2016 (12) TMI 320 - AT - Customs

Levy of duty - drawings and designs - imported by the appellant for construction activity of various hotels - whether drawings and designs are goods so as to attract duty liability under customs act? - Held that - The issue as to whether drawings and designs are goods or otherwise, is now settled by the apex court in ASSOCIATED CEMENT COMPANIES LTD. Versus CC 2001 (1) TMI 248 - Supreme court of India wherein it has been held that drawings and designs are goods. Respectfully following the same judgment, we hold that drawings and designs imported in all these appeals are goods liable to customs duty. Valuation - correct value or levy of customs duty - Held that - the adjudicating authority after perusing the contract came to a conclusion that the total consideration, compensation paid by the appellant to overseas party to US 3,45,000 needs to be reduced to 35,000 which was not in respect of drawings and designs, was for inspection and installation. We find this impugned compensation is for research and concept design, preparation of plan elevation, and furnace specification and preparation of loose furnishing specification. In our considered view, all these three items as mentioned in the contract would fall under the category of drawings and designs, hence the adjudicating authority was correct in holding that these amounts are to be considered as transaction value for discharge of customs duty - However, since in other orders, the adjudicating authority has given a further deduction of 10% from the transaction value, the same ratio needs to be applied in this case also. Accordingly, out of total US 3,10,000 further 10% discount is to be granted to appellant and transaction value has to be arrived accordingly and the duty liability to be reworked out. The entire agreement talks about preparing drawings and designs for activity for hotels and rooms. In our view, the contracts are not composite contracts. In order to consider them as composite contract, clause of the scope of work is read; in all these contracts appellant had contracted for drawings and designs only j hence the plea of the Id. counsel that 1/3rd of the value of the contractual compensation should be considered for discharge of customs duty is not acceptable and the proposition is rejected. In our view, the adjudicating authority has been fair to extend 10% of the contracted compensation as abatement in respect of these contracts for arriving at the correct value for discharge of customs duty. We do not find any unreasonableness in the order passed by the adjudicating authority. In view of this, we uphold the impugned order in all these appeals and reject the appeals on valuation issue. Imposition of penalty - Held that - In our view during the relevant period in question, the issue of whether drawings and designs have to be considered as goods for levy of customs duty was in dispute and had to be decided by the apex court. In view of this, visiting the appellant with penalty is unwarranted. Accordingly, penalties imposed on the appellant are set aside. We uphold the demand of the customs duty and the interest thereon as indicated herein above and set aside the penalties - appeal disposed off.

Summary

Issues involved:
Duty liability of imported drawings and designs, Valuation for levy of customs duty, Imposition of penalties under Customs Act, 1962

Analysis:

Issue 1: Duty liability of imported drawings and designs
The appellant contended that drawings and designs are not goods, hence no duty liability arises, while the revenue argued that payment for services towards drawings and designs indicates duty liability. The adjudicating authority held that drawings and designs are goods and liable for customs duty, granting a 10% reduction from the contract price and imposing penalties. The apex court precedent established that drawings and designs are indeed goods, leading the Tribunal to uphold duty liability for the imported items.

Issue 2: Valuation for levy of customs duty
In one case (C/483/06), the adjudicating authority correctly reduced a specific amount from the total consideration for inspection and installation, which was not for drawings and designs. However, further deductions of 10% from the transaction value were granted in other cases, which needed to be applied uniformly. For contracts related to conceptual design, schematic design, and space planning for hotels, the Tribunal rejected the plea to consider 1/3rd of the contractual compensation for customs duty discharge, upholding the 10% abatement granted by the adjudicating authority.

Issue 3: Imposition of penalties under Customs Act, 1962
The adjudicating authority imposed penalties on the appellant, but the Tribunal deemed them unwarranted as the issue of drawings and designs' classification as goods for customs duty levy was under dispute and required clarification from the apex court. Therefore, the penalties were set aside.

In conclusion, the Tribunal upheld the customs duty demand and interest, set aside the penalties, and disposed of the appeals accordingly.