Customs, Excise and Gold Tribunal - Delhi
D.C.M. Shriram Consolidated Ltd. vs Cc on 16 December, 2002
Equivalent citations: 2003(86)ECC458, 2003(153)ELT317(TRI-DEL)
JUDGMENT C.N.B. Nair, Member (T)
1. The appellant M/s. DCM, Shriram Consolidated Ltd. purchased a second-hand 150 Ton per day Caustic Soda Plant from M/s. Interface, Dubai. This purchase was made under contract No. DSCL/1MP/CAP/PUR/81 dated 27.4.1994. The plant was earlier owned by M/s. Georgia Pacifies, USA. The plant was in operation in USA prior to its decommissioning in February 1993. This plant had original been purchased by M/s. Georgia Pacific, USA from M/s. Asahi Chemicals Industries Ltd., (ACIL), Japan. After the purchase of the plant from M/s. Interface, Dubai, M/s. DCM, Shriram Consolidated entered into a technical collaboration agreement with M/s. Asahi Chemicals Industries Ltd. for setting up the aforesaid Caustic Soda Plant in India. When the Plant was imported, question arose as to whether the amount (Japanese Yen 32,000,000.00) paid to M/s. Asahi Chemicals Industries Ltd. towards collaboration agreement fees was to form a part of the assessable value of the plant under import. The question was raised specifically in the context of the judgment of the Apex Court in the case of Collector of Customs (Preventive), Ahmedabad v. Essar Gujarat Ltd. 1996 (88) ELT 609 (SC). The Dy. Commissioner of Customs who passed the order of adjudication dated 6.4.2000 (issued on 16.2.2001) held as under:
"I have gone through the case records and party's submissions, I find that party's submission is acceptable and case of M/s. Essar Gujarat Ltd. is not similar to the present case as there was no precondition to make an agreement with M/s. Asahi International Ltd. for obtaining technical know-how. M/s. Asahi International Ltd. also have confirmed that no separate know-how fees is payable on the second-hand plant bought from them and this is acceptable in absence of any other evidences. Even otherwise there is no evidence on the record to prove that any payment has been made to M/s. Georgia, Dubai as technical know-how fees. As far as payment of Japanese Yen 32 million is concerned, I find that this payment has been made for various post importation services, hence should not be included to the value of the imported goods except item at Sr. No. 8. The item at Sr. No. 8 of the services i.e. Data Sheets Equipment and instrument except the proprietary equipment of ACI would be required for production of the goods at the said plant. Hence, it is covered under Rule 9(1) (b)(iv) of the Valuation Rules.
ORDER Out of total amount of Japanese Yen 32 million paid by M/s. DSCL to M/s. Asahi International Ltd., Japan for Technical Collaboration Agreement an amount of Japanese Yen 3.00 Million paid for Data Sheets equipment and Instruments except the proprietory equipment of ACI should be added to value of the goods imported for their 150 TPD, Caustic Soda Plant at Jhagadia, Distt. Bharuch, Gujarat on pro rata basis."
2. The Revenue felt aggrieved by the above order and filed an appeal before the Commissioner of Customs (Appeals). The Commissioner (Appeals) held in favour of the Revenue and ordered the addition of 32 million Japanese Yen to the price of second-hand Plant in order to arrive at its assessable value, again relying on the decision of the Apex Court in the case of M/s. Essar Gujarat Ltd. This made M/s. DCM Shriram Consolidated the aggrieved party. Hence the present appeal.
3. The contention of the importer is that the agreement for the purchase of the second-hand plant and agreement for technical collaboration are entirely separate and there is no dependency between the two. They point out that the purchase agreement for the plant is not conditional to the collaboration agreement with the Japanese party. It is their submission that the question of inclusion of the cost of Technology Collaboration Agreement can arise only if it is a condition of the sale of the plant that the buyer obtains license from the original manufacturer or the license holder. The appellants contends that the dictum contained in the Apex Court's decision in M/s. Essar Gujarat Ltd. is attracted only if obtaining operational license/technology license from the third party is an over-riding condition of the sale of the second-hand Plant, and not otherwise. They submit that in cases where the sale of the second-hand Plant is not dependent upon purchase of technology license, and the technology purchase is a separate arrangement, there is no requirement to make addition of the technology agreement fees to the price of the second-hand Plant. As against this, the Revenue contends that the foreign collaboration fees towards Plant, process flow sheet, Piping and instrument diagram, Data Sheets of equipment and instruments, Outline of piping arrangement, etc. is not cost of post importation activity, but various types of technical services and information essentially required for making the plant operational and the cost of such technical collaboration, which is essential to make the Plant operational, is to form part of the assessable value of a Plant in the light of the decision of the Apex Court in the case of M/s. Essar Gujarat Ltd.
4. During the hearing of the appeal, the learned Counsel for the appellant importer emphasizes that apart from the fact that the two agreements in question were separate and independent, it had been confirmed by M/s. Asahi Chemicals Industries Ltd. that there was no requirement for a separate licence from M/s. Asahi Chemicals Industries Ltd. for the running of the second-hand Plant after it is set up in India. He also drew our attention to the terms of the sale agreement to show that the second-hand Plant, upon import into India, is not to be put to use in the same manner as it was being put to use earlier in the U.S. The unsuitable and worn-out parts and machinery of the plant were to be separated and disposed of in the U.S. itself. This was necessary, particularly because the Plant required considerable upgradation and alteration before being set up in India, because in India the appellant wanted to produce caustic soda of 30% concentration as against caustic soda of 20% concentration produced earlier in the US. This rendered some of the electrolyser components not suitable for the plant in India. The same was the position in respect of anodes (416 Nos.), Cathodes (208 Nos,), Gaskets (416 Nos.) & Hoses (208 Nos.) used with the electrolyser. Similarly 416 Membranes were already worn out and not re-usable. The learned Counsel pointed out that the agreement with M/s. Asahi Chemical Industries Ltd. and the appellant was to help in identifying the substitute machinery required for upgradation of the plant and for assistance in other areas. He also pointed out that under Rule 9(1)(e) of Customs Valuation Rules only "royalties and license fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable" are to be added to the sale price of the imported goods. He emphasised that in the present case, there was no condition for the sale of the plant; that no royalty or license fee was to be paid to any party in relation to the imported goods, or that any royalty or fees payable had not actually been included in the price of the plant. The learned Counsel submitted that to the transaction on hand provisions of Rule 9(c) are not attracted. He also pointed out that the appellant's case is quite distinguishable from the case of M/s. Essar Gujarat. In that case, the requirements under Rule 9(c) were satisfied, inasmuch as it was a condition of sale that the buyer obtains transfer of the operation license from a third party, namely, M/s. Midrex of Charloti, USA, while in the present case there was no condition regarding obtaining of license. In fact, there was positive confirmation that no license was required to be obtained by the buyer of the plant. The learned Counsel further pointed out that in the facts of the present case, the ratio of the decision of this Tribunal in the case of M/s. Ferodo India (P) Ltd. v. CCE, Mumbai 2002 (82) ECC 584 (Tri) is attracted. The Ld. Counsel stated that the Tribunal had held in Ferodo India (P) Ltd. that "when the license fee and royalty payment are not related to the imported capital goods, payments for them cannot form part of the assessable value of the imported goods".
5. A perusal of the records of the case makes it clear that the agreements for the sale of the plant and collaboration are not dependent on each other. It is not a condition of the sale of the second-hand plant that its buyer should obtain a license from or pay a royalty to a third party. The Technical Collaboration Agreement, in addition to being separate from an operational license, is for rendering the agreed upon assistance for setting up an upgraded plant in India with modified machinery and parts. The Appellants are right in their contention that in such a case the provisions contained in Rule 9 (1) or the ratio of Essar Gujarat case has no application. The Provision for addition of fees paid applies only to cases where such payment of fees is a condition for sale of the imported goods and that such fees is in addition to the price actually paid on payable for the machinery. In the present case, since the agreement for sale of the second-hand plant does not stipulate a condition of collaboration, royalty payment, or license fee payment to M/s. Asahi Chemical Industrial Ltd., we find no legal justification for inclusion of the Technical Collaboration Fees to the price of the second-hand Plant for arriving at its assessable value. The impugned order is clearly erroneous in its understanding of the legal provision and the ratio of the Apex Court's decision in the case of Essar Gujarat Ltd. That order cannot be sustained. The appeal is, accordingly, allowed after setting aside the impugned order with consequential relief, it any, to the appellants.