TaxTMI 
TaxTMI 
2015 (11) TMI 445
X X X X Extracts X X X X
X X X X Extracts X X X X
....tered in Special valuation Branch to examine the relationship and its influence on the transaction value. Pending completion of proceedings, provisional assessment was ordered with the deposit of 1% Extra Duty Deposit (E.D.D). Special Valuation Branch (Customs) called for the records, agreements and on verification it was noticed that appellant firm is a subsidiary of principal foreign company which holds 100% equity. M/s.Ansaldo Signal NV, Netherlands has their own subsidiary companies located in various countries which are listed below :- * M/s.Union Switch and Signal INC, USA * CSEE Transport, France * M/s.Union Switch and Signal Pty, Australia * M/s.Union Switch and Signal Sdn.Bhd, Malaysia * AT Signal System AB, Sweden * Ansaldo Segnalamentro Ferroviorio S.P.A. Italy * Ansaldo Signal, UK * Ansaldo Transport Signalling Ltd. Ireland. 3. The appellants have entered into agreements with various subsidiary companies including the unit viz. M/s.Union Switch and Signal, Inc. USA for import of components and parts and also for technical knowhow, software maintenance, design and servicing etc. and also paid lump....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4. On appeal by the appellant, the Commissioner (Appeals) upheld the impugned order and the appeal was rejected. Hence the present appeal. 5. Heard both sides. Ld. Advocate appearing for appellant have submitted a written synopsis and reiterated the grounds of appeal. He drew our attention to SVB circular No.50/2004-SVB dt. 1.12.2004 and submits that they have imported parts and components from the USA company which is a subsidiary of M/s.Ansaldo Signal NV, Netherlands. He submits that the adjudicating authority has not accepted the transaction value on the imported goods and loaded the invoice price based on the pricelist of 2002 and rejected the discounts. He submits that the period of imports is from 1999 onwards. The adjudicating authority ordered for loading of all the previous imports from 1991 to 2002 as per the pricelist of 2002. He drew our attention to agreement dt. 1.1.2004 annexed at page 77 of the paper book and referred to clause 9(2) (4) which are related to right to information, technical information, permission to use trade mark and also to provide necessary skill and training to their staff in relation to railway signalling equipments supplied by the foreign co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etween 1999 and 2001 based on the pricelist of 2002. He further submits that since the period involved is prior to 2007, the 1998 Customs Valuation Rules applies. He submits that there is no misdeclaration of the value or description and pleaded that discount should be allowed and the invoice price is to be accepted as transaction value. 8. Regarding the second issue on payment of lump sum amount and payment of royalty, on the technical knowhow etc., he submits that the adjudicating authority ordered for proportionate loading for the lump sum amount as well as royalty on the invoice price of the imported goods. He submits that as per Rule 9 (1) (c) of CVR, royalty payment can be added only if it is related to the goods imported and if it is a condition of sale. He further submits that in their case there is no condition of sale of goods in this case. Therefore no addition of royalty or lump sum is warranted. He submits that technical knowhow and royalty payment is only for the manufacture of final product and not related to the imported goods. He relied the following case laws :- (1) UOI Vs Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (S.C) (2) CC Vs Ferodo India....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... special discount and taken into consideration the price list for determining the transaction value. He submits that Rule 4(2) (b) of Valuation Rules is applicable to the appellant. As the sales are exclusive to the appellant and the discount are applicable only to the appellant which is special discount and not permissible under Rule 4 (2) (b). 10. Regarding technical knowhow and royalty, he reiterated the finding of adjudicating authority and the impugned order. The entire lump sum payments are related to imported goods as well as with domestically manufactured goods and the adjudicating authority has not loaded the entire lumpsum and royalty to the imported goods but only proportionately ordered for loading after excluding the domestically manufactured goods. Since appellant is importing only through their group companies Rule 9 (1) (c) is applicable. 11. We have carefully considered the submissions of both sides and examined the records. The issue in the present appeals relates to (i) whether the appellants are related persons to the suppliers of imported goods within the scope of Rule 2 (2) (vi) of CVR. (ii) whether the denial of special discount offered to the supplier ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndian unit (i.e. appellant company) does the job by winning the contracts against global and open tenders for Railway Electronic Interlocking Signalling and the execution of these contracts and their only customer in India is Indian Railways. The appellant also confirmed that these products cannot be used by any other customer in India. As seen from para-9 of their appeal, once the contract is awarded by Indian Railways to the appellant they had started importing the goods from July 1999 onwards and they imported goods inter alia from their seven overseas 100% subsidiary group companies (overseas supplier) which are as under :- (a) Union Switch and Signal Inc., USA (b) CSEE Transport, France (c) Union Switch and Signal Pty. Ltd., Australia (d) Ansaldo Signal, UK (e) Ansaldo Segnalamento Ferroviario S.P.A. (f) Ansaldo Transport Signalling Ltd., Ireland and (g) AT Signal Systems AB, Sweden Appellant also admitted in their letter that they have imported significant quantities of goods from USS Inc. USA and CSEE Transport, France which are subject matter of dispute in this appeal and imports from other subsidiaries are m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ined the value under Rule (8) by adopting the supplier transfer price list 2002. We find that the discount offered by their related 100% subsidiary to another 100% subsidiary is only a special discount just to boost profit margin. As already discussed above, these Railway signalling equipments Microlock-II and other equipments / components are manufactured only for themselves which are transferred from one subsidiary to another subsidiary for commissioning their contract with various Railways. The declared price by showing a huge discount is nothing but a special discount limited to the appellant i.e. a 100% subsidiary unit and the appellant accepted the fact that there is no other suppplies of these products to any unrelated buyer in India. Therefore, the appellants reliance on the Hon ble Supreme Court decision in the case of Eicher Tractors Ld. Vs CCE (supra) and the Tribunal decision in the case of Tata Consultancy Services Vs CC (supra) pertains to when the transactions are at arms length and when there is no special consideration, where court held discount of 23% for price list to be accepted. The said decisions not applicable to the present case as the "special circumstances....
X X X X Extracts X X X X
X X X X Extracts X X X X
....software developed and or owned by LICENSOR relating to MICROLOCK and MICROLOCK II and furnished to LICENSEE pursuant to the terms of this Agreement. (..........) * (2) License : LICENSOR hereby grants to LICENSEE the non-exclusive right to use the technical information and US & S Software. This agreement also witnesses the arrangement between the parties, where under the LICENSEE is permitted to use any brand name trademark belonging to the LICENSOR to the extend it is required for manufacturing, distribution or using MICROLOCK and MICROLOCK II. Also the LICENSOR agrees that the licensee shall have the right to sublicense the technical information and US & S Software to such third parties as may be approved by the LICENSOR subject to other terms and conditions of the agreement." It is evident from the above definition that the technical knowhow is directly related to the Microlock and Microlock II which is the patented product of their principal company. The goods imported are various components i.e. CPU, PCB, Relays, Software etc. of Microlock-II. It is relevant to see the copy of literature of Microlock-II. Wayside Control System submitted by the appellant i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....LV Complex, AVC Compound # 35,80 Feet Road, IV Block, KORAMANGALA, BANGALORE hereinafter called the 'Contractor' of the other part : WHEREAS the Contractor has agreed with the Railway for the performance of the works of Design, Manufacture, Supply, Installation, Testing and Commissioning of Solid State (Electronic) Interlocking System at Aharaura Road, Kailahat, Pahara, Jhingura, Vindhyachal, Birohe and Jigna station of Mughasarai Allahabad section of Allahabad Division of N.C. Railway. As seen from the above, the scope of work covers every activity of design, manufacture, supply, installation, testing and commissioning of signalling system. The term used in the above contract "Solid State (Electronic) Interlocking System" is nothing but "Microlock-II Railway Signal Interlocking Control System" . The same were imported by the appellants form their related another 100% owned subsidiary. It appears the appellants deliberately chosen not to quote the branded name "Microlock-II" instead described in general as "Solid State Electronic System". The L.A have excluded that portion of amount of lump sum & royalty related to certain items manufactured through their ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te evidence produced by the appellant except workings. Therefore, the said payment is liable to be added to the value of imports. 17. In this regard, the Hon ble Supreme Court in the case of CC (Prev.) Ahmedabad Vs ESSAR Gujarat Ltd. (supra) clearly held that Technical Knowhow and lump sum shall be includible in the value of imported goods. The relevant paragraph of Apex Court decision is reproduced as under :- "27. Therefore, the payment of DM 10,100,000 was being made for the transfer of technology under the Process Licence Agreement entered into with Midrex. The services mentioned hereinabove are to be part of Licensing Agreement with Midrex. This agreement was a pre-requisite for finalisation of the contract with TIL to purchase the plant at Emden. The licence is not merely a permission to use the plant, but also to provide technical know-how to make the plant functional and also to improve the capacity of the plant by incorporating Hot Briquetting system. As all these services were to be rendered under the Process Licence Agreement with Midrex, the amount payable to Midrex as part of the Process Licence fee has to be included in the value of the plant. It has also ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le at Emden, jointly with ESSAR AND MECON and confirm the suitability of these facilities for refuse as such as evidenced at Emden or alternatively establish the extent of revamping/replacement/debottle-becking between dismantling and re-installation. Details of plant and equipment audit are described in Annexure II. 2.3.4 Engineering services for Process Related Units. For the Hazira DR Plant, the basic process design parameters and ambient conditions will be different from that originally applicable and used for the design of the two modules at EMDEN. For electrical and instrumentation equipments the basic concept of the control system of the existing DR plant will be retained. The EMDEN Design Criteria and the Hazira Design Criteria are stipulated in Annexure III of this Agreement. Collaborator will perform all process calculations on the basis of the design criteria applicable for Hazira and perform the re-engineering work to the extent required simultaneously considering the incorporation of Hot Discharge and Hot Briquetting facilities. 2.3.4.1 Prepare complete list of all new, missing equipment, machinery, electrics, instrumentation, refractories, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the value of the plant on this account." The ratio of the Apex Court decision is squarely applicable to the present case as the technical knowhow, lump sum payment, royalty are part of condition of executing the contract with Railways and certainly it is a condition of sale of imported Microlock-II components to the appellant falls within Rule 9 (1) (c) of CVR and includible in the invoice price of imported goods. 18. Further the Tribunal in the case of Electronic Corporation of India Vs CCE (supra) clearly held that technology fee are exclusively for the ECIL only and includible in the invoice price. The relevant paragraph is reproduced as under : "21. The drawings, designs etc. imported by ECIL no doubt incorporated the trent technology so reverently spoken of by the counsels before us. In the absence of this technology, M/s. ECIL could not or would not be able to put the machines together from the components imported by them. This technology fee by whatsoever title called, was thus dutiable. Duty evaded by M/s. ECIL therefore is legally recoverable. 22. An argument was made by Shri Parasurampuria that the responsibility to pay the fees for the technology ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he transaction value for each year of transaction of imported goods. Therefore, we hold that the lump sum fee, royalty paid to U.S.S.CSEE are includible in the invoice value. 19. As regards the appellant s contention that L.A. direction to determine the value of the goods imported in 1999 to 2001 based on transfer price list of 2002.We find that the appellant knowing fully well that they are 100% subsidiary of Ansaldo Signal NV and the supplier company is also is a 100% subsidiary of the same holding company but failed to disclose to the Customs at the time of importation of goods from their related persons. It is only the Department in 2002 came to know the facts of related party. We are surprised to know that the appellant being a multinational company knowing the legal requirements failed to disclose the facts before importation nor filed any declaration on the related party transactions and imported goods from 1999 to 2001 which are mandatory requirement for assessment and clearance of goods but chose to suppress the above facts and paid customs duty on the declared value. It is abundantly clear that but for the department s efforts, this could not have been brought to light....