TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 1025
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 equipments Rs.27,32,000/- 2. Technical know....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 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 imported capital goods under Rule 9(1)(b)(iv) read with Rule 9(1)(c) of Customs Valuation Ru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 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 with TSDN for import of only these two machineries i.e. sterilizer door and twin pins. Thee drawing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mmissioner 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 reiterated the grounds of appeal for the Revenues appeal regarding the inclusion of technical know-how fees. He submits that as per the agreement between GAVL, SCI, CCI and TSDN, the main obje....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Ltd. 2008 (226) ELT 747 (e) Uptron Colour Picture Tube Ltd. Vs. Commissioner of Customs, Mumbai - 2001 (130) ELT 156 (f) Collector of Customs Vs. Essar Gujarat Ltd. 1996 (88) ELT 609 (SC) T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 required to be established. 19. We have carefully considered the submissions of both sides and also examined the various records, agreements and MoUs, purchase orders, letter of indent submitted by both sides in the form of paper book and the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 with TSDN. The original MoU was signed in 1994 whereas the present import was made in 1997 98. The value of goods declared as per the invoice for both the Bills of Entry is Rs. 30,78,552/- whereas Revenue proposed to add supply of engineering and design charges and technical know-how fees to arrive transaction value. 23. We now p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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, we find that Appendix I of the MoU explains in detail the scope of basic engineering, know-how and technical documentation of palm oil mill project. Clause 1 of Appendix I is reproduced as under:- 1. BASIC ENGINEERING SHALL INCLUDE 1.1 Technical description of the process equipment and components 1.2 Layout drawings of the plant units 1.3 Assembly drawings of the plant units 1.4 Painting insulation materials specification structural staging supports and foundation loads of plant and equipment 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....act 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 notice the original purchase order No. 1182 was entered with SCI has been assigned to CCI as CCI had technical collaboration with TSDN. From the above purchase order 1182 and letter of intent dated 9.3.1998, established that the basic engineering charges is not exclusively related to designs supplied by TSDN for setting up of palm oil plant but includes the designs prepared by CCI in India which is termed as workshop designs which based on the basic engineering design supplied by TSDN. 30. We also find that the entire designing of palm oil plant and lay out consist of both indigenous as well as imported and majority of the equipments are indigenously procured or made by CCI as per their own design. Except these three equipments which are imported by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xport 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) engineering, development, art work, design work and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods As evident from the above provisions, Rule 9 is invocable for adjustment of the price if it is not included in the transaction value. Clause 9(1)(b)(i)(ii) and (iii) are not relevant to the present issue. Clause (iv) relates to engineering, development, art work, design work and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods. As we have already explained above, the basic engineering and design charges paid are clearly related to setting up of plant and not related to manufacture or production of the imported goods. Revenue contended that TSDN Malaysia is not the act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rmining 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 Tribunal and has submitted that the Tribunal has gone totally amiss in interpreting the rules and judging the case thereunder. It was submitted by Shri Ashok Desai that the interpretation as placed on the rules by the Tribunal is not correct. We will presently test the correctness of the contention so advanced. 12. Section 12 of the Customs Act is the charging section. Section 14 provides for the duty of customs being chargeable on any goods by reference to their value. In exercise of the powers conferred by Section 156 of the Customs Act, 1962 the Central Government has framed Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. Clause (f) of Rule 2 defines transaction value to mean the value determined in accordance with Rule 4. Under Rule 3 either the value of imported....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nnection 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 say by engaging an independent expert agency in the country of the seller. Although the seller has not incurred any expenditure on the technical/engineering design of the equipment manufactured by it yet the price paid for securing the engineering designs and drawings will be a component of the value of the equipment manufactured. In spite of the price for the services rendered by the expert agency having been paid by the buyer, the value thereof is liable to be added to the value of the imported goods for determining the transaction value. In the case at hand it is nobodys case that the buyer had supplied any goods or services free of charge or at reduced cost for use in connection with the production and sale for export of imported goods. All the exercise done by the Tribunal in scrutinizing the documents forming subject matter of contract DM 301 so as to classify them into three categories stated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 price of any drawings or technical documents though separately paid by including them in the price of imported equipments. Clause (a) in third para of Note to Rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be charges for construction, erection, assembly etc. of imported goods. Alternatively, even on the view as taken by the Tribunal on this Note, the drawings and documents having been supplied to the buyer-importer for use during construction, erection, assembly, maintenance etc. of imported good....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom 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 of no use at all but the appellant had so manipulated the single transaction by bifurcating the single content into two documents so as to under value the blast furnace equipments by transferring a part of the value of such equipments to the value of engineering documents and drawings. The gist of the allegation is under valuation of blast furnace equipment. Shri Kirit Raval, the learned Additional Solicitor General has submitted that from the stage of the show cause notice till before the Tribunal the Revenue has kept its plea alive. Vide para 7 of its order the Tribunal noted this plea of the Revenue but did not go into it as the Tribunal considered it not necessary in view of other findings arrived at. The learned Additional Solicitor General submitted that if this Court may not sustain the order of the Tribunal then in all fairness the Revenue should be allowed an opportunity of substantiating its plea of under-valuation followed by such other....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 that Revenue contended that technical know-how fee of Rs. 50 lakhs paid to CCI should be added to the transaction value of the imported goods whereas the adjudicating authority has dropped the proceeding in respect of technical know-how fees. On perusal of paragraph 29.1 and 29.2 of the impugned order, the adjudicating authority has clearly dealt the issue and held that technical know-how relates to post-importation activity and further held that it is not includible in the transaction value. In this regard, as already discussed in the preceding paragraph and on perusal of the documents, agreements between the appellant and SCI/CCI and MoU between CCI and TSDN, the technical know-how fees is not relatable to the imported goods and also it is not a condition of sale of the imported goods. Therefore, as rightly held by the adjudicating authority, Rule 9(1)(c) is not applicable to the present case. In this regard, this Tribunal in the case of Saint Gobain Glass In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayable 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 respect of. the matters specifically laid down therein. Technical assistance fees have a direct nexus with the post-import activities and not with importation of goods. It is also a matter of some significance that technical. assistance and know-how were required to be given not as a condition precedent, but as and when the respondent makes a request there for and not otherwise. Appendix C of the agreement relates to manufacture of local parts which evidently has nothing to do with the import of the capital goods. Appendix D again is attributable to construction of plant; production preparation; and pilot production and production model, wherewith the import of capital goods did not have any nexus. We may furthermore notice that Interpretative Note appended. to Rule 4 also plays an important role in a case of this nature which reads as under : "Note to Rule 4 Price actually paid or payable The price actually paid or payable is the total payment made or to be made by the buyer to o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 price of any drawings or technical documents though separately paid by including them in the price of imported equipments. Clause (a) in the third para of the Note to Rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be charges for construction, erection, assembly etc. of imported goods. Alternatively, even on the view as taken by the Tribunal on this Note, the drawings and documents having been supplied to the buyer-importer for use during construction, erection, assembly, maintenance etc. of imported goods, they were relatable to post-import activity to be undertaken by the appellant." Yet again a three-Judge Bench of this Court in. Union of India and Others v. Mahindra and Mahindra Ltd., Bombay [(1995) Supp. (2) SCC 372], opined : "Ordinarily the Court should proceed on the basis that the apparent tenor of the agreements ref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stant Collector to warrant such a conclusion, and, therefore, resort to Section 14(1)(b) of the Act and Rule 8 of the Customs Valuation Rules is clearly incorrect and unsustainable and the Assistant Collector was bound to accept the price mentioned in the invoices for the purpose of assessing the customs duty. It may be true, as has been contended by the learned. Additional Solicitor General, that Rule 9(1)(c) of the Rules had not been taken into consideration therein, but the same does not make much difference. For the views we have taken, we are of the opinion that the. CESTAT cannot be said to have committed any error in arriving at its decision in the impugned judgment. There is, thus, no merit in this appeal, which is dismissed accordingly. In the facts and circumstances of the case, there shall, however, be no order as to costs. 11. The ratio of the Hon'ble Supreme Court decision is squarely applicable to the facts of the present case, as the manufacture of Float Glass and the payment of royalty on the sale of finished goods. It is clearly evident from the agreement that Article 3 provides transfer of technology relating to Float Process. It has no relation to import of....