TaxTMI 
TaxTMI 
2020 (4) TMI 774
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.... a consortium consisting of a German Company, Hoestemberghe & Kluisch, GMBH and H & K Rolling Mills Engineering Private Limited, an Indian Corporate entity. The second contract was also with a German Company, Siempelkamp Pressen Systeme and the Indian entity was Escon Consultants Private Ltd, with whom the consortium was formed. Both these contracts were in connection with modernisation of SAIL's rolling mills at the aforesaid plant. 2. Schedule 3 of the first contract (bearing no.544-9/91A SVB) specified scope of supplies and service along with the price particulars. Extracts from that schedule appears from the order of the Commissioner of Customs being the authority of first instance, dated 3rd January 2001. This order related to the first contract. We shall refer to this order in greater detail later in this judgment. Relevant part of that Schedule is reproduced below:- Schedule No. Description Millions [I][M] 3.5.1A [II] Basic design and Engineering 2.230 3.5.2A Plant & Equipment including commissioning spares 2.512 3.5.3A Spares for two years operations and maintenance, insurance spares, special tools and tackles. 0.537 3.5.4A Forei....
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.... to complete the PROJECT under this contract." 4. As would be evident from the subject heads contained in the above-referred extracts from the third schedule to each of these contracts, the consortia were to supply plant, equipments and spares as also certain basic designs and supervisory services at site. SAIL wanted import duty to be charged on the plant and equipments alone. SAIL's stand is that the price for the plants and equipments included all design and engineering for their manufacture. But designs and drawings specified in the schedule were all post-importation project related and project implementation activities. The customs authorities on the other hand added the basic design and engineering fee of DM 2.23 million and supervision charges during manufacture of Indian equipments and for erection, commissioning and performance guarantee tests of 0.675 million to the invoice value. In respect of the second contract, direction was made for addition of basic design and engineering fee of DM 6.65 million, as built drawings of DM 0.1 million and supervision charges during manufacture of Indian equipments and for erection, commissioning and performance guarantee tests of DM ....
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.... whether the basic design and engineering fee of DM 2.230 million and foreign supervision charges of DM 0.675 million are liable to be added to the invoice values of imported equipments under Rule 9 of the Valuation Rules? [Appeal No. C/V-537/2001] [ii] whether the charges towards basic design and engineering fee of DM 6.650 million, fee for as built drawings of DM 0.100 million and also supervision charges of DM 2.842 million are liable to be added to the invoice values of the imported equipments under Rule 4 of the Valuation Rules read with Section 14 of the said Act? [Appeal No. C-1/2002]" 7. The Tribunal held that the drawings and technical documents related to post importation activities for assembly, construction, erection, operation and maintenance of the plant and those items could not be included in the value of imported goods. Referring to Rules 9 (1) (b) (iv) and 9(1) (e) of the Valuation Rules 1988, the Tribunal held:- "Similarly reliance upon the decision of the Supreme Court in Collector of Customs (Preventive), Ahmedabad Vs. Essar Gujarat Ltd., 1996(88) ELT 609 (SC) is also completely misplaced. From the judgment of the Supreme Court it would be ....
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....the contrary the "Interpretative Notes" to Rule 4 of the Valuation Rules, 1988 makes it explicitly clear that value of imported goods shall not include, inter alia, the charges for construction, erection, assembly maintenance of technical assistance undertaken after importation of the imported goods such as 3 of the Contract in the instant case in determining the assessable value of the imported equipments imported by the appellant is wholly erroneous, ultra vires the said Act and/or the Customs Valuation Rules, 1988. This also the Deputy Commissioner and the Commissioner (Appeals) failed to appreciate and/or take into consideration and thereby arrived at patently erroneous finding. In terms of Rule 9 [1] [b] [iv] of the Valuation Rules, 1988, in determining the transaction value the value apportioned as appropriate of, inter alia, engineering, design and plans and sketches undertaken elsewhere than in India and "necessary for the production of the imported goods" which were supplied directly or indirectly by the buyer free of charge or at a reduced cost to the supplier or imported goods for use in producing the imported goods being value are to be included. This is becaus....
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.... in force on the date on which a bill of entry is presented under section 46, or a shipping bill or bill of export, as the case may be, is presented under section 50; (1A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf. (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A) if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. (3) For the purposes of this section- (a) "rate of exchange" means the rate of exchange- (i) determined by the Board, or (ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) "foreign currency" and "Indian currency" have the me....
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.... approximates to one of the following values ascertained at or about the same time- (i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India; (ii) the deductive value for identical goods or similar goods; (iii) the computed value for identical goods or similar goods. Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of Rule 9 of these rules and cost incurred by the seller in sales in which he and the buyer are not related; (c) substitute value shall not be established under the provisions of clause (b) of this sub-rule. 9. Cost and services. - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods,- (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:- (i) commissions and brokerage, except buying commissions; (ii) th....
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.... the free on board value of the goods; (ii) The charges referred to in clause (b) shall be one per cent of the free on board value of the goods plus the cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c); (iii) Where the cost referred to in clause (c) is not ascertainable, such cost shall be 1.125% of free on board value of the goods; Provided further that in the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not exceed twenty per cent of free on board value of the goods: Provided also that where the free on board value of the goods is not ascertainable, the costs referred to in clause (a) shall be twenty per cent of the free on board value of the goods plus cost of insurance for clause (i) above and the cost referred to in clause (c) shall be 1.125 % of the free on board value of the goods plus cost of transport for clause (iii) above]. (3) Additions to the price actually paid or payable shall be made under this rule on the bases of objective and quantifiable data. (4) No addition shall be made to the price actually paid or ....
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....untry the supervision charges in India during design, erection and performance guarantee test. This Court, in its order passed on 8th December 1999, held:- "1. This is a contract that contemplates the supply of basic design and engineering drawings and the supervision of erection, testing and commissioning based thereon. One is as much a part and a condition of the contract as the other. 2. We find, therefore, no merit in the appeal. It is dismissed with costs." 12. The case of Mukund Limited (supra) dealt with setting up of a cleaning plant as part of basic oxygen furnace shop of SAIL (coincidentally the same respondent), for their Rourkela Steel Plant. For this purpose their contractor, Mukund Limited had entered into an agreement with an overseas Company, Davy Mckee (Stockton) Limited. In pursuance of that contract, Davy were to provide basic design and drawing and also supervise the detailed engineering erection and commissioning of the gas cleaning plant in India apart from training of personnel abroad. The fabrication, manufacture etc. however was to be done in India with indigenous goods based on designs supplied by Davy. The contract amount was GBP20,00....
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....oods. This was a case attracting Rule 9(1)(b)(iv) of the 1988 Rules. Factually, this authority is distinguishable. The other authority on which Mr. Agarwal has placed reliance is a decision of this Court in the case of Commissioner, Delhi Value Added Tax vs. ABB Limited reported in (2016) 6 SCC 791. In this case the controversy was as to whether a contract for supply, installation, testing and commissioning of traction electrification power supply and power distribution for the Dwarka Section of Delhi Metro Rail Corporation Limited could be subjected to Delhi value added tax or not. But this case dealt with the issues of works contract and movement of goods by inter-state trade for computing value added tax. The transaction in that case was held to be movement of goods by way of imports or by way of inter-state trade and hence covered by the Central Sales Tax Act. The only factual similarity in both these cases is that the case of ABB Limited (supra) also related to turnkey project. But "import" under that statute and the charging section in the Customs Act for imposing duty (under Section 12) are not the same. The mechanism for arriving at transaction value or assessable value und....
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....tivities shall not, therefore, be added to the price actually paid or payable in determining the value of imported goods: The value of imported goods shall not include the following charges or costs, provided that they are distinguished from the price actually paid or payable for the imported goods: (a) charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment; (b) the cost of transport after importation; (c) duties and taxes in India. 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." 16. Learned counsel for the respondent relied on the following authorities in support of his submissions: "1. (2015) 8 SCC 175: Commissioner of Customs Vs. Essar Steel 2. (2000) 3 SCC 472: M/s Tata Iron & Steel Co. Ltd. Vs. CCE 3. (2007) 9 SCC 401: Commissioner of Customs Vs. J.K. Corp. Ltd. 4. (2015) 14 SCC 750: Commissioner of Cus....
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....ract, which branched into two. One related to agreement for supply of technical documentation (MD 301) and the other for sale of equipments and materials pertaining to a blast furnace and three torpedo ladle cars (MD 302). The value of MD 301 was 12.5 million DM and MD 302 was 13.5 million DMs. The consignment under MD 301 was cleared by the customs authorities having nil duty component as importer claimed the same to be classified under sub-heading no.4906.00 of the Customs Tariff Act, 1985. But while scrutinising the consignment under MD 302, the customs authorities initiated action for including the value of MD 301 for determining the assessable value. The dispute reached the Tribunal. In paragraph 7 of the said report comprising of the judgment of this Court, the finding of the Tribunal has been summarised:- "7. The appellant and other notices preferred appeals before the Customs, Excise and Gold (Control) Appellate Tribunal, Calcutta which have been disposed of by a common order. The Tribunal has held that the three contracts entered into between the seller, i.e., SNP and the appellant were in fact parts of one package, that is, the three constituted one composite agr....
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....ually 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 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 therefor 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 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, th....
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....the stipulation of obtaining the license from Midrex was a condition for sale. If this condition was not fulfilled, the sale would have had fallen through. Thus, to give effect to the plant sale agreement, there was an element of necessity or compulsion to enter into the licensing agreement with Midrex. 21. SAIL had taken specific stand before the authority of the first instance that it was not a condition for them to take design and engineering, which related to post importation activities from the supplier only. In terms of the schedule of the agreement, the purchaser (that is SAIL) had right to change the goods to be supplied by the supplier at any time. 22. An importer of equipments of a plant could always choose to obtain drawings and designs for undertaking post importation activities from an overseas consortium supplying the equipments. This may confer on such arrangements attributes of a turnkey contract, but that fact by itself would not automatically attract the "condition" clause contained in Rule 9(1) (e) of the Valuation Rules. In the cases of Essar Steel Ltd.(supra) and Tata Iron and Steel Co. Ltd.(supra), the contracts had certain elements of "turnkey" features....
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....act that all amounts payable for training of personnel outside India cannot be added to the value of the plant." 24. We have already summarised the respondent's case that the disputed items on which the customs authorities intended to impose duty all related to post importation activities and could not be included in the assessable value. It has been urged on behalf of the respondent that neither clause 9 (1) b (iv), nor 9 (1) (e) could be made applicable so far as the subject items are concerned. The imported items according to the respondent are the equipments and the engineering drawings etc. forming part of the contract were not necessary for production of the imported goods. It has also been urged that the customs authority had wrongly contended that the subject drawings etc. were purchased as the condition that the sale of the imported goods and this excluded application of clause 9 (1) (e) of the 1988 Rules. In this regard interpretative note to Rule 4 was relied upon. Reference was made, in particular, to clause (a) of that Note. 25. Revenue has not made out a case that the disputed items of contract do not relate to post-importation activities. The statutory provisio....