TaxTMI 
TaxTMI 
2004 (12) TMI 666
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....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 42041171 OEC Finland 8 Contship Asia 2513/23-10-96 IGM357/10-10-96 Lot FSF Refractory/Matte Launder $ 1,001,000 36617054 OEC Finland 9 Rijaz 5064/11-10-96 IGM2738/14-10-96 Lot WHB Support $ 1,230,000 45....
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....oned 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 commissioning fees recovered for carrying out the activities. 5.1 This order dated 8-11-1996 of the Assistant Commissioner of Customs was reviewed by the Commissioner of Customs under Section 129D(2) of the Customs Act, 1962 and an appeal was filed before the Commissioner of Customs (Appeals). The department contending that the payment of Licence Fees and Basic Engineering were a condition of sale of the equipments by Outokumpu and hence the same are to be included in the value of the capital goods. Com....
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.... 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 contended that the issue in question is finally decided inter se between the parties in an earlier proceedings which was not challenged by the Department; therefore, so far as the parties to these appeals are concerned, the matter stands concluded and the parties cannot reopen the said issue. It is true that this issue was decided by the Tribunal in the earlier round of litigation primarily relying upon two orders to which we have already made reference; the correctness of that finding was not challenged in this Court ....
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.......... 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 without being shackled by the findings of the lower appellate authority as recorded in the order of remand....." (c) In view of this settled legal position, non-filing of appeal by the appellants against the order-in-appeal dated 29-6-1998 (passed in the first round) does not debar the appellants from contesting the demand on merits before the CEGAT. This is because, the remand order dated 29-6-1998 passed by the Commissioner (Appeals) has been merged with the impugned order dated 30-1-2002. There is no necessity for the assessee to....
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....hallenge 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. (iv) Appellants submitted that for invoking the provisions of Rule 9(1)(c), two conditions should be satisfied. Firstly the licence fees paid by the appellants should be related to the imported goods. Secondly, the licence fees was paid as a condition of sale of the equipments. If any one of the above conditions is not satisfied, then Rule 9(1)(c) cannot be invoked. (v) The department did not challenge the finding of the Assistant Collector that the Licence Fees did not relate to imported goods. Only contention of the department befo....
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.... 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, Outokumpu had to and did indeed prepare a detailed project report on the environmental aspects which was utilised by the appellants to get clearance from the Central Government and State Government and also from the Gujarat Pollution Board to set up the plant in India. From the Illustrative copies of basic engineering documents received by the appellants from Outokumpu as under this agreement, a number of documents were supplied by Outokumpu to the appellants in order to set up the plant in India. It can be inferred that these documents informed the appellants how and whe....
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.... 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 to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of imported goods. To illustrate, if the seller has undertaken to erect or assemble the machinery after its importation into India and levied certain charges for rendering such service the price paid therefore shall not be liable to be included in the value of the goods if it has been paid separately and is clearly distinguishable from the price actually paid or payable for the imported goods. Obviously, this Interpretative Note cannot be pressed into service for calculating the....
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....nbsp; ..... (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 supplied by the buyer free of charge or at reduced cost. The further requirement of this rule is that such engineering, development or art work, etc., should have been undertaken elsewhere than in India and it should be necessary for the production of imported goods. It is nobody's case herein, that the appellants, i.e. the buyer i.e. had supplied any engineering, development or art work, etc. to the exporter i.e. Outokumpu. None of the imported goods (imported either from Outokumpu or from others) were allegedly made with the help of or with reference to any engineering, development or art work, etc. supplied by the appellants fr....
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....ught 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 said horizontal path, and separating said molten charge into layers of matte and slag, directing said matte and said slag out, cleaning said slag, recovering dust of and directing out said hot combustion gases in which sulphur is mainly in form of SO2, and (ii) Technical information, being all necessary information, technical data and know-how relating to and for carrying out the Outokumpu Process set out in sub-paragraph (i) above; and (iii) Commercial information which shall mean all cost, purchasing, sales and other business information given by LICENSOR to LICENSEE in the negotiations leading up to th....
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.... 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 cumulatively and simultaneously: (i) licence fees is relatable to the imported goods; and (ii) licence fees is a condition of the sale of the imported goods. Even if any of the above conditions is not fulfilled, then Rule 9(l)(c) cannot be invoked. Consequently, the licence fees paid by the importer-buyer cannot be included in the value of the capital goods. The Capital goods as imported from Outokumpu, as listed herein above are standard goods, otherwise available as off-the-shelf capital goods They are not proved to or alleged to be otherwise. These capital goods, are offered for sale by others. Therefore, Licence....
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....ent 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 manufacturing process and not the imported goods themselves."(Emphasis Supplied) and nothing contrary shown would induce to find that the amounts as proposed cannot be reduced for Customs Valuation. 6.12 The capital goods imported by the appellants from Outokumpu or from others do not incorporate the flash smelting technology for which licence fees was paid to Outokumpu. Consequently, the licence fee is not related to imported goods as (d) In the present case, there are two imports viz. one of intangibles (technical know-how) and the other tangibles (capital goods). It is pleaded if the technology is incorporated in the capital goods, then there is only one import into India. Consequently for th....
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....ed 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 capital goods from them only. The contract for purchase of proprietary equipments is an independent and a distinct agreement. The fact that the licence fees was paid to Outokumpu, who is also the procurer, supplier/seller of capital goods will not make any difference. The services rendered under the agreement for supply of proprietary equipment is to supply at a price prevailing in the international market and there is no material to conclude otherwise. All the agreements refer to one another. For e.g. Article 16 of the Licence Agreement states that this agreement will be effective and binding upon both the parties when the basic engineering has become effective. Similar recital is found in the other two agreements also. Simila....
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....e 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 shall be included in the value of the goods imported into India. This is to be upheld as it is made clear by the opening language as employed in Rule 9(1). This is to be submission finds support from Interpretative Note to Rule 4 of Customs Valuation Rules, reproduced as under : "The price actually paid or payable refers to the price for the imported goods. Thus, the flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value." We find force in the submissions made. Therefore, the contention of the department that the Basic Engineering fees will form part of the value of the capital goods by virtue of Rule 9(1)(e) is incorrect. Even if the Basic Engineering fees paid....
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....ion 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. The process patented was Direct Reduction of iron ore by employing gas as a fuel. Such plant was already existing and installed in Emden in Germany. A bank named NORD/LB became the Official Receiver of this plant. The bank floated a global tender for sale of this plant in as is where is condition. Initially Essar tried to purchase the plant but could not get the clearance from the Government. Hence, the sale did not take place between the bank and Essar. The bank sold the plant to Teviot Investments Ltd. (for short TIL). Essar entered into an agreement with TIL on 24-3-1987 for purchase of the plant in as is where is condition. Throughout the agreement, the subject matter of the contract was described as "Midrex Direct Reduction Plant installed at Emden". Following t....
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....e 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 was in Sept/Oct. 1998. This itself showed that the clause in the agreement with TIL that Essar should obtain the operation licence from Midrex is a condition and pre-requisite of sale of the plant itself by TIL to Essar. Therefore, the Supreme Court held that the licence fees paid to Midrex for the operation of the plant is to be included in the value of the plant imported by Essar. The Court also noted that throughout the agreement entered between TIL and Essar, the subject matter of the agreement was described as "Midrex Direct Reduction Plant installed at Emden". Therefore, the Supreme Court concluded that the imported plant would be of no use without the licence fees paid to Midrex, as without obtaining the licence, the plant could not be operated at all. The Supreme Court specifically noted the argument of Essar that the c....