Custom, Excise & Service Tax Tribunal
Welspun Maxsteel Ltd vs Mumbai on 5 November, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: C/1117/2012
[Arising out of Order-in-Appeal No. 699-700/MCH/DC/Contract Cell/NCH/2012 dated 07/08/2012 passed by the Commissioner of Customs (Appeals), New Custom House, Mumbai.]
For approval and signature:
Honble Shri P.R. Chandrasekharan, Member (Technical)
Honble Shri Ramesh Nair, Member (Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Welspun Maxsteel Ltd.
Appellant
Vs
Commissioner of Customs (Import)
Mumbai
Respondent
Appearance:
Shri T. Vishwanathan, Advocate for the appellant Shri Ahibaran, Addl. Commissioner (AR) for the respondent CORAM:
Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Ramesh Nair, Member (Judicial) Date of hearing: 05/11/2014 Date of decision: 27/11/2014 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
The appeal arises from Order-in-Appeal No. 699-700/MCH/ DC/Contract Cell/NCH/2012 dated 07/08/2012 passed by the Commissioner of Customs (Appeals), New Custom House, Mumbai. Vide the impugned order, the ld. Lower appellate authority upheld the Order-in-Original No. 1345/DC/Contract Cell/ AKS/10-11 dated 10/11/2010 passed by the Dy. Commissioner of Customs (Import), Contract Cell of New Custom House, Mumbai, wherein it was held that the amounts of (i) US $ 2,250,000/- payable under the Process Licence Agreement; (ii) US $ 16,231,000/- payable as Basic Engineering Services; and (iii) US $ 3,769,000/- towards supervisory services are includible in the assessable value of the capital goods imported by the appellant M/s. Welspun Maxsteel Ltd., Indore under the provisions of Rule 9(1) (c) and 9 (1) (e) of the Customs Valuation Rules, 1988 (CVR in short) read with Section 14 of the Customs Act, 1962 and differential customs duty on account of the above inclusions along with interest thereon are liable to be recovered from the appellant accordingly while finalising the assessment of the capital goods. Aggrieved of the same, the appellant is before us.
2. Brief facts relating to the case are as follows. The appellant M/s Welspun Maxsteel Ltd., Indore, imported capital goods, equipment, components, etc. for the initial setting up of a plant to manufacture hot briquette sponge iron in Raigad District of Maharashtra State under the Project Import Regulations, 1986. For this purpose they entered into four agreements, all dated 22/10/1989 with two foreign suppliers/collaborators, namely, M/s. Davy Dravo, Pennsylvania, USA (Davy in short) and M/s. HYLSA, S.A. de CV, Mexico (HYL in short). The agreements pertained to (a) Supply of Equipment Agreement; (b) Basic Engineering Services Agreement; (c) Process Licence Agreement and (d) Supervisory Services Agreement. The suppliers and the appellant are not related. The scope of the agreement are briefly as follows:-
S. No. Name of the Agreement Scope of the Agreement Consideration in US $ 1 Supply of Equipment Agreement Equipment specified in Annexure E to the agreement 25,252,935 2 Basic Engineering & training agreement Supply of basic engineering documents like drawings, designs, specifications, calculations. Management, administration, etc. for erection and commissioning of the sponge iron plant 2,250,000 3 Process Licence Agreement Supply of know-how consisting of (a) HYL III process, (b) CO2 removal process and (c) koppern process for manufacture of briquettes from sponge iron 16,231,000 4 Supervisory Services agreement Provision of technical personnel for supervision of work to be carried out in India and to render incidental services, advice and guidance regarding the operation of the plant 3,769,000 There is no dispute about the includibility of the amount paid for equipment supply. The dispute is about the balance 3 agreements relating to basic engineering services, process licence and supervisory services agreement. The department is of the view while the consideration paid for basic engineering services and supervisory services are includible in the assessable value of the goods supplied under Rule 9(1)(e) of CVR, consideration paid for supply of technical know how under the Process Licence Agreement is includible in the assessable value of the goods supplied under Rule 9(1)(c ) of CVR read with section 14 of the Customs Act, 1962. Accordingly the department has sought to include these considerations paid in the value of the goods supplied and has demanded differential duty with interest. Hence the appeal before us.
3. The submissions made by the ld. Counsel for the appellant can be summarised as follows:-
3.1. The plant to manufacture sponge iron was set up not only with the capital goods imported from Davy/HYL but also imported from other sources and from indigenously procured capital goods. The break up is as follows:-
a) indigenous capital goods : ` 252.43 crore
b) Imported capital goods from Davy : ` 69.90 crore
c) Imported from others : `111.05 crore 3.2. The lower authorities have rejected the transaction value of the imported capital goods on the ground that the appellants have entered into 4 agreements as part of a package deal and has accordingly sought to include the consideration paid in terms of Rule 9(1)(c) and 9(1)(e).
3.3. As regards Process Licence Agreement, Rule 9(1)(c) applies only when royalty paid is related to the imported goods and payment of royalty is a condition for sale of the imported goods. Even if one of the condition is not satisfied, the rule will not apply. As per clause 6.1 of the said agreement, the appellant is required to pay royalty @ $ 1 per ton of briquettes actually produced at the plant for a period of three contractual years. There is no lumpsum payment of royalty and the amount of US $ 2,250,000/- has been determined based on the actual production of 2.25 million for 3 years. The royalty is not linked to the imported capital goods at all but to the manufacture of final product with the use of the capital goods and therefore the condition that royalty paid should be relatable to the imported goods is not satisfied. The said agreement also does not stipulate that the capital goods shall not be sold to the appellant in case royalty is not paid and the very fact that the plant has been set up with the help of capital goods imported from others, other than Davy/HYL, is indicative of the fact the payment of royalty is not a condition of sale. The Chartered Accountants certificate dated 26-5-2005 also affirms the submission of the appellant in this regard. Reliance is also placed on the decision of this Tribunal in the case of Ibex Gallagher Ltd. [2005 (191) ELT 967] affirmed by the apex court [ 2006 (197) ELT A 193].
3.4. Under the basic engineering service agreement, various drawings relating to the setting up of the plant supplied to the appellants by Davy was supplied. The appellant had also appointed various engineering consultant firms in India to undertake detailed engineering in India based on the basic engineering received from Davy. The scope of the work in basic engineering services is for setting up of the plant and the activities mentioned in the said agreement are post-importation activities and therefore the same are not liable to be included. The imported goods also did not constitute the plant and therefore, the payment made for the drawings cannot be included in the value of the goods imported under Rule 9(1)(e) of the CVR. Under the said rule, all other payments actually made as a condition of sale of the imported goods alone can be added. Interpretative note to Rule 4 specifically state that the charges incurred for post importation activities such as assembly, installation and commissioning will not form part of the value of the imported goods. Further the actual consideration paid under this agreement is $ 1,07,12,000/- as certified by the Chartered Accountant.
3.5. The supervisory charges are for the services rendered in India for the purposes of setting up of the plant in India. As per the interpretative notes to rule 4, the value of imported goods shall not include charges for construction, erection, assembly, maintenance, technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment, the cost of transport after importation and duties and taxes in India. Therefore, since the supervisory charges are for post importation activities, the same cannot be added to the value of the imported goods under Rule 9(1)(e).
3.6. The reliance placed by the Revenue on the decision of Essar Gujarat [1996 (88) ELT 609 (SC)] is of no avail as the facts are different. In that cases an entire plant was imported into India and for operating that plant, licence fee was to be paid. In the present case, the plant has been set up not only out of capital goods imported from Davy/HYL but also from various indigenous manufacturers. The decision in the Andhra Petrochemicals case [1997 (90) ELT 275 (SC)] relied upon by the Revenue is also of no consequence as in the said case inclusion was done under the provisions of Rule 9(1)(b)(iv). In the present case, the adjudicating authority has clearly held that Rule 9 (1) (b) has no application and hence the said decision is not applicable to the facts of the present case. For the same reason the decision in the case of Mukund Ltd. [1999 (112) ELT 479 (SC)] is also inapplicable.
3.7. Reliance is mainly placed on the following decisions
(a) J.K. Corporation Ltd. [2007 (208) ELT 485 (SC)];
(b) Toyota Kirloskar Motor Pvt.Ltd.[2007 (213) ELT 4 (SC)]
(c) Indo-Gulf Corporation Ltd. [2005 (182) ELT 77 ] In the light of the above, it is pleaded that the impugned order is not sustainable in law and the appeal be allowed by setting aside the same.
4. The ld. Additional Commissioner (AR) appearing for the Revenue made the following submissions, while re-iterating the findings of the lower authorities.
4(i) The appellant imported the capital goods to set up a plant for manufacture of hot briquette sponge iron. To make the plant operational, the appellant needed basic engineering services, process licence and supervisory services. Therefore the supply of equipment agreement is closely linked to the other three agreements without which the plant could not have been made operational. From the supply of equipment agreement it can be seen that it incorporated the HYL III direct reduction process and there was a pre-existing arrangement between HYL and Davy in this regard. The production of the end product of the desired quality of output was not possible unless provisions of other agreements were put to service. Thus all the four agreements were interlinked and interdependent. Reliance is placed on the decision of the Tribunal affirmed by the honble apex court in the case of Andhra Petrochemicals (supra) wherein it was held that if different agreements are entered into as a package deal, the payments made under various agreements could be clubbed in the value of the equipment supplied.
4(ii) The honble apex court in the case of Otto India Pvt. Ltd. [2003 (158) ELT A331 (SC)] had held that if technical know how supplied is relatable to the equipment supplied, the consideration paid for the same can be included in the assessable value of the equipment. Similarly in the case of Mukund Ltd.[1999 (112) ELT 479], this Tribunal had held that design and engineering charges, supervision charges, erection and commissioning charges and performance guarantee tests can be included in the assessable value of the equipment supplied since without these services, the equipment cannot be made operational. As regards the contention of the appellant that as per the Chartered Accountants certificate, only a part of the contracted amount has been paid and not the whole, as per the provisions of the CVR amount paid or payable are liable to be included and reliance is placed on the decision of the Tribunal in the case of Electronics Corporation of India Ltd. [2001 (137) ELT 1031] affirmed by the honble apex court in the same case [2002 (139) ELT A 171 (SC)].
4(iii) Strong reliance is placed on the decision of the Apex Court in the case of Essar Gujarat Ltd. (supra) where in respect of an import of Direct Reduction Iron Plant, the said firm entered into different agreements for supply of technical/process knowhow, engineering and consultancy services and theoretical and practical training to the personnel and paid consideration therefor and the honble apex court held that all these payments relate to the equipment imported and therefore, liable to be included in the value of the equipment supplied. It is submitted that the ratio of the above decision applies squarely to the facts of the present appeal.
In the light of the above, it is pleaded that the impugned order is eminently sustainable in law.
5. We have carefully considered the rival submissions. Our findings and conclusions are discussed in the ensuing paragraphs.
5.1 We have perused all the agreements entered into by the importer appellant with the foreign supplier. It will be useful and relevant to note some of the terms and conditions of these agreements to understand the nature of the transaction. It is also relevant to note that all the agreements were entered into on the same day. The salient features of these agreements are briefly discussed below:
(I) Supply of equipment agreement:
The agreement is between the appellant on the one part and M/s Davy (equipment supplier) and M/s HYL the owner of the process know-how used in the plant, on the other. The preamble of the agreement states that the equipment imported is for the direct reduction of iron oxide to manufacture hot briquetted iron incorporating the HYL III direct reduction process. HYL is fully acquainted with the type of equipment required for such plants. There are pre-existing arrangements between Davy and HYL pursuant to which Davy acquired expertise relating to the engineering and design of the HYL direct reduction process plant of the type required by the appellant and the equipment required for such plant. Discussions were held between the representatives of the appellant and Davy/HYL which culminated in certain agreed terms pertaining to the sale and supply of the equipment, along with operating, maintenance and installation of the equipment and these are an integral part of the plant.
(II) Basic Engineering Services Agreement:
The preamble of the agreement states that HYL is owner of all valuable patents, knowhow and confidential information relating to the HYL III direct reduction process incorporated in the imported plant and equipment and the design, engineering, construction, and operation of HYL direct reduction process. HYL has agreed to furnish the know-how and confidential information relating to the process and to give a licence to the appellant importer to use and operate the same by way of a separate agreement. Pursuant to the pre-existing arrangement between Davy and HYL, Davy has agreed to render to the appellant engineering and other related services in relation to the sponge iron plant on the terms and conditions specified in the said agreement.
(III) Royalty Process Know-how agreement:
HYL being the owner of the coving bed process for the Direct Reduction of iron oxide for the manufacture of hot briquetted iron and pursuant to the pre-existing arrangement between HYL and Davy, Davy has agreed to supply the equipment for the plant as also render engineering and other related services. Davy has also licence from Giamarco Vetrocoke, Italy to sub-licences the use and operation of CO2 Removal process required for the operation of the plant and Davy has obtained from Koppern Equipment, USA a licence to operate the hot briquetted system (known as Koppern Process). The appellant has approached HYL for grant of licence to use HYL III reduction process and Davy has agreed to grant sub-licence to the appellant for operation and use of CO2 removal process and Koppern Process subject to payment of royalty for the process know how incorporated in the plant and equipment supplied.
(IV) Supervisory Services Agreement:
In view of the pre-existing arrangements between Davy with - HYL (HYL III direct reduction process), Giamarco Vetrocoke (CO2 removal process) and Koppern Equipment (koppern process), HYL and Davy has agreed to supply the equipment to the appellant and certain basic engineering and other related services, to assign an agreed number of technical personnel to provide specialised advice to the appellant to supervise the detailed engineering as also the erection, start-up, performance testing and commissioning of the plant and to train the appellants personnel.
5.2 A combined reading of these agreements make it very clear that all these agreements are interlinked and inter-dependent and have direct nexus with each other. It is only in pursuance of these agreements, the supply of the equipment have been made by Davy/HYL and the services provided by these agreements are necessary and essential for the installation, operation, maintenance and use of the equipment by the appellant. Thus these four agreements constitute a package and cannot be separated from one another and the consideration paid under these different agreements, forms an integral part of the supply of equipment agreement. It is in the light of the factual matrix discussed above, the question whether the royalty payments made in respect of technical know-how and the various fees paid for engineering services and supervisory services are includible in the value of the equipment supplied under Rule 9 (1) (c) and 9(1)(e) of the CVR, 1988 has to be examined.
5.3 The appellant has relied upon the decisions of the honble apex court in the case of J.K. Corporation and Toyota Kirloskar Motor Pvt. Ltd. and of the Tribunal in the case of Indo Gulf Corporation in support of their contention that the supply of equipment agreement is a separate transaction and is independent of Basic Engineering Services Agreement, Royalty Process Know-how agreement, and Supervisory Services Agreement and therefore, the consideration paid for these services cannot be added to the value of the goods supplied. In the JK Corporation case, the apex court had observed that no part of the know-how fee was to be incurred either for fabrication of plant and machinery or for any design in respect whereof the equipment supplier had held any patent right and the equipment could be procured from other independent manufacturers. In the case of Toyota Kirloskar Motors, it was observed that the technical assistance fees did not have any direct nexus with the importation of the goods. In the Indo Gulf Corporation case, the licence fee paid for the technology was not incorporated in the plant imported. These are not the facts obtaining in the present case. All the four agreements were entered into by the appellant with the equipment supplier and others simultaneously. The basic engineering services related to HYL III direct reduction process incorporated in the imported plant and equipment and the design, engineering, construction, and operation of HYL direct reduction process. The royalty payment was for the process know how incorporated in the plant and equipment supplied. The supervisory services for assignment of an agreed number of technical personnel for providing specialised advice to the appellant in respect of the detailed engineering as also erection, start-up, performance testing and commissioning of the plant and to train the appellants personnel. Further there was a pre-existing agreement between Davy and HYL and other know how providers to furnish the know-how and confidential information relating to the processes and to give a licence to the appellant importer to use and operate the same. Thus the various engineering design services, technical know-how services and supervisory services were an integral part of the supply of equipment agreement and it provided a complete package so that the imported equipment could be made operational for the intended purpose of manufacture of hot briquetted sponge iron and without these services, the plant and equipment could not have been made operational at all. In view of the significant variance obtaining in the facts of the present case with those obtaining in the facts of the cases relied upon by the appellant, the ratio of those decisions cannot be made applicable. The honble Supreme Court in the case of CCE v. Al Noori Tobacco Products, 2004 (170) ELT 135 (SC) held that:
Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed.... These observations must be read in the context in which they appear to have been stated ..... Judges interpret statutes, they do not interpret judgments. They interpret words of statute, their words are not to be interpreted as statutes.
The Supreme Court further observed that circumstantial flexibility, one additional or different fact may make a word of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. Therefore, we are of the considered view that the facts in the case before us are different and distinguishable from those obtaining in the cases relied upon by the appellant and hence the ratio of those decisions are not applicable.
5.4 On the other hand, we find that the decisions relied upon by the Revenue are more appropriate and relevant to decide the valuation issue involved in the present appeal.
(A) The facts of Essar Gujarat Ltd. case (supra) decided by the apex court closely resembles the facts of the case before us. M/s Essar Gujarat Ltd. (EGL) imported a Direct Reduction Iron Plant from M/s Teviot Investments Ltd.(TIL) under an agreement dated 24/03/1987. EGL also entered into separate agreements with M/s Voest Alpine AG (VA) on 04/12/1987 for obtaining construction licence and with Midrex International BV for the rights to use their patents and to employ the various processes to make the plant operational. Since the process licence and technical services for transfer of technology were essential and were required to make the plant operational, a question arose before the honble apex court whether the payments made to third parties in this regard could be added to the assessable value of the goods/plant imported by the appellant from TIL. The honble Apex Court held as follows:-
22.?Although the agreement with TIL does not describe the plant as Midrex Direct Reduction Plant, the agreement with Midrex leaves no room for doubt that what the assessee had purchased was a Midrex Direct Reduction Plant at Emden. Although the plant was described in the agreement with TIL merely as a Direct Reduction Plant and the name of Midrex was carefully kept out, the agreement with Midrex makes it abundantly clear that the assessee had entered into an agreement to purchase a Midrex plant for which it was essential to have Midrex operation licence and Midrex technology to make the plant functional. That is why the overriding clause of having prior licence of Midrex was inserted in the purchase agreement with TIL. Without this licence and various other technical information to be provided by Midrex, it might not have been possible to operate the plant at all. It was only after this agreement with Midrex that the purchase of the plant was completed. Bearing in mind the terms and conditions of all the three agreements, we are of the view that it was essential for EGL to have the Midrex licence to operate the plant and the pre-condition imposed in Clause 11 of the purchase agreement about the operation licence from Midrex was to ensure that EGL got a plant which could be made operational with Midrex technology.
23.?Therefore, the process licence fees of DM 2,000,000 was rightly added to the purchase price by the Collector of Customs. The order of CEGAT on this question is set aside.
27.?Therefore, the payment of DM 10,100,000 was being made for the transfer of technology under the Process Licence Agreement entered into with Midrex. The services mentioned hereinabove are to be part of Licensing Agreement with Midrex. This agreement was a pre-requisite for finalisation of the contract with TIL to purchase the plant at Emden. The licence is not merely a permission to use the plant, but also to provide technical know-how to make the plant functional and also to improve the capacity of the plant by incorporating Hot Briquetting system. As all these services were to be rendered under the Process Licence Agreement with Midrex, the amount payable to Midrex as part of the Process Licence fee has to be included in the value of the plant. ...
28.?So far as payment of DM 23,100,000 is concerned, this sum is to be paid for Technical Services. A sum of DM 2,200,000 was payable for theoretical and practical training. This sum cannot be added to the value of the plant in any way. The sum of DM 23,100,000 payable for engineering and consultancy fee as specified in the agreement includes services like basic engineering and re-engineering for relocation of the existing plant at Hazira, India and basic engineering package for Hot Discharge and Hot Briquetting System and also preparation of necessary technical documents and hand over the same to the representatives of Essar in Austria. V.A. was also to provide specialist supervision of dismantling of the plant at Emden and also supervision of the plant, preparation of test report etc. Along with this, V.A. undertook to supply support services such as accommodation, logistics and transport and any other technical assistance needed by the collaborator and also training the engineers and personnel in similar plant. ..
29.?There are various other clauses relating to civil engineering technical specifications, documentation and also inspection and check sizing of motors, reduction gear and hydraulics of Service Units etc. It is difficult to hold that the entire payment of engineering consultancy fee to V.A. will have to be added to the imported plants. But the plant was sold on as is where is basis. So whatever expenditure was needed to be incurred for dismantling the plant and making it ready for delivery has to be added to the value of the plant. The specialist supervision for dismantling of the plant and also engineering and consultancy services for this purpose will have to be added to the value of the imported plant. But this apart, other services rendered cannot be treated as adding in any way to the value of the plant. Since there is no clear indication as to how the various services have been valued separately, 10% of the amount of DM 23,100,000 should be added to the value of the plant on this account.
30.?Therefore, we are of the view that DM 2,000,000 being the process licence fee paid to Midrex Corporation, DM 10,100,000 being the cost of technical services provided by Midrex and a sum of DM 2,310,000 being payment on account of engineering and consultancy fee payable to V.A., should be added to the value of the imported plant..
(B) A similar issue came up for consideration before this Tribunal in the Otto India Pvt. Ltd. case [2002 (149) ELT 477]. The question for consideration was whether the price paid for technical know-how for import of equipment from collaborator of importer could be included in the assessable value of the goods imported. The relevant extracts from the said decision are reproduced below:-
It is admitted fact that the participation of M/s. HWIL in this Project was based on the technical know-how from their collaborators in Germany. It is also mentioned by the Appellants in the Memorandum of Appeals that they were obliged to purchase and import certain machinery and equipment from them on the basis of normal commercial transaction on principal to principal basis with a view to ensure that the performance of the plant could be guaranteed by them, which was one of the conditions insisted upon by SAIL-DSP. Further M/s. KHD Humboldt Wedag A.G., Germany confirmed to M/s. SAIL under their letter dated 13-1-94 the supply of components and services by them to M/s. HWIL. The impugned goods were mentioned in the said letter. We also observe from the Adjudication Order that Shri A.N. Aash who appeared before the Adjudicating Authority for personal hearing on 10-4-2000 had mentioned that the performance guarantee would not have been possible had the proprietary equipments not been supplied by M/s. KHD, Germany. Further Shri N.V. Rajan, Shri N.C. Banerjee and Shri S. Anand who appeared for personal hearing second time on 26-4-2000 again mentioned that they were interested in KHD/HWILs technical know-how and the equipments were imported to obtain the performance guarantee in the absence of which they would not have got the contract of SAIL. In view of these facts it is evident that the import of the impugned goods was directly connected with the supply of technical know-how. The learned Commissioner (Appeals) has rightly relied upon Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 which provides, inter alia, that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods the value of the goods and services, which includes engineering, development, design work, and plans and sketches necessary for the production of the imported goods. We, therefore, find no infirmity in the impugned order and accordingly reject the appeal. The appeal against the said decision of the Tribunal was dismissed on merits by the honble Apex Court as follows:- We do not find any merit in this appeal. The appeal is, therefore, dismissed. (C) In the Andhra Petrochemicals Ltd. case (supra) relied upon by the Revenue, a question arose as to whether the design and engineering charges paid by the importers to the foreign collaborators could be added to the invoice value of imports of capital equipment and it was held that in terms Rule 9(1)(b)(iv) of CVR, these could be added to the value of the imported equipment. The decision of this Tribunal in the case of Mukund Ltd. (supra) wherein it was held that design and engineering charges, supervision charges including design, erection, commissioning and performance guarantee tests are includible in the assessable value of the goods supplied under Rule 9(1)(e) of CVR also applies squarely to the facts of the present case before us.
If we apply the ratio of the above decisions to the facts of the present appeal, in our considered view, the royalty paid for the Process Know-how and the various fees paid for basic engineering services and supervisory services are includible in the assessable value of the equipment imported under Rule 9(1)(c) and 9(1)(e) of CVR, 1988 as these payments are integrally connected with the supply of the equipment and formed part of a package deal. Therefore, we do not find infirmity in the order passed by the lower authorities in this regard.
5.5 A contention has been raised by the appellant that they have made a payment of only US $ 1,07,12,000/- to M/s Davy in terms of the Basic Engineering and Training Agreement and they have not paid any royalty to M/s Davy in terms of the Process Licensing Agreement. Two CA certificates dated 16/07/2005 and 26/05/2005 have been submitted In support of this contention. This contention has been rejected by the lower authorities on the ground it is not merely whether payment has been made, but the amount payable under the contract has to be taken into account for determination of valuation, relying on the decision of the honble Apex Court in the case of Electronics Corporation of India (supra). A copy of a settlement agreement dated 01/08/1996 has been produced in this regard. We have perused the said agreement. From a reading of the agreement, it is seen that the same does not affect the payment required to be made under the supply of equipment agreement and also the royalty required to be paid under the Process Licence Agreement. The obligations under these agreements remain intact and we do not understand how the appellant can take this plea. For determination of assessable value, not only the amounts paid but required to be paid under the contracts entered with the supplier have to be taken into account. In the absence of any conclusive evidence to show that the payments so far made is towards the final settlement of all the obligations, the appellants plea in this regard cannot be entertained. CA certificate is not the authority for determination of liabilities and future obligations arising out of contract. In the absence of any satisfactory evidence duly certified by the foreign equipment supplier, the plea of the appellant in this regard cannot be entertained and therefore, the lower authorities have rightly rejected this contention and we do not find any infirmity or illegality in such a decision. Accordingly we reject this contention as not proved.
6. To conclude, we do not find any merit in this appeal and accordingly dismiss the same.
(Operative part of the order pronounced in the Court on 27 /11/2014)
(Ramesh Nair)
Member (Judicial)
(P.R. Chandrasekharan)
Member (Technical)
*/as
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