Intangible ideas on media treated as dutiable goods; customs valuation rules and Chapter 98 apply; five-year proviso allowed

SC held that intangible ideas become dutiable goods when embodied on a medium (drawings, diskettes, manuals), so such imported technical material is liable to customs duty. Reserve Bank permission treating payments as for services does not override Customs/Tariff law. Transaction value under the Customs Valuation Rules governs assessment (not the full contract price); tribunals' practice of using about one-third of contract value to estimate transaction value was endorsed where appropriate. Wilful undervaluation permits invocation of the five-year proviso for issuing show-cause notices. Importers, not couriers, are liable and Chapter 98 classification was properly applied.

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Issues Involved:
1. Whether drawings, diskettes, manuals, etc., imported are goods on which excise duty could be levied.
2. Valuation of the goods for customs duty.
3. Limitation for issuing show cause notices for non-levy or short-levy of duty.
4. Applicability of Heading No. 98.03 of the Customs Tariff Act for goods imported by couriers.

Detailed Analysis:

1. Whether drawings, diskettes, manuals, etc., imported are goods on which excise duty could be levied:

The court examined whether the imported items, such as drawings and diskettes, qualify as "goods" under the Customs Act. The definition of "goods" under Section 2(22) includes "any other kind of movable property." The court held that any media containing information or technology, such as books, computer disks, or cassettes, are considered goods. Thus, the drawings, designs, and manuals imported by the appellants are goods subject to customs duty. The court rejected the appellants' argument that these items were intangible intellectual property and not goods.

2. Valuation of the goods for customs duty:

The court addressed the appropriate valuation method for the imported goods. According to Section 14 of the Customs Act and the Customs Valuation Rules, the transaction value of the imported goods is the price actually paid or payable for the goods when sold for export to India. Rule 9(1)(b)(iv) includes the value of engineering, development, artwork, design work, and plans and sketches in the transaction value. The court emphasized that the value of the goods includes both the tangible media and the intellectual content. The court found that the entire contract value should not be taken as the value of the imported goods. Instead, the Commissioner must determine the transaction value based on the terms of the agreements.

3. Limitation for issuing show cause notices for non-levy or short-levy of duty:

The court examined whether the extended period of limitation of five years under Section 28(1) of the Customs Act could be invoked. The proviso to Section 28(1) allows for an extended period if the non-levy or short-levy is due to collusion, wilful mis-statement, or suppression of facts by the importer. The court found that the appellants had made wilful mis-statements or suppressed facts by declaring a nominal value for the imported goods. Therefore, the extended period of limitation was applicable in these cases.

4. Applicability of Heading No. 98.03 of the Customs Tariff Act for goods imported by couriers:

The court addressed whether Heading No. 98.03, which applies to "all dutiable articles, imported by a passenger or a member of a crew in his baggage," was applicable to goods imported by couriers. The court held that the provisions of Chapter 98 were rightly applied, as the goods were imported as part of passenger baggage. The court rejected the appellants' argument that the provisions were inapplicable to corporate entities and that proceedings should have been initiated against the courier.

Separate Judgments:

Civil Appeal No. 3632 of 2000 (M/s. Videocon VCR Ltd. v. Commissioner of Customs):

The court found that the imported drawings and designs were classifiable under Heading No. 49.06, which specified a rate of duty as "free." Therefore, these items were not dutiable articles, and no customs duty was leviable. The appeal was allowed, and the orders of the Commissioner and Tribunal were set aside.

Civil Appeal No. 1493 of 2000 (M/s. H & K Rolling Mill Engineers Pvt. Ltd. v. The Commissioner of Customs):

The court found that the drawings imported were prepared by the Indian company and merely approved by the German company. The value of these drawings was nominal, and the nominal value disclosed by the courier was not incorrect. The appeal was allowed, and the orders of the Commissioner and Tribunal were set aside.

Conclusion:

Civil Appeal No. 1493 of 2000 and Civil Appeal No. 3632 of 2000 were allowed, setting aside the orders of the Commissioner and Tribunal. The other appeals were dismissed, but the Commissioner was directed to determine the transaction value of the drawings, designs, etc., imported by Leela Ventures and impose the levy accordingly. There was no order as to costs.

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