TaxTMI 
TaxTMI 
1997 (8) TMI 295
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....taking had purchased the entire steel plant equipment mostly from an Italian supplier, known as Italimpianti (ITP). The equipment had not yet been installed in Portugal when that country decided to join European Economic Community (EEC). As a result, Portugal could not expand its steel-making capacity. Price of 26 MDM for the aforesaid equipment, proposed to be paid by the appellant was therefore, on "as is where is basis", F.O.B. Portugal (Lisbon) which was lying unpacked for several years. 1.3 Accordingly, a protocol was signed by the two Cos. On 14th April, 1988 wherein it was stipulated as follows :- "Clause 1 : The total price will be price for the equipment plus price for the engineering. FOB Portugal/Setubal port The price for the equipment with suitable sea-worthy packing to be provided by S.N. The price for engineering will be DM 13.5 Million (Deutsche Marks thirteen million five hundred thousand only) DM 12.5 million (Deutsche Marks twelve million five hundred thousand only) Clause 2 : The equipment is sold without any operation or performance guarantees, in "as is where is" condition." The said protocol contained other t....
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.... imposition of penalty on, the main appellant (TISCO) as also on the other appellants. 3.3 Following allegations have been made against the main appellant TISCO : (i) Undervaluation of Blast Furnace Equipment by transfer of part of the value of equipments to value of engineering, (ii) Suppression of facts, (iii) Suppression of facts relating to other costs, (iv) Undervaluation by exclusion of cost of technical documents, (v) Importation of part of the goods falling short of value in I.T.C. as a result of enhancement of value. 4.1 We would take up the allegation No. (iv) in the first instance because it is the contention of the first appellants, that the cost pertaining to technical documentation is not liable to Customs duty at all inasmuch as it does not pertain to production or manufacture of the goods imported and have no nexus with those goods. Therefore, such a cost will not form part of the value of the imported goods at all in terms of the Customs Valuation Rules, 1988. 4.2 Adjudicating Officer has held in the findings in the impugned order that the "cost of technical documents included the cost of drawings and ....
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....llant's ld. Counsel, Dr. Samir Chakraborty urges that in terms of the interpretative Notes to Rule 4, technical know how and fees relating to erection, installation, commissioning and maintenance of the equipment are not includible as these are expenses on activities subsequent to importation undertaken by an importer. He points out that in terms of Rule 9 of the Customs Valuation Rules, 1988, only design and engineering charges alone relating to sale and manufacture of the imported equipments are includible along with the value of equipments for the purpose of assessment of Customs duty. For this proposition, ld. Advocate, Dr. Samir Chakraborty relies on the following cases :- (i) 1992 (62) E.L.T. 572 (para 13) [Vishakhapatnam Steel Plant v. Collector of Customs], (ii) 1996 (67) ECR 592 (Tribunal) = 1996 (16) RLT 736 (CEGAT EB) [National Aluminium Co. Ltd. v. Collector of Customs], (iii) 1996 (88) E.L.T. 609 (para 28) = 1996 (17) RLT 588 (para 27) [Collector of Customs (Prev.), Ahmedabad v. Essar Gujarat Ltd.], (iv) 1996 (87) E.L.T. 286 (IFGL Refractories v. Collector of Customs]. (v) 1997 (90) E.L.T. 276 (paras 11 & 12) [Bombay Dyeing & Man....
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....ed upon the present purchase and Sale Contract for Equipment, Materials and Technical Documentation for one 1578.5 cum Blast Furnace and three 200 ton T.L.C. to be ruled by the following clauses :- Preamble ......................................................................................................................................... ......................................................................................................................................... The Technical Documentation for construction, erection, operation and maintenance as received from original suppliers for the Blast Furnace and Torpedo Ladles is also offered for sale by the Seller. The Buyer intends to purchase the Equipment, Materials and Technical Documentation of the said Blast Furnace and Torpedo Ladles. Scope 1 1. ...........the scopes are detailed in the following documents, also signed on this date, which form integral part of this Contract : (i) MD-301 - Agreement for supply of Technical Documentation, and (ii) MD-302 - Agreement for sale of Equipments and Materials. (emphasis supplied) 2 3 4 5 1. The overall price of the sale scop....
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....cal Documentation are also reproduced :- "The Technical Documentation covered under this Agreement is listed under Annexure I (List of Drawings, Manuals and Technical Specifications). The type of drawings and documents are as follows : Civil Engineering 1. Steel structure and plate work 2. Steel structures for charging zone 3. Electrical 4. Process and Basic Engineering 5. Instrumentation and automation 6. Dedusting system and Gas cleaning 7. Fluids System 8. Water treatment and circulating system 9. Technical specifications. 10. The drawings and technical documents correspond to the following zones of the Blast Furnace :- Charging 1. Cold and Hot Blast 2. Blast Furnace shell 3. Cast House 4. Slag treatment 5. Gas cleaning 6. Water plants 7. Fluids, Electricity, Instruments and Automation Services 8. Torpedo Ladle Cars. 9. I. BLAST FURNACE - General engineering - design of the whole plant and ancillaries - basic civil engineering - specification for final painting - operating and maintenance manuals - D....
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.... or deficiencies of the Equipments and Materials. Likewise, he neither renders nor assumes any guarantee or obligation relating thereto or to any performances or yet to the adequacy of such Equipments and Materials for the purposes of the BUYER. 6. The BUYER commits himself to keep at the checking and delivery places personnel in sufficient number and with the qualifications needed to accomplish their duties in accordance with the purpose of the checking in the terms referred to in numbers 2, through 4, and in general, with the scope of this Agreement. 7. The BUYER shall designate in writing its permanent representative in Portugal, who shall stay personally at the checking and delivery places during working hours; he may be replaced by a delegate, if such replacement is communicated to the SELLER in writing, at least 5 working days in advance. EQUIPMENT AND MATERIALS FOR BLAST FURNACE TO BE SUPPLIED BY S.N. PORTUGAL TO TISCO One 1578.5 cubic meter working volume Blast Furnace with 3 Nos. 200-Ton capacity Torpedo Ladle Cars consisting equipment and materials for stockhouse, charging system, cold blast line, hot blast line including stoves, furnace structure, c....
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....ly paid or payable, namely :- ............................................................................................................................. ............................................................................................................................. (iv) engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods; (c) royalties and licence 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, to the extent that such royalties and fees are not included in the price actually paid or payable; ............................................................................................................................. (e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. 12. Interpretative Notes....
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....nefiting from the design centre and adding such apportioned cost on a unit basis to imports. 6. Variations in the above circumstances will, of course, require different factors to be considered in determining the proper method of allocation. 7. In cases where the production of the element in question involves a number of countries and over a period of time, the adjustment should be limited to the value actually added to that element outside the country of importation." 6.1.I We have carefully considered the pleas advanced from appellants' Counsel Dr. Samir Chakraborty and Dr. Jinwala. We agree with the ld. Advocate, Shri R.N. Das for the Revenue on the question of jurisdiction of the Commissioner of Customs, Bhubaneswar. It has been held by the Apex Court in para 5 of the Bombay Dyeing case that once the assessment on registration of a contract for project import are provisional, as indeed they are, the proper Customs Officer can take all relevant factors into account while finalising the assessment. Although this observation was made in the context of another plea by the appellant Bombay Dyeing that the plant had been pre-assessed inasmuch as their contract....
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....lause 1 of the Sale Contract. He has also drawn attention to Annexure I to the Contract MD-301, for supply of technical documentation, which lists drawings, Manuals and Specifications and relevant extracts from which have already been set out above in para 5.2. II. Preamble to Annexure I of the Contract MD-301 states that "drawings and Technical documents are for the balance procurement/manufacture to be done in India and for the site erection work to be done in India and subsequent maintenance of the blast furnace and 3 T.L.Cs. We observe from the Commissioner's finding that there is no dispute about the value of drawings and technical documents not being includible pertaining to balance procurement/manufacture/civil construction at site, etc. to be undertaken in India. Commissioner has included the value of those technical documents which are essential for setting up and operating the equipments. Such documents, it has been further held are normally supplied with an equipment without any extra charge. To the extent Commissioner's finding goes against the express provisions in Interpretative Note to Rule 4, it is not sustainable. Interpretative Notes in the Schedule to the Valuati....
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....which was yet to be procured or manufactured by the appellants. It may also contain (iii) technical documents which are related to post-importation activities undertaken by the appellants for assembly, construction, erection, operation and maintenance of the imported equipment. Value of two categories of documents at (ii) and (iii) above could be excluded, had these values been separately shown in the contract MD-301 or invoices. Since separate values have not been shown, support from Interpretative Note to Rule 4 of the Valuation Rules, proposed by the ld. Advocate, Dr. Chakraborty cannot be taken. Hence the entire value of 12.5 million DM of technical documentation will have to be included in value (13.5 million DM) of the equipment of B.E. and T.L.Cs. 6.3.I  We arrive at a similar result if the problem is looked at from the angle proposed by ld. Counsel, Shri R.N. Das for Revenue. He submits that Contracts MD-301 and MD-302 are merely parts of Sale Contract. All the three contracts have to be read together. It emerges therefrom that 26 million DM is the price of all the goods - equipment, materials and technical documents. Sale contract further indicates, submits the ld.....
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....cle 2 relating to 'Price' and Clause 1 thereof makes it abundantly clear that "over all price of the sale scope of the present contract is fixed and not subject to any revision and amounts to DM 26 million" giving a break-up of the same in 13.5 million and 12.5 million DMs. It is thus the over all price of 26 million DM which is material in the Contract. Article 3 makes it binding on both the contracting parties that neither of them shall transfer totally or partially its contractual position, either gratuitously or onerously, without previous written consent of the other party. It is thus apparent that the appellants cannot back out of contract for supply of technical documents, even if they wished, without the written consent of the other party i.e. S.N. Portugal. These facts brings out the element of compulsion in purchase of the technical documents of whatever nature along with the purchase of equipments and materials. That being the factual position, provisions of Rule 9(1)(e) of the Valuation Rules, 1988 come into play. Clause (e) of sub-rule (1) of Rule 9 envisages addition of "all other payments actually made or to be made as a condition of the sale of the imported goods, b....
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....the appellants towards :- (a) Assurance that the equipment was in good condition. (b) Assurance that the equipment which was designed for the S.N.'s Ore-mix would also give acceptable results for the Ore-mix available to M/s. TISCO in India. (c) Assurance that the equipment was substantially complete and hence, worthy of purchase as S.N. were selling the goods on as is where is basis and were unwilling to give any guarantee in this regard. (d) Chartered Engineer's Certificate of Inspection of goods which was required to be submitted to the Government of India for approval of the import. We are of the view that the Commissioner's findings are based on conjectures and are not based on any evidence that these charges have been incurred by the first appellant. Commissioner, in his fairness, has accepted that there is no evidence that these charges have been paid by the appellants, yet he has gone on to add these charges to the value of goods. Accordingly, differential demands of duty on account of inclusion of these charges are set aside, being based on conjectures. e. g. demand of Rs. 3,92,35,405.40 has been raised on the ground that the appellants r....
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....of goods to the extent of U.S. $12,000 for computer simulation study. Mr. S.L. Srivastava's role : Same as above in the case of Dr. J.J. Irani since he had been jointly working with the former. Role of M/s. M.N. Dastur & Co. Their representative had been associated in undervaluation along with Shri S.L. Srivastava. 10.2 We have heard the concerned Counsel for the appellants and for the Revenue. We observe that split up into two contracts - one for technical documentation and engineering fees and another for import of equipments and material was a legal necessity because the licence or approval for releasing foreign exchange for technical documentation was to be given by Secretariat for Industrial Approvals and the licence for import of equipment was required to be given by the C.C.I. & E. As regards the second reason, namely, skewed split up, we observe that we have not given any finding that it was a one as alleged because we do not consider it necessary to determine that question. This offence also, if any, does not survive as an issue. As regards obtaining approval of the Ministry by fraudulent means for importation of the blast furnace, we are unable to unde....