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TMI Blog2005 (7) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... mple is also drawn at the time of blowing the oxygen. The checking of the above parameters and drawing of the sample is done by an equipment called Sublance which is lowered for this purpose into the converter. The sublance is placed in its position as part of a system with a host of other electrical and mechanical equipments. (ii) The appellants placed an order on M/s. Kerala State Electronics Development Corporation Ltd. (hereinafter referred to as KELTRON ) vide letter of intent dated 31-10-1989 for the design, manufacture and supply of electric controls instrumentation, automation and sublance system for the LD converter in the steel melting shop (known as SMS) for a total value of Rs. 1717.09 lakhs. A total amount of Rs. 1717.09 lakhs was made up of the following four components :- (a) Design and Engineering charges for goods covered under Groups I to IV. (b) Charges for the software package. (c) Charges for supply of other equipments (d) Training charges. The goods covered by the groups I to IV included various items meant for the entire sublance system including the control panels, distributed control system, computer terminals and the subla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are placed on board the vessel at the port of shipment clearly indicated that it would apply only to the items manufactured at MDH. The appellants accepted the tender of KELTRON vide letter dated 28-12-91. The details of the tender are as follows :- Sl. No. Description Value (Rs.) 1. Design and Engineering charges for Group I to IV including design and engineering for computer hardware and systems software as well as documentation. 254.08 2. Extension/modification of software package. 39.10 3. Supply of equipment, commissioning spares, tools tackles, test jigs, etc. 1422.47 4. Training 11.19 Total 1727.56 Due to financial constraints of KELTRON, the appellants opened a letter of credit dated 16-10-92 in favour of MDH. The appellants informed MDH vide letter dated 16-10-92 of the opening of the letter of credit and also confirmed the revised break up of prices after the increase of 2.5% on the contract value of KELTRON as under :- Sl. No. Description Value (in DM) 1. Design, Engineering including docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide their letter dated 12-2-1994. A perusal of list of drawings indicates that the said drawings covered not only the goods supplied by the MDH but other items to be provided by KELTRON also. In the meanwhile, the KELTRON in turn placed a purchase order dated 6-4-1994 on M/s. Raja Corporation for supply of structural items for the sublance system. While doing so, they provided drawings from MDH. KELTRON also informed MDH vide letter dated 30-6-94 of the fact of placing order for supply of structural items and requested MDH to approve the drawing provided by them to M/s. Raja Corporation. MDH also issued a certificate dated 10-2-95 clearly stating that the amount of DM 1269514 related to the design and engineering covering the layout, installation arrangements of sublance, etc. required for the installation and commissioning of sublance and that the drawings did not pertain to the equipment supplied by them. The appellants imported the goods in March 1995. They filed Bill of Entry and in the Bill of Entry indicated the EPCG licence No. and the CIF value indicated therein. They also enclosed the above certificate dated 10-2-95 from MDH. There was some delay in commissioning and insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Advocate along with Shri Anil Kumar, learned Advocate appeared for the appellants. Smt. Shobha L. Chary, learned JCDR appeared for the Revenue. 4. The learned Advocate for the appellants urged the following points:- (i) The Commissioner has held that since one consignment was exported on 29-5-2000, which is after 5-5-2000, the same is not to be taken into consideration for the fulfillment of export obligation and has demanded payment of duty of Rs. 27,07,294/-. Due to some unavoidable circumstances, the appellants were unable to fulfill a small portion of the export obligation amounting to US $ 409445.88 which was made on 29-5-2000. The appellants requested the DGFT to extend the period upto 31-5-2000, i.e. by 25 days. On submissions of the details of exports made by the appellants, the DGFT had issued a release letter dated 19-2-2001 to the appellants informing them that since the export obligation against the EPCG licence dated 6-5-94 has been fulfilled, the letter of undertaking dated 22-7-94 executed by the appellants has been discharged. Since the DGFT is final authority as far as monitoring of fulfillment of export obligation is concerned, the Commissioner should ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner are based on incorrect reading of the entire contract and various letters exchanged between the parties particularly the letter given by the supplier himself. A correct reading of the entire contract would clearly prove that the design and engineering does not relate to the imported goods, etc. (v) Even if it is assumed that the entire amount is attributable to the imported capital goods, the Revenue should be in a position to prove that the appellants had made other payment to MDH who had provided/approved all these drawings free of cost. If the Revenue is not in position to do so, then the evidences given by the appellants and the certificate given by the supplier are to be accepted, especially when the item imported is a standard off the shelf product which price would take into account the amount attributable to its designing and drawing. (vi) Rule 9(1)(b)(iv) of the Customs Valuation Rules cannot be invoked to add the basic engineering fees to the value of the capital goods imported. The above rule will come into play only in a situation where any engineering development or art work, etc. has been supplied by the buyer free of charge or at reduced cost. Further req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the appellants applied for EPCG licence vide letter dated 28-12-93 wherein they had mentioned the CIF value of the goods to be imported in item 20 of the application as DM 3845000 i.e. inclusive of design and engineering charges. Further Annexure-5 gave a detailed break up of the above said value. The EPCG Committee of the DGFT, which includes a representative from the Customs was of the view that the value of design, engineering and related services is to be deducted from the CIF value and consciously excluded the value of design and engineering charges while granting the licence. This was done apparently because the design and drawing charges are not relatable to the capital goods to be imported by the appellants. Even if the Customs representative in the EPCG Committee was of the view that designing and drawing did not relate to the capital goods being imported, a different view cannot be taken now especially after the export obligation has been fulfilled. (xiii) The Customs authorities could have raised the objections regarding the valuation arrived at by the DGFT at the time of import of the goods when all the documents were available with them. The appellants would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (xvi) The Commissioner has not invoked any provision of law in raising the demand of duty of Rs. 2,72,91,510/- towards the value of design and engineering charges and Rs. 27,07,294/- towards non-fulfillment of export obligation. (xvii) In the present case, no demand can be made based on the provisions of Section 28 of the Customs Act, 1962 either within six months or five years from the relevant date. The longer period can invoked only when there is a suppression of material facts. All relevant information was furnished at the time of import and the authorities were very much aware of the EPCG licence and the break up in the invoice. In view of this position, there is no ground for invoking the longer period. The goods were imported in March 1995 and the show cause notice has been issued in December 1999. Since the longer period cannot be invoked, the demand is time barred. (xviii) The Commissioner has confiscated the goods under Section 111(m) of the Customs Act, 1962 holding that the appellants had mis-declared the value of the goods both the Licencing Authority and Customs authority with a view to evade payment of duty. As stated earlier, the appellants applied to the DGFT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gument that the design and engineering charges were for manufacturing activity to be undertaken in India, this argument is not supported by the provisions of the contract. The contract does not make any distinction between design and engineering charges for manufacture abroad and manufacture in India. On the other hand, the contract makes it abundantly clear that there is considerable design and engineering work to be undertaken for the main equipment and this work was to be completed within three months of entering into the contract. After completion of engineering work, the buyer was to give his approval and then manufacture was to be undertaken, followed by tests and inspection. Refer Time Schedule in the contract page 102, Annexure V. In view of the above, it is clear that the charges where primarily for pre-importation activities. It is conceded that the Division List (Page 72 of the contract) does show the supply of engineering by the seller to the Buyer for 8 items only. But no split up value is available for consideration as to whether any deduction is admissible. Reference is also invited to pages 21, 43, 48, 89, 90, 93 (Annexure III), 99 (Annexure IV) and page 102 (Annexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of any explanation for this deviation from the contract in the certificate, the department has relied on the contract in terms of which this amount of DM 1253100 related to various pre-importation activities connected with the imported goods. (vi) The show cause notice has cited Rule 9(1)(b)(iv) of the Customs Valuation Rules. No doubt the department s case here is not that there was free supply of any service by the buyer. But the buyer has entered into a comprehensive contract for supply of both goods as well as design and engineering services. Therefore the payments made are correctly to be included in the assessable value. Rule 9(1)(e) of the Customs Valuation Rules also includes all payments made as a condition of sale. It is a settled position that citing of inapplicable rules will not vitiate the proceedings if they are otherwise correct in law. It is also pointed out that this contention was not taken up before the adjudicating authority. (vii) With regard to argument that Customs do not have the authority to alter the value fixed by the licencing authorities in the EPCG licence and that if any such issue arose, the department should have brought it to the notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y were interested to give the work to KELTRON. M/s. KELTRON in turn entered into an agreement with the MDH, Germany. This agreement covers design, engineering including documentation, supplies and related services. The agreement is a very comprehensive one. It is seen that the entire Automatic Sublance System has not been imported from the MDH. The imported capital goods are mentioned in Para 4.1.1, 4.1.2, 4.2, 4.3, 4.4. For installing the Automatic Sublance System from the imported capital goods, other goods manufactured and procured in India were also needed. The contention of the appellants is that the design and engineering charges represent the charges incurred in connection with the goods manufactured and procured in India and not related to the imported goods. In this connection, the appellants have referred to the Division Lists. The Division Lists indicates the items which will be imported from the seller (MDH) and also the items to be procured in India. The contention of the appellants is that the design and engineering charges related to the design of the items to be manufactured in India. This design is carried out by MDH and for that purpose, the said charges were paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel Plant, 6th Floor, Prakashdeep Building, 7, Tolstoy Marg, New Delhi-110001. Gentlemen, With reference to your letter dated 3-11-2003 on the above mentioned subject, I am directed to inform you that your request has been examined by this office. On perusal of the file, it is observed that after Personnel hearing of your representative, Shri Sanjay Dargan, Manager (Exports) in EPCG Committee meeting held on 21-2-94 and on comments of technical authorities in subsequent EPCG Committee meeting held on 25-4-94, the Committee decided to exclude the items mentioned at Sl No. 1 5 of the break up list of the CGs provided by the Company i.e. Design Engineering including documentation project handling work shop tests inspection, which did not cover under the EPCG scheme. You are therefore informed that pursuant to the decision of the EPCG Committee, a licence (No. P/CG/2133084) was issued to Rashtriya Ispat Nigam Ltd. for a CIF value of DM 2560156 (Rs. 47414089/-) instead of a CIF value of DM 3845000 as applied for by reducing the value of licence accordingly after a personnel hearing of Co. s representative. Yours faithfully, Sd/- xxxxxxxxx (N. SRIVASTAVA) FOREI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect CIF value on such a licence issued by the DGFT and this gets subsequently noticed at the time of Import/assessment, then this will be brought to the notice of the Member (Customs) DGFT immediately for suitable rectification. This is also because DGFT will have to simultaneously increase the CIF value of the EPCG Licence and also the quantum of export obligation specified therein. Unilateral action by Customs in such cases may ultimately help the EPCG licence holder to escape the clutches of law because under EPCG Scheme both Customs and DGFT authorities have important roles to play. 4. It is therefore reiterated that in all cases pertaining to EPCG Scheme where Customs have doubts about valuation, quantum of EO etc., the jurisdictional Commissioner of Customs scrupulously follow the instructions contained in DOR Circular No. 24/2002. In fact even in this Circular, Board has clarified the Circular No 24/2002-Cus., dated 6-5-2002 that normally redemption of Bond/BG filed under EPCG Scheme by the licence holder shall be allowed by Customs on the basis of E.O. Discharge Certificate issued by the DGFT authorities. However, in case of doubts, Customs may refer the matter to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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