose, it has been contended that the scope of the import licence in question should be determined with reference to certain letters written by them to various authorities in connection with the licence and the various contracts entered into by them with M/s. Du Pont, U.S.A. for technical collaboration and supply of the plant. Reliance is also placed on the contents of the packing lists and invoices under which the reconditioned machines had been supplied, the gross weight of such machines vis-a-vis the corresponding weights of the new machines. The former documents have been relied upon to advance the plea that the respondents had intended to import only four spinning machines having 32 positions and had applied for import licence and foreign exchange loan on that basis only. The latter type of evidence has been pressed into service to bring out the comparison between the actual imports viz-a-vis the licence provisions in support of the department's case that excess machines had been clandestinely imported by them. These have been fully considered by the Collector while passing the impugned order. We in agreement with his findings except in regard to the valuation of the second hand spinning machines. The import licence had been issued to them on their application for which they had submitted the proforma invoice and their advertisement for ascertaining whether indigenous supplies were available. The goods listed therein were the same as that were specified in the lists annexed to the import licence. We had agreed with the Collector's' conclusion that the licence covered the goods imported as the scope of the licence is to be determined on the basis of what is described therein and not with reference to the correspondence with other authorities and institutions. As regards the other aspect with reference to the invoice and packing specifications and comparison of prices and weights these are really immaterial as the purpose behind the same is to establish that the respondents imported eight reconditioned machines while they could import only four such machines. As the fact of import of eight machines has been accepted by the respondents and their defence is that the said number of machines were permissible for import, nothing is actually required to establish that eight machines had been imported. This is also what was found by the officers o their inspection of the plant on their visit to the respondents' factory. In the circumstances, nothing really turns on the exercise of examining the break up of the invoice price of the various reconditioned items for the spinning machines imported under the Capital Goods licence, their gross weights, the capacity of the continuous polymerisation units as against the capacity of the spinning machine. What is material is the total quantum of imports and whether the same are covered by the import licence. This has been considered."
16. The observations of ld.M(J) in para 11.3, 12.27, 12.34 and 12.35 in his separate concurring order are also relevant which are reproduced below:-
"11.3 - When the earlier issue is based on true and consistent interpretion of the licence, it first requires to be ascertained as to what extent the custom authorities could interpret the licence. As already indicated earlier, the customs authorities have not resorted to the provisions of para 325 of the Hand Book of Procedure to seek any clarification from the licensing authority and as such no authentic interpretation of the licence is available. Nothing is also brought on record to show that the licensing authority has or had initiated any proceedings to cancel the licence, on any of the grounds available to them for such cancellation including the one of fraud or misrepresentation. The licensing authority thus, does not appear to have felt that any misrepresentation was made before them.
12.2.7 - A plea is raised that even in the application for grant of the subject CG licence by the RIL to the SIA, they have mentioned above import of 4 reconditioned machines and the same, when read with the Chartered Engineer's certificate, leads to indicate the request of the RIL as related to only 4 machines. The plea however, once again leads to going behind the licence which, as indicated earlier, is not permissible for the customs authority to do. Further, it also cannot be overlooked that when the RIL submitted the application to the SIA, they had also enclosed the proforma invoice, and the other connected documents, and when such an application alongwith its accompaniments which are material and essential to be considered for arriving at an appropriate decision as to whether the prayer made in the application, should or should not be granted, the presumption is that all these aspects have been considered. The licensing authority is also presumed to have sufficient technological knowledge, as to the machinery for which the licence is prayed for, as to identify what they party applying for the licence, proposes to import. It is reported that a committee of experts examine the proposal of the importer before grant of licence, and as it appears from the endorsement on the licence, the proposal was duly scrutinised by such committee. It is therefore not possible to presume that the licensing authority might not have realised the implications of the phraseology of entry A4 and A5 to A 23 (some of which specify the number of such items, which are much more than those required for four machines). In spite of all these, and with Proforma invoice before them, when the licensing authority have granted the licence in its present form, it cannot be read, in absence of any clarification from that authority as to interpret the same as granting permission only for 4 spinning machines.
12.3.4 -- Even on the applicability of the said theory, the submissions made, would not lead to conclude the issue in the way as is pleaded by the ld.advocate for the appellants. Grant of an Industrial licence, is governed by the Industries Development and Regulation Act, 1951, which is an Act meant to provide for development and regulation of certain industries. Section 11 and 11A thereof provide for grant of Industrial Licence. Para 90 of the Hand Book of Import and Export Procedure, 1984-85 provides as an eligibility criteria, for an Actual User (Industrial) to import Capital Goods, to hold an industrial licence issued under the said Act. Nowhere, however, it is found that the production capacity as endorsed in the industrial licence will control or have any material bearing on the size of the Capital Goods to be imported under the import licences. Even assuming that to be so, para 100 of the Hand Book provides that the application would be scrutinised by Project Approval Board, but does not mention that the customs authority would reexamine the same at the time of clearance of goods imported under the specific licence. This point is already dealt with earlier and need not be elaborated again. From the provisions discussed herein above, however, there is nothing apparent to indicate that the import licence, is controlled by what is mentioned in the industrial licence. Entry in column 7 in the licence has therefore to be read as indicating the licence holder's eligibility to hold the Capital Goods licence, and not in any way, restrict or circumscribe the importability of the item, for which a specific licence is given.
12.3.5 - Assuming that the capacity as indicated in the Industrial licence has some bearing, it requires to be examined, whether the capacity endorsed is in absolute terms as is pleaded by the appellants or is related to denierage as submitted by the respondent. It appears from what is brought on record in the letter from Mr. LN Doshi, Jt.Secretary, Department of Chemicals and Petrochemicals dt. 28.10.87 that some industrial establishments had exceeded their licenced capacity as mentioned in their industrial licence, and it was pleaded that this was on account of their having declared the production capacity in terms of finer denier whereas actual production was of coarser denier yearn, and in 1977, the question similar to the one poased here, had arisen where it was decided that the production capacity would always be in terms of specified denier, and it was further held that if the actual production exceeded the declared capacity, if the excess was because of production of coarser denier, the same would not be taken as violation of the terms of industrial licence. This approach of the concerned authoritiy thus negatives the plea of the ld.advocate for the appellant that the capacity mentioned is in absolute terms and not in relation to denier. When the capacity mentioned in the industrial licence has to be ascertained in terms of denierage of the yarn, the question is what is the declaration from the RIL. In their application dt.24.11.80, the RIL have declared their production capacity on the basis of 40 denier yarn. In their application for substantial expansion, dt.24.6.81, also, the enhancement in the capacity by 15,125 MT per annum is sought on the basis of 40 denier yarn. The capacity as endorsed on the industrial licence issued to the RIL has therefore, to be taken as bsed on 40 denier yarn. Dr. James D. Geerdes, President of Geerdes International claiming to be a world recognised Industrial Adviser and Consultant in technical and other matters, based in Virginia, USA, has examined the plant of the RIL at Patalganga, at the request from Chemtex Fibre Inc., and has submitted detailed technical report alongwith his affidavit dt.27.6.88, where besides other things, he has given calculations and has concluded that the production capacity per machine for 40 denier yarn would be 2540 MT per annum and for 12 machines installed, it would be 30,480 MT annually and considering safety factor, the production capacity for entire plant would be taken as 25,000 MT poer year. Dr. Geerdes was made available during the adjudication proceedings but was not cross examined. Dr. Geerdes also seems to have referred the matter for expwert opinion to Prof JE McIntyre, Professor of Textile Industries, University of Leeds, in United Kingdom, and the said Professor McIntyre, has vide his letter dt.5.7.88, endorsed the views expressed by Dr. Geerdes. Dr. JN Niyam Director Shri Ram Institute of Industrial Research, Delhi, has also swon an affidavit dr.5.11.88, enclosing his report prepared after visit to the patalganga Plant of the RIL, and after discussing various various technical aspects, has prepared a table indicating production capacity of the entire installed plant, on different denierage under Indian condition, and for 40 denier yarn, has assessed the plant capacity at 26860 MT per year. These and also the other evidences, thus duly indicate that the plant capacity at 40 denier yam, would not be exceeding 25,125 MT per annum, and in view thereof, it cannot be held that the machines imported are beyond the capacity as specified in the indistrial licence, and on application of the theory of Purposive Interpretation the items imported cannot be taken as going beyond what has been permitted under the subject items."
17. While upholding the above order, the Supreme Court dismissed the appeal of the Revenue solely on the question of jurisdiction of the Customs Authorities to travel beyond the description of the goods as given in the licence and did not consider it necessary to examine the correctness or otherwise of the findings of the Tribunal in regard to the actual capacity of the plant. Paras 8, 9, 10 and 11 of the Apex Court judgment are relevant for this purpose, which are reproduced below:-
"8. Being aggrieved by the said order of the Collector, both the appellant as well as the respondent preferred appeals, as stated above, before the CEGAT which by its order dated 29-9-1995 upheld the finding of the Collector, holding that there is no evidence in the case that the plant and machinery and the equipments imported were different from what had been licensed. It also held that the charge has been framed only because the production arrived at was nearly the double the licensed capacity and as the respondent had satisfactorily explained this position in regard to the production, the CEGAT rejected the contention of the appellant-Collector in regard to the charge of misdeclaration with intent to evade duty and unauthorized import of goods in excess of the licensed quantity. The appeal of the respondent also came to be dismissed.
9. As stated above, the Department has preferred the above appeal against the said order of the CEGAT, confirming the order of the Collector. The respondent who was aggrieved with certain directions issued by the Collector as confirmed by the CEGAT had preferred separate appeals which have been since heard and dismissed by this Court vide a separate order dated 17-11-1999. In this appeal, on behalf of the appellant, it was argued that the authorities below failed to take into consideration the admitted fact that by virtue of the import made by the respondent which according to the Department, was by misdeclaration, respondent was able to increase the production capacity much more than what would have been possible if the import was in accordance with the terms of the licence. That fact itself, according to the Department, was conclusive of the allegation that the respondent had imported machinery which were, in fact, not permitted under the licence granted to them. In other words, the respondent contends before us that the Tribunal and the Collector failed to notice the logical inference that what was permitted under the licence was the importation of such machinery as was necessary for achieving the sanctioned production but the respondent has imported machinery for production of PFY much in excess of the sanctioned production. Therefore, the import is in contravention of the licence.
10. We have perused the order of the Collector was well as that of the CEGAT and have heard the arguments advanced on behalf of the parties. It is to be seen that before the Collector pursuant to the show cause notice issued both the parties have produced large number of documents both in the form of affidavits and correspondence which have been dealt with by the Collector in his order. After considering these materials with reference to the question that is before us for consideration, the Collector came to the conclusion that the relevant import licence allowed the import of 4 complete spinning machines in terms of Item 4 of the list attached to the licence of equipments authorized for import. Hence, according to him, there was no misdeclaration by the respondent in regard to the import of machinery and what was imported was in accordance with the list appended to the import licence.
13. In its order, the CEGAT has also dealt with these questions independently and noticed the arguments of the Department that the machinery enumerated at serial No. 4 in the list attached to the licence, covered only spinning frame and not complete spinning machines. After noticing this argument, it took into consideration the evidence that was adduced by the Department in support of its contention and also those produced on behalf of the respondent and came to the conclusion that there is no reason whatsoever to disagree with the finding of fact arrived at by the Collector. In this background, it is for us to consider whether the Department in this appeal has made out a case, which calls for interference by this Court with the orders passed by the authorities below. The question whether the machinery imported by the respondent pursuant to the import licence granted to it is in accordance with the terms of import licence granted or not, is primarily a question of fact that is for the fact-finding authorities below and the Tribunal to decide. Their decision on technical matters as to what could be imported and what was imported must prevail. The authorities below and the Tribunal, after considering the case of the Department as well as that of the respondent and taking into consideration the entire material, concurrently arrived at the conclusion that the importation in question was in conformity with the terms of import licence. The argument of the Department that an adverse inference in regard to the legality of the import should be drawn, itself based on certain inferences like the excess production by the respondent, was considered and for reasons recorded not accepted, and we are not inclined to disagree with the same. The question as to the jurisdiction of an authority in decided as to the legality of importation based on the description of the goods imported is well-settled. This Court in the case of Union of India V Tara Chand Gupta & Bros. [1983 (13) E.L.T. 1456 (SC) = 1971 (13) SCR 557 at 566] has held in this context thus:
"The result is that when the Collector examines goods imported under a licence in respect of goods covered by entry 295 what he has to ascertain is whether the goods are parts and accessories, and not whether the goods, though parts and accessories, are so comprehensive that if put together would constitute motor cycles and scooters in C.K.D condition. Where he to adopt such an approach, he would be acting contrary to and beyond entry 295 under which he had to find out whether the goods imported were of the description in that entry. Such an approach would, in other words, be in non-compliance of entry 295".
18. Having recorded their approval of the principles laid down in the case of Tarachand Gupta referred to in para 11 of the above judgment, the Apex Court applied the principle to the finding of fact in the Commissioner's order that there was no evidence in the case that plant and machinery & equipment imported were different from what have been licensed. Following the ratio laid down by the Apex Court, which is applicable on all fours to issue No.(1) in this case, we hold that the import licence in the present case is valid and covers the goods in question, and as a consequence, the import is valid.
19. At this stage we may add that the contention of the department that the description given in the present licence was so vague as to preclude the very identification of the equipments as mentioned in the list annexed to the import licence, was not an allegation in the show cause notice. It is an accepted position that all the consignments imported by M/s. RIL were physically examined by the proper officer before clearance for home consumption, which was obviously done for examining whether the imported goods answer the description given in the invoice, B/E and import licence. From para 3.02 of the show cause notice, we find that the goods were physically examined and data relating to the dimension, sizes, capacity and other technical details were recorded by the Customs officers in the presence of representatives of the importers, who provided the necessary clarification. Therefore, we do no find any factual basis to support the above contention of the Revenue before us.
20. In the light of the above discussion, we uphold the Commissioner's finding on this issue.
21. Issue No.(ii) :- Whether the imports are under valued and hence liable to be assessed at a value higher than the declared assessable value.
The impugned order holds that there was no under valuation or misdeclaration of value as the assessable value declared in the Bs/E were found to be equal to the total price paid by M/s. RIL to the Overseas suppliers. In coming to this conclusion, reliance was placed by the Commissioner upon the report of Her Majesty's Customs U.K. which confirmed that no payment over and above the invoiced amount was received by the supplier. The invoice price was thus found to be correct and genuine as a result of Overseas investigation conducted by the Department. However, having held as above, the Commissioner has determined the deemed assessable value of the imported goods by determining the value sometimes with reference to actual capacity of equipments and at other times, with reference to certain offers/quotations. While M/s. RIL is in appeal challenging the enhancement of the value, which has resulted in duty demand, the department is also in appeal against the Commissioner's order on the ground that the value determined by the Commissioner was lower than the one proposed in the Show Cause Notice and also on the ground that he had erred in dropping charges of under-valuation/mis-declaration of value.
22. It was the contention of Shri J.J. Bhatt, ld.counsel for the appellants that there was no basis or justification for the Commissioner to enhance the declared assessable value as the correctness of the price has been established as a result of investigation conducted through H.M.Customs in U.K. The impugned order accepts the position that the declared assessable value represents the entire consideration paid for the imports. This finding has not been challenged by the department. The order also records a finding at page 345 - 348 (reproduced below:) that the buyer and seller do not have any interest in the business of each other, which finding also remains unchallenged in the appeal of the department.:
"Section 14 of the Customs Act provides that the value of the goods for the purpose of assessment shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale in the course of international trade where the seller and buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. There is no dispute that M/s. RIL the buyer, and M/s John Brown the seller have no interest in the business of each other and the price is the sole consideration for sale of the project. The project was envisaged, negotiated and contracted prior to 1988. In fact, the project was registered with Customs for import under the Project Imports (Registration of Contract) Regulations, 1965 in November 1985. It is also a fact that the substantive project was imported prior to 1988. Section 14 of the Customs Act was modified by the Customs Amendment Act, 1988 with effect from 16/8/88 and the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 were introduced from the said date. Prior to the said date the Valuation Rules holding the field were the Customs Valuation Rules, 1963. Under these circumstances for the purpose of determination of value of the project under reference recourse has to be taken to the provisions of Section 14 and the Valuation Rules as they existed prior to 16/8/88. There is also no dispute that identical or similar goods have not been sold for import into India. The price at which the impugned project has been sold is available. Since the concept of transaction value was not prevalent at the relevant time it would not be of much assistance in determining the assessable value. Under the provisions of Section 14, as it existed then, the value of goods under assessment shall have to be the deemed price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation in the course of international trade. Section 141(b) provided that where price is not ascertainable, the nearest ascertainable equivalent thereof was to be determined in accordance with the rules made in this behalf i.e. Customs Valuation Rules, 1963. Therefore, if it is found that the value is not ascertainable then the value has to be determined by the methods as prescribed in the rules. Therefore, the crucial issue before me is to decide whether the value is ascertainable under Section 14(1) (a) as it existed then or recourse has to be made to the rules for determining the value. With the above point in mind I would like to examine the aspect of value in the following paragraphs.
"M/s RIL have contended that since there is no evidence of any payment made in excess of the invoice value, the invoice value ought to be accepted as the assessable value. The department on the other had has contended that the value declared is not relatable to the plant imported. The department has also alleged that the capacity has been misdeclared and hence the value has also been misdeclared. I have already discussed in the preceding paragraphs as to how it is not legally valid to go into the issue of determination of plant capacity and how the allegation of misdeclaration of plant capacity is not sustainable in law. In consequence thereof the allegation of misdeclaration of value cannot be sustained. Therefore, the only point to be examined by me is whether the value declared could be taken as assessable value under Section 14 of the Customs Act as it existed then, independent of the charge of undervaluation or value has to be determined.
VALUE OF PTA PLANT M/s RIL have contended that the assessable value of the plant should be the invoice value or the transaction value therefore. In other words their submission is that the price actually paid for the goods and reflected in the invoices should form the basis of the assessable value. The concept of transaction value cane with the Customs Valuation (Determination value came with the Customs Goods) Rules, 1988. The said Rules came into force with effect from 16/8/1988 when Section 14 of the Customs Act was amended. Therefore, prior to the said date the invoice value could be accepted as the basis for assessable value only if the same was the price at which such or like goods were ordinarily sold or offered for sale for delivery at the time and place of importation, in the course of International Trade where the seller and the buyer had no interest in the business of each other and the price was the sole consideration for the sale or offer for sale. There is no dispute that the seller M/s John Brown Ltd and the buyer M/s RIL had no interest in the business of each other and the price was the sole consideration for the sale of the goods. This part of the legal requirement is, therefore, satisfied"
Further, the finding of fact that there were no imports of similar or identical equipments at the relevant time which could have been cited/relied upon as contemporaneous imports for determining the normal value of the goods in the international market, has also not been challenged by the Revenue. The judgment of the Supreme Court in the case of Mirah Exports Pvt. Ltd. v. Collector (1998(98)ELT 3) was cited before us to emphasize the point that the burden of proving under valuation was upon the Revenue and in a situation where the buyer and seller had no interest in the business of each other and the price was the sole consideration of the sale as in the present case, price of the invoice should be accepted as in the above case. It was submitted that even under Section 14 of the Customs Act, 1962, (pre-amendment) the invoice price was required to be accepted as assessable value, except when evidence was produced by the department to show that the declared price was not the normal value of the goods in the international trade. He submitted that various judgments of the Tribunal and the Supreme Court for the pre 1988 period laid down the following four circumstances which alone could justify the rejection of the invoice price as the assessable value :-
(a) Where there was a relationship shown to be existing between the importer and the seller; or
(b) where the price paid for the goods was not the sole consideration for the sale; or
(c) where there was evidence available of contemporaneous imports of identical or similar goods at much higher price; or
(d) where the invoice mis-declared the description of the goods.
It was submitted by the ld.counsel that none of the 4 circumstances existed in the present case and there was, therefore, no basis for discarding the declared assessable value, which in turn was based on a duly verified, and certified invoice price. Me further submitted that the Commissioner has erred in invoking the provisions of the Customs Valuation Rules 1963 for determining the assessable value even when the normal value representing the sole consideration of the sale of the goods was available in terms of Section 14(1)(a) of the Act. It is only when value cannot be determined under Section 14(1)(a), that the Valuation rules framed under Section 14(1)(b) could be pressed into service by the department. He submitted that there was nothing in Section 14 as it stood prior to its amendment, which could be construed to imply that the assessable value was to be ordinarily determined on a basis other than the actual invoice price. He submitted that the amended section post 1988 more emphatically recognises the transaction value to be the assessable value. He also drew our attention to the fact that the Commissioner has mis-construed the letter dated 9.5.84, addressed by M/s. RIL to Company Law Board, for the purpose of holding that the value of a plant of 1.5 lakhs M.Ts. per annum would be Rs. 56 crores as at that point of time, there was no actual offer of Rs. 56 crores and the figure only represented an approximate cost or estimated cost as clarified in the letter itself.
23 His next submission was that the method of arriving at the capacity of raw material feed system (paraxylene) of 1,54,000 M.Ts per annum on the basis of outlet point was fallacious and not supported by any technical material. He drew our attention to the affidavit of Mr. Andrew Knowles (page 1628 to 1646 of Vol.V) which showed that the capacity of a plant cannot be determined on the basis of sizes/dimension/capacity of only one of its components viz. the outlet point. As regards the value determined for paraxylene plant, it was emphasized by the ld.counsel that the valuation was done on the presumption that all invoices bearing suppliers' Code No. 4323 were attributable only to this plant, while the said Code Number covered not only that plant, but various other imports ie. the items in third list, and other items referred to in Annexure A to the order.
24. In response, it was the contention of the ld.Counsel for the Revenue that the report of H.M.Customs U.K. referred to the supplier making its profits only through consultancy and overall management of the Project even while selling the goods to M/s. RIL at its purchase cost, and therefore, the price paid by the importer to the foreign supplier could not represent the normal price at which the foreign supplier would have sold the equipment to the importer, but for the additional amounts that the foreign supplier was collecting from M/s. RIL as consultancy fee. He, therefore, submitted that on an analysis of Section 14 as it stood during the period in dispute, determination of "deemed value" was necessary and the show cause notice itself contemplated application of Rule 8 of the Customs Valuation Rules.
25. We have carefully considered the rival submissions on this issue. The imports in the present case have been made over a period of 4 years ie. 1985-89. In between this period, Section 14 was amended and the new Customs Valuation Rules 1988 were notified with effect from 16.8.1988. The show cause notice as well as the order accept the fact that most of the imports were complete before coming into force of the 1988 Valuation Rules. We will, therefore, deal with the issue of valuation of the imported goods both for the period prior to 16.8.88 as well as the period subsequent thereto.
26. For the period prior to 16.8.88, the valuation will have to be decided in the light of the pre-amended Section 14 and if necessary, by invoking the provisions of the Customs Valuation Rules, 1963. Section 14 prior to its amendment in 1988 read as under :-
"14. Valuation of goods for purposes of assessment.
(1) For the purposes of 1[the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be-
(a) the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is sole consideration for the sale or offer for sale;
3[Provided that such prices shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under Section 46, or a shipping bill or bill of export, as the case may be, is presented under Section 50;] where such price is not ascertainable, the nearest ascertainable equivalent thereof determined in accordance with the rules made in this behalf."
27. The notice and the order proceed on the basis that the provisions of the 1963 Rules are required to be invoked for determining the assessable value. However, the provisions of Sub-clause (b) of Section 14(1) in terms of which the Valuation Rules have been framed make it abundantly clear that the said sub-clause as well as the Valuation Rules can be invoked only when the valuation cannot be determined under Section 14(1)(a) of the Act. In other words, resort to Valuation Rules is permitted only when the value is not determinable under Section 14(1)(a). In our view, no justifiable reason or ground exists in the present case for determining the assessable value under Section 14(1)(b) in view of the fact that value in this case is determinable under Section 14(1)(a) which provides -
"value of the imported goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale for delivery at the time and place of importation or exportation as the case may be in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration in the sale or offer for sale".
A reading of the above Section makes it clear that the assessable value with reference to which duty was chargeable at the relevant time would be "deemed" to be "the price at which such or like goods are ordinarily sold or offered for sale." There is no evidence to suggest that the price at which M/s. RIL purchased the subject equipments was anything other than the price at which such or like goods are ordinarily sold. The burden of proving that the declared value does not represent the price at which such or like goods are ordinarily sold lies upon the Revenue, which could have been discharged by the Revenue either by proving that the declared consideration was not the sole consideration for the sale, or by proving that M/s. RIL and its supplier had interest in the business of each other, or by proving with reference to contemporaneous imports of like goods at higher prices, that the declared price was not the normal or ordinary price of the goods imported by M/s. RIL. In the present case, the Overseas investigations conducted by the Department have established the correctness of the price of the goods imported by M/s. RIL. There is no allegation either in the notice or in the appeal of the department that M/s. RIL or its Overseas supplier had any interest in the business of each other. There is also no evidence adduced by the department to prove that like goods had actually been imported by other importers into India at a higher value. We also do not find anything in the invoices or the proforma invoices to suggest mis-declaration of description which could have been a ground for rejecting the invoice price. There is, therefore, no basis for justifying an enhancement in the declared assessable value, particularly in the light of the investigation report of H.M. Customs U.K. confirming the correctness of the invoice price raised by the foreign supplier.
28. Coming to the period after the introduction of the 1988 Valuation Rules, we are of the view that the declared transaction value will be the correct assessable value in view of Rule 4 of the Customs Valuation Rules 1988. The expression "transaction value" has been defined in the Valuation Rules to mean the price actually paid or payable for the goods under assessment. In the present case, it is an accepted position that the value declared in the Bs/E represented the actual consideration paid by M/s. RIL for the imports in question and this has been verified through the office of H.M.Customs, U.K. There is no doubt, therefore, that the declared assessable value represented the correct transaction value of the goods. In the case of Eicher Tractors v. Commissioner (2000 (122) ELT 321 S.C), the Supreme Court held that the only circumstances, in which the transaction value could be rejected arc the ones specifically set out in Rule 4 (2) of the Valuation Rules which provides as under:-
4. Transaction Value. - (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules.
(2) The transaction value of imported goods under Sub-rule (1) above shall be accepted; Provided that -
(a) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which -
(i) are imposed or required by law or by the public authorities in India; or
(ii) limit the geographical area in which the goods may be resold; or
(iii) do not substantially affect the value of the goods;
(b) the sale or price is not subject to same condition or consideration for which a value cannot be determined in respect of the goods being valued;
(c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of Rule 9 of these rules; and
(d) the buyer and seller are not related, or where the buyer and seller arc related, that transaction value is acceptable for customs purposes under the provisions of Sub-rule (3) below.
(3) (a) Where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price.
(b) In a sale between related persons, the transaction value shall be accepted, whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at about the same time.
(i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;
(ii) the deductive value for identical goods or similar goods:
Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions or Rule 9 of these rules and cost incurred by the seller in sales in which he and the buyer are not related;
(c) substitute values shall not be established under the provisions of Clause (b) of this sub-rule.
29. The Supreme Court held that unless and until one of the 4 conditions stipulated in the above mentioned Rules are infringed, the declared transaction value is to be accepted. The only additions which are permitted to be made to the transaction value are spelt out in Rule 9 of the Valuations Rules in terms of which the question of includibility or otherwise of technical know how fees paid by M/s. RIL has to be examined. This aspect of the matter will be dealt with separately while discussing Issue No. (v). At this juncture, while dealing with the alleged under-valuation and determination of deemed assessable value, we are of the view that in the light of the verification conducted by H.M.Customs, U,K, with regard to the correctness of the consideration paid by M/s. RIL to the foreign suppliers, there can be no justification for rejecting the declared transaction value for imports effected after 16.8.88, and therefore, the enhancement in value made by the Commissioner in respect of imports made after 16.8.88 are clearly unsustainable, in the light of the Eicher Tractor judgment cited supra.
30. In the light of the above discussion, we are unable to agree with the finding of the Commissioner in regard to the enhancement of the declared value. The repeated emphasis that the Commissioner lays upon the use of the words "deemed" occurring in the pre- amended Section 14 overlooks the fact that the same Section 14 makes it clear that what is deemed to be the value is the price of such goods which in the present case has been verified by the department to be the same as the price shown in the invoices and the value declared in the Bills of Entry. Therefore, even by applying the concept of "deemed value" the conclusion would not be any different than under the post amended Section 14, particularly when no circumstance or evidence is forthcoming to show that the price at which such goods are sold to M/s. RIL was different in any respect from the price at which such or like goods were ordinarily sold or offered for sale to any other importer in India at or about the same time. The value declared by M/s. RIL in the Bills of Entry, therefore, satisfies the requirement of Section 14(1)(a) of the Customs Act and hence the question of taking recourse to the residuary Clause (b) of Section 14 and the Valuation Rules, 1963 framed thereunder, would not arise.
31. At this juncture, we would like to refer to the argument of the department that according to the report of H.M.Customs, the foreign supplier had earned its margin only in the Consultancy Agreement and not on supply of goods and therefore, the invoice price docs not represent the normal price of the plant. Counsel for M/s. RIL on the other hand, drew our attention to the detailed affidavit of Mr. Charles Patrick Smith, the Commercial Director of the supplier who had stated that the supplier had earned surplus of 2.5 million Sterling Pound for the supply of equipments to the project of M/s. RIL and annexed to the affidavit are copies of various proforma invoices, details of payments received under various Letters of Credit, details of payment made by the foreign suppliers to various vendors in respect of M/s. RIL project with full particulars of the suppliers purchase orders, related invoice numbers, their respective dates, amount paid and indicative statement of cash flow indicating a surplus of more than 2.5 Million Sterling Pound. This affidavit along with the aforesaid evidence, was placed before the Commissioner in the course of adjudication. It was in response to this affidavit that post-verification of invoices was conducted by H.M.Customs U.K. The result of this verification was recorded in a letter dated 28.2.94 addressed by an investigation officer of H.M.Customs to the Indian High Commission in U.K. wherein it was interalia stated that the foreign supplier earns his profit on the consultancy and the overall management of the project by supplying equipments to their clients at the purchase price. The said letter refers to scrutiny of 7 out of the 20 invoices provided by the Indian High Commission and states that while tracing back the said invoices in the payment records, it was found that in these cases the amount paid by foreign supplier to their own suppliers was the same as in the invoice amount. This letter however does not controvert the averment of Mr. Charles Smith that the foreign suppliers did make a profit of £ 2.5 million on the overall supply of equipments. No descrepancy has been pointed out in the affidavit either by H.M.Customs or by the Commissioner in the impugned order, or in the appeal of the Revenue before the Tribunal. In view of the above, the department's contention that the price actually paid by RIL to the foreign supplier does not represent the normal price for the goods in question, cannot be upheld.
32. We also find that the Commissioner has erred in arriving at the deemed value of plant in para 32.11.03 (reproduced below) of the order wherein he has stated that M/s. RIL has negotiated a price of Rs. 56 crores for their Project earlier which demonstrated that there was an offer for sale of a plant of 1,50,000 M.Ts. at a price of Rs. 56 crores:-
"32.11.03 It is a matter of record that M/s RIL had negotiated a price of Rs. 56 crores for their project earlier. This fact demonstrates that there was an offer for sale of plant of 1,50,000 MTA capacity at a price of Rs. 56 crores. It is not certain what is the capacity of the impugned plant. For the purpose of determining the value this fact however does not present unsurmountable difficulty. According to M/s RIL themselves this plant has been supplied by M/s John Brown Ltd with a warranty to produce at least 75,000 MTA of PTA. For the reasons recorded earlier it is clear that;
(a) There would be more or less no difference in the price of off the shelf items;
(b) The increase in capacity of the plant does not necessarily lead to proportionate increase in the price of the plants.
(c) And, the capacity of the plant being atleast 75,000 MTA, could be as well be near about of 1,50,000 MTA.
Therefore, it may not be unreasonable or arbitrary to view a plant of a guaranteed capacity of atleast 75,000 MTA and a plant of 1,50,000 MTA capacity which was negotiated by them earlier to the "such or like goods" for the purpose of valuation under Section 14 of the Customs Act. I am saying so for the reason that when capacity is mentioned, it is normally understood to denote the ceiling and not the bottom or the least output. A plant of atleast 75,000 MTA could as well be "like" a plant of 1,50,000 MTA, because for the former, 75,000 is the minimum, whereas for the latter 1,50,000 in the normal course will be the maximum output. This will also be consistent with the argument of M/s RIL that the value of the plant is not directly linked to the capacity of the plant and the price is not dependant upon or directly proportionate to any increase or decrease in the capacity of the plant. On the basis of the argument of M/s. RIL themselves it can be construed that there was an offer for sale of such or like goods earlier at a price of Rs. 56 crores. Therefore, it may neither be arbitrary nor unreasonable to consider that under Section 14 (1) (a) of the Customs Act the value of the PTA Plant for the purpose of assessment of duty could be "deemed" to be Rs. 56 crores.
The Counsel for M/s. RIL took us through a letter dated 9.5.84 addressed by M/s. RIL to the Secretary, Company Law Board wherein the project cost for establishing a PTA plant of 1,50,000 M.Tns. was shown to be Rs. 2330 Million The break up of the project cost, the cost of land, building and civil works was shown as Rs. 160/- million, value of plant and machinery was shown as Rs. 1100 million; other expenses including know how fees, engineering fees, taxes, miscellaneous, fixed assets etc. etc. was shown as Rs. 1010/- and the margin money for working capital was shown as Rs. 60/- million. This letter only estimated the projected cost of the project at that time contemplated to be of a capacity of 1,50,000/- M.Ts. The appellants emphasised that at the time when this letter was submitted to the Company Law Board, no offer existed from any supplier of plant and machinery at Rs. 56 crores It was, therefore, submitted that this letter has been misconstrued as an offer for sale of a plant of 1,50,000 M.Ts. capacity at a price of Rs. 56 crores. Since the department has not been able to show any document of offer for sale by a foreign supplier for the above plant at the above value and we, therefore, agree with the submission of M/s.RIL that the Commissioner has erred in recording such finding. We are dealing with this aspect of this matter, because both sides placed a lot of emphasis there upon, even though, in view of our findings above, the question of examining any quotation or offer for sale for determining the assessable value under Rule 8 of the Customs Valuation Rules does not arise in view of the existence of a genuine and correct price in terms of Section 14(1)(a) of the Act and the only adjustment that can be made to this price could only be on account of know how fees which will be dealt with by us while examining issue No. (v)
33. The main ground urged by the Revenue for alleging under valuation is that the declared value was under stated on account of the higher capacity of the plant actually imported as compared to the capacity shown in the industrial licence. However, in the absence of anything in the proforma invoice or in the contract with the foreign supplier, or in the invoices themselves to suggest that there was any stipulation between M/s. RIL and its supplier regarding the capacity of the equipments being 75,000 M.Ts per annum for the PTA plant and 51,000 M.Ts. for the Paraxylene plant to be supplied against the value agreed upon, we are unable to subscribe to the view expressed by the Revenue in this regard. In fact, the Commissioner has accepted in para 32.08.03 of his order that there was no stipulation or any clause in the agreement or contracts with the foreign supplier laying down that the transaction value agreed between the parties was related to or proportionate to or dependent upon the plant capacity. He also found that the value is not indicated for each individual equipments or item but relates to a conglomeration of items which together constitute a plant after setting up. The Commissioner has also recorded a finding after going through the records relating to the negotiations and the contract with the foreign supplier that the goods listed in the proforma invoice which the supplier had undertaken to supply at the agreed price were identical to those enumerated in the list attached to the licence. These findings are not disputed. We, therefore, hold that the capacity of the plant or of the equipments was not relevant for deciding the value of the goods imported. What was relevant for the purpose of Section 14 was the price actually paid for the goods imported. In the present case, the price was declared by M/s.RIL and verified by H.M.Customs and, therefore, what ever be the capacity of the plant and equipments imported, the declared value represents the total consideration or price paid for the goods. The findings of the Commissioner in this regard are contained in para 32.09.06 which are reproduced below:-
"32.09.06 I have given a careful thought to the arguments advanced by M/s RIL as well as the department. It is, no doubt, true that certain specifications have been mentioned in the Annexure to the Equipment Supply Agreement, but no specifications have been mentioned in the proforma invoices as well as the licence list. The Equipment Supply Agreement read with proforma invoices shows the price agreed to between the parties. Further there is no dispute that the price reflected in the invoices is for the goods imported by M/s RIL. I also take note of the fact that payments made by M/s RIL to the supplier M/s John Brown Ltd have been verified by the department with the help of HM Customs & Excise UK. The verification has revealed that the payments made are correct and no extra or clandestine remittances or payments were made in respect of the said equipment. The report of HM Customs is quite clear in this regard. The correctness of the payments made is therefore not a subject matter of dispute. It also stands to reason and logic that a plant of this magnitude cannot be defined in minute specifications at the very inception while entering into an Equipment Supply Agreement. The requirement may change as detailed engineering takes place and even during setting up of the plant depending upon on the requirement. It is also essential to keep in mind that the plant itself is not something, which is available off the shelf on a turnkey basis. While some of the items of the plant may be available off the shelf, some others have to be manufactured to specifications. All these factors are obviously taken into account while negotiating the price for the plant and also the fact that variations may be required when detailed engineering is undertaken and considered. Reading of the Equipment Supply Agreement also indicates that the engineering has to be undertaken in accordance with the Know-how & Engineering Information Agreement and manufacture of equipments had still to be undertaken. In this view of the matter the contention of the department that the price quoted had to apply to the department that the price quoted had to apply to the very same and exact equipment and specifications as set out in Annexure A and any variations there from would result in recalculation of the value may not be tenable in this kind of an agreement where setting up of a complex plant is involved. Therefore, I do not find valid grounds to hold that the value has been mis-declared. In view of the facts and circumstances of this case, the charge of misdeclaration of value is not established."
If the above findings recorded by the Commissioner while dropping the charge of mis-declaration and value are taken to their logical conclusion, the very basis of enhancement in value becomes unsustainable. The appeal filed by the department refers to the apparent contradiction in the order of the Commissioner while dealing with the issue of under-valuation and the issue of determination of assessable value for the purposes of assessment. The department contends that once the Commissioner enhanced the assessable value, he should also have upheld the charge of mis-declaration of value. We have already held that the deemed value under Section 14 as it stood prior to its amendment is the price actually paid for the goods and which was duly verified, and therefore, there was no justification for enhancing the declared assessable value, regardless of the capacity of the equipments imported. Consequently, we hold that the enhancement in the value of PTA plant and Paraxylene plant cannot be sustained and we accordingly set aside the same.
34. Issue No. (iii). Whether the third list items are covered by the import licence in terms of value limitation and whether duty is separately recoverable on their notional value.
The findings of the Commissioner on this issue are contained in para 35.04 and 35.06 of the impugned order which are reproduced herein below:-
"35.04 I have recorded earlier in this order, my findings how the value of the PTA plant and the paraxylene plant has to be determined on the basis of documents and invoices submitted by M/s RIL. The value declared by M/s. RIL for the project was 61.47 million US$. This was the value agreed to between the parties namely M/s RIL and M/s John Brown Ltd for the supply of PTA and the paraxylene plant. It is clear that the value agreed to between the parties was only in respect of list 1 and list 2 items and the third list items have been agreed, at a later date, to be supplied "at no extra cost". The reading of the agreement between the parties makes it very clear that while the price of 61.47 million US$ covered the items enumerated in list 1 and list 2, the items figuring in list 3 have been supplied "at no extra cost". The term "at no extra cost" has obviously a meaning in this context as "free of cost". This is borne out by the documents which refer to I and use phrases like "at no extra cost" or "free of cost" or within the overall licence value" synonymously. The licensing authorities, while amending the licence, have taken the view that the third list items are to be included within the overall value of the licence. There is no evidence of any extra remittance over and above the agreed amount or the invoice amount not is there any such allegation made in the show cause notice. In fact, during personal hearing before me this point was specifically emphasized by Shri Bhatt, learned counsel for M/s RIL, when the learned ASG on behalf of the department stated that it is not the case of the department that any extra remittance has been made which is not reflected in the agreement or the invoices or that any clandestine payment has been made to the foreign supplier. The learned ASG had stated that the case of the department is that in respect of these items, which are covered by the third list, not duty has been paid because the said items having been supplied "at no extra cost", have obviously been supplied "free of cost". If any item is supplied free of cost, the importer cannot plead that he will not pay customs duty as well. The fact that the importer has not paid any price for the goods imported also does not mean that the value of the goods is nil. For an item is supplied free of cost, the Customs will have to determine the value in accordance with the provisions contained in Section 14 of the Customs Act, 1962 and the Valuation Rules. In the instant case the invoices covering the said goods indicate the value thereof. This value has been accepted by the Customs department. On the basis of the invoices, the total value of the items comes to US$ 12.05 million. Customs therefore has to be charged on this value.
"35.06 In above view of the matter the assessable value of the items covered by the third list would be the value as declared in the suppliers invoices for the said items. The department is justified in including the invoice value of the items imported under the third list to the assessable value of the goods imported for the purpose of assessment of duty. Therefore, the show cause notice, in so far as it seeks to include the invoice value of the third list items to the overall assessable value is clearly justified and liable to be confirmed. In other words, while there is no ground to hold that the third list items have been imported in violation of the licence, the submission of the department that invoice value of US$ 12.05 million has to be included in the assessable value of the goods imported for the purpose of assessment of customs duty has to be upheld."
35. The above findings were assailed by the ld.counsel for M/s. RIL by submitting that the over all price paid by M/s. RIL to the Overseas supplier represented the total price paid by the importer for all the goods imported including the third list items. He emphasised that the third list item was not a fresh supply of equipments outside the scope of the original agreement for supply, but was in fact equipments supplied along with other supplies for a total value of US$ 82.27 million + £ 11.29 million and that neither the equipments supply agreement, nor the proforma invoices nor the import licence makes any reference to the individual values or the values of the different segments of the facilities for manufacture of PTA and Paraxylene. That being so, the invoice price was not a aggregation of different values of different segments of the plant but was the total consideration agreed upon by the importer and the supplier for supply of the equipments actually imported. The ld.counsel submitted that the entire order of the Commissioner relating to enhancement of the declared assessable value for the purpose of assessment was flawed, as it had overlooked the basic fact that the agreed price of US $ 82.27 million + £ 1.29 million was lumpsum price for all the equipments required to be imported for setting up of the plant, Our attention was drawn to the fact that the third list items were supplied in terms of a contract by which the supplier was under an obligation to ensure that the equipments met certain minimum stated specifications of production capacity. This obligation on the part of the suppliers necessitated supply of third list items as part of their contractual obligation at no extra cost. The ld.counsel further submitted that the import licence dated 27.6,85 was suitably amended on 15.1.86 to include the third list items and that the additional items were within the over all licence value and admittedly no amount in excess of the licence value had been paid for the imports. In this view of the matter, it was submitted that the import of the third list items was legal and no separate addition to the declared assessable value was liable to made for the third list items. On the other hand, the contention of the ld.counsel for the Revenue was that the supply of the third list items was not part of the supplied equipments as the third list items were to be part of the Energy Centre outside the factory battery limit. It was further contended that even though the third list items were supplied at no extra cost, there was simultaneously no deletion of any items from the first or second list which could compensate for the value of these equipments which were being supplied without extra cost. It was contended that even though equipments were supplied free of cost, they were required to be assessed to duty at their intrinsic or normal value. The ld.Counsel further submitted that the mere fact that M/s. RIL had not made any payment to the foreign supplier for the third list items was not sufficient to hold that there was no mis-declaration on their part, thus justifying confiscation and penalty.
36. We have considered the rival submissions. The central issue for decision is whether the supply of third list items can be regarded to be within the scope of the original equipment supply contract with JB, the overseas supplier. It is the claim of RIL that the third list items were not a fresh supply of equipments outside the scope of the original equipment supply agreement, but was a supply which was made by JB, the foreign supplier to meet its obligations under the original supply contract to ensure that the equipments met certain minimum stated specifications of production capacity. The learned senior advocate for RIL contends that this obligation on the part of the supplier necessitated supply of third list items as part of their contractual obligation at no extra cost. We are unable to agree with this argument as, on a reading of the supply contract, we find that the said contract was not for supply of the entire plant but was only for supply of certain equipments as defined in Article 1 of the said agreement. The said contract obliged JB, the foreign supplier to supply spares for two years operation of the plant (Article II) and also to supply additional quantities of equipment required for setting up of the plant (Article V). We cannot see or read into the said contract, any obligation on the part of JB to supply a power plant free of cost to RIL particularly when such a power plant was to be installed outside the battery limits. It is clear enough from a reading of the supply contract that what was agreed to between the parties was supply of equipment for the PTA plant and not the plant itself. The contention on behalf of RIL that the contracted amount included the cost of third list items flies An the fact of the agreement. True, that JB in one of its correspondence with RIL had stated that it would supply the third list items at no extra cost. The expression "No extra cost" itself denotes that whatever payment had been made for the equipment listed in Annexure A to the agreement settles the terms of payment for that equipment. However, for the purpose of assessment to duty of the equipments imported under the agreement, the Customs are bound to take the value indicated in the agreement itself. As such, the Commissioner's contention that the third list items should be separately assessed at the value indicated in the proforma invoice cannot be faulted. One of the pleas advanced before us is that the Commissioner while deciding that the value of the third list items should be separately assessed was attempting to ascribe separate/individual values to items imported under a project import which, according to RIL was not permissible in view of the fact that the contracted price was for the entire supply and not for individual items. In fact, we have ourselves held that this is not permissible while dealing with issue No. (ii) and (iii) above. When we look at the agreement (Article 6 ) we find that the foreign supplier provides to RIL a detailed breakdown of the prices for progressive release of payments. Any attempt to revise the value is not permitted because these equipments are being supplied under a contract for a certain sum agreed upon between the parties. In respect of the third list items which are not part of the agreement for supply, the Commissioner dealt with them separately only for the purpose of assessment which does not mean that he was trying to assess individual items in a project import. We, therefore, do not find any infirmity in the order of the Commissioner to the extent that he has separately assessed the value of the third list items and demanded duty thereon, in addition to the duty paid by RIL at the time of clearance of the goods. The Commissioner also says that the licence produced is valid for the third list items as well for at least 2 reasons:
(a) There is no evidence of any extra remittance over and above the agreed amount and
(b) Misdeclaration of value is not the charge of the department.
The department's contention appears to be that once the value of the third list items arc added to the value of the equipment, the licence falls short in terms of value ( value and quantity both being limiting factors to the licence ) and therefore the third list items are liable for confiscation. We are unable to accept this contention of the department for the reason that there is no allegation of any extra remittance or any charge of misdeclaration of value. In our view, determination of assessable value of imported goods under the Customs Act 1962 need not necessarily have a bearing on the value of the licence. Whereas the Government may decide to limit the foreign exchange outgo by stipulating so much and nothing more in the import licence, the Customs on the other hand, is required to value the imported goods under the provisions of Section 14 of the Customs Act, 1962 and the rules made thereunder. The department cannot argue that since the value of the third list items has to be added for the purpose of assessment to duty, such value has to be also added to the licence value for determining the overall limit specified in the licence. What is required to be considered for the purposes of determining the validity and coverage of an import licence is the CIF price actually remitted for the goods and not the assessable value as determined under Section 14 of the Customs Act, 1962. Since in the present case there is no dispute that the aggregate remittance made for all imports made by RIL including the third list items was well within the value of the licence, we hold that the licence produced by RIL covers the third list items both in terms of description and value. This view is in consonance with the judgment of the Bombay High Court in the case of Union of India v. Glaxo Laboratories Ltd 1984(17)ELT 284.
37. In view of what has been discussed above, we hold that while the third list items have to be separately assessed for the purpose of Customs duty, they cannot be held to have been imported outside the value limit specified in the licence and as such the said third list items are not liable to confiscation.
38. Issue No. (iv) Whether concessional rate of duty applicable to Project imports will be available to import of PTA and Paraxylene plant and goods imported under OGL.
An attendant issue relating to the third list items is whether the concessional rate of duty applicable to project imports would be available to the third list items or not. We find that at para 10.9.06 of the show cause notice, there is an allegation of non registration of third list items under the Project import regulations. There is however, no finding either on the factual aspect of whether such a registration was at all granted or for that matter on the question whether such a registration was at all required in view of RIL's claim that the supply was in terms of its original equipment supply contract which had been registered. Since there is no specific finding in the Commissioner's order or any ground in department's appeal on the aforesaid question, we do not wish to express any opinion on this issue and would leave it to the Commissioner to decide the same after considering all the relevant facts and the submissions that RIL might choose to make before him in the remand proceedings. We accordingly, remit this aspect of the matter back to the Commissioner for determination in accordance with law.
39. Issue No (v) : Whether know how fee of US $ 24.60 Million or any part there of is required to be included in the assessable value of the imported equipments ;-
The show cause notice had proposed addition of 50% of the know how fees payable by M/s. RIL to the foreign supplier. The Commissioner has, however, included the entire 100% of the know how fees in the assessable value of goods covered by 1st B/E. His findings in this regard are mainly based upon the judgment of the Apex Court in the case of Commissioner of Customs v. Essar Gujarat (1996 (88) ELT 609), wherein the Supreme Court held that agreement for licence fees and technical know how in that case was a condition of sale of the equipments imported in that case. These findings have been challenged by the Counsel for M/s. RIL by pointing out that the facts prevailing in the Essar Gujarat case were entirely different from the facts of the present case. He submitted that a perusal of the relevant clauses of the Equipment Supply Agreement, Know how agreement and engineering information agreement clearly show that there was no condition in any of the agreements that the equipment would not be supplied unless M/s. RIL agreed to pay the know how fees. He submitted that know how was primarily required for the purpose of assembling the imported items into a plant in India and for manufacturing the product in India. On the other hand, ld. Counsel for the Revenue stressed the fact that M/s. RIL could not plead that the order had traversed beyond the show cause notice by including the entire know how fees as the Commissioner had put M/s. RIL on notice during the course of the personal hearing of his intention to include the entire know how fees in the assessable value and had also heard M/s. RIL on this proposed addition. His further contention was that unless and until M/s RIL procured the UOP process of ICI through the foreign supplier on the payment of know how fees, it would not have been capable of using the equipments imported from the said foreign supplier and therefore, the equipments supply agreement and the know how agreements were intrinsically connected with each other and therefore the argument of M/s. RIL that the supply of know how was not a condition precedent to the sale was of no consequence. Reliance was placed on the judgment of the Larger Bench of the Tribunal in the case of Polar Marmo Agglomerates Limited 2003 (155) ELT 283 and also Andhra Pradesh Petroleum Chemicals (1997 (91) ELT 349) which had been affirmed by the Supreme Court.
40. We have carefully considered the submissions of both sides and find that the impugned order does not contain the necessary factual matrix to enable us to decide this issue one way or the other. The Commissioner's order proceeds on the assumption that the judgment of the Apex Court in the Essar Gujarat case covered this issue against M/s. RIL. We, however, find that this judgment does not lay down a sweeping proposition that in all cases, technical know how fees would be includable in the assessable value of the imported equipments. In that case, the Supreme Court was concerned with the applicability of Rule 9(1)(c) of the Customs Valuation Rules 1988 which required that all payments made by an importer as a condition of sale of imported goods, are liable to be included in the assessable value of the imported equipments. Whether or not the provisions of the 1988 Valuation Rules are applicable or whether or not payment of technical know how fees was a condition of sale of the goods imported in this case, are matters of fact which have not been fully or properly gone into by the Commissioner. The Essar Gujarat judgment has been interpreted by Larger Bench of the Tribunal in the case of SD Technical Services v. Commissioner of Customs, New Delhi (2003 (155) ELT 274) and Panalfa Dongwon India Ltd. v. Commissioner of Customs, Mumbai (2003 (155) ELT 287). The facts necessary for a correct understanding of this issue are not forthcoming either from the show cause notice or in the impugned order. We, therefore, set aside the findings of the Commissioner on this issue and remand the case to the jurisdictional Commissioner to decide the issue afresh in the light of the evidence on record and on application of the relevant case laws and after giving reasonable opportunity of hearing to the importers. We make it clear that in the event of the Commissioner holding that addition is required to be made to the assessable value on account of technical know how fees, the rate of duty applicable will be the project rate for the reason that the licence value is in conformity with the cif price actually remitted by M/s. RIL for the import of the goods. We may also add that the inclusion of the entire know how fee in the assessable value of 1st import made on 30.12.1985 is not challenged by the Department.
41. Issue No. (vi) :- What is the relevant date with reference to which exchange rate is to be applied for assessment purposes.
The show cause notice has proposed adoption of the exchange rate prevailing on the date of last import that is September, 1998 as the exchange rate relevant for all the imports made under the 491 bills of entries in question. The Commissioner has held that by virtue of provisions of Section 14 of the Customs Act, 1962, the rates in force will be the ones prevailing on the dates on which each of the 491 bills of entries were presented under Section 46 of the Customs Act, 1962. However, it has been the contention of the department that in view of the special nature of the project import assessment, it would be inconvenient as well as difficult to apply different rates of exchange for assessing bills of entry filed over a long period of time and that therefore, the date on which the project import was completed and/or the date when the assessments were finalized should be taken as the relevant date for determining the rate of exchange.
We have considered the rival submissions and find that this issue is clear as Section 14 of the Customs Act is very specific and provides in the proviso thereto as under:
"Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which the bill of entry is presented under Section 46, or a Shipping Bill or a bill of export, as the case may e, is presented under Section 50....."
It is thus clear from the above that the rate of exchange for the purpose of calculation of the value under Section 14 has to be the one which is in force on the date on which a bill of entry is presented under Section 46. This mandatory provision leaves no discretion with the Customs Department to adopt any other criteria for the purposes of conversion of the foreign currency value into Indian currency value. The questions whether the bills of entry have been filed under the project import regulations or whether they have been assessed provisionally or otherwise are wholly irrelevant for the purposes of determining the rate of exchange. We are therefore entirely in agreement with the findings of the Commissioner in this regard in para 37 of this order. We wish to clarify here that these findings would be of relevance only for the purposes of determining the liability on account of the assessment of the third list items. This issue will not effect the determination of liability, if any, on account of inclusion of know-how fees as the Revenue has not challenged the Commissioner's order directing inclusion of the know-how fees entirely in the first bill of entry.
42. Issue No. (vii): Whether any redemption fine or penalty is to be imposed on account of alleged unauthorised import and on account of alleged under valuation: -
We have already held that the imports made by M/s. RIL were covered by import licence and hence were not unauthorised or illegal. Hence, the department's proposal for ordering confiscation of goods under Section 111(d) cannot be sustained. Further, in view of our finding that there was no under-valuation or misdeclaration of value, provisions of Section 111(m) of the Customs Act, 1962 also will not be applicable. The issue whether the third list items were liable to be separately assessed and charged to duty even though they were supplied at no extra cost is, in our view, a question of interpretation where more than one view could certainly and legitimately exist. The two issues which have been left open in this appeal are issues relating to inclusion of technical know-how fees of any part thereof in the assessable value of the import equipments and the question whether the rate of duty applicable to the third list items would be the project assessment rate or the rate of merits. These issues, in our view are also issues of interpretation where confiscation and penalty will not be warranted whatever may be the outcome in the remand proceedings.
43. In the result, we hold as under:-
1) The import licence issued to RIL covers all the imports in question
2) The imports arc not under valued and arc therefore liable to be assessed at the declared value
3) Duty on third list items though covered by the import licence is required to be recovered by taking their value at U.S. $ 12.05 million. The question whether the benefit of project assessment would be available to the third list items is remitted back to the Commissioner for decision in the light of our observations above.
4) The benefit of project import regulations is available to PTA plant and Paraxylene plant and goods imported under OGL
5) The question of includibility of know-how fees in the assessable value of imports is remitted to the Commissioner for re-evaluation.
6) No redemption fine or penalty is imposable.
44. We accordingly set aside the impugned order and direct the assessments to be finalized afresh in the light of the above order. Consequently, the appeal of RIL is partly allowed while that of the revenue is rejected. The Cross-objection filed by RIL stands disposed of as above.