2011 (12) TMI 109 - HC - Customs

Joint venture between Honda Motors Co., Japan and Siel India Limited, India - manufacture and sale of automobiles with technical know-how/information etc. from japan value to be assigned to imported drawings etc. - Revenue contention- Total lump sum fee of US 30.5 million constitutes the true and correct value of the imported drawing etc - expenses on personnel, not part of lump sum fee were separately payable - applicability of Rule 9(2)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - Held that - The value of the imported goods, i.e. the drawings etc., has to be determined at the time and place of importation. Customs duty has direct nexus with the value of the goods imported. The question of computation of the value of the imported drawings etc. is remanded back to the Settlement Commission for fresh adjudication keeping in view the observations and findings of High court on following grounds (i) Technical information and know-how need not be through the medium of plans, drawings, manuals etc. It can be by other modes and means or non document form including intangible forms like deploying personnel or overseeing construction of the factory or manufacturing, training to staff etc. It is clarified that bifurcation of value between drawing etc. and others , is another aspect and has to be specifically examined and considered and computed after detailing material/evidence. Further, lump sum fee paid is not restricted to technical know-how or information supplied or furnished till December, 1997 as there was a contractual requirement that the know-how or information shall be furnished for a period of 7 years or 10 years. The technical know-how is not restricted to setting of the plant, but also for manufacture of cars including designs, engine, transmission etc. With regard to expenses on personnel Under TPA and Memorandum of Understanding separate payment was mandated when personnel were deputed or sent to Honda Japan on specific request. This aspect will be re-examined by the Settlement Commission and decide whether expenses paid to personnel are included in lump sum fees paid. It is also held that Rule 9(2)(e) applies when an addition is made to value of imported tangible goods in the form of machinery, plant, etc. by including value of know-how, which has been billed separately, but is intricately or otherwise linked with the imported machinery/plant. This is not so in the present case, hence Rule 9(2)(e) is not applicable.

Issues Involved:
1. Valuation of imported drawings and technical information.
2. Jurisdiction of the Settlement Commission.
3. Full and true disclosure of duty liability.
4. Inclusion of expenses on personnel in the lump sum fee.
5. Applicability of Rule 9(2)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

Issue-wise Detailed Analysis:

1. Valuation of Imported Drawings and Technical Information:
The core issue was whether the lump sum fee of US$ 30.5 million paid by the respondent for technical information and drawings imported from Honda, Japan should be bifurcated to determine the correct customs duty. The Settlement Commission accepted the respondent's bifurcation, which included costs for market research, feasibility studies, testing, and homologation. However, the court found that the bifurcation was not stipulated in the Technical Collaboration Agreement (TCA) and was a unilateral act by the respondent. The court emphasized that the value of imported goods must be determined at the time and place of importation, and expenses incurred abroad that were used in the drawings imported into India should be included in the import value for customs duty purposes.

2. Jurisdiction of the Settlement Commission:
The Union of India initially contested the jurisdiction of the Settlement Commission but later conceded this point. The court noted that the Settlement Commission had jurisdiction as the condition of full and true disclosure of duty liability stipulated in Section 127B of the Customs Act was not violated. The court highlighted that the valuation of imported drawings was a debatable issue at the time of imports and was subsequently settled by the Supreme Court.

3. Full and True Disclosure of Duty Liability:
The court found that the respondent had made a full and true disclosure of duty liability. The bifurcation of the lump sum fee into different heads by the respondent was a matter of perception and understanding, and it could not be equated with a failure to disclose duty liability. The court noted that the Settlement Commission had accepted the respondent's bifurcation, and there were no adverse findings or observations in the impugned orders regarding the respondent's disclosure.

4. Inclusion of Expenses on Personnel in the Lump Sum Fee:
The court accepted the Settlement Commission's finding that the expenses on personnel were included in the lump sum fee. The TCA stipulated that payment for personnel deputed by Honda Japan to India or expenses on technical training given to Indians who traveled abroad to Honda Japan for technical information and know-how would be subject to a separate agreement. The Settlement Commission found that the second agreement was not implemented, and no separate payments were made for personnel. The court agreed with this finding, noting that the respondent and Honda Japan could mutually decide the payment of consideration.

5. Applicability of Rule 9(2)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988:
The court rejected the petitioner's contention that Rule 9(2)(e) was applicable. This rule applies when an addition is made to the value of imported tangible goods by including the value of know-how billed separately. The court noted that the show cause notice did not make any such allegation, and no case was made out to show that the imported tangible goods were sold by Honda Japan.

Conclusion:
The court found errors in the decision-making process of the Settlement Commission regarding the valuation of imported drawings and the exclusion of certain expenses. The matter was remanded to the Settlement Commission for fresh adjudication, keeping in view the court's observations. The court clarified that its findings would be binding on the Settlement Commission to the extent indicated. There was no order as to costs.

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