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TMI Blog2012 (9) TMI 712X X X X Extracts X X X X X X X X Extracts X X X X ..... n the value of the goods imported by them. At the time of filing declaration for the purpose of claiming the benefit of project import regulation scheme, they had mentioned only about the supply Agreement and not about the other Agreements relating to Basic Engineering Design undertaken by the licensor and Extended Basic Engineering Design undertaken by FEC who were also the suppliers. It is not the case of the assessee that the department knew the fact of the appellant having made payments under the other two Agreements. There was no justification for the appellant to entertain a belief that the payments under the two Agreements with the Licensor and FEC were towards buyers assist. As already noted, the notice inviting tender was dated 25.6.97 and the specifications for procuring equipments must have been known before inviting tender. Even otherwise we have held that the amounts paid under these two agreements are too high to be considered as towards buyers assist. As all the Bills of Entry except three were provisionally assessed as required under Project Import Regulations and the same were finalized/directed to be finalized by the impugned order. In view of the above, it is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, are being disposed of by this common order. 2. Heard learned Shri Arvind Dattar, Senior Advocate on behalf of MRPL and Shri P.R.V. Ramanan, Special Counsel on behalf of the revenue. Extensive hearings were held on seven days i.e. on 10.04, 11.04, 19.06, 20.06, 21.06, 27.06 and 28.06.2012. Both sides filed gist of oral submissions which have been taken into account. 3. The relevant facts in brief are as follows: (a) MRPL, in 1993, commenced setting up a refinery at Mangalore with a capacity to refine 3 million metric tones per annum (MMTPA) of crude oil. The refinery commenced its commercial operation during March 1996. Subsequently, during 1997-1998, MRPL commenced Phase-II expansion of the refinery to increase the refining capacity from 3 MMTPA to 9 MMTPA. MRPL imported various equipments in this regard under project imports. As a part of Phase-II expansion, MRPL installed a Continuous Catalytic Reforming Unit (hereinafter referred to as CCR2) to produce unleaded high-octane petrol from Naptha. This was set up as a secondary processing unit. The unit was having capacity to process 9400 BPSD (barrels per single day) of naphtha. Installing this CCR2 uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus undervalued the imported consignments. (d) Accordingly, four show-cause notices were issued by ADG DRI answerable to the Commissioner of Customs (Import) Mumbai, Commissioner of Customs (Air-cargo-Import) Mumbai, Commissioner of Customs Import-JNPT and Commissioner of Customs, Mangalore inter alia proposing enhancement of value of the goods imported and demanding differential customs duties and proposing imposition of penalties. (e) CBEC vide Notification No. 133/2006-Cus. (N.T.) dated 08.12.2006 appointed the Commissioner of Customs, Mangalore as the common adjudicating authority to adjudicate the four show-cause notices. (f) After hearing the appellants, the Commissioner decided the four show-cause notices and passed the impugned order dated 30.03.2007. The gist of the order, in respect of each of the show cause notices are reproduced below: Import through Mangalore (a) The goods covered under the subject 3 Bills of Entry (Bs/E No. 596, 599 and 600 all dated 05.03.1999) were held liable for confiscation under Section 111(m) of Customs Act, 1962. Since, the goods were not available for confiscation, a fine of Rs. 10,00,000/- was imposed under Section 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (hereinafter referred to as CVR, 1988) read with Section 14 of the Customs Act, 1962 and demand duty short paid under Section 18(2) of Customs Act, 1962. Import through Air-Cargo Complex, Sahar, Mumbai (a) The goods covered under 16 Bills of Entry were held liable for confiscation under Section 111(m) and since the goods were not available for confiscation, a fine of Rs. 90,000/- was imposed under Section 125 of the Customs Act 1962 and a penalty of Rs. 10,000/- was imposed on MRPL under Section 112(a) of the Customs Act, 1962. (b) He directed the proper officer to finalize the 16 Bills of Entry assessed provisionally, by including the proportionate costs of the basic design package and the extended basic design and engineering in terms of Rules 4 read with 9(1) (b)(iv) of CVR, 1988 read with Section 14 of the Customs Act, 1962 and demand duty short paid under Section 18(2) of the Customs Act 1962. Import through Nhava Sheva, Maharastra (a) The goods covered under 2 Bills of Entry were held liable for confiscation under Section 111(m) and since the goods were not available for confiscation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior to 08.04.2011. (c) There is no effective validation clause to validate show-cause notices issued under the old Section 28, as (i) the amendment does not remove the basis of the Supreme Court decision referred to hereinabove; and (ii) there is no clause which deem a demand made under the old law to be a demand made under the newly substituted provision. Therefore the demands made vide show-cause notices issued under the old Section 28 of the Act are without jurisdiction, and, are entirely unsustainable in law. 4.2. The learned senior advocate also assails the order of the Commissioner on other grounds and the gists of his submissions are as follows: (a) Exhibit G to contract 9802-01 between. MRPL and the Supplier only provides the details of off-shore equipment and materials such as (i) item number; (ii) service/function; (iii) quantities to be supplied; and (iv) whether the sourcing is to be from imported sources or domestic sources. (b) The imported equipment could not have been manufactured only on the basis of the details set out in Exhibit G to contract 9802-01, and, the finding that it is obvious that the equipment and supplies of CCR-2 were manufactured/procur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (s) 23 to 23.4 of the impugned order itself. (h) It is settled by various judicial decisions that the Basic Design for engineering package includes details such as the layout, the position of equipment, the specification of equipment in terms of volume, diameter etc., and, the provisions of Rule 9(1)(b)(iv) of the erstwhile CVR, 1988 cannot apply to such basic design as they have only a remote connection with the engineering drawing and designs which are necessary for production of the imported equipment. Only the detailed design which is necessary for the manufacture of equipment, if at all, can be included in terms of Rule 9(1)(b)(iv) of the erstwhile CVR, 1988 in the assessable value of the imported equipment, if the same is already not specifically included in the cost of the imported equipment sold. (i) The mere fact that the agreement(s) were entered into on the same day and that the parties were common cannot lead to any adverse inference especially when the contents of the clarification dated 20th March, 2007 have not been disproved nor has any evidence to the contrary been led by the department. (j) As the second contract was a contract for services only, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o jurisdiction relying on the decision of the Tribunal in the case of Sundaram Finance vs. Commissioner of Customs reported in 2012 (279) E.L.T. 220 (Tri.-Chennai) and the decision of the Tribunal in the case of M/s Bharti Airtel Ltd. Others vs. Commissioner of Customs, Bangalore, vide Final Order Nos. 365-373/2012 dated 7.6.12, reported in 2012-TIOL-746-CESTAT-BANG. 5.2 The learned special counsel, Shri P.R.V. Ramanan supported the order of the Commissioner with the following submissions: (a) The value attributable to (i) Basic Engineering Design Package (BEDP) supplied by the Process Licensor UOP-IA and (ii) Extended Basic Engineering (EBE) and Detailed Design Engineering (DDE) provided by the supplier (i.e. the Japanese consortium) to itself requires to be added to the value declared by MRPL in the Bs/E relating to various imported goods. (b) The requirement of BEDP is governed by the Engg. Agreement between MRPL and UOP-IA. This agreement has to be read with the Licence Agreement (1993) and the Engg. Agreement (1993) entered into at the time of the setting up of the CCR-1 Plant. (c) A conjoint reading of the three Agreements clearly shows that BEDP is not a mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There was, thus, no need to invoke Rule 10A of CVR. (k) The rationale for inclusion of cost of goods and services under Rule 9 is to place the vertically integrated operations on par with split operations . Parity is ensured so that the transaction value does not get skewed on account of different practices/arrangements. (l) Rule 9 envisages addition of the value of goods and services supplied for use in connection with the production and sale for export of imported goods to the price actually paid or payable for such imported goods. The expression in connection with is of wide import. This does not imply only immediate nexus to vendors costs and prices as argued in the present case. (m) The expression Engineering appearing in Rule 9 (l) (b) (iv) is, again, of wide import. (n) The expression necessary appearing in the said Rule cannot be interpreted so as to include only design costs incurred by the vendors as argued in the present case. A reference to Law Lexicon at pages 13-14 would show that the expression necessary would mean what is indispensable, needful or essential. In the instant case, there is no dispute that the BEDP, EBE and DDE were in actual fact sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to Central Excise matter, applies squarely to the instant case inasmuch as the issue is related to inclusion of costs of design and engineering in the machinery value. 6. The learned Sr. advocate for the appellant-assessee made the following submissions in his rejoinder: (a) MRPL had submitted an Off-shore Supply Contract bearing No. 9802-01 as required under Regulation 5 of the PIR. This refers to the Extended Basic Design (EBD) and the Basic Engineering Design (BED). When there is import of goods through the project import mechanism, there is no statutory requirement on the importer to submit separate and independent contracts with regard to basic design and extended basic design. (b) The patent of UOP is a process patent and not a product patent. (c) The word engineering has been used only in the context of engineering and design specification . In none of the contracts, schedules or exhibits thereof is there any reference to any design or drawing necessary for production of compressors, pre-heaters etc. that were eventually imported. (d) Contracts have to be read as a whole and sentences or clauses cannot be read in isolation. This is made clear in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G, DRI to issue the show-cause notices. 8. Coming to the preliminary issue as to whether the ADG, DRI had the jurisdiction to issue show-cause notice prior to amendment dated 16.9.2011, we find that the same stands decided by this Bench in the case of Bharti Airtel Ltd. Others [2012-TIOL-746-CESTAT-BANG] and the relevant portion of the findings are as follows : 11. We hold that the ADG DRI was competent to issue the impugned show-cause notices for the following reasons. (a) We find that ADG DRI has been appointed as Collector by Notification No. 19/90-Cus (NT) dated 26.4.90. We also note that the ADG DRI has been specifically empowered by the Board vide Circular No. 4/99-Cus dated 15.2.1999 to issue show-cause notices in respect of cases investigated by them. This circular has not been shown to have been rescinded. Further, subsequently, by Notification No 44/2011-Cus (NT) dated 6-7-2011 issued in exercise of powers conferred by Section 2(34), DRI officers including ADG DRI were appointed as proper officers for the purposes of Section 17 and Section 28. In other words, as far as ADG DRI is concerned, there is both appointment as Collector/Commissioner and special authoriz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued by a proper officer under Section 28 of the Customs Act. The Hon ble Supreme Court in the combined decision dated 18.02.2011 in the case of Syed Ali and Kripa Shankar has held that merely appointing a person as an officer of Customs is not sufficient for issuance of notice under Section 28. The said decision did not deal with any show-cause notice issued by ADG DRI. (d) In a matter involving issue of show-cause notice by ADG DRI, the decision of the Mumbai bench of the Tribunal in the case of Chandna Impex Pvt. Ltd. was challenged before the Hon ble Supreme Court. The Hon ble Supreme court vide order dated 06.07.2011 remitted the matter to the Tribunal for fresh consideration of the issue relating to jurisdiction in the light of decision of the Hon ble Supreme Court in the case of Syed Ali. Obviously, the issue pertaining to jurisdiction of ADG DRI to issue notice was left open to be decided by the Tribunal. (e) Section 28 of the Customs Act was amended first on 08.04.2011 and then again on 16.09.2011. As per relevant notes on clauses relating to amendment dated 08.04.2011, Section 28 is being substituted so as to make the provisions more coherent and clear-as als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rule 9 of Customs Valuation Rules. At this juncture, it would be appropriate to reproduce the relevant provisions of the Customs Act and the CVR, 1988, which are reproduced below: Section 2 (41) value , in relation to any goods, means the value thereof determined in accordance with the provisions of sub-section (1) or sub-section (2) of section 4. Section 14 of the Customs Act : Valuation of goods for purposes of assessment (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importance or exportation,, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale : Provided that such price shall be calculated with reference to the rate of exchange as in force o the date on which a bill of entry is presented under section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d goods : (a) Charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment; (b) The cost of transport after importation; (c) Duties and taxes in India. The price actually paid or payable refers to the price for the imported goods. Thus the flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value. Rule 9 of CVR, 1988 Cost and services. - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (a) the following cost and services to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:- (i) commissions and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one for customs purposes with the goods in question; (iii) the cost of packing whether for labour or materials; (b) The value, apportioned as appropriate, of the following goods and services where supplied directly or indirec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that in the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not exceed twenty per cent of free on board value of the goods: Provided also that where the free on board value of the goods is not ascertainable, the costs referred to in clause (a) shall be twenty per cent of the free on board value of the goods plus cost of insurance for clause (i) above and the cost referred to in clause (c) shall be 1.125% of the free on board value of the goods plus cost of transport for clause (iii) above. (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. Interpretative Notes under Rule 9 (1)(b) (iv) 1. Additions for the elements specified in rule 9 (1)(b)(iv) should be based on objective and quantifiable data. In order to minimise the burden for both the importer and proper officer of customs in determining the values to be added, data readily available in the buyer s commercial record system should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Design and services which have gone into the manufacture of such product. He has to merely order by giving the specifications. If a person wants to buy an Air Conditioner, he may specify whether it should be window type or split type and also specify the tonnage besides the brand name. He may consult a specialist to identify such requirements. These specifications are in the nature of buyers assist and the cost incurred for getting such specifications cannot become part of value of the goods in the hands of the supplier. 9.4. When a sophisticated technology is involved in the manufacture of any products and the process involved in the manufacture is a patented one, the equipments required have to be compatible with the patented process and assistance may be required before ordering such equipments. In such a case, the Engineering services utilized for preparing tender documents will be in the nature of buyers assist and the same cannot be treated as necessary in the hands of the manufacturer of the equipments for the purpose of manufacture of such equipments. 9.5. We shall revert back to the scope of Rule 9, particularly Rule 9 (1) (b) (iv) later. 10. At this stage it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the equipment manufactured. In spite of the price for the services rendered by the expert agency having been paid by the buyer, the value thereof is liable to be added to the value of the imported goods for determining the transaction value. In the case at hand it is nobody s case that the buyer had supplied any goods or services free of charge or at reduced cost for use in connection with the production and sale for export of imported goods. All the exercise done by the Tribunal in scrutinizing the documents forming subject matter of contract DM 301 so as to classify them into three categories stated earlier in this judgment was therefore uncalled for. SNP had purchased the entire steel plant equipment from an Italian supplier more than six years before the transaction in question had taken place with the appellant. Such documents must have accompanied the equipments and materials made available to SNP by the Italian supplier of SNP. It cannot be comprehended and certainly it is not the case of the Revenue that the technical documents were supplied or made available by the Italian supplier to SNP either free of charge at the instance of the appellant or cost thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary and used for the production of the imported goods. In fact, in terms of the collaboration agreement, M/s. Atochem was to supply only basic engineering design package for the plant. The details of the engineering design package are listed in Annexure 2 to the agreement. The items listed in this annexure are description of process, process flowsheet, material balance, list of equipments, equipment specification sheets etc. and not the items mentioned in the rule. The detailed drawings were made in India by M/s. Dalal Consultants and Engineering Ltd. Therefore, the engineering fee of 6.3 million F.F. was also not required to form part of the assessable value of the imported machinery, as it was not undertaken elsewhere than in India . [Emphasis supplied] (d) The Tribunal in the decision dated 10.5.2004 in the case of G. E. Plastics considered the scope of Rule 9 (1) (b) (iv) of CVR, 1988 and held as under: 6.It is the Revenue s case that the process diagram and equipment specification supplied by M/s. GE Plastics India Pvt. Ltd. BV, Netherlands were vital for the preparation of detailed engineering drawings for the manufacture of the imported equipment and that is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital equipment manufactured by other manufacturers. DML developed design and engineering and they were not the manufacturer. The manufacturers based in UK, Italy and West Germany manufactured the equipment as per the design/ engineering developed by DML, and they sent the finished products to DML, who in turn invoiced them to APL. In these invoices the manufacturing cost and the profit margin of the manufacturers and the procurement/handling charges of DML were included. 9. The invoice price did not, however, include the design and engineering charges paid separately apart from the contract price. 10. Towards design and engineering charges developed by DML, payment of Pound 11,50,000 was made. .. .. . 16. It was observed that DML s patented Devy process involved confidential technical information, and without supply of the design and engineering of the equipment for such a patented process by DML, no unconnected manufacturer having no access to such confidential design and engineering of the equipment, could produce them. 17. The DML had admitted that they had given specifications to the sub-vendors. The Additional Collector observed that what is said as specifications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove conditions is not fulfilled, then Rule 9(l)(c) cannot be invoked. Consequently, the licence fees paid by the importer-buyer cannot be included in the value of the capital goods. The Capital goods as imported from Outokumpu, as listed herein above are standard goods, otherwise available as off-the-shelf capital goods They are not proved to or alleged to be otherwise. These capital goods, are offered for sale by others. Therefore, Licence Fees in this case do not relate to imported capital goods. (b) As, in the present case, the Licence Fees paid to Outokumpu by the appellants was for manufacture of copper matte from the copper concentrate. The fees paid were not for the manufacture of capital goods imported by the appellants. (c) The manufacture of copper is carried out by the appellants in the plant set up in India by installing and erection capital goods imported not only from Outokumpu but from others also. . .. 6.17. In the present case, no such case as made out in case of Andhra Petrochemical [1997 (90) E.L.T. 275 (S.C.)] is made out by the department. It is not the case of the department that either the appellants or Outokumpu supplied the engineering work necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Commentary on the GATT Customs Valuation Code by Sherman Glashoff edition as under : Detailed specifications, including various dimensions noted on a drawing of the machine, are included in the buyer s order, so as to advise the exporter/manufacturer of what the buyer needs. The cost of engineering and drawing are not part of customs value, even if under taken outside the country to which the machine is shipped, to the extent that they are an appropriate way of ordering the machine that is, of telling the manufacturer the specifications of what is being ordered. Only if the engineering or drawing goes further should it be deemed to be a part of the production process. Upto that point, each specification and instructions is more appropriately regarded as an added requirement or burden imposed upon the manufacturer, rather than a form of assistance. Otherwise expressed, these are buying costs, not costs of the seller from which he is being relieved by the buyer. In our opinion, this would succinctly put the issue in its proper perspective. Accordingly, the FEEP cannot be said to be engineering sketches etc. needed for the production of the equipments. As a result Rule 9(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The wordings of Sections 14 and 14(1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind. . . 13. No part of the knowhow fee was to be incurred by the respondent herein either for the purpose of fabrication of the plant and machinery or for any design in respect whereof M/s. Samsung held the patent right. .. . .. 21. We cannot, therefore, accept the contention of Mr. Radhakrishnan. More over, no case has been made out that the sale price of the imported plant and machinery had been under-stated. (i) The Supreme Court in the decision dated 17.5.2007 in the case of Commissioner of Customs (Port), Chennai vs. Toyota Kirloskar Motor P. Ltd. dealt with the issue relating to royalty and know-how fees paid to the supplier of capital goods and scope of Rule 9 (1) (c) of CVR, 1988 and hled as under : 29. Therefore, law laid down in Essar Gujarat Limited (supra) and J.K. Corporation Limited (supra) are absolutely clear and explicit. Apart from the fact that Essar Gujarat Limited (supra) was determined on the peculiar facts obtaining therein and furthermore having regard to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd design of equipment supplied and thus the costs and consideration payable to the supplier under the agreement is relatable to the capital goods imported by the appellant from the related supplier. The Commissioner (Appeals) however, held that plant and machinery, spares etc. could be sold to the appellant only after accepting the purchase of technical know-how without which the factory of the appellant could neither be erected nor function qualitatively. Therefore, the technical know-how in relation to the imported goods and is also pre-condition for the sale of the impugned capital goods. However, going by all the above clauses, we are of the view that the technical know-how agreement entered into with the over-seas supplier was for supply of technical know-how for the manufacture of precision castings of the appellants in India and had no relation with the capital goods being imported. Clause 2.1.1 of the Technical Collaboration Agreement provides that the foreign supplier will provide to the appellants the lay out of the plant machinery and equipment for the foundry and specifications and designs on the basis of which plant machinery and equipment etc. will be installed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal in Otto India Pvt. Ltd. v. CC, Kolkata - 2002 (149) E.L.T. 477 (Tri.- Kolkata), upheld by the Apex Court in 2003 (158) E.L.T. A331 (S.C.), (cited by ld. SDR) wherein it was held that the equipment was imported from the foreign collaborator to obtain performance guarantee in absence of which the importer would not get the contract from their buyers or the importer (cited by the ld. SDR) is distinguishable on facts as Otto India Pvt. Ltd. was obliged to purchase plant machinery and equipment from their German collaborator while in the present case, the appellants could purchase either from KINGLOR or from any other supplier either Indian or foreigner. (k) The Tribunal in decision dated 23.1.2008 in the case of Commissioner of Customs, Mumbai Vs. Jaypee Bela Cement considered the issue as to whether lumpsum payment as consideration for consultancy and engineering services in the areas of plant design, production and manufacture techniques attracted Rule 9 (1) (b) (iv) of CVR and held that the same services did not relate to manufacture of imported equipments and rejected the Revenue s appeal for including the said value in the imported goods with the following findings : 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses the Customs to add the royalties/licence fees to the assessable value only in certain conditions, namely, when the royalties/licence fees are related to imported goods; that, when the buyer is required to pay to the seller, directly or indirectly, as the condition of the sale of the goods being valued, such royalties and licence fees are not included in the transaction value. 14. One more significance of the Interpretative Notes is that it has placed the burden on the importer/buyer to prove the correctness of the price of the imported goods in terms of the means prescribed in Rule 4(3)(a) and Rule 4(3)(b). In other words, the CVR mandates the hierarchy of valuation methods to be applied in the event of the transfer price being rejected. Analysis of Rule 9(1)(c) 15. Rule 9(1)(c) extends the quantum of levy under Rule 4. Rule 9(4) mandates that there can be addition to the transaction value except as provided in Rule 9(1) and (2). Hence, addition for cost can only be made in situations coming under Rule 9(1) and (2). Rule 9(1) and (2) is based on the principle of attribution. Under Customs law. valuation is done on pricing whereas in the case of transfer pricing under Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely indicates the lay out, relative size etc. From the size specifications alone construction of engineering equipment is not feasible. Telling the manufacturer, the specification of what is being ordered is only in the nature of buyers assist. Cost incurred towards buyers assist cannot be included in the value of imported goods. (d) When the technical know-how and engineering services are not related to the equipment designs but are for the purpose of preparation of tender documents and for recommending for selection of the equipments the cost of the same cannot be included in the value of imported goods. (e) When a plant imported required a licence without which the plant would be of no use to the importer, payment towards the said licence was clearly held to be a condition of sale and includable in the assessable vale of imported goods. Although technical know-how may be necessary for the setting up of a factory in India, the fees paid for such technical know-how cannot be added to the assessable value of the imported capital goods. (f) The know-how for manufacturing a machine is different from the know-how to manufacture the final products using the machine. The fees pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit scheme which was registered with the Mangalore Customs. The imports took place during the period September 98 to September 1999. Out of the total 66 bills of entry, only 3 bills of entry filed at Custom House, Mangalore were assessed finally and the remaining were all provisionally assessed. 12.2. The relevant facts, which emerge from a careful reading of the agreements, are as follows: (a) As per the Agreement, UOP-IA provided the basic engineering, design and drawings and also the flow diagrams. (b) The consortium of companies namely, TOYO , MITSUI an MITSUBISHI , have undertaken multiple roles such as off-shore designer, supplier of offshore equipments and coordinator of the entire activities relating to setting up of the CCR-2 unit. (c ) The role of FEC as designer did not relate only to equipments /materials procured from offshore but also in respect of material procured within India and in preparing detailed design for the CCR-2 plant site. (d) The designs necessary for the manufacture of the equipments were done in three stages which are as follows: (i) Basic Design Package by UOP; (ii) Extended Basic Design Package by the consortium of three co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith is of wide import and there is no need for immediate nexus to vendors costs and prices. (c) The expression Engineering appearing in Rule 9 (l) (b) (iv) is also of wide import. (d) The expression necessary would mean what is indispensable, needful or essential. 13.2. According to the assessee, the Basic Design Package (BDP) and the Extended Basic Design Package (EBDP) contain only the basic specifications of the nature of the equipment to be supplied. They are only in the nature of buyers assist and relating to the CCR-2 as a whole as opposed to imported equipments above. 14.1. The claim that the BED and EBD only relate to buyers assist and are not directly linked to manufacture of the equipments imported cannot be accepted. The agreements for supply of design and supply of equipments have been entered into on 16.2.1998. These agreements referred to Notice Inviting Tender dated 25.6.1997. Obviously, the appellant should have finalised the specifications before inviting the said tender. Agreement 9802.01 specifically states that the supply of equipments - shall conform to the applicable standards and regulation as mentioned in Exhibit 3.2 of Notice Inviting Tender d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 125 when the goods were held not available for confiscation? 15.1. When the offending goods can be confiscated and when fine can be imposed have been considered by this Bench in detail in the case of Bharti Airtel Ltd. Others and it has been held as under: 19.4. Section 110 of the Customs Act deals with seizure of offending goods both on the import and export side; Section 111 of the Customs Act deals with confiscation of the offending goods on the import side after issue of show-cause notice under Section 124 of the Customs Act. Section 125 of the Customs Act provides for grant of option of redemption of the confiscated goods. At this juncture, it would be appropriate to reproduce the relevant portions of Sections 110, 111, 124, and 125 of the Customs Act: .. 19.5. A close reading of the above provisions of law indicates that seizure in effect is taking possession of the goods pending confiscation and the confiscation involves taking over the ownership of the goods. It is not necessary that every case of takeover of the ownership should be preceded by takeover of possession as taking possession is by way of precaution to avoid disposal of the goods. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe that any goods are liable to confiscation, he may seize such goods . On the other hand, the provisions related to confiscation of illegally imported goods (Section 111) are to the effect that the offending goods brought from a place out of India shall be liable to confiscation . In other words, the seizure is discretionary and in some cases it may not be necessary as mentioned earlier. 19.9. The decision of the Hon ble Supreme Court in the case of Harbans Lal vs. Collector of Central Excise as reported in [AIR 1993 SC 2487], the decision of the Hon ble High Court of Gujarat in the case of J.K.Bardolia Mills vs. M.L. Khunger, Dy. Collector of Customs as reported in [(1975) 16 GLR 119]; and the decision of the Hon ble High Court of Bombay in the case of Mohanlal Devdanbhai Choksey and Others vs. M.P. Mondkar and Others reported in [1988 (37) ELT 528 (Bom.)] relied upon by the department make it clear (a) that confiscation under Section 111 applies to any goods in respect of which offences have been established and not necessarily to all goods which have been seized; (b) that there is no restriction under Section 124 to issue show-cause notice proposing confisca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stead of penalties equivalent to the duty demanded ? 17. The above issue as to whether penalty under Section 114A should be imposed equivalent to the duty demanded plus the corresponding interest accrued under Section 28AB of the said Act instead of penalty equivalent to the duty demanded stands decided by this Bench in the case of Bharti Airttel Others. The relevant findings are reproduced below : 21.2. At this stage, the appeals by the department on the quantum of penalties imposed on the appellant-assessees can be considered. In the said appeals, the prayer is for imposition of penalties equivalent to the duty demanded plus the corresponding interest accrued under Section 28AB of the Act instead of restricting the penalties to duty demanded . Section 114A reads as under: SECTION 114A. Penalty for short-levy or non-levy of duty in certain cases. - Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has [xxx] been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopting the said technology. In the context of manufacture of the equipments, certain confidential information and data are required to be furnished by the Licensor to the actual manufacturer of equipments through the consortium of companies. In view of the above, the consortium of companies is required to ensure secrecy of the information/data received by them. Since the tender inviting documents is dated 25.6.97, whatever engineering services, designs are required for ordering the equipments have to precede the said date. Therefore, the engineering services and design envisaged in the agreements with UOP-IA and FEC cannot be treated as providing mere specifications for the purpose of ordering the equipments. Further, the detailed design which is undertaken by the vendors (who may be any of the three FEC Companies or third parties) also requires review and approval by the Licensor, showing the integrated nature of the design carried out in three stages. The LEC contractors who supply indigenous equipments are also required to undertake design compatible with designs of equipments supplied by FEC. In view of the above, the basic design package and the extended basic design and engi ..... 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