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

ASSOCIATED CEMENT COMPANIES LTD. Versus CC

SC held that intangible ideas become dutiable goods when embodied on a medium (drawings, diskettes, manuals), so such imported technical material is ... Excise duty cannot be levied on the value of ideas as they are not goods - Drawing and Design - information put on the media - import through courier - baggage - manufacture of excisable goods - Valuation of the goods - Limitation for issuing show cause notices for non-levy or short-levy of duty - Whether heading No. 98.03 applicable - Held that: - Drawings, plans, manuals, etc., specified in Chapter 49 of the Tariff Act are thus statutorily regarded as goods attracting a specified rate of customs duty on their import into India. There is no challenge to any of the statutory provisions and reading the two Acts together there can be no manner of doubt that what has been imported into India by the appellants, through the courier or otherwise, from their technical collaborators were goods even though the tangible articles so imported contained information or knowledge for use by the appellants. It is true that what the appellants had wanted was technical advice or information technology. Payment was to be made for this intangible asset. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, that what is supplied becomes chattel. It is in respect of the drawings, designs, etc., which are received that payment is made to the foreign collaborators. It is these papers or diskettes, etc., containing the technological advice, which are paid for and used. The foreign collaborators part with them in lieu of money. It is, therefore, sold by them as chattel for use by the Indian importer. The drawings, designs, manuals, etc., so received are goods on which customs duty could be levied. With regard to the submission on behalf of the appellants that the contracts in these cases were for services and it is on that basis that permission from Reserve Bank of India was obtained for release of foreign exchange. The submission of Mr. Rohatgi, in reply, was that the Reserve Bank does not adjudicate on the question whether the technical material being imported are goods or not for the purpose of imposition of customs duty. We agree with this submission. The appellants had represented to the Reserve Bank that the collaborators were rendering service and on this representation remittances were allowed. The Reserve Bank must have examined the applications from the point of view of release of foreign exchange. It was not an adjudicating authority under the Customs Act. Had there been any doubt about the question whether what was imported were goods or not then, perhaps, the grant of permission to remit money for services rendered and payment of taxes in respect thereof may have been relevant. But here, on the examination of the law applicable to the levy of customs duty the position is free from any ambiguity. As has already been observed hereinabove the drawings, designs, manuals, etc., imported through couriers were 'goods' on which customs duty was payable. The action of the Reserve Bank cannot result in negating the statutory provisions of the Customs Act and the Tariff Act applicable in the instant cases. The belief of the appellants that what was imported were not 'goods', as the Reserve Bank had also regarded the payment was being made for services and not goods, was clearly erroneous and misplaced. Valuation - It will be appropriate to note that the Customs Valuation Rules, 1988 are framed keeping in view the GATT protocol and the WTO agreement. In fact our Rules appear to be an exact copy of the GATT and WTO. For the purpose of valuation under the 1988 Rules the concept of 'transaction value' which was introduced was based on the aforesaid GATT protocol and WTO agreement. The shift from the concept of price of goods, as was classically understood, is clearly discernible in the new principles. Transaction value may be entirely different from the classic concept of price of goods. Full meaning has to be given to the rules and the transaction value may include many items which may not classically have been understood to be part of the sale price. The concept that it is only chattel sold as chattel, which can be regarded as goods has no role to play in the present statutory scheme as we have already observed that the word 'goods' as defined under the Customs Act has an inclusive definition taking within its ambit an immovable property. The list of goods as prescribed by the law are different items mentioned in various chapters under the Customs Tariff Act, 1997 or 1999. Some of these items are clearly items containing intellectual property like designs, plans, etc. The above view, in our view, appear to be logical and also in consonance with the Customs Act. Similarly in Advent Systems Limited v. Unisys Corporation, it was contended before the Court in United States that software referred to in the agreement between the parties was a 'product' and not a 'good' but intellectual property outside the ambit of Uniform Commercial Code. In the said Code, goods were defined as 'all things (including specially manufactured goods) which are movable at the time of the identification for sale'. We are in agreement with the aforesaid observations and hold that the value of the goods imported would depend upon the quality of the same and would be represented by the transaction value in respect of the goods imported. It would not be correct, as was done in Leela Ventures case, to take the entire contract value as being the value of the imported goods. What is the transaction value in respect thereof has to be ascertained. In most of the other cases this has been done by adopting about one-third of the contract value as being the transaction value of the imported goods for the purpose of levy of customs duty. Limitation for issuing show cause notices for non-levy or short-levy of duty - When the value of the goods which were dutiable in the present cases was shown as only nominal, while in actual fact the correct value was much more, there was clearly an attempt on the part of the passenger, namely, the courier, to have the goods cleared through customs authorities by grossly undervaluing the value thereof. The courier gave a specific value of one dollar in respect of the drawings when both the sender and the appellants knew fully well as to how important and valuable these goods were. In the case of Leela Ventures it was on the basis of the architectural drawings that the renovation etc. was to take place whereas the technical material made available to the other appellants was necessary for their purpose. We have already held that the value of the goods so imported was not merely the cost of the price of the media but also the intellectual input on the media as represented by architectural drawings or users manuals etc. The value of architectural drawings was not merely the cost of the paper and the ink but would be much more. In some of the cases we were informed that the appellants had themselves volunteered that about one-third of the total amount payable to the collaborators should be taken as a figure representing the transaction value of the technical material so imported. The Tribunal as well as the Commissioner were right in coming to the conclusion that there was a wilful suppression or mis-statement of the value of the goods imported and, therefore, the respondents were entitled to invoke the provisions of the proviso to Section 28 (1) of the Customs Act and issue show cause notice even if period of six months importation had expired but before the expiry of five years thereof in the case of all the appellants except in the cases of M/s. H&R Rolling Mill Engineers Pvt. Ltd. and M/s Videocon VCR Ltd.. Whether heading No. 98.03 applicable - It cannot be denied that the imports were made by the appellants. The courier or any other passenger may be the mode or the manner of physical importation of the goods, just as the said goods may have been imported by post. Section 28 of the Customs Act, however, enables the Government to issue notice to the persons importing the articles into India. It is by reason of the collaborators agreements that the drawings, manuals, technical material, etc., were sent by the foreign collaborators to the appellants and it is the appellants who were the importers who alone could be made liable in case of non-levy or short-levy of customs duty. The word 'importer' in Section 2(26) of the Customs Act includes the owner and as the appellants were the owners of the goods, certainly after these were received by them, it is only from them that the short-fall in duty levied could have been recovered. The parties took a chance in importing the articles through the courier. Initially they were successful in having the goods cleared by declaring a nominal value in respect thereof. They may not have been able to do this if the technical material and goods had been imported, not as a part of passengers' baggage, but in the ordinary course of import either through post or by filing bill of entry. We, therefore, concur with the conclusion of the Tribunal and the Commissioner that the provisions of Chapter 98 were rightly applied on the facts of these cases. 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.