TaxTMI 
TaxTMI 
2004 (12) TMI 666
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.... 1 2 3 4 5 6 7 8 1. Vishwa Panmal 10516/24-10-95 IGM 2381/23 10-96 Lot Oil burner with accessories, Autoclave, Agitator $ 1597,500 58349711 OEC Finland 2 Vishwa Panmal 3871/9-10-95 IGM2654/7-10-96 Lot Drag Conveyor Parts $ 212,000 8054316 OEC Finland 3 Vishwa Panmal 5772/7-6-96 IGM1493/11-6-96 Lot FSF Main Support Structures, Cooling Elements Flash Tank $ 3055,500 109534453 OEC Finland 4 S/O Andhra Pradesh 3817/8-8-95 IGM 2016/ 7-8-95 Lot FSF Reaction Shaft Uptake Shall FSF Sectrom & Platforms FSF Parts, FSF Stell Touch Up Parts $ 1738,000 65853036 OEC Finland 5 Trimbakeshwar 7908/21-8-96 IGM2363/12-8-95 Lot Cooling system, Headers & Supports Valves for Cooling systems, Fastening Parts, FSF Parts $ 1662,000 60042518 OEC Finland 6 Salah Al Deen 7233/12-9-96 IGM2363/12-9-96 Lot FSF Springs $ 36,000 1301365 OEC Finland 7 Contship New Zealand 65/1-10-96 IGM330/27-9-96 Lot FSF/Matte Launder Refractories $ 1,150,000 42041....
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....addition to import of capital goods from Outokumpu, the appellants had imported various capital goods from others i.e. other than Outokumpu. Which are detailed at pages 67 to 69 of Vol. 1 of paper book. 2.3 They also procured various capital goods indigenously as per details pages 72 to 76, Vol. 1 of paper book. 2.4 Thus, the 'copper smelting plant' in India was set up by the appellants to manufacture copper, with the capital goods and other items procured from the sources mentioned in paras 2.1 to 2.3 above. 3. The imports of the capital goods was made under Project Import & under Heading 98.01 of the Customs Tariff. 4.1 The Assistant Commissioner of Customs after examining all the aspects, by a speaking order dated 8-11-1996 held that the Licence Fees of US $ 31,82,000 and the basic engineering fees of US $ 48,34,000 paid by the appellants to Outokumpu are not includible in the value of the capital goods so imported by the appellants from Outokumpu. 4.2 No dispute was raised by the department with regard to other payments made to Outokumpu under the Basic Engineering agreement, such as for training, supervision of installation and commissio....
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....objection raised about non-filing of appeal against the remand by the assessee, was rejected by the Hon'ble Supreme Court. In that case, the CEGAT had allowed 'damage discount' claimed by the assessee in respect of earlier period and remitted the matter back for de novo consideration for other issues. Thus, the issue relating to 'damage discount' attained finality. In the subsequent proceedings, the orders disallowing the damage discount was set aside by the CEGAT by the order dated 30-3-1998 [reported in 1999 (112) E.L.T. 304 (Tri.)]. This Order dated 30-3-1998 was challenged in Supreme Court by the department. Before the Supreme Court, the assessee raised a preliminary objection that the issue relating to 'damage discount, has attained finality and the department cannot reopen the said issue. The Supreme Court rejected this objection of the assessee on two counts. Firstly the Supreme Court held that this point was not urged by the assessee before the CEGAT and hence the assessee cannot urge this point before Supreme Court. The Supreme Court held thus : "5. We will first deal with the objection of Shri Divan which is in the nature of a preliminary objection. As noted, he c....
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....igh Court, hearing the matter on a second occasion or any other court of coordinate authority hearing the matter cannot discard the earlier holding, but a finding in a remand order cannot bind a higher Court when it hears the matter in appeal." (Emphasis supplied) The above decision of Supreme Court in Hindustan Lever (supra) was followed by the CEGAT in the case of Mil India Ltd. - 2003 (158) E.L.T. 717 (T). (b) Independently, the CEGAT in Uma Laminated Products - 1989 (40) E.L.T. 152 (T) held as under : "6. ....... The question, therefore, to be considered would be whether this Tribunal is bound to follow the finding recorded by the Appellate Collector in the earlier stages. *** *** *** 9. Thus the Supreme Court held that when, in the course of the same proceedings, the matter comes up before an authority superior to the appellate authority which passed the order of remand, the findings contained in the order of the remand would not be binding on the said superior authority which is entitled to go into the entire matter afresh witho....
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....nts from Outokumpu and it is also not a condition of sale of the equipments by Outokumpu. As regard includibility of basic engineering fees to the value of capital goods under Rule 9(1)(b)(iv), the Assistant Collector held that the fees paid under the basic engineering by the appellants to Outokumpu is related to post-importation activities i.e. for setting up the entire plant in India and hence the said fees does not relate to production of imported goods. (ii) In the appeal filed by the department before the Commissioner (Appeals) no challenge was made to above conclusion arrived by the Assistant Collector. The only challenge made, by the department before the Commissioner (Appeals), was that the licence fees was a condition of sale of the equipments by Outokumpu. (iii) The Commissioner (Appeals) also, vide remand order dated 29-6-1998 had held that the licence fees paid by the appellants to Outokumpu was a condition of sale of the equipments and hence liable to be included in the value of the capital goods. Thus, the finding that the Licence fees and design and drawing fees paid by the appellants to Outokumpu are not related to the imported goods has become final....
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.... shall mean the Engineering Services for plant as defined in "Appendix-I hereto." "Plant" has been defined in the agreement at page 137A as under : "Plant shall mean the Industrial Complex to be constructed by IGFCC, including but not limited to a smelter based on the Outokumpu Flash Smelting technology with Peirce-Smith converting method, an electrolyte refinery, a precious metals plant, a sulphuric plant based on the Monsanto technology and an effluent treatment plant, and having a capacity of 100,000 metric tons of copper cathodes per annum, which capacity can be upgraded to 150,000 metric tons of copper cathodes per annum as per Appendix-2." (ii) Engineering services rendered by Outokumpu under this agreement are listed in Appendix-I of this Basic Engineering agreement. From the same it is found various engineering services performed by Outokumpu were for the plant to be set up in India. The services essentially instruct and advice the appellants as to how the plant should be set up in India and also advise what are the equipments to be bought by appellants and other allied services. As part of these services....
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....- (a) In 2000 (116) E.L.T. 422 (S.C.) in the case of TISCO v. CCE, the Supreme Court relying on the Interpretative Note to Rule 4 held that the charges for construction etc. of goods in India is not includible in the value of goods imported. In that case, there were two agreements entered by TISCO with the foreign supplier. One agreement related to supply of capital goods and the other agreement related to rendering of services including erection of the plant in India. The Court held- " 17. So far as Interpretative Note to Rule 4 is concerned it is no doubt true that the Interpretative Notes are part of the Rules and hence statutory. However, the question is one of their applicability. The part of Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as....
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.... 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 extend 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." on perusal of the same, it is apparent that the above rule will come into play only in a situation where any engineering, development or art work, etc., has been supplie....
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...., 'plant', 'plant section', 'process equipment' as under : 'Outokumpu process' shall mean the process developed by Outokumpu Oy for smelting raw materials consisting of sulphate bearing copper concentrates into copper matte and slag. For the meaning of this agreement, the Outokumpu Process comprises the following elements : (i) Bringing together said concentrate in finely divided form and a controlled volume of air or oxygen enriched air, which can be preheated, solely at a single position at the beginning of their path of movement, reacting said air with raw material at the position where they are first brought together, causing said air and said raw material reacting therewith to move smoothly downwardly in a vertically elongated horizontally restricted path, with continuous reduction of the partial pressure oxygen in the air while increasing the reaction velocity through rise in temperature in the course of the movement to produce at the lower end of said path a molten charge and hot combustion gases, directing said combustion gases in a horizontal path at the base of said vertical path, collecting said molten charge beneath said combustion gases in....
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....d by letters patent held by third parties or otherwise unavailable to LICENSOR. This licence which refers to the Plant only does not include the right to grant sub-licence. Thus, the licence agreement is for grant for licence (right) to use the Outokumpu technology by the appellants to smelt the copper concentrate to copper matte. Copper is known to be manufactured by various methods. One of these methods is Outokumpu Flash Smelting technology. Which essentially consist of smelting the concentrate to extract matte which is then converted into pure copper. In the vertical shaft furnace, finely divided concentrate and oxygen enriched air come in contact. In a flash the concentrate melts and falls in droplets at the bottom of the furnace where slag and matte is separated. The technology supplied by Outokumpu is in the regulated flow of droplets of molten concentrates without damaging the furnace. 6.10 Rule 9(1)(c) can be invoked only when both the conditions are satisfied cumulatively and simultaneously as (a) Reading of Rule 9(1)(c) of Customs Valuation Rules, 1988 reveal that Rule 9(1)(c) can be invoked only if the following conditions are satisfied c....
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....T) (l) Mando Brake Systems India Ltd. v. CC - 2004 (163) E.L.T. 333 (T) (m) SRF Ltd. v. CC - 2003 (161) E.L.T. 721 (T) (n) MDS Switchgear Ltd. v. CC - 2003 (151) E.L.T. 421 (T) (o) Final Order No. 444/2004 - NB(A), dated 19-5-2004 [2004 (169) E.L.T. 28 (T)] Karnataka Petrosynthesis v. CC, Bangalore (p) 1987 (28) E.L.T. 390 (Tri.) - CC v. Maruti Udyog Ltd. Affirmed by Supreme Court [1989 (41) E.L.T. A61 (S.C.)] (b) Reference was also be made to Training Course on Customs Valuation published by World Customs Organization. Wherein it has been stated in lesson 12 as under : "1. Related to the goods The payment of the royalty or licence fee must, in some way, be attributable to the imported goods. That is, as a direct result of importing the goods, and the subsequent use of those goods after importation, a payment of royalty or license fee must be made. For e.g. if an importer obtains the right to use a patented process, and pays a royalty 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 ....
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....is to be held that the reason for the above view is duty is payable on the value of the goods imported into India. Where the entity imported incorporates the technology, the only viable use of the goods commercially is with the technology incorporated in it. Without the technology incorporated in the goods, the said entity cannot be put to use. Consequently, for the purpose of customs valuation, the value of the goods will include not only the value of the goods but also the value of the technology for which a separate payment has been made by the importer. In the present case, the technology as supplied by Outokumpu was imparted to the appellants through training etc. The technology was not & is not proved to be incorporated in the equipments imported from Outokumpu or from others. Hence, the fees paid for such technology is not related to the imported goods. 6.13 Licence fees paid to Outokumpu is also not a condition of sale of the imported goods. Hence later portion of Rule 9(1)(c) will not apply to the present case, as- (d) Nowhere in the agreements entered into by the appellants with Outokumpu, it could be shown or is provided that the appellants have to import the ....
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....an obligation of the seller." While Rule 9(1)(e) of Customs Valuation Rules, 1988 reads as under : "9. Costs and services. (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods - (e) all other payments actually made or to be made as a condition of sale of 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." This clause of Rule 9(1) is a residuary clause and covers other payments made to the supplier, other than those mentioned in Rule 9(1)(a) to 9(1)(d). Therefore, if it is the case of the department that the basic engineering is includible by virtue of Rule 9(1)(b)(iv), then 9(1)(e) cannot be invoked simultaneously. There is logic and force in this argument. Revenue cannot invoke Rule 9(1)(c). (c) It was submitted that every payment made by the importer-assessee to the foreign supplier will not be included under Rule 9(1)(e). Only those payments, made as a condition of sale of the imported goods and which related to the imported goods sh....
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....e to satisfy an obligation of the seller; and (iii) Such payments are not included in he price actually paid or payable. 16. It is nobody's case that the seller had an obligation towards a third party which was required to be satisfied by them and the buyer (i.e. the appellant) had made any payment to the seller or to a third party in order to satisfy such an obligation. The price paid by the appellant for drawings and technical documents forming subject matter of contract DM 301 can by no stretch of imagination fall within the meaning of 'an obligation of the seller' to a third party. There was also no payment made as a condition of sale of imported goods as such. Rule 9(1)(e) also, therefore, has no applicability". 6.16 Supreme Court's decision in CC v. Essar Gujarat Ltd. - 1996 (88) E.L.T. 609 (S.C.) is not applicable to the present case as - (a) Very strong reliance has been placed by the department on the decision of the Supreme Court in Essar Gujarat's case. In that case the importer had imported a "complete plant in as is where is condition". This plant incorporated a patented process know as "Midrex process" for the manufacture of sponge iron....
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....REX for the right to use the Midrex process and patents 2 Million 2 Million - Cost of Technical Services provided by VA for para 2.5 10.1 Million 10.1 Million - Payment for engineering and consultancy fee as specified under this agreement 23.1 Million 10% of 23.1 Million to be included 90% of 23.1 Million not to be included Payment for theoretical and practical training outside India 2.2 Million - 2.2. Million The argument of Essar was that the payments made by it to VA as indicated above are not "condition of sale" of the plant to Essar by TIL. In support, it was argued by Essar that the agreement for purchase of the plant was entered into with TIL on 24-3-1987 itself whereas the agreement with Midrex and VA was entered into only on 4-12-1987. The sale of the plant was complete on 24-3-1987 itself. The stipulation that the obtaining of licence from Midrex was only an escape route to Essar in case it (Essar) does not obtain the approval from Government of India. Rejecting these submission of Essar, the Supreme Court in Para 2 as well as in 27 clearly held that though the contract was entered in March, 1987, the import of the plant ....