2001 (1) TMI 248 - SC - Customs

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 ... Goods liable to customs duty irrespective of intellectual content - transaction value under Customs Valuation Rules, 1988 - additions under Rule 9 including engineering, design, plans and royalties - wilful mis-statement or suppression of facts attracting extended limitation under proviso to Section 28(1) of the Customs Act - classification under Heading No. 98.03 (passenger's baggage) - exemption under Heading No. 49.06 (plans and drawings)Goods liable to customs duty irrespective of intellectual content - goods - Whether drawings, diskettes, manuals and similar media containing technical information are 'goods' liable to customs duty on import - HELD THAT: - The Court held that the definition of 'goods' in Section 2(22) of the Customs Act (including movable property and baggage) and the entries in the Customs Tariff Act (Chapter 49) bring within the ambit of 'goods' tangible media such as papers, diskettes and manuals even if they contain intellectual content. The statutory scheme requires reading the Customs Act and the Tariff Act together; Chapter 49 specifically lists plans, drawings, manuscripts and similar items as articles attracting tariff treatment. The fact that the imported articles embody information or know-how does not prevent them from being movable tangible articles or goods for customs purposes. Analogies to service contracts or precedents on sales-tax characterization of works contracts are inapposite to the customs code, which taxes the imported tangible medium and the value of the final product. [Paras 24, 27, 30, 31, 32]Drawings, designs, manuals and other tangible media carrying technical information are 'goods' under the Customs Act and liable to customs duty on import.Transaction value under Customs Valuation Rules, 1988 - additions under Rule 9 including engineering, design, plans and royalties - Principle for valuation of imported technical material and whether entire contract value can be taken as transaction value - HELD THAT: - The Court applied Section 14 read with Rules 3, 4 and 9 of the Customs Valuation Rules, 1988, holding that the transaction value (price actually paid or payable) governs valuation and that adjustments under Rule 9 (including engineering, development, artwork, design work, plans and royalties) must be considered. The Court rejected taking the whole contract value as the value of imported goods; instead the correct transaction value must be ascertained with Rule 9 additions where applicable. The Court directed re-determination of transaction value in Leela Ventures by reference to the terms of the agreements and the Rules rather than accepting nominal declared values. [Paras 33, 37, 40, 47, 48]Value of imported technical material must be determined as transaction value under the 1988 Rules with appropriate Rule 9 additions; the whole contract value is not automatically the value of imported goods and must be re-determined (Leela Ventures remitted for correct valuation).Wilful mis-statement or suppression of facts attracting extended limitation under proviso to Section 28(1) of the Customs Act - Whether the extended five-year limitation under the proviso to Section 28(1) of the Customs Act applies to these imports - HELD THAT: - The Court examined proviso to Section 28(1) and analogous jurisprudence on extended limitation, noting the proviso applies where non-levy or short-levy results from collusion or wilful mis-statement or suppression of facts by the importer or agent. The Court accepted that, on the facts of most cases, the low nominal values declared by couriers (one dollar) - which both sender and importer were aware did not reflect true value - amounted to wilful mis-statement or suppression of facts. Consequently the extended five-year period could be invoked for all appellants except where the facts did not establish such wilfulness. [Paras 53, 57, 58]Proviso to Section 28(1) is attracted where there is wilful mis-statement or suppression of facts; on the facts the Tribunal and Commissioner rightly invoked the extended five-year limitation in the majority of cases (with identified exceptions).Classification under Heading No. 98.03 (passenger's baggage) - Whether imports of technical material via couriers could be taxed under Heading No. 98.03 (passenger's baggage) prior to the 1995 amendment - HELD THAT: - The Court observed that Heading 98.03 applied to dutiable articles imported by a passenger or crew member in baggage, and that in the present cases the technical material was cleared as part of passenger baggage. The tax levied under Section 12 targets the goods imported rather than the identity of the importer; the courier or person physically bringing the material is merely the mode of importation. Prior to the May 1995 changes, passenger-baggage treatment could apply and the tribunal and Commissioner correctly applied Chapter 98 to such imports where facts warranted it. The Court also noted that subsequent amendments and courier regulations changed the treatment for later imports. [Paras 59, 62, 63]Imports of technical material cleared as passenger baggage prior to the 1995 changes could be subject to Heading No. 98.03; application of Chapter 98 was correct on the facts where the material was brought and cleared as baggage.Exemption under Heading No. 49.06 (plans and drawings) - dutiable goods - Whether the drawings and designs imported by M/s. Videocon were dutiable articles under Heading No. 98.03 or were classifiable under Heading No. 49.06 and therefore free - HELD THAT: - The Court analysed the 1992-93 tariff and found that Heading 49.06 expressly covered 'plans and drawings for architectural, engineering, industrial... being originals drawn by hand' and the rate then specified was 'free'. Under Section 78 the rate and tariff applicable to baggage is that in force on the date of declaration. The Court distinguished excise jurisprudence and observed that under the Customs Act 'dutiable goods' are those chargeable to duty and on which duty has not been paid; goods subject to nil rate or exemption are not 'dutiable goods' for this purpose. Concluding that the drawings fell under Heading 49.06 and were free in 1992-93, the Court held they were not dutiable articles and allowed Videocon's appeal on that ground. [Paras 75, 76, 80]Drawings and designs imported by M/s. Videocon were classifiable under Heading No. 49.06 for 1992-93 and were free of duty; they were not dutiable articles under Heading No. 98.03 and the appeal is allowed.Goods liable to customs duty irrespective of intellectual content - Whether the customs demand and penalty in respect of drawings returned from abroad to M/s. H & K Rolling Mill Engineers Pvt. Ltd. were maintainable - HELD THAT: - On the facts the Court found these particular drawings were originally prepared in India by the appellant, sent abroad only for approval, and returned bearing the foreign company's stamp; the arrangements did not show the foreign company supplied or sold originals as import. The Court concluded that the value of the returned drawings was nominal and the nominal value declared by the courier was not incorrect in the circumstances. Given these factual findings the levy and penalty as imposed were not sustainable. [Paras 81, 82, 84, 85]Order imposing duty and penalty on H & K Rolling Mill Engineers in respect of the returned drawings is set aside; the declared nominal value was acceptable on the facts.Final Conclusion: The majority of appeals were dismissed: the Court held drawings, plans, manuals and similar tangible media containing technical information are 'goods' liable to customs duty and must be valued by transaction value under the 1988 Valuation Rules with Rule 9 additions; wilful mis-statement or suppression of value justifies invocation of the five-year limitation under the proviso to Section 28(1). However, the appeals of M/s. H & K Rolling Mill Engineers Pvt. Ltd. and M/s. Videocon VCR Ltd. were allowed - H & K because the returned drawings were prepared in India and the nominal declared value was acceptable, and Videocon because the drawings fell under Heading No. 49.06 for 1992-93 and were free of duty - and in Leela Ventures the Commissioner was directed to re-determine the transaction value of the imported drawings and impose duty accordingly. 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.