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TMI Blog1999 (12) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... paise on the ground that customs duty was not payable in respect of design and engineering charges as these were paid for technical assistance and assembling of the plant. The Deputy Collector, Customs, rejected the refund claims under Adjudication order dated 27-3-1989 holding that since the transaction was unique and it was difficult to determine the price at which such or like goods were ordinarily sold, the price would be determined as per provisions of Rule 8 of Customs Valuation Rules, 1963; that the nearest ascertainable value would be the cost of importation of the goods, and all the elements of the cost which would be incurred before the importation of the goods would be included in determining the assessable value of the goods; that as the cost of design and engineering had been incurred prior to the importation these would form the element of cost of imported goods, even if such costs had been shown separately in the invoice; that these charges could not be separately classified under Heading 49.06 of the Customs Tariff in view of the fact that the whole import was under Project Import Regulations, 1986 under Heading 98.01 and all items imported under the contract would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,07,90,650 (iii) Ocean Freight (Approx) C1 Rs. 1,71,78,093 (iv) Supervision/Long Term Test C1 Rs. 2,67,71,200 Rs.26,47,50,543 4. The learned Counsel mentioned that as per Article 4.02, the total contract price includes the value of all materials, equipment, machinery etc. excluding spare parts; it also includes the costs of engineering, design, drawings, the purchase of material, fabrication, test in factories, transportation to Indian Port, supervision of erection, testing and commissioning and labour costs. He further mentioned that clause (b) of Article 5.01 requires the contractor to prepare and submit invoices separately for (i) design and engineering and for (ii) manufacture and supply; that Article 18 of the Contract deals with supply of drawings and Manuals whereunder it is the responsibility of the contractor to provide the appellant six sets of operation and maintenance manuals, general and details arrangements drawings, erection drawings, repair and maintenance instructions with technical drawings; that different time schedules were fixed in Article 16.05 for supply of manuals and drawings that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the plant and making it ready for delivery has to be added to the value of the Plant... But this apart, other services rendered cannot be treated as adding in any way to the value of the Plant." 6. The learned Counsel also submitted that on the basis of legal advice, sought by them, they had deposited income tax amounting to Rs. 98,24,145/- on design and engineering fees paid to the Contractor under Section 9 of the Income Tax Act, 1961; that Customs duty is a capital cost and it is paid towards project equipment; its cost cannot be considered as income chargeable to income tax; that as they have paid income tax, the Customs duty cannot be charged in respect of designing and engineering expenses. Finally he mentioned that the sequence suggested by Agreement stipulated delivery of some manuals before 5 months of completion of erection that erection can commence only after import and necessarily drawings should come after the import and as such this cost is not to be subjected to Customs duty. He also referred to Article 37 of the Contract according to which the erection documentation and drawings etc. shall be in accordance with the scope of erection work/contract recommended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign Contractor. The learned D.R. also submitted that in Mahendra Mahendra s case the lump sum payment was given in respect of technical know-how which was not relatable to import of CKD packs for the manufacture of engine; that similarly in the case of Visakhapatnam Steel Project, 1992 (62) E.L.T. 572 (T), the Tribunal clearly held that the engineering services were relatable to the lay out of the plant and did not relate to the design and engineering services of the equipment imported; that it is apparent from this decision that if the design and engineering services relate to the equipment imported, Customs duty shall be chargeable. The learned Departmental Representative relied upon the decision in the case of Andhra Petro Chemicals Ltd. v. Collector of Customs, Madras, 1997 (91) E.L.T. 394 (T) - 1994 (51) ECR 96 (T), wherein it was held that it could not be said that DML s know how (foreign supplier) was different from and unrelated to the equipment through which alone the know-how could be used or the production of goods and thus the facts in Mahindra Mahindra were distinguished. He also submitted that the decision in Andhra Petro Chemicals Ltd. has been confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one single contract from designing and engineering to commissioning of the complete system. The Contractor visited the site and obtained all the informations necessary to design, manufacture and supply all the equipments under the contract. It is thus evident that the design and engineering relates to manufacture of the machineries and equipment. This becomes crystal clear from Article 2 which deals with Scope of Work which reads as under :- 2.01 Scope of Work shall mean and include - (i) manufacture, supply and transportation to GDR Port : of machineries, equipment as per Annexure I, (ii) Design and engineering required to be done for (i) supra, (iii) Commissioning, short term and long term tests of machinery and equipments and providing supervision of erection, short term and long term tests. 10.1 This Article leaves no doubt that design and engineering was in respect of manufacture, supply and transportation to GDR port of machineries and equipments. This view is strengthened by Article 4.05 of the Contract which is extracted below - 4.05 The prices for manufacture and supply as well as for design and engineering in Cl R. as stated vide item (1) and (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery knows it well enough. 11.2 The Tribunal in Andhra Petro Chemicals (APL) s case also distinguished the facts in the case of Mahindra Mahindra by observing that the whole transaction between the Appellant therein and foreign supplier was a package, a deal, a unified and integrated agreement for sophisticated and highly developed technology..... APL were not free to purchase from anyone else than through DML. Purchases through DML or their agents were inherent in the guarantee and undertaking of liabilities with regard to the working of the equipment, by the DML." In the present matter also as observed earlier, the whole contract is a unified and integrated transaction of designing and engineering, manufacturing and supply of complete system. The Apex Court, on appeal, has dismissed the appeal in Andhra Petro Chemicals v. Collector of Customs, 1997 (90) E.L.T. 275 (SC) by holding as under :- ........the three agreements represent a single transaction between the appellant and Davy Mckee (London) Limited, U.K. and that they are in the nature of a package deal. It may be that all the equipment that was contemplated to be purchased abroad was not purchased and that some of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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