TaxTMI 
TaxTMI 
2005 (3) TMI 612
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....88 relates to technical know-how, engineering services, training and start-up. The ld. Counsel for the appellant submitted that the collaboration agreement between the appellant and the supplier is for provision of technical know-how, supply critical equipment, engineering services, training, start-up assistance, production and development assistance. Article 2 of the said agreement provides for technical assistance to be rendered by the licensor i.e. the supplier, article 4 provides for training of the licensee's personnel and Article 8 provides for consideration for the aforesaid services. The agreement dated 8-3-1989 is between the supplier and the buyer for supply of equipment. He submitted that each agreement is an independent agreement. The ld. Counsel relied on the following decisions to support his contention that the consideration paid for the above items is not includible in the assessable value :- (i) Polar Marmo Agglomerates Ltd. - 2003 (155) E.L.T. 283 (Tri. - LB), fee for know-how, transfer of licence, cost of assembly and start up of plant payable in lump sum - collaboration agreement not having clause that such transfer of know-how and licence was a conditi....
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....t a condition of their sale - it is in respect of manufacture of the product - not to be added in the assessable value. (viii) Himson Textile Engg. Industries Ltd. - 2004 (64) RLT 91 (CESTAT-Mum.), royalty - Technical know-how fees, licence fees, lump sum amount paid towards royalty, licence fees and technical know-how fees is not to be added to the goods purchased in India - the agreement clearly shows that lump sum amount payable has not influenced the price. (ix) Neg Micon (India) Pvt. Ltd. - 2004 (170) E.L.T. 29 (Tri. - Del.), technical know-how fee and service fee paid by appellants relates to manufacture of wind turbine generator (WTG) in India and service thereof and not in respect of parts/components imported by them - Licence fee not payable as a condition of sale of imported goods - Licence fee not satisfy the required conditions under Rule 9(1)(c) for being added to the assessable value of imported goods. (x) Mando Brake Systems India Ltd. - 2004 (163) E.L.T. 333 (Tri. - Del.), importer entered into Licence and Technical Assistance Agreement (LTAA) with foreign collaborator for manufacture of five items - No provision in the agreement regarding....
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....n of the imported goods and the same shall not form part of the price. 8. The assessee applied for registration of contract for import of plant and machinery at DM 70,71,007 (FOB) for initial setting up of their cement board plant. Along with the application the assessee declared that they had entered into a collaboration agreement with the supplier of the equipment M/s. Bison Werke Bhare and Greten Gmbh & Co., West Germany to whom they were paying fees as per collaboration agreement dated 21-2-1988. On scrutiny of the documents it was found by the department that the assessees were importing necessary machines and equipment from their collaborators for setting up of the plant. In view of the fact that the assessees were making certain payment to the supplier of the equipment by way of technical know-how in terms of the provisions of Rule 4(1) and Rule 9 of the Customs Valuation (Determination of the Price) Rules, 1988, the same were to be added to arrive at the transaction value. On 30-10-1990 the department communicated to the assessee that the contract would be registered provisionally with 10.7% extra duty deposit and the assessee was required to execute a bond and furnish 5....
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....t the two agreements dated 21-2-1988 and 9-3-1989 are entirely independent. He invited our attention to the various clauses of both the contracts to show that they were independent of each other. He also justified that the finding given by the Collector (Appeals) in the order that payment made to the supplier, viz. DM 3,01,254 were not charges payable by the assessee for production of the imported goods. Both parties invited our attention to the judgment of the Supreme Court in Collector of Customs v. Essar Gujarat Ltd. - 1996 (88) E.L.T. 609. Shri Nankani invited our attention to para 3 of the judgment whereas Shri Rao invited our attention to paras 4 & 7 of the judgment, viz. licence fee payable to Midrex Process of technical service provided under article 3 in connection with technical services. Both parties also referred to the judgment of the Supreme Court in Union of India v. Mahindra & Mahindra - 1995 (76) E.L.T. 481. 10. We shall refer to both agreements. Collaboration agreement is dated 21-2-1988. The preamble portion of the same describes that the assessee described to acquire from the foreign collaborator know-how technical information and assistance to enable the ass....
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....hall pay to the Licensor a lump sum payment of DM 375,426 subject to applicable Indian taxes, as detailed in Article 8.1 in 3 equal instalments." Article 3 deals with training of the licensee's personnel. Article 4.1 deals with delegation of the licensor's personnel and it provides inter alia that subject to the Indian company obtaining prior approval of the Indian Government authorities concerned foreign company shall delegate at cost of DM 6,70,000 for the shortest possible time, suitable specialists who are required in India in order to train personnel at the Indian company's factory and to provide general technical assistance by active participation in establishing production, quality control and testing of contract product. Article 5 deals with transmission of technical information. Article 6 deals with additional assistance. Article 7 deals with manufacturing and selling rights. Article 8 deals with consideration. Article 9 deals with improvements and modifications by the licensee to be made by the Indian company. Article 10 deals with limitation of liability. Article 11 deals with standard of quality and designation of contract product. 11. The supply contract which wa....
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....n agreement dated 21-2-1988. This clearly shows that both agreements have to be read together. In para 2.1.1 of con-tract dated 21-2-1988 it is specifically stated that the licensor shall be responsible for the plant and machinery including preparation of designs and detailed engineering, technical documentation covering civil, mechanical, electrical, procurement of all equipment and ancillaries as may be needed for the construction, erection of the said plant and machinery and for obtaining production till the commencement of on-line production. This means it is the technical assistance to be rendered by the foreign company to the assessee, and both the agreements clearly show the nature of relationship which provide, namely in one case it is buyer and seller and in another case it is the technical collaborators for running the machinery. 13. There is a reference to the cases of Mahindra & Mahindra Ltd. - 1991 (55) E.L.T. 15 and Maruti Udyog Ltd. - 1987 (28) E.L.T. 390. The case of Mahindra & Mahindra Ltd., in our view, will not be applicable to the facts of this case inasmuch as that was the case of best of judgment assessment with which Division Bench of the Bombay High Court....
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.... 30% and surcharge at the rate of 5% of 30% = DM 2,57,167 (b) DM 4,39,786 less 30% and surcharge at the rate of 5% of 30% = DM 3,01,254 are being made to the supplier. The first payment of DM 3,75,426 is being made for the payments mentioned in the collaboration agreement. In the preamble it is stated that - (i) the importer desires to acquire from the supplier know-how technical information and assistance to enable the importer to manufacture cement board in conjunction with the purchase of necessary machines and equipments from the supplier. (ii) under article 1.2 the technical information has been defined as the term "Technical Information" means the present and future manufacturing information available with the supplier relating to designs, specifications, detailed layouts of plant & production methods, manufacture and testing of contract products as well as information relating to materials used in the manufacture thereof insofar as such information has either been successfully incorporated in or forms part of the manufacturing or engineering technique of the supplier and is applicable to the contracted transfer of know-how and manufacturing operati....
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....cussed in para 11 that the payment of DM 7,12,000 net of taxes is outside the scope of Rule 9 as this relates to delegation of personnel by the supplier after importation of the goods for establishing production etc. However the payment of DM 4,39,786 is being made in terms of article 3 of the collaboration agreement which states that during the term of this agreement the supplier shall receive the importer's personnel for training in its plant in West Germany, or at any similar plant of the supplier elsewhere. Such personnel will be trained by the supplier in the functions relating to the design manufacture and testing of contract products and materials used therein and maintenance of plant, and equipment. The training period shall be agreed upon by the parties but altogether for not more than 24 working man-months, inclusive of on site training at the importer's plant in India. The training in West Germany or at any plant indicated by the supplier shall be for a minimum of 6/7 weeks per individual delegated by the importer. The supplier shall endeavour to ensure that the training of the importer's personnel in the above fields will be adequate to impart complete competency respec....
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....concerned in pages 9 and 10 he says Maruti Udyog Ltd., case is not applicable. He refers to pages 11 to 17 and he does not follow it. As far as Essar Gujarat Ltd. case he does not follow it. He comes to the conclusion that in respect of DM 3,75,426 at page 6 of the order charges form part of the price and he held like that. As far as DM 4,39,786 is concerned this is not an amount of purchase of the impugned goods therefore the same being not forming part of the price, he does not include it, held differentially with that of the Assistant Collector. The Collector after calling Rule 9(1)(c) and 9(1)(e) of the Valuation Rules held as follows :- "The above two rules refer to payments actually made or to be made as a condition of the sale of the imported goods. Considerations agreed to a collaboration agreement are on account of various functions to be performed by the collaborators Bison Werke Bahre and Greten GmbH & Co. as a condition of sale then it would also form part of the equipment control. There are certain services which are rendered by the collaborators." 16. We are of the view that the approach of the Collector is wrong. From the reading of the entire two agreeme....
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....rocess Licence Agreement with Midrex, the amount payable to Midrex as part of the Process Licence fee has to be included in the value or the plant. It has also to be borne in mind that these services were being rendered in order to improve the capacity of the plant by incorporating Hot Briquetting facilities". 18. We are therefore of the view that reading both contracts as a whole the assessee's case cannot be accepted but only the department's case is to be accepted. Hence varying the impugned order, we restore the order of the Assistant Collector. Gowri Shankar, Member (T) 19. We are concerned in these two appeals of payments made by the importer to its German collaborators on three counts. These are charges for design, engineering, consultancy etc., charges towards deputation of suitable personnel to train personnel at the importers factory, and charges towards technical know-how fee. The Assistant Collector has confirmed net charges on this account of DM 257167 towards payment of design, engineering and consultancy and DM 301254 for technical know-how. He excluded charges of DM 7071007 payable for training of personnel. 20. On appeal by the importer, the Collector (....
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....ti Udyog Ltd. v. Union of India - 1987 (28) E.L.T. 390 confirming the view of the Tribunal that charges payable by Maruti Udyog towards foreign supplier for know-how related to manufacture of the finished product, motor vehicle were not includible in the value of the capital equipment imported by it will apply. The fact that that judgment was dealt with a situation where the assessment was based on the best of judgment does not appear to me to have any relevance. The principles enunciated therein would apply. They would apply notwithstanding the Maruti Udyog's judgment related to the Valuation Rules, as it stood prior to 1988. We are concerned with the new Valuation Rules which came to the statute book in 1988. The Tribunal had held clearly that the provisions of Section 14(1)(a) of the Act will not apply. It held that the price at which the goods were supplied to Maruti Udyog fulfilled the Section 14(1)(a) of the Act and resort to Section 14(1)(b) and Rule 8 of the Valuation Rules is uncalled for. It is therefore not correct to say that the valuation was based on best judgment. The Collector (Appeals)' order in this regard here has to be upheld. 26. The other charges that we ar....