2005 (3) TMI 612 - AT - Customs

Assessable value of imported goods - Valuation of the machinery - charges for setting up of plant in India - Payment of design, engineering, consultancy etc. and technical know-how fees - registration of contract for import of plant and machinery - agreement between the supplier and the buyer for supply of equipment - difference of opinion between the two members - Third member Order. Whether the charges payable as technical assistance and erection and commissioning towards manufacture of the finished goods by the importer are to be included in the assessable value? Order per G.N. Srinivasan, Member (J) - HELD THAT - The agreement to acquire know-how and technical information has been made in conjunction with the purchase of machin ery and fact that the technical information and know-how is nothing but the licence fee related to the imported goods that the importer is required to pay directly as a condition of the sale of the imported goods, which is clearly covered under Rule 9(1)(c) 9(1)(e) of the CVR, 1988. Therefore the payment of DM 3,75,426 subject to taxes i.e. net DM 2,57,167 is to be added to the transaction value. Therefore imparting training at the supplier s factory is actually a method of transfer of tech nology and know-how by the supplier to the importer and it is not related to the post-importation activities to be undertaken on imported goods in India. Therefore this payment falls within the scope of Rule 9(1)(c) and 9(1)(e) of the CVR, 1988. Therefore the payment of DM 4,39,786 subject to taxes are net of DM 3,01,254 is also to be added to the invoice value of the equipments being supplied by the collaborator to arrive at the transaction value. We are therefore of the view that read ing both contracts as a whole the assessee s case cannot be accepted but only the depart ment s case is to be accepted. Hence varying the impugned order, we restore the order of the Assistant Collector. Contra per Gowri Shankar, Member (T) - HELD THAT - The machinery of course was for the manufacture of contract order. However, it is not a condition in the contract of sale of such machinery, that know-how for manufacture of contract product must be paid. The agreement for the sale of the capital goods does pot stipulate that the sale and purchase of this equipment shall not be concluded unless payment is made for know-how relating to use of the particular machine. The importer was at liberty to obtain the know-how elsewhere. The fact that the contract is to be read as one, on which my colleague has placed emphasise is thus irrelevant. Unless this is shown to be fictional and there is material to show that the erection is to be done only by the supplier of the goods, it will follow that these charges were not payable as a condition of sale of the imported goods and therefore the value is not to be included in the assessable value. It is in this context, that the importer has cited the judgment of the Supreme Court in CCE v. Essar Gujarat Ltd. 1996 (11) TMI 426 - SUPREME COURT , and in my view is correct. In my opinion, therefore, neither of these charges were includible in the assessable value and the importer s appeal is allowed and the Commissioner s appeal is dismissed. Order per Krishna Kumar, Member (J) - HELD THAT - The reliance of the ld. DR on Ms. Essar Gujarat 1996 (11) TMI 426 - SUPREME COURT is misplaced for the simple reason that in that case the second-hand plant was imported and the know-how fees etc. were paid by the importer to the person other than supplier who were not related to the supplier. Whereas in the case in hand the supplier of the goods is also the collaborator who is directly receiving the fees. Therefore, applying the ratio of the decisions relied on by the ld. Counsel, I am of the opinion that the order passed by the Member (T) deserves to be accepted. MAJORITY ORDER - We hold that the technical assistance charges and charges for erection and commissioning of the plant are not includible in the assessable value of imported goods and hence allow the appeal of the importer and dismiss the appeal of the Revenue.

Summary

Issues Involved:
1. Addition in the assessable value on account of payment of design, engineering, consultancy, and technical know-how fees.

Issue-wise Detailed Analysis:

1. Addition in the Assessable Value on Account of Payment of Design, Engineering, Consultancy, and Technical Know-How Fees:

Arguments by Assessee-Appellant:
- The appellant argued that the agreements dated 8-3-1999 and 21-2-1988 are independent, with the former relating to collaboration and the latter to technical know-how, engineering services, training, and start-up.
- The collaboration agreement provides for technical assistance, training, and consideration for these services, which are separate from the agreement for the supply of equipment.
- The appellant cited several precedents where similar fees were not included in the assessable value, such as Polar Marmo Agglomerates Ltd., Panalfa Dongwon India Ltd., S.D. Technical Service, Birla Tyres, Ferodo India (P) Ltd., Hoerbiger India Pvt. Ltd., Himson Textile Engg. Industries Ltd., Neg Micon (India) Pvt. Ltd., and Mando Brake Systems India Ltd.

Arguments by Revenue:
- The revenue argued that the agreements should be read together, as without the know-how, the plant is of no use. They relied on the Apex Court decision in Essar Gujarat, where the importer and provider of services were the same, and the ultimate aim was to commission the plant.

Findings:
- The tribunal found that the reliance on Essar Gujarat by the revenue was misplaced because, in Essar Gujarat, the second-hand plant was imported and the know-how fees were paid to a person other than the supplier. In the present case, the supplier of the goods is also the collaborator who is directly receiving the fees.
- The tribunal accepted the appellant's argument, applying the ratio of the decisions cited by the appellant, and concluded that the technical assistance charges and charges for erection and commissioning of the plant are not includible in the assessable value of imported goods.

Majority Order:
- The majority held that the technical assistance charges and charges for erection and commissioning of the plant are not includible in the assessable value of imported goods, allowing the appeal of the importer and dismissing the appeal of the revenue.

Separate Judgments:

Judgment by G.N. Srinivasan, Member (J):
- The appeals were filed against the order of the Collector of Customs (Appeals), which included DM 2,57,167 in the valuation of the imported item but excluded DM 3,01,254.
- The collaboration agreement and the supply contract were analyzed, showing that both agreements should be read together.
- The Collector's approach was deemed wrong, and it was concluded that the agreements dated 21-2-1988 and 9-3-1989 should be read as a single document.
- The Supreme Court judgment in Essar Gujarat was considered binding, leading to the restoration of the Assistant Collector's order.

Judgment by Gowri Shankar, Member (T):
- The focus was on payments made for design, engineering, consultancy, and technical know-how fees.
- The collaboration agreement was found to be independent of the supply contract.
- The Supreme Court judgment in Essar Gujarat was distinguished as it pertained to a condition of sale, which was not the case here.
- The charges for setting up the plant were considered post-importation expenses and not includible in the assessable value.
- The appeal of the importer was allowed, and the department's appeal was dismissed.

Difference of Opinion:
- The difference of opinion between the two members led to the referral to a third member to answer the following questions:
(a) Whether the charges payable as technical assistance towards the manufacture of the finished goods by the importer are to be included in the assessable value?
(b) Whether the charges for erection and commissioning of the plant were includible in the value?
(c) As a consequence of the answers to the preceding questions, whether the importer's appeal is to be allowed or dismissed and whether the department's appeal is to be allowed or dismissed.

The detailed analysis shows that the tribunal ultimately decided in favor of the importer, ruling that the technical assistance charges and charges for erection and commissioning of the plant are not includible in the assessable value of imported goods.