TaxTMI 
TaxTMI 
2024 (1) TMI 190
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....s 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 under Section 14 of the Customs Act 1962, read with Rule 4 and Rule 9 of....
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.... 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 services under BDEP are to be rendered by the Supplier of the equipments and therefore, it i....
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....nancial 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 Package and Other Services. They further submitted that well before the import of materials was completed t....
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....uying 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 imported goods that the buyers required to pay, directly or indirectly, as a condition of the sale of goods being valued, to the extent that such royalties and fees are included in the price actually paid or payable. (d) th....
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....nly 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. All the three agreements were alleged to be a part of an umbrella agreement-Agreement on LPG/Gasoline Treatment Units At Haldia Refinery Between Indian Oil Corporation Limited And Merichem Company, USA. Further, there is nothing on record to s....
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....ating 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 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 "....
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....e 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 been held that the technical know-how fee charged in respect of post importation activities is not includible in the assessable value of imported goods. From the scope of the contract for payment of Royalty charges, we do not find that the payment of Royalty is a con....
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....r 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 as industrial plant, machinery or equipment; (b) The cost of transport after importation; (c) Duties and takes in India." 11. What would, therefore, be excluded for computing the assessable value for the purpose of levy of customs duty, inter alia, has clearly been stated therein, namely, any amoun....
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.... 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 party, subject, of course, to the approval of M/s. Samsung." (Emphasis Supplied) 17. The Hon'ble Apex Court in para 26 of the said order had clearly dwelt upon what could comply as a condition of sale. To elaborate the said para is reproduced hereunder to clarify the meaning of the term. "26. The expression "condition", simply put, conveys the idea that something could be done only if another thing was also ....