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TMI Blog2006 (9) TMI 375X X X X Extracts X X X X X X X X Extracts X X X X ..... 94, RIL imported through Courier 7 (seven) cartons which were cleared as Company Manuals of No Commercial value. Upon investigation, the department came to believe that cartons in question contained printed matter in the nature of FEEP (front end engineering package). Further verification of all details revealed that these FFEP were part of Agreements entered into by RIL with M/s. ICIC P/ John Brown for establishment of a plant in India for the manufacture of Purified teraphthalic acid (PTA). These agreements are as follows : Sr. No. Description Date Amount US$ Million Contracting Party 1. Know How and License 12-4-1994 42 M/s ICICI P 1.1 Agreement : 03} (initially with 1.2 Basic Engineering (FEEP) manuals License fee 39} M/s John Brown) 2. Engineering Service Agreement 6-1-1995 05 M/s John Brown 3. Buying Services Agreement 6-1-1995 08 M/s John Brown It was noted that in the Agreement at Sr. No. 1 above of US$ 42 Million, US $39 million was for the License Fee and US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom them as the provisions of Section 28AA of Customs Act, 1962 from the date of assessment of their first Bill of Entry till the date they pay the entire amount demanded at sub-para (b) (e) above : (g) a mandatory penalty equal to duty at (e) above under Section 114A should not be imposed on them in view of (e) above. (b) On adjudication the Commissioner of Customs, by an Order No. CAO/No. 2000/CAC/CC-KPS dated 11th January, 2000, ordered : 132. In the circumstances, I pass the following order - 1. The assessment being still provisional, the proposals to levy interest under Section 28AB of the Customs Act, 1962 and to impose mandatory penalty under Section 114(A) of the Customs Act are not tenable and hence dropped. 2. In so far as the various additions to the assessable value of the equipments imported concerned - (a) The amount of US$ 39 million cannot be added, as it is only towards transfer of technology and use of the patent: (b) The amount of US$ 8 million, being in the nature of buying commission cannot be added; (c) Out of the amount of US$ 5 million, paid by the importers to M/s. John Brown, only an amount of US$ 1,30,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that is not applicable. I order confiscation of these manuals under Section 111(m) of the Customs Act, 1962. However, these are not available for confiscation now. 134. For rendering these manuals liable to confiscations, as aforesaid, the importers are liable to penalty under Section under 112(a) of the Customs Act, 1962. Section 112(b) is also invoked in the show cause notice, but that is not applicable. Having regard to the facts and circumstances of the case I impose a nominal penalty of Rs. 10,00,000.00 (Rs. Ten Lakhs only) on the importers under Section 112(a) of the Customs Act, 1962. 135. A very liberal view in the quantum of penalty has been taken on the ground that the importers were possibly under a bona fide impression that the manuals, except for their intrinsic value which was paid by them as the technology transfer fee, were of no commercial value as also contended in para 20.2 of their reply to the notice. Their bona fides are established from the fact that they informed the investigating officers about the receipt of these manuals from the courier agency immediately when asked for by the officers during investigation. The said Show Cause Notice, confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible to exemption and would be liable to lesser rate of duty under Notification 38/94-Cus. (v) The amounts of US $ 1,30,000 in respect of the Engineering Services Agreement is not liable to customs duty. (vi) The confiscation under Section 111(m) and imposition of penalty under Section 112(a) is invalid in law. (vii) The demand raised in the Notice due to addition of various amounts under the above mentioned agreements towards know how licence fee, engineering services and buying commission is unsustainable in view of settled position in law and is liable to be set aside. (c) Therefore the issues, that are required to be considered are : (i) assessment of manuals imported through Courier. (ii) Addition of amounts attributable towards the said agreements to the value of the equipment imported under Project Import Regulations for the PTA plant. 6. After hearing both sides and considering the material on record we find : (a) (i) The extended period of limitation under the proviso to Section 28 CA 62 was invoked at Para 47 of the Show Cause Notice as follows : 47. RIL has deliberately suppressed the actual amount payable for Basic Engineerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IL assessment was on account of the NIL duty being applied or the duty applied at any rate (with an appropriate classification under the tariff) other than NIL but value being taken as NIL as declared or otherwise. There are however certain circumstances prevailing which indicate that indeed the classification/duty at the relevant point of time for the subject class of goods, whether they were described as Company manuals or as technical documents relating to Basic Engineering, was NIL. (iii) At the time of import, i.e. in June 1994, the law on the subject of import of technical documents had evolved and formulated. The judgments of the Tribunal in Roto Inks Private Limited v. Collector of Customs [1990 (47) E.L.T. 398] and Tata Consultancy Services v. Collector of Customs [1991 (53) E.L.T. 454] clearly held then that the imported articles were classifiable under the prevailing Tariff Item 49.01. On a reference to the Larger Bench, in August 2000, in the case of Parsrampuria Synthetics Ltd. v. Commissioner of Customs, New Delhi reported in 2000 (38) RLT 846 also upheld the ratio in these decisions by holding that the expression printed books covered printed material containi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als amounts to a misdeclaration for technical documents relating to basic engineering . Manuals Books may contain any information and may consist of any type of documents relating to basic engineering. In fact, we find from the Know How Agreement, under clause 2.2.1 of Appendix Two relating to FEEP that The process and engineering design information listed in Sections 2.4-2.20 inclusive will be supplied by C P in the form of a manual (emphasis supplied). [Book II, page 465 of Department s Appeal]. Therefore, describing technical documents relating to basic engineering as manuals could not be a willful misstatement or misdeclaration or suppression of facts. (v) Considering, if the goods in question were of a kind classifiable under heading 49.01 as Books and exempted from customs duty in terms of Not. 38/94-Cus. they could still have been classifiable under heading 98.03 and leviable to duty as Baggage. The admitted position is that they were imported by a Courier as his Baggage. We find that they could have not been classified under Heading 98.03 as Baggage for the reasons as follows : 98.03 All dutiable articles, imported by a passenger or a member of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services agreement US$ 08 Million The question for determination is whether or not the consideration in the agreements is addable over and above the value of the equipments, which were contracted through an independent equipment supply agreement, imported for the project for which the agreements came to be executed. The contractor in all the cases is M/s John Brown except in the case of agreement at No. 1 above, which was earlier on assigned to John Brown but changed to IOC P (ICI Chemical Polymers Ltd). ICI P are the holders of the Rights of ICI (Imperial Chemical Industries PLC) Patent and licenced technical know how for the manufacture of PTA by a particular process. (ii) As regards the know how and licence fees, the main plank of the departments case rests on the premise that the Licence and know how agreement and the equipment supply agreement are inter related and mutually dependent and that the equipment supply agreement of John Brown has a direct nexus with the know how engineering agreement with ICIC P without which the ICI technology and engineering information could not have made the plant ready for operation. And that the entire engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. A reading of the Rules accordingly indicates that, for Rule 9(1)(b) (iv), the value for engineering, development, art work, design work and plans and sketches can be added to the value of the equipment in case such work is necessary for the production of the imported goods and also that such value has not already been included in the cost of the imported goods. For Rule 9 1(c), the royalties and licence fees are addable to the imported goods in case they related to the imported goods and are a condition of sale of the goods being valued. For Rule 9(1)(e), all other payments, which are to be made as a condition of sale of the imported goods, are to be added. (b) The perusal of the agreement [Book II running pages 424 to 491 of Appeal No. C/189/2001-Mum filed by the department] illustrates that ICIC P operated in the United Kingdom a plant for the manufacture of PTA by the Bromine assisted air oxidation of Paraxylene (Px) and possessed tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n information for setting up a plant in India which plant, if set up in the manner provided including the sequence of the equipment as per the flow sheets and use of proprietary catalysts, is likely to guarantee the manufacture of PTA. Therefore, nowhere does it make a condition that the equipments which are to be imported for setting up the plant are a precondition in terms of this agreement or that it is a condition of the sale of those equipment that the licence fee herein needs to be paid as a condition of sale of those equipment. Besides the entire process is for manufacture of PTA in India and the payment for such a technology to be employed at Hazira in India. It is conceivable that this agreement could have materialized even without purchase of an equipment. Similarly, equipment could have been purchased without having to pay a licence fee under the agreement. Similarly, the equipment supply agreement also does not have a condition making it precedent that a licence fee needs to be paid for the equipment supply to happen. Since the licence fees to ICIC P is not a condition of sale of the imported goods, addition under Rule 9(1)(c) will not be permitted. We also refer to Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards the actual costs of the Vendors by the Importer through M/s. John Brown. There are voluminous records of reconciliation attached to the Affidavits. (iv) A submission was made on behalf of RIL that the Apex Court judgment of Essar Gujarat is not applicable to the present case as the payment made was in respect of licence fee for manufacture of goods in India and the technical know how for setting up in India of a plant to manufacture goods namely PTA. The amount of US $ 39 Million was not in respect of equipments imported nor was it a condition of sale of the goods being valued. Considering the circumstances and the facts we would agree that the decision in the case of Essar Gujarat would not apply in this case as no plant is being imported, the import of which is possible only on payment of the licence fee. Therefore the reliance placed by revenue on the Essar case cannot be upheld in the facts of this case. On the other hand we are of the considered opinion that the present sets of circumstances and the position in law is as laid down by the Tribunal in its judgment in the case of NCL Industries Limited v. Commissioner of Customs - 2005 (189) E.L.T. 193 (Tri.-Mumbai) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for high wear parts, lists of suppliers and standard spare part, co-ordination of procurement. inspection and dispatch of plant and equipment and bought out components and erection and commissioning of the plant . The licensed products in respect of which foreign collaborator supplied the Technical know-how as stated in the Agreement did not specify machinery. From the terms of the Agreement, it is not possible to infer that any amount of consideration contemplated in Article 6, was for the machinery which was imported. 5.1 . . Since the Revenue has not been able to establish any nexus between the licence fees and the imported goods by showing that the buyer was required to pay, directly or indirectly as a condition of the sale of the goods being valued, the license fees, the Commissioner (Appeals) was not justified in including the amount payable under the know-how Agreement in the price of the goods in question . In view of above we hold that the know-how/licence fee of US $ 39 Million is not addable to the value of the goods under Rule 9(1)(c) or 9(1)(e). (v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e FEEP cannot be said to be engineering sketches etc. needed for the production of the equipments. As a result Rule 9(1)(b)(iv) is not applicable. (vi) We therefore hold that the Commissioners findings on this issue as contained at paragraphs 98 to 116 [Pages 160 to 167 Appeal No. C/189/2001 filed by the department] of the impugned Order are unassailable. (vii) As regards the engineering services fees , it was contended by the Department that the Commissioner had erred in holding that out of US$5 Millions relating to Engineering services, only an amount US$ 1,30,000 is addable to the value of the equipment on account of preparation of technical specification, requisitions and carrying out technical evaluation of bids and providing technical recommendation related to the equipment. It was pleaded that the services to be rendered by John Brown are relating to fabrication, manufacturing, assembling etc. of we non-Indian goods to be imported for setting up of the plant and hence liable to be included in the value of he equipment in view of the Apex Courts decision in the case of Andhra Petrochemicals v. C.C., Madras - 1997 (90) E.L.T. 275 (S.C.). In short, but for the ICI PTA te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission to the sellers as the commission is paid only to an intermediary. We find that there is an improper appreciation of the position by the Department. The Commissioner at Para 117 to 121 (Pages 167-169 of Appeal No. C/189/2001 filed by the department) has clearly set out the reasons why this amount is not addable to the assessable value of the equipment and we find that the Departments argument above does not deter the role of John Brown in the facts and circumstances expounded in the Commissioners Order. We find that the Department misunderstands the status of John Brown. John Brown is not the seller, but is a person who organizes supply of various components to set up the Plant in India. The entire price paid for the components is given over to the Vendors and John Brown is merely paid a commission for organizing the procurements of the equipments. The price paid over to the Vendors includes Vendor s profit. Article IV of the said agreement clearly spells out the kind of activities undertaken by John Brown. The said agreement clearly shows that John Brown has offered buying services only and is not a seller. These facts are also evidenced in the Affidavits referred to at Par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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