Custom, Excise & Service Tax Tribunal
M/S. Jai Balaji Industries Ltd vs Commissioner Of Customs And Service Tax ... on 12 September, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order No. 21712 - 21713 / 2014 Appeal(s) Involved: C/797/2010-DB, C/798/2010-DB [Arising out of Order-in-Original No.1/2010 dated 30/03/2010 passed by the Commissioner of Customs, Visakhapatnam.] M/s. JAI BALAJI INDUSTRIES LTD #5, BENTINCK STREET, KOLKATA Appellant(s) G.L. BHABHRA, GENERAL MANAGER (PURCHASE) M/S. JAI BALAJI INDUSTRIES LTD #5, BENTINCK STREET, KOLKATA Appellant(s) Versus Commissioner of Customs And Service Tax VISAKHAPATNAM-CUS CENTRAL EXCISE BUILDING, PORT AREA, VISAKHAPATNAM - 530035 ANDHRA PRADESH Respondent(s)
Appearance:
Shri G. Shivadass, Advocate V. LAKSHMIKUMARAN & V. SRIDHARAN WORLD TRADE CENTRE NO.404-406, 4TH FLOOR, SOUTH WING BRIGADE GATEWAY CAMPUS NO.26/1, DR. RAJKUMAR ROAD, MALLESWARAM . BANGALORE - 560 055 KARNATAKA For the Appellant Mr. N. Jagadish, Superintendent (AR) For the Respondent CORAM:
HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 12/09/2014 Date of Decision: 12/09/2014 Order Per : B.S.V.MURTHY The appellants proposed to import and install a sinter plant at their unit in Durgapur. For this purpose, the appellant entered into an agreement on 26.9.2006 that M/s. Sinosteel Engineering Design and Research Institute Supply, China. This agreement agreement of design, engineering and equipment for 60 m2 sinter plant was entered into for the following purposes according to the agreement.
A. The buyer is desirous of appointing the seller for providing the design and details engineering, complete equipment supply and technical services with the agreed Batter Limit for installing 1*60 m2 Linear Sinter Plant with capacity of 6,00,000 TPA (Based on 330 annual operating days) for the proposed plant at Durgapur (W.B.) in India;
B. Seller agrees to provide design, detail engineering, complete equipment supply and technical services to the buyer within the agreed Battery Limit.
As per the agreement, according to the appellants, the equipment related to sinter plant were imported and civil work and electrical installation was on the basis of indigenous procurement from the local market. Civil work commenced in the month of January 2007 and fabrication work commenced in August 2007 and the final date of completion was on 15.9.2008. The appellants received drawings and detailed engineering from M/s. Sinosteel through courier. The complete machine was imported in 5 consignments under different bills of entry at the port of Haldia and Visakhapatnam.
2. For the imports made at Haldia, the appellants filed bill of entry on 1.10.2007 at Kolkata Port for import of sinter machine for sinter plant. The bill of entry was assessed on the value declared and the consignment was allowed to be cleared on payment of appropriate duty on the value declared by the appellants. The second bill of entry was filed by the appellants on 12.10.2007 at Kolkata for the clearance of second clearances of the plant. In the second bill of entry, the goods were described as one complete set of sinter machine. The third bill of entry was filed on 27.2.2008 for clearance of third consignment. Subsequently, fourth consignment was imported by filing the bill of entry on 1.4.2008 and the fifth bill of entry was filed in Visakhapatnam for the fifth and final consignment of the plant.
3. During the scrutiny of documents at the docks in respect of bill of entry filed on 12.10.2007, customs authorities took a view that it appears from the contract between the parties that there was separate charge for design, engineering fee and that should be added to the assessable value. On a letter issued by the Deputy Commissioner of Customs, which sought further details in respect of import of the first consignment and also the second consignment, the appellants gave details submitting a copy of the contract and thereafter the appellants also paid the duty on the design and engineering charges received by them as well as the advance paid by them. Thereafter, provisional assessment was resorted to and finally after clearance of all the consignments, proceedings were initiated which has culminated in confirmation of duty demand for the advance paid by the appellants separately without reflecting in any of the invoices during the course of clearances of goods and also on the design and engineering charges on which also duty was paid by the appellants during the course of clearances. The show-cause notice took a view that appellants had suppressed and did not declare the amount of advance paid by them and therefore besides appropriating the amount of duty paid by them in respect of advance, the appellant was also liable to penalty. Similarly, in the case of design and engineering charges also, it was proposed to appropriate the duty paid and also imposed penalty. As a result of the proceedings initiated, the duty paid by the appellant with interest during the course of clearance has been appropriated and penalty equal to the duty demanded has also been imposed under Section 114A of Customs Act, 1962. Besides imposing penalty, redemption fine of Rs.2 crores has also been imposed.
4. Learned counsel on behalf of the appellants submitted that as regards the advance paid by the appellants in terms of the contract, the appellants have no dispute since it was omitted by inadvertency and there was no intention to avoid payment of duty on the advance. Learned counsel admitted that advance paid was part of the value and therefore duty liability should have been discharged. However, he submits that no penalty could have been imposed since it was only an error. He also submits that as soon as the appellants were informed that they were liable to pay the same, they paid it immediately with interest without waiting for show-cause notice and without any dispute. He submits that the amount was paid before the imports took place and therefore while filing the bill of entry and submitting the documents this got left out. It has to be noted that the appellants never concealed any fact from the Department and as soon as they were asked to furnish documents, they submitted all the documents such as contracts and detailed agreements, etc. when the documents were received, the department objected that design and engineering charges also should suffer duty and this was also paid by them with interest and it is the appellants submission that appellants did not even wait for all the clearances to take place even though the design and engineering charges were being paid in installments and not exactly lumpsum and when the duty was paid, the amount had not yet been paid in full to the supplier. He submits that this shows bona fide nature of the appellants transaction and the appellants intention to abide by the law. Prima facie, we are satisfied with the submissions even though the learned AR opposed this strongly and drew our attention to paragraph 25 and 26 of the order-in-original. However, we find that the facts remains that the advance amount received by the appellant was accepted as part of the consideration without any objection and without any hesitation and differential duty with interest was paid. Therefore, we find that in respect of advance amount received and duty paid, the imposition of penalty cannot be sustained. Accordingly, we set aside the penalty in respect of this alone.
5. As regards design and engineering charges and technical supervision charges, after going through the agreement, we find that Article 2 that deals with scope of supply, which deals with engineering design clearly says that detailed engineering for construction of civil including bar bending schedule and structural with bills of material; complete equipment design; detail operation and control requirements for PLC systems and technical services. In this connection, further in Article 3 of the agreement, it is stated that the total contract value consists of engineering design fee of US$ 3,67,136 and price for equipment and refractory supply US $ 42,12,864. It is also stated in Article 3.1.1 that the engineering, design fee with knowhow and patented technologies usage charges on the basis of sellers scope of engineering design for sinter plant shall be fixed price of US $ 3,67,136. This shows very clearly that contrary to the claims of the appellants that design and engineering part was exclusively related to post importation activity of erection, commissioning and installation of sinter plant. In reality, the total contract value included the engineering design fee, technical knowhow, technology usage charges and also engineering design of sinter plant itself. Further, in Appendix-II wherein the sellers scope of supply has been explained, it is seen that under the head basic design, following items have been included: equipment selection for utilities of sinter plant; specification of steel products for steel structural engineering, concrete and re-bars, etc. In the equipment list under 2.1.10, it has been stated that the equipment for the following areas shall be included in the equipment list (equipment description, specification, capacity, quantity and weight will be shown). The supplier is also responsible for supply, design of all the equipment. In fact at the end of list of equipment to be supplied in 2.4, the following sentence appears the above equipment list is indicative and shall be finalized after basic engineering but the equipment not mentioned in the above/final list but required to complete the process within battery limit is under the scope of seller supply. This shows that the agreement was a turnkey project which included design and engineering work related to equipment as well as erection, commissioning and installation of the plant. The learned Commissioner has relied upon the decision of the Honble Supreme Court in the case of Mukund Ltd.: 2000 (120) E.L.T. 30 (SC). In this case, Honble Supreme Court held that when contract produced for supply of basic design and engineering, drawings and supervision of erection, etc., one is as much a part and condition of the contract as the other and addition of these charges to the assessable value is sustainable. After going through the agreement in detail, we also find that in this case also the situation is similar to the one under consideration by the Honble Supreme Court, no segregation of supervision cost, local material cost, local engineering cost have been made. At the same time, there is also no indication that the design and engineering cost does not include the basic design and engineering, cost of the equipment supplied. Prima facie, we do not find any merit.
6. As regards technical supervision also, the nature of technical supervision has not been given clearly and even otherwise it is part of design and engineering cost and therefore we do not propose that this can be excluded. Further, it has also been noted that, in our opinion, in this case, it can be said that design and engineering charges have to constitute part of the assessable value since it is a condition of sale. There is no indication that appellants had the liberty to get the erection, commissioning and installation done by someone else. This is part of the same contract and there are no separate contracts for these activities. There is also no indication that appellants made enquiries or conducted their own verification to find that the two items of work can be separated. In such a situation, we have to take a view that design and engineering work was a condition of sale. On this ground also, appellants have no case. In view of the above discussions, we find that appellants are liable to pay customs duty on design and engineering and technical supervision charges and therefore demand for customs duty with interest and the amount paid and appropriated are in order and need no interference.
7. As regards the penalty, in respect of design and engineering charges and technical supervision charges, we find that it is always a disputable item and requires interpretation of the agreement, application of valuation rules and unless there is evidence to show that such agreement was deliberately forged and was not part of the contract for supply of equipment or it was not declared at all and there was a considerable effort to hide the fact of payment of such charges, it may not be appropriate to impose penalty. In this case, from the second bill of entry, always the assessment was provisional and therefore on that ground also, it may not be appropriate to impose penalty. Therefore the penalty imposed on this basis is also set aside.
8. When we have limited the whole case to confirmation of demand for duty and interest thereon, and set aside the penalties on all the counts, it would not be appropriate to uphold the confiscation of the goods and imposition of fine in lieu of penalty. Therefore, the redemption fine also has to be set aside and is set aside. When there is no penalty on the main appellant, there cannot be penalty on the employee also. Therefore, the penalty imposed on the employee who is the second appellant before us is also set aside. Appeals are disposed of in above terms.
(Operative portion of the order has been pronounced in open court) S.K. MOHANTY JUDICIAL MEMBER B.S.V.MURTHY TECHNICAL MEMBER rv 6