2008 (1) TMI 280 - AT - Customs

Technical know-how fee paid for consultancy & engineering services not includible in invoice value because payment of fee was not a condition for sale of machinery by suppliers moreover suppliers of machinery, consultants & importers are dealing at arm s length - since both supplier and importer were not related person, addition of technical know-how payment to the invoice value u/r 9(1)(b)(iv) of Customs Valuation (Determination of Price of Imported Goods) Rules, is not justified

Summary

Issues Involved:
1. Whether the lump sum payment for consultancy and engineering services should be added to the invoice value of imported goods under Rule 9(1)(c) of the Customs (Valuation) Rules, 1988.
2. Applicability of Rule 9(1)(b)(iv) and Rule 9(1)(c) of the Customs Valuation Rules, 1988.
3. Relevance of the Supreme Court decision in the case of Essar Gujarat Ltd.

Issue-wise Detailed Analysis:

1. Lump Sum Payment for Consultancy and Engineering Services:
The primary issue is whether the lump sum payment of Swiss Francs 9,89,000 for consultancy and engineering services provided by HMC should be added to the invoice value of the imported goods. The Adjudicating authority held that no such addition was required because HMC provided consultancy services and did not design or supply the engineering drawings for the imported equipment. The services were related to preparation of tender documents and recommendations for selecting equipment, not to the design of the equipment itself.

2. Applicability of Rule 9(1)(b)(iv) and Rule 9(1)(c) of the Customs Valuation Rules, 1988:
The Revenue argued that the payment to HMC should be included in the assessable value of the imported goods under Rules 9(1)(b)(iv) and 9(1)(c). However, the Commissioner (Appeals) and the Tribunal found that:
- Rule 9(1)(b)(iv) was not applicable because the designs/drawings were already with the suppliers and HMC had no supervisory control over them.
- Rule 9(1)(c) was also not applicable because the technical fees were paid to HMC, who were neither the manufacturers nor the suppliers of the goods, and there was no condition of payment of technical fees as a condition of sale of the goods.

3. Relevance of the Supreme Court Decision in Essar Gujarat Ltd.:
The Revenue cited the Supreme Court decision in Essar Gujarat Ltd., where the payment of licence fees and technical services fees was a condition of the sale of the plant. The Tribunal found this case distinguishable because, in the present case, the technical know-how fees paid to HMC were not a condition of the sale of the imported machinery. The Supreme Court's decision in Essar Gujarat Ltd. involved a scenario where the plant could not be made operational without the licence and technical services, which was not the situation in the present case.

Conclusion:
The Tribunal concluded that the technical know-how fees paid to HMC could not be added to the value of the imported machinery. The appeal by the Revenue was dismissed, and the findings of the lower authorities were upheld. The Tribunal emphasized that HMC's role was limited to consultancy services and did not involve designing the imported equipment. The technical fees paid to HMC were not related to the equipment designs and were not a condition of the sale of the machinery. Therefore, the payments to HMC could not be included in the assessable value of the imported goods under Rule 9(1)(b)(iv) or Rule 9(1)(c) of the Customs Valuation Rules, 1988.