2004 (12) TMI 666 - AT - Customs

Valuation - Imports capital goods under Project Import - Applicability of Rule 9(1)(c) of the Customs Valuation Rules vis-a-vis the three agreements - Whether payment of Licence Fees and Basic Engineering were a condition of sale of the equipments by Outokumpu and hence the same are to be included in the value of the capital goods ? - HELD THAT - In view of this settled legal position, non-filing of appeal by the appellants against the order-in-appeal dated 29-6-1998 (passed in the first round) does not debar the appellants from contesting the demand on merits before the CEGAT. This is because, the remand order dated 29-6-1998 passed by the Commissioner (Appeals) has been merged with the impugned order dated 30-1-2002. No challenge by the department on the finding of the Assistant Collector that the licence fee is not related to imported goods and that the basic engineering fees related to post-importation activities - Since the services rendered by the Outokumpu under this agreement are found to be for setting up of the entire plant in India; the fees paid by the appellants under this agreement cannot be said to be a fee for Engineering Services required for the production of the imported goods. The services rendered by Outokumpu under Basic Engineering agreement are found to be for setting up of the plant in India involving installation and integration of various capital goods imported from Outokumpu, imported from others and also procured indigenously. Such services do not relate can be ascribed to the any of the equipments imported by the appellants. Thus it is to be held that the fees paid by the appellants to Outokumpu under the Basic Engineering Agreement is for the purpose of setting up of a copper smelting plant in India and such charges will not form part of the transaction value of the imported capital goods by virtue of Interpretative Note to Rule 4 of Customs Valuation Rules, 1988. It is nobody s case herein, that the appellants, i.e. the buyer i.e. had supplied any engineering, development or art work, etc. to the exporter i.e. Outokumpu. None of the imported goods (imported either from Outokumpu or from others) were allegedly made with the help of or with reference to any engineering, development or art work, etc. supplied by the appellants free of charge. Hence, Rule 9(1)(b)(iv) is not applicable to the facts of the present case. On the other hand, the equipment supply contract entered into by the appellants with Outokumpu specifically states that the price paid by the appellants to Outokumpu for the capital goods includes the cost of design also. Hence, the question of adding the basic engineering fees to the value of the capital goods imported from Outokumpu under Rule 9(1)(b)(iv) does not arise. In any case, the learned the Department fairly concedes and confirms that Rule 9(1)(b)(iv) is not applicable in the present case. The Commissioner (Appeals) also in his order did not invoke this rule to for including the basic engineering fees to the value of the capital goods. It is not the case of the department that either the appellants or Outokumpu supplied the engineering work necessary for the production of the capital goods imported, from various vendors including the goods imported from Outokumpu. On the other hand, the equipment supply contract entered with Outokumpu clearly states that the price of the proprietary equipments include the design cost also. The order of the Commissioner (Appeals) is required to be set aside the appeal allowed by ordering that the Licence fee, Basic Engineering fees as proposed cannot be added to the value under the Customs Act, 1962 to charge duty on the inputs received. Ordered accordingly.

Summary

Issues Involved:
1. Includibility of Licence Fees in the value of imported capital goods.
2. Includibility of Basic Engineering Fees in the value of imported capital goods.
3. Applicability of Rule 9(1)(c) and Rule 9(1)(e) of Customs Valuation Rules.

Summary:

1. Includibility of Licence Fees in the Value of Imported Capital Goods:
The appellants paid a Licence Fee of US $ 31,82,000 to Outokumpu for obtaining the right to use the technology for manufacturing copper matte. The Assistant Commissioner initially held that this fee was not includible in the value of the imported capital goods. This decision was reviewed and remanded by the Commissioner of Customs (Appeals) for reconsideration. On remand, the Deputy Commissioner included the Licence Fees in the value, which was upheld by the Commissioner (Appeals). However, the Tribunal found that the Licence Fees were for the technology to manufacture copper and not related to the imported capital goods. The Tribunal emphasized that Rule 9(1)(c) requires both conditions to be satisfied: the fees must relate to the imported goods and be a condition of sale. Since the Licence Fees did not meet these criteria, they were not includible in the value of the capital goods.

2. Includibility of Basic Engineering Fees in the Value of Imported Capital Goods:
The appellants paid Basic Engineering Fees of US $ 48,34,000 to Outokumpu for setting up the plant in India. The Assistant Commissioner initially excluded these fees from the value of the imported capital goods, stating they were related to post-importation activities. This decision was also reviewed and remanded. On remand, the Deputy Commissioner included these fees in the value, which was upheld by the Commissioner (Appeals). The Tribunal found that the Basic Engineering Fees were for services related to setting up the plant in India and not for the production of the imported goods. The Tribunal referred to Interpretative Note to Rule 4 of Customs Valuation Rules, which excludes charges for construction, erection, assembly, etc., undertaken after importation. Consequently, the Basic Engineering Fees were not includible in the value of the imported capital goods.

3. Applicability of Rule 9(1)(c) and Rule 9(1)(e) of Customs Valuation Rules:
The Tribunal held that Rule 9(1)(c) could only be invoked if the Licence Fees were related to the imported goods and were a condition of their sale. Since these conditions were not met, Rule 9(1)(c) was not applicable. Similarly, Rule 9(1)(e), which is a residuary clause, could not be invoked as the payments were not related to the imported goods and were not a condition of sale. The Tribunal also referred to various case laws supporting the view that payments unrelated to the imported goods cannot be included in their value.

Conclusion:
The Tribunal set aside the order of the Commissioner (Appeals) and allowed the appeal, ordering that the Licence Fees and Basic Engineering Fees cannot be added to the value of the imported capital goods for the purpose of charging duty under the Customs Act, 1962.