1991 (2) TMI 250 - AT - Customs

Essar's Appeal Partly Allowed, Department's Appeal Dismissed. Transaction Value Clarified.

ESSAR GUJARAT LTD. Versus COLLECTOR OF CUSTOMS (PREVENTIVE)

The Tribunal partly allowed Essar's appeal, ruling that the payment to Midrex as a patent fee should not be added to the transaction value. However, the ... Valuation Issues Involved:1. Inclusion of process license fee in transaction value.2. Inclusion of supervision charges in transaction value.3. Inclusion of technical services and consultancy fees in transaction value.4. Allegations of suppression and mis-statement of facts by the importers.Detailed Analysis:1. Inclusion of Process License Fee in Transaction Value:The primary issue was whether the process license fee paid by Essar to Midrex Corporation for the right to use the Midrex process and patent amounting to DM 2 million should be included in the transaction value. The Collector considered Rule 9(1)(c) of the Customs Valuation Rules, 1988, which prescribes that 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 should be included in the transaction value. The Collector identified four ingredients necessary for inclusion: the fee should be related to the imported goods, required to be paid by the buyer, a condition of the sale, and not included in the price actually paid or payable.Essar argued that the payment to Midrex was not a condition of sale and was related to the manufacturing process of sponge iron, not the imported goods (the second-hand plant). The Tribunal noted that the imported goods were a second-hand plant and not sponge iron, and the payment to Midrex was for using the patent in India. The Tribunal concluded that the payment to Midrex could not be added to the transaction value, aligning with Advisory Opinion 4.3 of the Technical Committee on Customs Valuation, which states that royalties for a process embodied in the machine but not a condition of the sale should not be included in the customs value.2. Inclusion of Supervision Charges in Transaction Value:Essar contended that the supervision charges for dismantling the plant, included in the amount of DM 20.75 million, should not be separately included in the transaction value. The Tribunal upheld the Collector's decision, stating that the import being of a rooted plant, the charges incurred in supervision in dismantling were includible as they were necessary for ensuring proper dismantling and relocation of the plant in India.3. Inclusion of Technical Services and Consultancy Fees in Transaction Value:The Department appealed against the exclusion of DM 10.1 million for technical services and DM 23.1 million for engineering and consultancy fees from the transaction value. The Board argued that these services were necessary for the production of the imported goods and should be included under Rule 9(1)(b)(iv) of the Customs Valuation Rules, which covers engineering, development, artwork, design work, and plans and sketches undertaken outside India necessary for the production of the imported goods.The Tribunal found that these services were not related to the production of the imported goods but were for the relocation and refurbishment of the plant at Hazira in India. The Tribunal noted that the services were not supplied to the manufacturer or supplier and were not necessary for the production of the imported goods. Therefore, the charges for these services could not be included in the transaction value.4. Allegations of Suppression and Mis-statement of Facts:The Collector had issued a corrigendum alleging that Essar had willfully misstated and suppressed facts about the project, threatening confiscation of the goods under Section 111(m) of the Customs Act and a penalty under Section 112. However, the Collector dropped the charges of suppression and mis-statement of facts, and the Tribunal did not find any grounds to revisit this decision.Conclusion:The Tribunal partly allowed Essar's appeal, directing that the payment to Midrex as a patent fee should not be added to the transaction value, while the supervision charges should be included. The Department's appeal was dismissed, and the technical services and consultancy fees were not included in the transaction value. The allegations of suppression and mis-statement of facts were dropped. The Tribunal appreciated the efforts of both the learned Advocate for Essar and the learned DR for the Department in assisting the Bench.