2017 (3) TMI 583 - AT - Customs

Demand of duty on import of designs, drawings/technical specifications - liable to service tax or customs duty - Revenue claim that the drawings/designs, specifications imported have no intrinsic value and value declared by the appellant is grossly over-valued - As per the appellant, the said valuation of ₹ 300 crores was a part of the contract entered into by the appellant awarded under global tender documents. Revenue has no jurisdiction to examine such a contract and to pick up a small part of the contract reflecting the value of various services like drawing, designs and technical engineering services to be availed by them from M/s. CIPL. Held that - the imported drawings and designs is exempted in terms of N/N. 12/2012 Cus dated 17.3.2012 and no Customs duty is required to be paid on the same even if the said import is treated to be import of goods. The Tribunal in the case of Sahil Diamonds Pvt. Ltd. vs. CC 2009 (8) TMI 496 - CESTAT, AHMEDABAD has held that inasmuch as the import of rough diamond were exempted from payment of duty, no penalty can be imposed upon the importer in terms of the provisions of Section 112 of the Customs Act - Identical situation is available in the present case also when the import of design and drawings is exempted in terms of N/N. 12/12-Cus, dated 17.3.2012, the charge of over-valuation of the same cannot be sustained inasmuch no valuation is required to be arrived at by the Customs. We are of the view that in such circumstances neither the goods can be confiscated nor any penalty can be imposed upon the appellants. The receipt of drawing and designs by the appellant form M/s. CIPL was admittedly part of the rendered service on which the appellant has already discharged their Service tax liability under reverse charge basis. The said payment of Service Tax stand accepted by the Revenue. When the appellant brought the said fact to the notice of the adjudicating authority, he simply dismissed it without giving any concrete finding on the same. The appellant have already discharged the Service Tax on the said receipt of drawings, we are of the view that there was no further requirement to file further Bill of Entry with the declared value. It may also be noted that while charging the service tax, the Revenue has nowhere disputed the value of design and drawings and have accepted the same value as correct value of the services. In this scenario also, the Revenue stand adopted in the present proceedings cannot be adopted. There is virtually no evidence on record, to support the Revenue s finding that the drawing and designs are having no intrinsic value. Such finding of the adjudicating authority are based upon his own assumptive surmises and conjectures and not upon any legal and valid evidence on record. Confiscation and penalties set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Validity of the contract and valuation of imported drawings and designs.
2. Allegations of over-valuation and mis-declaration.
3. Jurisdiction of Customs authorities over the contract.
4. Applicability of Customs duty and penalties.
5. Treatment of imported drawings and designs as services.

Issue-wise Detailed Analysis:

1. Validity of the Contract and Valuation of Imported Drawings and Designs:
The appellants entered into a contract with CIPL for a total project cost of ?2997 crores, out of which ?300 crores were allocated for "engineering information, design, and drawings." The contract stipulated stage-wise payments for these services. The Revenue alleged that the drawings and designs were over-valued and had no intrinsic value, asserting that the declared value was intended to unlawfully transfer foreign exchange. The Tribunal found that the contract was valid and that the valuation was part of a comprehensive agreement that included various services, not just the drawings and designs.

2. Allegations of Over-valuation and Mis-declaration:
The Revenue contended that the drawings were initially prepared by TCEL and were already in the appellant's possession, suggesting that the contract with CIPL was a sham to inflate the value. The Tribunal noted that the drawings were sent to CIPL for further modifications and improvements using expertise from Israel Electric Corporation Ltd. The Tribunal concluded that the Revenue's allegations were based on assumptions without concrete evidence and that the value declared was part of the contractual obligations.

3. Jurisdiction of Customs Authorities Over the Contract:
The Tribunal held that the Customs authorities had no jurisdiction to adjudicate the terms of a civil contract between two parties. The Revenue had not challenged the legality of the contract itself, and therefore, could not selectively scrutinize parts of it. The Tribunal emphasized that the Customs authorities could not question the contractual consideration agreed upon by the parties.

4. Applicability of Customs Duty and Penalties:
The Tribunal observed that the imported drawings and designs were exempt from customs duty under Notification No. 12/12 Cus dated 7.3.2012. Citing the case of Sahil Diamonds Pvt. Ltd., the Tribunal held that no penalty could be imposed under Section 112 of the Customs Act when the imported goods were exempt from duty. The Tribunal also noted that the Revenue had accepted the payment of service tax on the receipt of these services, which further negated the need for customs duty assessment.

5. Treatment of Imported Drawings and Designs as Services:
The Tribunal acknowledged that the drawings and designs were treated as services for which the appellants had already paid service tax under the reverse charge mechanism. The Tribunal found that the appellants had mistakenly filed Bills of Entry due to a clerical error in the bank declaration forms. Since the drawings and designs were considered services, there was no requirement to file Bills of Entry or declare their value for customs purposes.

Conclusion:
The Tribunal set aside the order of the Commissioner, ruling that there was no justifiable reason to confiscate the goods or impose penalties. The appeals were allowed with consequential relief to the appellants, emphasizing that the contractual terms and the valuation of services were valid and beyond the purview of Customs authorities.