TaxTMI 
TaxTMI 
2015 (11) TMI 1025
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.... (GAVL, for short) entered into an agreement with Sun Consultant India Pvt. Ltd. (SCI for short) for setting up of palm oil plant in India. Initially, as per the agreement, SCI was to undertake supply of equipments, machineries both imported and indigenous for the Palm Oil Extraction Plant. Subsequently, GAVL placed purchase orders for supply of spares for a total value of Rs. 1,67,660/- as the unit price for the twin screw press (P5) c/w hydraulic system at RM 98000 and stock type centrifuge at RM 56,000/-. Subsequently, SCI amended the terms and that the assessee-importer had to import the machineries directly from the Malaysian supplier. Accordingly, GAVL imported goods from M/s. Technomas SDN, Malaysia (TSDN, for short). It was alleged that the appellant entered into contract with SCI and SCI in turn had agreement with M/s. Chemical Construction International Pvt. Ltd. (CCL, for short). In turn CCL signed MOU with TSDN for supply of basic drawings, designs and also for installation, erection and commissioning of palm oil plant. The appellants have quoted payments in the purchase order in the following manner:- 1. Design/engineering charges used for manufacture of imported....
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....rection and start up, commissioning cannot be added under Rule 9(1)(c). He confirmed Rs. 12,81,308/- towards the differential duty of customs on the differential value of loading of Rs. 27.32 lakhs in the assessable value. He ordered for finalization of provisional assessment and also ordered for confiscation of the goods and allowed redemption on payment of fine of Rs. 8 lakhs and imposed penalty of Rs. 2 lakhs on the assessed-importer and also ordered for enhancement of bank guarantee executed by the appellant towards differential duty, fine and penalty. 6. Hence the appellant preferred appeal No. C/167/2011 against the impugned order pertaining to loading of Rs. 27.32 lakhs and demand of differential customs duty, fine and penalty. Revenue preferred appeal No. C/48/2004 against dropping / non-inclusion of Rs. 50 lakhs in the transaction value relating to technical know-how and documentation fees, drawings, designs and erection and commissioning of oil plant. 7. Heard both sides and perused the records. 8. The learned counsel for the assessed submitted detail synopsis and made his submissions. He submitted that the inclusion of Rs. 27.32 lakhs in the transaction value on....
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....information required for assembling of a plant and structures, pipelines etc. and not related to the imported machinery. 10. He also drew our attention to Appendix I at page 155 of the paper book and referred to clause 1.1 to 1.4 wherein the scope of basic engineering has been spelt out and it relates to only technical description of the plant and components and layout drawings of plant, assembly drawings of the plant, painting and installation of materials, specifications etc. Therefore, he submits that the basic engineering spelt out in Appendix I and in MOU is nowhere related to the imported goods but related to setting up of palm oil plant in India which is purely post-importation activity. He drew our attention to 3.2 of the MOU where obligations of the CCL has been spelt out clearly. CCL will prepare the workshop drawings and also manufacture equipment indigenously based on the drawings and also procure the equipment. The basic engineering and design charges relate to indigenous design of plant and also relates to workshop design developed by CCL. Further, he submits that the GAVL has never entered with any agreement with TSDN. They have placed purchase orders directly wit....
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.... ELT 422 (SC) (c) Birla Perucchini Ltd. Vs. Commissioner of Customs 2008 (221) ELT 436 (d) Commissioner of Customs Vs. Vishakhapatnam Steel Project 1992 (62) ELT 572 (e) Commissioner of Customs Vs. Ferodo India Pvt. Ltd. 2008 (224) ELT 23 (SC) (f) Panalfa Dongwon India Ltd. Vs. Commissioner of Customs 2003 (155) ELT 287 (Tri. LB) (g) Polar Marmo Agglomerates Ltd. Vs. Commissioner of Customs - 2003 (155) ELT 283 (Tri. LB) (h) Hoerbiger India Pvt. Ltd. Vs. Commissioner of Customs 2003 (156) ELT 62 (Tri. LB) (i) Collector of Customs Vs. Essar Gujarat Ltd. - 1996 (88) ELT 609 (SC) (j) Saint Gobain Glass India Ltd. Vs. Commissioner of Customs, Chennai 2014-TIOL-1406-CESTAT-MAD1995 (76) ELT 481 (SC) (k) BPL Display Device Ltd. Vs. CC Civil Appeal No. 1729/2001 (l) Union of India Vs. Mahindra & Mahindra Ltd. 1995 (76) ELT 481 (SC) 13. Learned AR for Revenue reiterated the findings of the adjudicating authority insofar as the inclusion of the value of drawing and design. He reiter....
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....ontract. There is a nexus between GAVL and CCI and the technology is transferred to GAVL. SCI disappeared from the scene after assigning the contract to CCI. He also relied on RBI letter at page 158 and 159 wherein the beneficiary is GAVL and the amounts paid by GAVL is towards engineering fees and technical know-how and is ultimately for TSDN. He also referred to letter dated 8.9.1998 between TSDN and GAVL where the TSDN has clearly confirmed that their equipment is tailor made for GAVL based on their designs and technology. He further submits that Rule 9(1)(b)(iv) and 9(1)(e) are very wide enough to include the amounts paid on basic engineering and technical know-how. If the technology was not transferred there is no use of supply of sterilizer doors and other equipments imported from TSDN. He relied on the following case laws:- (a) Andhra Petrochemicals Ltd. Vs. Collector of Customs, Madras - 1997 (91) ELT 349 (b) Welspun Maxsteel Ltd. Vs. Commissioner of Customs (Import), Mumbai - 2015 (317) ELT 514 (c) Elmrad Hydro Drive Inc. Vs. Commissioner of Customs - 2008 (228) ELT 461 (d) Commissioner of Customs Vs. Mahendra Suiting L....
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....produce any single evidence to prove that all these are related to imported goods i.e. ID sterilizer door, screw press P5 and centrifuge. He submits that it is only a presumption and not based on the facts and evidence. He countered all the citations relied by Revenue particularly the case of Andhra Petrochemicals (supra) and Essar Gujarat (supra). He drew our attention to para 10 to 14 where the facts are directly related to the imported goods by a package deal. He further submits that para 57 of the Andhra Petrochemicals (supra) cannot be read in isolation. Similarly, Essar Gujarat (supra) relied by Revenue has no application to the facts of the present case. He relied on the decision of the Hon'ble Supreme Court dated 3.5.2006 in C.A. No. 1729/2001 in the case of BPL Display Device. Similarly, the Honble Supreme Court has reversed the decision of Uptron. Learned counsel also submitted Rules 9(1)(b)(iv), 9(1)(e) and 9(1)(c) are not applicable to the facts of the present case. 18. Learned AR in his rejoinder submits that when the package of agreement between interested parties, the assessee through CCI and TSDN clearly shows the nexus and the evidence of remittance is not requ....
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....d to set up the palm oil plant to the appellant and it includes imported as well as indigenous machinery and equipments installation and erection of palm oil plant. Thereafter the SCI assigned the said contract to CCI another Indian entity who signed MoU with TSDN, Malaysia for technology transfer as well as for setting up of palm oil plant in India to any potential buyer in India only through CCI. On perusal of the records, we find that the appellant GAVL was to procure the equipment only from SCI. Due to RBI restrictions of opening of LC, SCI requested the appellant to place order directly with TSDN Malaysia only for three equipments i.e. ID sterilizer doors, screw press P5 and Centrifuge. By virtue of this understanding, the appellants placed purchase order with TSDN for import of these three equipments. There is no direct agreement entered into between the appellant with TSDN for any transfer of technical know-how or for supply of engineering and design or for installation and erection of the palm oil plant. 22. We have carefully seen the copy of relevant agreements entered into between GAVL with SCI and agreement by SCI with CCI and the MoU dated 2.9.1994 signed between CCI....
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....CI in India 1.5 Plant Complete palm oil mills to be set up in India 1.6 Basic Engineering Basic Engineering will consist of:- a. Tendering stage THAS will provide all necessary drawings and specification and also datas and details of equipment for CCI to do a cost estimate b. Project execution stage on CCI being awarded the project THAS shall provide all detailed drawings and specifications for execution of palm oil mill project in India 1.7 Workshop drawing Drawings worked out by CCI on the ground of basic engineering for manufacture of equipment of the plants 1.8 Technical documentation Documentary informations necessary for assembling of plants 1.9 Know-how Technical informations and knowledge in written and / or oral form to construct, assemble and operate palm oil mills 26. As seen from the above clauses, the definition of basic engineering has two components (a) TSDN will provide necessary drawings and specification at the tendering (b) they will submit detail drawing specifications for execution of palm oil project in India. 27. Read with this definition, w....
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.... 28.11.1997 as per Annexure VIII of the contract lists out various clauses including technical know-how, equipment, plant layout and detail engineering at S. Nos. 20 to 25 explains the list of details of engineering which is reproduced under:- EQUIPMENT 20) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions. 21) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions. 22) Weights and foundation details for supporting equipments of for additional steel structure 23) Shop test certificate of each functional equipment PLANT LAYOUT AND PIPING 24) Final equipment layout with exact position with reference points for actual erection and positioning of foundations 25) Detailed pipes and valves specifications a) Process lines b) Utility lines c) ETP 29. From the above specifications, it is evident that the basic engineering clearly relates to complete lay out designs of palm oil plant set up by SCI. By virtue of assignment vide letter dated 15.6.1998 as submitted by the appellant in reply to show-cause noti....
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....t be construed that GAVL and TSDN are related unless it is established with clear evidence. There is no agreement between GAVL and TSDN for transfer of know-how or supply of goods or payment of royalty. The appellant imported the impugned equipments goods from TSDN Malaysia as per their purchase order No. 1239 dated 9.1.1998. 32. In order to include any addition of amount in the transaction value, it should fall within the scope of Rule 9(1)(b)(iv) of Customs Valuation Rules. It is relevant to reproduce the said sub Rule as under:- (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) materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the imported goods; (iii) materials consumed in the production of the imported goods; (iv....
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....soning for holding against the appellant. Firstly, the Tribunal has examined the applicability of Rule 9(1) (b) (iv) and formed an opinion that benefit thereof was not available to the appellant. By reference to the Interpretative Note to Rule 4 it has held that to the extent the drawings and technical documents were referable to the manufacture and sale of the imported equipments, their value was liable to be included in the value of the equipments and material imported and inasmuch as separate values thereof have not been shown the entire value of 12.5 million DM of technical documentation covered by contract DM 301 was liable to be included in the value of the equipments. Secondly, the Tribunal has held the provisions of Rule 9(1)(e) being attracted and coming into play for the purpose of determining the valuation of the equipment and materials imported on the reasoning that the drawings and engineerings were compulsorily purchasable by the appellant along with the equipment and materials and hence the value of the two was liable to be clubbed. Shri Ashok Desai, the learned senior counsel for the appellant has vehemently attacked the correctness of the reasoning employed by the ....
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....tion of the imported goods; xxx xxx xxx (e) all other payments actually made or to be made as a condition of sale of the 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. xxx xxx xxx (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule.[emphasis supplied]. xxx xxxxx xxxxxx xxx xxxxx 14. A bare reading of Rule 9(1)(b) shows that it refers to the value of the four specified goods and services supplied by the buyer free of charge or at a reduced cost for use in connection with the production and sale of imported goods to the seller and to the extent that such value has not been included in the price actually paid or payable. To illustrate, the seller may have manufactured equipments of a design, drawings whereof were made available by the buyer s....
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.... 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. 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 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 rende....
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.... and no addition except as provided for by Rule 9 is permissible. 18. The abovesaid reasons demolish the edifice on which the order of the Tribunal is based. However, still the only thing that remains to be considered is whether there has been under valuation of blast furnace equipment covered by the contract MD 302. It is a pure and simple case of finding out the price actually paid or payable for the goods the phrase as occurring in Rules 2(f), 4 and 9, so as to find out the transaction value and levy duty thereon under Sections 12 and 14 of the Customs Act. One of the allegations made in the show cause notice given to the appellant was of the blast furnace equipments (BFE) having been undervalued by transferring a part of the value of the equipments to the value of engineering documents and drawings. In substance the show cause notice alleged the blast furnace equipment having been under valued by artificially excluding therefrom the value of technical documents. According to the Revenue such documents are even otherwise and in ordinary course supplied by the seller to the buyer. Because of the absence of such documents the goods sold being equipments would be o....
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....issioner of Customs, Mumbai (supra) and the decision of the Special Bench of the Tribunal in the case of Collector of Customs Vs. Vishakapatnam Steel Plant (supra), on an identical case, the Tribunal held that cost of engineering and design are not includible in the value of imported goods. Further, we find that the adjudicating authority proposing to load the entire engineering fees of Rs. 27.32 lakhs to the imported equipment, in this regard, we find that the cost of the imported equipment is only Rs. 30.78 lakhs, this implies that as per Revenue more than 100% loading of the invoice of the imported goods. The reliance placed by learned AR for Revenue, particularly the case of Essar Gujarat (supra) has not relevance to the facts of the present case and all the case laws are distinguishable. 35. Therefore, respectfully following the above decision, we hold that the engineering fees of Rs. 27.38 lakhs paid by the appellants to CCI is not includible in the imported goods. Accordingly, the demand of differential duty confirmed in the impugned order is liable to be set aside. Consequently, the confiscation and penalty are also set aside. 36. As regards Revenues appeal, we find ....
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....t the foreign supplier shall furnish to the importer such technical know-how, information, data relating to the licensed products. The licensed products are the automobile to be manufactured in India under the agreement as well as specific parts. It is to be seen that the technical know-how, information etc. to be furnished are for studying the feasibility of Local Parts manufacturing, for manufacturing of local parts, for production preparation of licensed products etc. What is important that none of assistance is in relation to the goods under import. 10. For the purpose of the proper appreciation of the case, the relevant portion, in the case of Toyota Kirloskar Motors Pvt. Ltd. (supra) are reproduced below :- The transactional value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of import. A distinction, therefore, clearly exists between an amount payable as a condition of import and an amount payable in respect of the matters governing the manufacturing activities, which may not have anything to do with the import of the capital goods. Article 4 provided for additional assistance in re....
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....or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value." The said rule clearly states that the charges or costs. envisaged there under were not to be included in the value of the imported goods subject to satisfying the requirement of the proviso that charges were distinguishable from the price actually paid or payable for the imported goods. Interpretation of the said rule came up for consideration. before a Bench of this Court in Tata Iron & Steel Co. Ltd. v. Commissioner of Central Excise & Customs, Bhubaneswar, Orissa - [(2000) 3 SCC 472], wherein it was held : "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 the 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 there for 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 p....
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....the supply of the CKD packs and spares, the royalty due to the collaborators was paid, that there is no material to show that the supply of the CKD packs or spares weighed with the parties in fixing the payments under the collaboration agreement but, on the other hand, the collaboration agreement for the technical know-how and the supply of CKD packs and spares are independent commercial transactions; in other words, there existed no nexus between the lump sum payment under the agreement for the technical know-how and the determination of the price for supply of CKD packs or spares. It is by highlighting the above aspects that the learned Single Judge and the Division Bench concluded that the contention that the price quoted in the invoices tendered by Mahindra & Mahindra (respondents) does not reflect the correct price because a part of the value of imported packs and components was already received by foreign collaborator while determining the consideration of 15 million French Francs cannot be accepted, and the collaboration agreement does not support the claim nor was there any material available to the Assistant Collector to warrant such a conclusion, and, therefore, resort to....