2003 (7) TMI 214 - AT - Customs

Valuation (Customs) - Engineering fees - payment of licence and know-how fee - Whether the licence and know-how fee and engineering fee are required to be added to the price of the imported goods for determination of the assessable value for the purpose of levying customs duty - HELD THAT - In the present case no evidence has been brought on record by the Revenue that the engineering designs were undertaken elsewhere than in India i.e. by M/s. Atochem and was necessary and used for the production of the imported goods. In fact, in terms of the collaboration agreement, M/s. Atochem was to supply only basic engineering design package for the plant. The details of the engineering design package are listed in Annexure 2 to the agreement. The items listed in this annexure are description of process, process flowsheet, material balance, list of equipments, equipment specification sheets etc. and not the items mentioned in the rule. The detailed drawings were made in India by M/s. Dalal Consultants and Engineering Ltd. Therefore, the engineering fee of 6.3 million F.F. was also not required to form part of the assessable value of the imported machinery, as it was not undertaken elsewhere than in India . In view of the foregoing, the appeal is allowed, with consequential relief, if any, to the appellants.

Summary

Issues involved: Determination of assessable value for customs duty u/s Customs Valuation Rules regarding inclusion of licence and know-how fee and engineering fee in the value of imported machinery.

Summary:
The appellant entered into a collaboration agreement for production of Chloromethanes, with fees to be paid to Atochem. Lower authorities included these fees in the value of imported machinery, which the appeal challenges. Appellants argue the fees are unrelated to imported goods as imports were from parties other than Atochem. They contend the fees were for enabling production according to patented know-how, not for individual machinery. The engineering fee was undertaken in India, not elsewhere, as required by Customs Valuation Rules. The Tribunal examined the clauses of the Collaboration Agreement and found that the detailed engineering drawings were made in India, thus not falling under the Valuation Rules.

The impugned order relied on a Supreme Court decision regarding license fees for imported plants, which is not applicable in this case as there is no relationship between the fees and the imported machinery. The know-how supplied was for manufacturing chloromethane, not for operating the imported machines. The Tribunal held that the license and know-how fee need not be added to the value of imported machinery.

Regarding the engineering fee, the relevant rule specifies that the work should be undertaken elsewhere than in India and necessary for production of imported goods. As evidence showed the engineering designs were made in India, the fee was not required to be part of the assessable value of imported machinery. The appeal was allowed in favor of the appellants.