2015 (1) TMI 406 - AT - Customs

Valuation - Inclusion of Process Licence Agreement; Basic Engineering Services; and supervisory services in the assessable value of the capital goods imported by the appellant - Demand of differential duty - Rule 9(1) (c) and 9 (1) (e) of the Customs Valuation Rules 1988 (CVR in short) read with Section 14 of the Customs Act 1962 - Held that - We have perused all the agreements entered into by the importer appellant with the foreign supplier. It will be useful and relevant to note some of the terms and conditions of these agreements to understand the nature of the transaction. It is also relevant to note that all the agreements were entered into on the same day - A combined reading of these agreements make it very clear that all these agreements are interlinked and inter-dependent and have direct nexus with each other. It is only in pursuance of these agreements the supply of the equipment have been made by Davy/HYL and the services provided by these agreements are necessary and essential for the installation operation maintenance and use of the equipment by the appellant. Thus these four agreements constitute a package and cannot be separated from one another and the consideration paid under these different agreements forms an integral part of the supply of equipment agreement. It is in the light of the factual matrix discussed above the question whether the royalty payments made in respect of technical know-how and the various fees paid for engineering services and supervisory services are includible in the value of the equipment supplied under Rule 9 (1) (c) and 9(1) (e) of CVR 1988 has to be examined. Royalty paid for the Process Know-how and the various fees paid for basic engineering services and supervisory services are includible in the assessable value of the equipment imported under Rule 9(1)(c) and 9(1)(e) of CVR 1988 as these payments are integrally connected with the supply of the equipment and formed part of a package deal. Therefore we do not find infirmity in the order passed by the lower authorities in this regard. - The obligations under these agreements remain intact and we do not understand how the appellant can take this plea. For determination of assessable value not only the amounts paid but required to be paid under the contracts entered with the supplier have to be taken into account. In the absence of any conclusive evidence to show that the payments so far made is towards the final settlement of all the obligations the appellant s plea in this regard cannot be entertained. CA certificate is not the authority for determination of liabilities and future obligations arising out of contract. In the absence of any satisfactory evidence duly certified by the foreign equipment supplier the plea of the appellant in this regard cannot be entertained and therefore the lower authorities have rightly rejected this contention and we do not find any infirmity or illegality in such a decision. - Decided against Assesse.

Issues Involved:
1. Includibility of amounts paid under the Process Licence Agreement, Basic Engineering Services Agreement, and Supervisory Services Agreement in the assessable value of imported capital goods.
2. Applicability of Rule 9(1)(c) and 9(1)(e) of the Customs Valuation Rules, 1988 (CVR) read with Section 14 of the Customs Act, 1962.
3. Rejection of transaction value due to the package deal nature of multiple agreements.
4. Relevance of post-importation activities and their impact on the assessable value.
5. Applicability of precedents and judicial decisions to the facts of the case.

Detailed Analysis:

1. Includibility of Amounts Paid Under Various Agreements:
The core issue revolves around whether the amounts paid under the Process Licence Agreement (USD 2,250,000), Basic Engineering Services Agreement (USD 16,231,000), and Supervisory Services Agreement (USD 3,769,000) should be included in the assessable value of the imported capital goods. The department contends that these amounts are includible under Rule 9(1)(c) and 9(1)(e) of the CVR, 1988, as they form an integral part of the package deal for the supply of equipment necessary for the operationalization of the plant.

2. Applicability of Rule 9(1)(c) and 9(1)(e) of CVR:
According to Rule 9(1)(c), royalties and license fees related to the imported goods and paid as a condition of sale are includible in the assessable value. Rule 9(1)(e) includes engineering, development, artwork, design work, and plans and sketches necessary for the production of the imported goods. The Tribunal found that the amounts paid under the Process Licence Agreement, Basic Engineering Services Agreement, and Supervisory Services Agreement are directly related to the imported capital goods and necessary for their operationalization, thus satisfying the conditions of Rule 9(1)(c) and 9(1)(e).

3. Rejection of Transaction Value Due to Package Deal:
The lower authorities rejected the transaction value of the imported capital goods on the grounds that the appellant entered into four agreements as part of a package deal. The Tribunal upheld this view, stating that the agreements for equipment supply, basic engineering services, process license, and supervisory services are interlinked and interdependent. This package deal nature necessitates the inclusion of the amounts paid under these agreements in the assessable value of the imported goods.

4. Relevance of Post-Importation Activities:
The appellant argued that the amounts paid for basic engineering services and supervisory services pertain to post-importation activities and should not be included in the assessable value. However, the Tribunal noted that these services are essential for the installation, operation, maintenance, and use of the imported equipment, making them integral to the assessable value under Rule 9(1)(e). The Tribunal emphasized that the interpretative note to Rule 4, which excludes post-importation activities, does not apply in this context.

5. Applicability of Precedents and Judicial Decisions:
The appellant relied on several judicial decisions, including J.K. Corporation Ltd., Toyota Kirloskar Motor Pvt. Ltd., and Indo-Gulf Corporation Ltd., to argue that the payments under the various agreements should not be included in the assessable value. However, the Tribunal distinguished these cases based on factual differences and found them inapplicable to the present case. Instead, the Tribunal found the decisions in Essar Gujarat Ltd., Otto India Pvt. Ltd., and Andhra Petrochemicals Ltd. more relevant, as they involved similar issues of including payments for technical know-how, engineering services, and supervisory services in the assessable value of imported equipment.

Conclusion:
The Tribunal concluded that the amounts paid under the Process Licence Agreement, Basic Engineering Services Agreement, and Supervisory Services Agreement are includible in the assessable value of the imported capital goods under Rule 9(1)(c) and 9(1)(e) of the CVR, 1988. The appeal was dismissed, and the order of the lower authorities was upheld. The Tribunal emphasized that the payments made under the various agreements are integrally connected with the supply of the equipment and form part of a package deal necessary for the operationalization of the plant.

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