AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (1) TMI 190
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....o the assessable value of the imported goods in terms of Customs Valuation Rules, 1988 - Rule 9(1)(c) and Rule 9(1)(e). 2. The facts of the case are that the appellant entered into a contract with M/s. Merichem Company, USA for supply of equipments for FCC, LPG and FCC Gasoline Treater unit required for establishing a treating unit at Haldia and Barauni, for treating LPG and gasoline at their refineries. For the purpose the appellant had essentially entered into the following three agreements with their buyers: 1. Confidentiality Agreement 99013 dated 31.03.1999 2. Know-How, Process Package and other Services Agreement 3. Equipment Supply Agreement 3. For ready reference, the aforesaid three agreements are scanned hereunder: 4. The appellant had got the contract registered with the department under Project Import Scheme, whereby the Department forwarded the matter to the Special Valuation Branch to examine the feasibility of the inclusion of design and engineering charges, technical knowhow fee and other charges in the invoice value of the imported goods, under the supply agreement for redetermination of transaction value of the imported goods un....
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....We find the order of the learned Commissioner (Appeals), to be quite cryptic and brief in the matter. Essentially, his findings are recorded in para 17 and 18 of the impugned order and are reproduced hereunder: "17. It is evident from the impugned that the Special Valuation Branch has made detailed study of the relevant agreements and investigated specially in respect of feasibility of inclusion or adjustment of different costs and services under Rule 9 of CVR' 88. The adjudicating authority has observed that the three agreements are parts of one umbrella agreement. All the agreements are linked with one another and at the same time inter-dependent. There are inseparable links among all agreements related to the instant project. There are observation of the adjudicating authority that Treater Package was imported at invoice value of USD 891878.00 after addition of freight and insurance which shows that lumpsum price for both the parts of Article 3.1. 1(b) of Supply Agreement were covered in the invoice value. These charges could not be apportioned towards indigenous supply. The Supply Agreement is inseparable from Know-how Agreement. 18. It is observed that the se....
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....censed processes and to render engineering services, technical assistance, supervision etc. with a total financial implication of US $ 262552. The department finalized the assessment of the bills of entry by adding the value of basic design and engineering package and license fee for technology. Technology transfer in proportion to the value of imported and indigenous goods in the total supply contract being in the ratio of 40 to 60, thereby adding US dollar 105021 to the total contractual supply value of US $ 891878. The appellant therefore submitted that the department imputes the supply of equipment as dependent upon "Knowhow, Process Package and Other Services", as if this agreement imposed a condition for the supply of agreement. They emphasized that in actuality the three agreements were separate and did not have any inter-dependency. The confidentially agreement entered into between the parties was exclusively for the security of patented technology of the licensor. Payment of design and drawings neither had any contribution in the manufacture of imported equipments nor this agreement imposed any compulsion for the purchase of equipment from the supplier of Knowhow, Process ....
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....ey 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) the cost of containers which are treated as being one for customs purposes with the goods in question; (iii) the cost of packing whether for labour or materials; (b) the value, apportioned as appropriate, of the following goods and vices where supplied directly or indirectly by the buyer fee of .... Or at reduced cost for use in connection with the production and for export of imported goods, to the extent that such value has no .... Included in the price actually paid or payable, namely:- (i) materials, components, parts and similar items incorporated in imported goods; (ii) tools, dies, moulds and similar items used in the production of imported goods; (iii) materials consumed in the production of the imported goods; (iv) engineering, development, art work, design work, and plans sketches undertaken elsewhere than in India and necessary the production of the imported goods; (c) royalties and licence fees related to the ....
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....e preamble of the Agreement for Supply of Equipments. Further, in the Know-how Agreement, there is no condition that the equipment imported by the appellant are only to be used or to be imported from M/s. Merichem Company, USA, rather they only have suggested some equipments required for the designed unit. 11. From the documents placed on record, we note that the importer M/s. Indian Oil Company Limited (IOCL) entered into three separate agreements viz. (i) Confidentiality Agreement dated 31.03.99 with M/s. Merichem Company, Houston, Texas, U.S.A. (ii) Agreement dated 15.09.99 for Supply of Equipment for FCC LPG AMINEX/THIOLEX Treater with REGEN (Caustic Regeneration) and FCC Gasoline MERICAT Treater Systems for us at Haldia Refinery and (iii) Agreement dated 15.09.99 for Supply of Know-How, Process Package and other Services for FCC LPG AMINEX/THIOLEX Treater with REGEN (Caustic Regeneration) and FCC Gasoline MERICAT Treater Systems for use at Haldia Refinery. The Confidentiality agreement signed on 31.03.99 in fact curtained the Know- How Agreement vide Article 9 Section 9.2 thereof, whereas the Equipment. Supply Agreement was incorporated vide Article 8, Section 8.2 thereof. ....
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....REGEN sm) and also to employ an alkaline solution containing an oxidation catalyst to effect oxidation of mercaptan sulfur compounds in petroleum distillate chargestocks, (MERICATsm). It is therefore evident that to derive optimal benefit, the treating unit would be required to be preferably constructed on the basis of Merichem's P & IDs i.e. Process and Instrumentation Diagrams. The licensed processes as mentioned above were required for installation, operation, and maintenance and repairing of the Plant at the Refinery and to get basic engineering services, including technical assistance and supervision services and guarantees with respect to the licensed unit. 14. The Hon'ble Apex Court in the case of Commissioner of Customs Port, Kolkata Vs. Steel Authority of India Ltd. 2020 (372) ELT 478 SC, with regard to the inclusion of the cost of drawings and designs had categorically held in para 22 of its order as under: "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 contr....
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....me limit does not mean that there is no time limit at all for completion of adjudication. Accordingly, the adjudication order passed nearly nine years after the issue of show cause notice is set aside. In the present case, for inclusion of the income-tax paid by the appellants on behalf of the foreign currency, the Corrigendum to the show cause notice has been issued after eight years. Following ratio of the cases cited supra, we are of the view that the issue of this Corrigendum is bad in law. Moreover, there is nothing on record to show that the assessment was provisional. In these circumstances, the demand of duty on account of inclusion of income-tax paid is not sustainable and the demand to that extent is not liable to pay by the appellants. After going through the scope of the three contracts, we find that the contract dated 07.03.1988 only covers the price for the imported equipments. The Royalty contract is only for the activities carried out after the goods have been imported. This issue is clearly covered by the decision of the Hon'ble Supreme Court in the case of commissioner of Customs, New Delhi Vs. Prodelin India (P) Ltd. 2006 (202) E.L.T. 13 (S.C.), wherein it has be....
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....ing thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14 (1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind. 10. Rule 12 of the Rules provides that the interpretative notes specified in the Schedule appended thereto would apply for construction thereof. They are statutory in nature being integral part of the Rules themselves. The relevant portion of Interpretative Note to Rule 4 reads as under: "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 a....
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.... that the said memorandum of Agreement specifically contemplates that the plant and machinery to be supplied thereunder may be produced from other independent manufactures and suppliers who might not have anything to do with the knowhow or licence provided thereunder by Samsung as would appear from the following stipulation contained in the said agreement. "5.6. The SELLER hereby agrees to provide their cooperation to the BUYER to purchase spares from the SELLER directly from the suppliers notwithstanding the expiry or earlier termination of the AGREEMENT and in case of purchase from the SELLER, the SELLER shall provide such spares at fair market prices within a reasonable period of time. 8.1. SELLER shall cause such manufacturers to test and inspect the main items of Equipment at its works and/or the works of its manufacturers, quality, quantity, workmanship, finishing, and packing in accordance with the inspection method deemed as proper and authentic for Equipment." 15. Knowhow, being process knowhow, is covered by the patent held by M/s. Samsung. The payment of US $ 14,00,000.00 also entitles the respondent to sub-licence the knowhow to any other part....
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....case of JK Corporation, supra, we find that the contract, as entered into by the appellant with their overseas buyers are on identical terms. There was no obligation to bind the appellants to any post import act/activity and thus render it as a condition of sale for procurement of the imported goods. We also note that there is no technical know-how fees attributable towards post import related/associated acts and activities. Thereby no case arises for scaling up the assessable value with the inclusion of the royalty charges. In fact the preamble clause of the Confidentiality Agreement supra clearly brings to fore its purpose, completely unrelatable to any post import functioning. 19. We find that the order of the Tribunal in the case of TDT Copper Ltd. Vs. Commissioner of Customs, New Delhi 2000 (120) ELT 265 tribunal, relied upon by the adjudicating authority, is completely at variance as far as facts of the present case are concerned as Article 10 of the agreement therein provided for inclusion of various fees, charges and cost of technical services and were clearly a condition of sale. In the said case as relied by the learned Adjudicating Authority, the importer was required....
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....below, IOCL agrees to hold in confidence all Confidential Information disclosed to IOCL hereunder. IOCL will not be obligated to keep confidential any such information to the extent that and from such time as IOCL can show, by reasonable proof, that the information: 2. b. C. d. was known to the public at the time of its receipt by IOCL under this Agreement, or was already known to IOCL at the time of its receipt by IOCL under this Agreement and was not acquired by IOCL under an obligation of confidence, directly or indirectly, from MERICHEM; or becomes generally known to the public through no fault of IOCL following its receipt by IOCL under this Agreement; or is disclosed to :OCL, following its receipt by IOCL under this Agreement, by a third party who did not acquire it, directly or indirectly, from MERICHEM under an obligation of confidence. For purposes of this Paragraph 1, a disclosure made to IOCL under this Agreement, which is specific, shall not be deemed to be within the foregoing exceptions merely because it is embraced by general disclosures in the public domain or in IOCL's possession. In Tech....
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....ion of this Agreement and the legal relations of the parties to it shall be governed by the laws of the State of Texas, U.S.A., without conflict of law provisions. The courts of New Delhi, India, shall have exclusive jurisdiction. If the above agreement is acceptable to your company, please have both duplicate originals executed by a duly authorized officer in the space provided below and return both copies to us. After execution on behalf of MERICHEM, we will return a fully executed copy for your files. AGREED TO AND ACCEPTED: INDIAN OIL CORPORATION LIMITED MERICHEM COMPAN J. Larry Black, Vice President K. Govindarajan, Deputy General Manager (Projects) 99013C.DOC Document 3 3 3 + ent between Ind an Oil Corporation Limited and Merichem Company AGREEMENT This Agreement between Merichem Company, established under the laws of Delaware, U.S.A., having its registerec place of business 5450 Old Spanish Trail, Houston, Texas, U.S.A. (hereinafter referred to as "LICENSOR" which expression shall include its successors and assigns), and Indian Oil Corporation Limited, established under the laws o India, having its ....
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....ment between Indian Oil Corporation Limited and Merichem Company 6.1 6.1.1 6.1.2 6.1.3 ARTICLE 6-GUARANTEES AND LIABILITIES ENGINEERING GUARANTEE LICENSOR guarantees and undertakes full responsibility for the correctness and completeness of the BDEP. The said guarantees shall apply irrespective of the source of supply thereof and irrespective of whether the services for the development of the BDEP have been performed by others. LICENSOR also guarantees and undertakes that the engineering shall contain no faults, mistakes and omissions, and that the Licensed Unit(s) shall perform to the specifications and shall be suitable for the purposes defined therein, and this guarantee and undertaking shall apply notwithstanding LICENSEE's approval of the BDEP or the LICENSEE witnessing and/or approving factory acceptance tests with respect thereto If after successful Acceptance Test Run of the Contract Plant, within 12 months after start up or 36 months after delivery of the Contract Plant, whichever occurs first, it is demonstrated that the engineering documents are in anyway defective and LICENSEE, as soon as reasonably pr....
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....greed in writing, for reasons not attributable to LICENSOR, the Acceptance Test Run shall be deemed to have successfully completed by that date. PERFORMANCE GUARANTEES The LICENSOR guarantees and undertakes that the Licensed Unit(s) shall, during a Acceptance Test Run, operate to meet the folowing Performance Guarantees: 130,000 Metric Tons/Year FCC LPG AMINEX SMITHIOLEXSM/REGENS Flow Rate, metric tons/year Design Minimum Specific Gravity @ 15°C Inlet Impurities, ppm (wt.), max. Hydrogen Sulfide Carbonyl Sulfide as Sulfur Mercaptans as Sulfur SO, as Compound Total Sulfur as S FCC LPG 130,000 (390 MT/day) 65,000 (195 MT/day) 0.54-0.56 10,164 250 600 360 Analytical Method ASTM D-1657* Chromatograph Chromatograph Chromatograph 11,194 ASTM D-2'4" Treating Reagents Solvent Type Treated Kerosene Specific Gravity @ 15°C 0.789 ASTM D-1298 Distillation Range, "C ASTM D-86 IBP 150 10 168 30 182 50 197 70 214 90 238 247 Oxidation Catalyst H₂S, ppm wt 95 EP Sodium carryover in outgoing solvent stream Fresh Cau....
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....ing pressure and temperature will be per the BDEP The performance guarantees are contingent on: a) Provision of feed, catalyst, chemical and utilities as per the Basis of Design. In case, the actual feed stock is substantially different from the one specified above, the LICENSOR shall establish, after consultation and mutual agreement with LICENSEE, a new set of guarantees equivalent to guarantees mentioned above. b) Plant operation on full load, normal and minimum operating conditions. c) Catalyst loading. d) Operation of the unit in accordance with LICENSOR'S operating instructions. e) Analytical methods are as set forth in Annex E attached or as otherwise agreed in writing between the parties. 6.4 6.4.1 40-06750 PROCESS LIABILITIES In the event that during Acceptance Test Run, the Contract Plant fails to meet the process guarantees set forth in 6.3, LICENSOR provides the following exclusive remedies, subject to the provisions set out in Articles 6.7 & 6.12 below: If, for reasons attributable to LICENSOR, the Contract Plant fails to meet the Performance Guarantees set forth in 6.3, LICENSOR shall forthwith at its own expens....
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.... Agreement between Indian Oil Corporation Limited and Merichem Company ARTICLE 9 - CONFIDENTIALITY AND USE OF PROCESS TECHNOLOGY 9.1 LICENSEE agrees that the terms of Confidentiality Agreement 99013 dated March 31, 1999, executed by LICENSEE and LICENSOR, attached as Annex B shall govern design, engineering, procurement, and construction of the Licensed Unit(s). Upon Startup of the Licensed Unit(s), the provisions of confidentiality in this Agreement shall govern. The provisions for the disclosure and use of Confidential Information under the terms of the Confidentiality Agreement and the provisions for the disclosure and use of Confidential Technical Information under this Agreement shall survive any termination or cancellation of this Agreement. √92 9.3 9.4 9.5 LICENSEE agrees to maintain LICENSOR's Confidential Technical Information (including data, plans, specifications, flowsheets, designs and drawings) in confidence and to prevent the disclosure thereof to others, except that LICENSEE io the extent necessary for the installation, operation, maintenance, repair and/or reconstruction (due to fire or any other like event ....
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.... Capacity of the Unit - BPSD, TPA On stream days/year Feed characteristics - sp.gr., API, boiling range, sulfur content wppm, Hâ‚‚S wppm, mercaptans wppm, RVP, saybolt color, ASTM distillation, viscosity, flash point, etc. 1. Design Basis 1. 2. 3. 45678 4. 5. 6. 7. Products and their desired characteristics. Battery limit conditions of feed and products. Catalyst initial cycle length and catalyst life. Turn down ratio of the Unit. 8. Other special requirements. Basic Engineering Design Data 11. 1. 2. 3. 4. General information about Unit location, applicable codes, system of measurements, etc. Utility information - B/L conditions, qualities and other specifications for steam, power, water, air, N2, BFW. Equipment design information - specification/preferences, size limitations, sparing philosophy, etc., for all equipment.. Design information regarding instruments, type, blowdown facilities, site information, climate data, seismic data, soil conditions, fire proofing, climate requirements, winterizing philosophy, etc. Process Description istants diving cost Process descriptio....
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....Specifications should be adequate to solicit inquiries from vendors straightway without any further engineering. Vessels Specification along with sketches, showing the various dimensions, indicative thickness, design temperature, pressure conditions, corrosion allowances, insulation, lining details of internals, materials of constructions, nozzle sizes/orientation, locations, etc. Columns Specifications along with sketches with all necessary dimensions, indicative thickness, design temperature/pressures, corrosion allowances, skirt height, tray design, tower packings, packings/past material of construction, concrete lining if any; nozzle sizes orientations, indicative plate thickness, insulation required. Heat Exchangers/Coolers/Air Coolers- Duty specifications, physical properties of fluids at terminal conditions, inlet/outlet conditions, fouling factor, desigr. temperature/pressures, exchange area, codes applicable, metallurgy of tubes, tubesheet, shell, heat release curves, dimensions and indicative thickness. Pumps - Data sheets giving physical properties of fluids handled, normal/rated capacity, duty specifications, metallurgy....
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.... be complete with all necessary information to enable a competent engineering contractor to undertake the detailed engineering, prepare proposal documents for equipment, procure materials and equipment, and construct the unit. LICENSOR performs undocumented internal Hazop review and incorporates all comments into the design to be collaborated in the BDEP. Operating Manual . The following items wi be provided: e Introduction Basis of Design Feed and product specifications Principles of operation Process Description Preparation for initial start-up including catalyst loading Operating Variables Description of Instrumentation List of alarms and trips Start-up procedure Normal operation procedure Normal shut-down procedure Catalyst/impregnation procedure Emergency Handling Procedures under following cases: Fire due to serious leaks Feed failure Instrument air failure Power failure " Steam failure Cooling water failure Other trouble shooting problems and their remedies Critical pump failure Safety recommendations Analytical Control/Test methods/Frequency of Quality Control test/Special ....