2000 (2) TMI 91 - SC - Customs

Whether there has been under valuation of blast furnace equipment covered by the contract MD 302? Held that - The appeal is allowed. The impugned order of the Tribunal is set aside. The case is sent back to the Tribunal to entertain and examine the plea of the Revenue if the contract DM 302 is undervalued on the basis of the material already available on record. The Tribunal shall consistently with the observations made and findings recorded in this judgment hear and dispose of the appeal before it within a period of six months from the date of communication of this order. The bank guarantee furnished by the appellant shall be kept alive and the amount deposited shall also continue to remain in deposit till the date of decision by the Tribunal whereafter the bank guarantee and the deposit shall be dealt with consistently with the order of the Tribunal.

Summary

Issues Involved:
1. Classification and valuation of imported goods under Customs Act and Project Imports Regulations.
2. Inclusion of technical documentation value in the assessable value of imported equipment.
3. Applicability of Rule 9(1)(b)(iv) and Rule 9(1)(e) of the Customs Valuation Rules, 1988.
4. Allegations of under-valuation of imported equipment.
5. Penalty imposition under Section 112 of the Customs Act.

Issue-wise Detailed Analysis:

1. Classification and valuation of imported goods under Customs Act and Project Imports Regulations:
The appellant, TISCO, imported equipment and technical documentation from SNP, Portugal. The equipment was registered under Project Imports Regulations, 1986, allowing for concessional duty rates. The consignment of technical documents arrived at Calcutta and was cleared under sub-heading No. 4906.00, assessable to nil duty. However, the Customs Department suspected that the contract MD 302 was undervalued and issued a show cause notice to include the value of technical documentation (MD 301) in the assessable value of the imported equipment.

2. Inclusion of technical documentation value in the assessable value of imported equipment:
The Tribunal held that the three contracts (MD 301, MD 302, and the overall sale contract) constituted one composite agreement. The technical documentation was divided into three parts: (i) pertaining to imported equipment, (ii) equipment yet to be procured or manufactured, and (iii) post-import activities. The Tribunal concluded that since separate values were not shown, the entire value of technical documentation (12.5 million DM) should be included in the value of the imported equipment (13.5 million DM).

3. Applicability of Rule 9(1)(b)(iv) and Rule 9(1)(e) of the Customs Valuation Rules, 1988:
The Tribunal's reasoning was based on Rule 9(1)(b)(iv) and Rule 9(1)(e). Rule 9(1)(b)(iv) pertains to the value of engineering, development, artwork, design work, and plans necessary for the production of imported goods. Rule 9(1)(e) involves payments made as a condition of sale of imported goods. The Tribunal held that the drawings and technical documents were compulsorily purchasable along with the equipment, thus their value should be included in the equipment's value. However, the Supreme Court found that the Tribunal misinterpreted these rules, as the technical documents were not supplied free of charge or at a reduced cost by the buyer for the production of imported goods, nor were they payments made as a condition of sale.

4. Allegations of under-valuation of imported equipment:
The show cause notice alleged under-valuation of the blast furnace equipment by transferring part of its value to the technical documentation. The Supreme Court noted that the Tribunal did not address this allegation due to its other findings. The Court remanded the case to the Tribunal to examine this plea based on the existing record.

5. Penalty imposition under Section 112 of the Customs Act:
The Commissioner of Customs imposed a penalty of Rs. 5 crores on the appellant, which the Tribunal reduced to Rs. 4 crores. The Tribunal exonerated the appellant's officers and engineering consultant, a decision not challenged by the Revenue. The Supreme Court clarified that the remand would not reopen proceedings against these individuals, and the duty liability and penalty would remain capped at the amounts determined by the Tribunal.

Conclusion:
The Supreme Court set aside the Tribunal's order and remanded the case for re-evaluation of the under-valuation allegation. The Tribunal was directed to reassess the value of the imported goods and determine the duty and penalty within six months. The bank guarantee and deposit by the appellant were to remain until the Tribunal's decision. The appeal was disposed of with no order as to costs.