TaxTMI 
TaxTMI 
2015 (11) TMI 445
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 sum payments as well as royalty for technical knowhow etc. The adjudicating authority after following....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant 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 company. He drew our attention to second agreement which is called as "New General Services Agreement" entered into between Ansaldo Signal NV, Netherlands and with various group companies includin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aration 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 Pvt. Ltd. 2008 (224) ELT 23 (SC) (3) Shasun Chemicals and Drugs Ltd. Vs CC Chennai 2010 (249) ELT 80 (Tri.- Chennai) (4) Vestas RRB India Ltd. Vs CC Chennai 2004 (178) ELT 336 (Tri.- Del.) (5) En....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 and loading of value of the imported goods as per the list price for each of import items in terms of Rule 4(2) of CVR is correct or otherwise and (iii) whether the addition of lump sum fee and royalty paid to value of goods in terms of Rule 9 (1)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant 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 minimal. With the above corporate background, we find that the appellant and all the 7 subsidiaries group companies are fully owned and controlled by M/s.Ansoldo Signals NV and all the imports are made only from the said group companies and there is no outside translation. Therefore, the transaction bet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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" is established in this case and the discount is not available to anybody except appellant. As per Rule 4 (2) (c) of CVR the transaction value is acceptable only where the sale does not involve special discount limited to exclusive agent/person. In the present case, it is established beyond doubt that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 in Annexure A at page 41 of paper book. The description of Microlock-II is reproduced as under :- "Depending upon the particular application, wayside control systems could be quite complex with large quantities of relays and/or electronic component wired into wayside bungalows and control cases. To simplify wayside control system installations while increasing their capabilities, flexi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....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 sub-contractor locally and added proportionately to the imported goods based on the appellants data. Therefore, there is no justification on the appellant s contention that the entire payments are related to manufacture of only indigenous goods. It is apparent that there appears that there is no manufacture and sale of indigenous components as all these are only PCB, CPU & relays, electronic circuits etc. The agreements confirm that knowhow is directly related to imported goods i.e. Microlock-II a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hnology 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 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. 28. So far as payment of DM 23,100,000 is concerned, this sum is to be paid for Technical Services . A sum of DM 2,200,000 was payable for theoretical and practical training. This sum cannot be added to the value of the plant in any way. The sum of DM 23,100,000 payable for engineering and consultancy fee as specified in the agreement includes services li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, insulation, lubricants, chemicals, catalyst to be procured, modified erected and commissioned as well as a list of wear and spare parts for the first two years of operation, all with engineering specifications, sufficient to enable ESSAR to arrange timely procurement COLLABORATOR will assist ESSAR in providing technical clarifications during evaluation and negotiations with vendors. 2.3.4.2 Prepare a list of items requiring re-conditioning, along with relevant specifications for these items. Nature and extent of re-conditioning will also be specified by COLLABORATOR....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce 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 was on ECIL-RPIL and not on ECIL, and therefore there was no call for loading of prices of imports made by ECIL. We have brought out about the circumstances in which the fees were agreed to be charged and paid and therefore do not wish to go into this argument except to state that ECIL-RSPL was only a child of convenience and at all times the physical imports were made and obligations were undertaken only by ECIL. 23. Both counsels stated that the quantum of duty confirmed in the impugned order was wrongly calculated. The show-cause notice alleged that the value of imported drawings/designs was US$ 10,90,000 e....