TaxTMI 
TaxTMI 
2006 (9) TMI 375
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....t on or around 7th June 1994, RIL imported through Courier 7 (seven) cartons which were cleared as Company Manuals of No Commercial value. Upon investigation, the department came to believe that cartons in question contained printed matter in the nature of FEEP (front end engineering package). Further verification of all details revealed that these FFEP were part of Agreements entered into by RIL with M/s. ICIC & P/ John Brown for establishment of a plant in India for the manufacture of Purified teraphthalic acid (PTA). These agreements are as follows : Sr. No. Description Date Amount US$ Million Contracting Party 1. Know How and License 12-4-1994 42 M/s ICICI & P 1.1 Agreement : 03} (initially with 1.2 Basic Engineering (FEEP) manuals License fee 39} M/s John Brown) 2. Engineering Service Agreement 6-1-1995 05 M/s John Brown 3. Buying Services Agreement 6-1-1995 08 M/s John Brown It was noted that in the Agreement at Sr. No. 1 above of US$ 42 Million, US $39 million was for the License Fee and US $ 3 Million was for the basic engineering/technical information/know how, unders....
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.... interest @ 20% should not be recovered from them as the provisions of Section 28AA of Customs Act, 1962 from the date of assessment of their first Bill of Entry till the date they pay the entire amount demanded at sub-para (b) & (e) above : (g) a mandatory penalty equal to duty at (e) above under Section 114A should not be imposed on them in view of (e) above." (b) On adjudication the Commissioner of Customs, by an Order No. CAO/No. 2000/CAC/CC-KPS dated 11th January, 2000, ordered : "132. In the circumstances, I pass the following order - 1. The assessment being still provisional, the proposals to levy interest under Section 28AB of the Customs Act, 1962 and to impose mandatory penalty under Section 114(A) of the Customs Act are not tenable and hence dropped. 2. In so far as the various additions to the assessable value of the equipments imported concerned - (a) The amount of US$ 39 million cannot be added, as it is only towards transfer of technology and use of the patent: (b) The amount of US$ 8 mil....
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....tended period of limitation. 133. The importers are, therefore, directed to pay the differential duty amounting Rs. 3,36,12,871/- (Three crores thirty six lakhs twelve thousand eight seventy one) as per (d) & (e) above - 134. The seven cartons, along with their contents, are liable to confiscation under Section 111(m) of the Customs Act, 1962 for non-declaration of their correct value. Section 111(d) has also been invoked in the show cause notice, but that is not applicable. I order confiscation of these manuals under Section 111(m) of the Customs Act, 1962. However, these are not available for confiscation now. 134. For rendering these manuals liable to confiscations, as aforesaid, the importers are liable to penalty under Section under 112(a) of the Customs Act, 1962. Section 112(b) is also invoked in the show cause notice, but that is not applicable. Having regard to the facts and circumstances of the case I impose a nominal penalty of Rs. 10,00,000.00 (Rs. Ten Lakhs only) on the importers under Section 112(a) of the Customs Act, 1962. 135. A very liberal view in the quantum of penalty has been taken on the ground that the importer....
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.... the demand in respect of Manuals is also barred by limitation as RIL had good reasons to believe that the Manuals were entitled for assessment as Printed Books in view of several decisions of the tribunal - Roto Inks Private Limited v. Collector of Customs [1990 (47) E.L.T. 398] and Tata Consultancy Services v. Collector of Customs [1991 (53) E.L.T. 454] which were subsisting at the time of import. The correctness of these decisions came to be questioned much later in the year 2000. (iv) In any event, in the alternative, even if the imported articles/entities are classifiable under Chapter heading 98.03, they are eligible to exemption and would be liable to lesser rate of duty under Notification 38/94-Cus. (v) The amounts of US $ 1,30,000 in respect of the Engineering Services Agreement is not liable to customs duty. (vi) The confiscation under Section 111(m) and imposition of penalty under Section 112(a) is invalid in law. (vii) The demand raised in the Notice due to addition of various amounts under the above mentioned agreements towards know how licence fee, engineering services and buying commission is unsustain....
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....this sub-section shall have effect as if for the words "one year" and "six months", the words "five years" were substituted."(Emphasis supplied) (ii) It is departments' contention that had the importer described the product, as technical documents relating to Basic Engineering instead of Company Manuals, the fate of the assessment would have been different. Similarly, had the importer declared the correct value of the Manuals, the fate would have been different. We are not persuaded to agree to this proposition. As the department, at no point of time, has been able to produce, during the proceedings, despite our having pointed out, the document relating to the declarations and process thereof in terms of Section 77 and 78 of CA '62. Therefore, there is no means, to know and for the Department to assert whether in the subject case the NIL assessment was on account of the NIL duty being applied or the duty applied at any rate (with an appropriate classification under the tariff) other than NIL but value being taken as NIL as declared or otherwise. There are however certain circumstances prevailing which indicate that indeed the classification/duty at the relevant....
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....xcise, Indore - 1997 (94) E.L.T. 558 (T) and Afcons Panling Joint Venture v. Commissioner of Customs & Excise, Jallandhar - 2004 (166) E.L.T. 207 (T)]. (iv) At the relevant time of import, in June 1994, as per the law then prevailing. Notification No. 38/94-Cus. provided for Nil duty for articles in question classifiable under Chapter 49 and these were importable without payment of duty. In any case, in the facts and circumstances as above, the substitution of description from 'Technical documents relating to basic engineering' to 'Company manuals' by itself would have not lead one to believe a product to be something else to escape the appropriate levy. Both these descriptions, would have equally qualified for being considered for exemption under Chapter 49 read with Not. 38/94-Cus. as 'Books'. The department has not demonstrated as to how the description. "Manuals" amounts to a misdeclaration for "technical documents relating to basic engineering". Manuals 'Books' may contain any information and may consist of any type of documents relating to basic engineering. In fact, we find from the Know How Agreement, under clause 2.2.1 of Appendix Two relating to FEEP that "....
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....a period of six months from the date of the import in June, 1994, the demands confirmed under the Heading 4911.99 or alleged as liable to be confirmed under Heading 98.03. is barred by limitation. Similarly & the Order of confiscation on the grounds of misdeclaration and penal consequent action on this account are set aside. (vii) Since we are allowing RIL's Appeal with regard to the demand on Manuals on the ground of time bar, we do not consider it necessary to go into the various other arguments advanced by both sides on this issue. (b) As regard the issue relating to the valuation of the Project Imports of capital goods by RIL we find that - (i) there are three agreements, which RIL entered into as outlined earlier with which we are concerned. They are :- 1. The know how & licence fee agreement US$ 39 Million 2. The engineering service agreement US$ 05 Million 3. The buying services agreement US$ 08 Million The question for determination is whether or not the consideration in the agreements is addable over and above the value of the equipments, which ....
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....ransaction value, there shall be added to the price actually paid or payable for the imported goods. - (a) ................ (b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely : (i) ................ (ii) ................ (iii) ................ (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 ....
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....uded the FEEP. The plant was understood to be the one to be constructed by Reliance at Hazira in India employing the PTA process. The PTA process meant the process based substantially on the process employed by a subsidiary of ICI at the Effective Date in commercial plant at Kuan Yin, Taiwan, ROC for the production of PTA which process comprises a first stage in which Px is oxidized to produce crude Terephthalic Acid and a second stage in which this crude material is purified. The basis of design was the information required for the process design of plant and was set out in Appendix One of the agreement. The FEEP was a front-end engineering package consisting of design, drawings, specifications and technical data of agreed content, definition and scope which are to be produced by C&P from the Basis of Design for Contractor's use in respect of the Plant, and was set out in Appendix Two of the agreement. The Contractor was a person, to be employed by Reliance and approved by ICIC&P, skilled in the provision of engineering and procurement and construction services for petrochemical plants. That being the premises, what transpires is that in terms of the agreement ICIC&P were to give ....
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....he right to use a patented process, and pays a royally for obtaining that right, if he then imports goods which may or may not be used in that process would not be dutiable as the payment involves a manufacturing process and not the imported goods themselves." Quite clearly the licence fee in this case is not attributable to these goods but rather to a process, which would be applied to the plant involving a manufacturing process in India and not the imported goods themselves. Further the contract for purchase of equipment is an independent and a distinct agreement. The fact that the licence fees was originally to be paid to John Brown who is also the procurer of the capital goods will not make any difference. All the agreements do refer to one another in so far as they are all meant to be corelated to the manufacturing process to be employed in India. This mutuality and interdependence by itself is not a nexus of a kind envisaged in the provisions of Rule 9 as above, to warrant an inclusion in the value of the equipment. (d) We also take reference to the affidav....
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....tion and sales licence was to be undertaken. The licensed products were defined under that Agreement as follows :- "LICENCED PRODUCTS shall mean such industrial sewing threads, twines and braids and related products as are manufactured by BVTL in accordance with the know-how and technology licensed by BARBOUR to BVTL from time to time under the Technical Collaboration to be executed by and between BSRBOUR and BVTL. A list of LICENSED PRODUCTS is attached hereto as Attachment and made part of this AGREEMENT." .......................................................................................... .......................................................................................... 5. On going through the terms and conditions of the Licence Agreement, we do not find any stipulation that the licence fees related to the imported machinery or that they were payable directly or indirectly as a condition of sale of the machinery. There is no other m....
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....e goods in question". In view of above we hold that the know-how/licence fee of US $ 39 Million is not addable to the value of the goods under Rule 9(1)(c) or 9(1)(e). (v) The Department raised certain issues with respect to the Front End Engineering Package (FEEP) and sought to be included in the assessable value of the imported articles by invoking Rule 9(1)(b)(iv). It was submitted on behalf of RIL that the FEEP relates to setting up of the Plant in India. The design and engineering with respect to each component of the Plant which is imported would be undertaken, done and implemented by the supplier of each such component or equipment and the cost of such engineering is necessarily factored into price/value of each component. The FEEP has nothing to do with the design or engineering of the individual component. Similarly, since the licence fee brought about the right to use the process in India and gave technical information in the form of FEEP, by itself was not the basis on which the goods were manufactured as they provided only a base for which a further engineering was to be carried out. Th....
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....red by John Brown are relating to fabrication, manufacturing, assembling etc. of we non-Indian goods to be imported for setting up of the plant and hence liable to be included in the value of he equipment in view of the Apex Courts decision in the case of Andhra Petrochemicals v. C.C., Madras - 1997 (90) E.L.T. 275 (S.C.). In short, but for the ICI PTA technology and John Browns engineering information, the vendors abroad could not have fabricated the imported equipment. We observe, that only additions in this case can be attributable only to Rule 9(1)(b)(iv). Rule 9(1)(c) and (e) are inapplicable as this agreement does not provide for any pre-condition for the sale of the equipment. We have, at length in the preceding paragraphs found & observed the manner in which this Rule has to be applied. It is not the case of the department that either RIL or John Brown had supplied the engineering work necessary for production of the imported goods in question. The Commissioner in his Order at Para 122 to 130 (Pages 169-174 of Appeal No. C/189/2001 filed by the department) has brought out the factual position in relation to the scope of work being attributable to the plant in India at the c....