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TMI Blog2015 (1) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by Davy/HYL and the services provided by these agreements are necessary and essential for the installation, operation, maintenance and use of the equipment by the appellant. Thus these four agreements constitute a package and cannot be separated from one another and the consideration paid under these different agreements, forms an integral part of the supply of equipment agreement. It is in the light of the factual matrix discussed above, the question whether the royalty payments made in respect of technical know-how and the various fees paid for engineering services and supervisory services are includible in the value of the equipment supplied under Rule 9 (1) (c) and 9(1) (e) of CVR, 1988 has to be examined. Royalty paid for the Process Know-how and the various fees paid for basic engineering services and supervisory services are includible in the assessable value of the equipment imported under Rule 9(1)(c) and 9(1)(e) of CVR, 1988 as these payments are integrally connected with the supply of the equipment and formed part of a package deal. Therefore, we do not find infirmity in the order passed by the lower authorities in this regard. - The obligations under these agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitial setting up of a plant to manufacture 'hot briquette sponge iron' in Raigad District of Maharashtra State under the Project Import Regulations, 1986. For this purpose they entered into four agreements, all dated 22/10/1989 with two foreign suppliers/collaborators, namely, M/s. Davy Dravo, Pennsylvania, USA (Davy in short) and M/s. HYLSA, S.A. de CV, Mexico (HYL in short). The agreements pertained to (a) Supply of Equipment Agreement; (b) Basic Engineering Services Agreement; (c) Process Licence Agreement and (d) Supervisory Services Agreement. The suppliers and the appellant are not related. The scope of the agreement are briefly as follows:- S.No. Name of the Agreement Scope of the Agreement Consideration in US $ 1 Supply of Equipment Agreement Equipment specified in Annexure E to the agreement 25,252,935 2 Basic Engineering & training agreement Supply of basic engineering documents like drawings, designs, specifications, calculations. Management, administration, etc. for erection and commissioning of the sponge iron plant 2,250,000 3 Process Licence Agreement Supply of know-how consisting of (a) HYL III process, (b) CO 2 removal process and (c) koppern pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been determined based on the actual production of 2.25 million for 3 years. The royalty is not linked to the imported capital goods at all but to the manufacture of final product with the use of the capital goods and therefore the condition that royalty paid should be relatable to the imported goods is not satisfied. The said agreement also does not stipulate that the capital goods shall not be sold to the appellant in case royalty is not paid and the very fact that the plant has been set up with the help of capital goods imported from others, other than Davy/HYL, is indicative of the fact the payment of royalty is not a condition of sale. The Chartered Accountant's certificate dated 26-5-2005 also affirms the submission of the appellant in this regard. Reliance is also placed on the decision of this Tribunal in the case of Ibex Gallagher Ltd. [2005 (191) ELT 967] affirmed by the apex court [2006 (197) ELT A 193]. 3.4 Under the basic engineering service agreement, various drawings relating to the setting up of the plant supplied to the appellants by Davy was supplied. The appellant had also appointed various engineering consultant firms in India to undertake detailed engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (112) ELT 479 (SC)] is also inapplicable. 3.7 Reliance is mainly placed on the following decisions - (a) J.K. Corporation Ltd. [2007 (208) ELT 485 (SC)]; (b) Toyota Kirloskar Motor Pvt. Ltd. [2007 (213) ELT 4 (SC)] (c) Indo-Gulf Corporation Ltd. [2005 (182) ELT 77] In the light of the above, it is pleaded that the impugned order is not sustainable in law and the appeal be allowed by setting aside the same. 4. The ld. Additional Commissioner (AR) appearing for the Revenue made the following submissions, while re-iterating the findings of the lower authorities. 4(i) The appellant imported the capital goods to set up a plant for manufacture of hot briquette sponge iron. To make the plant operational, the appellant needed basic engineering services, process licence and supervisory services. Therefore the supply of equipment agreement is closely linked to the other three agreements without which the plant could not have been made operational. From the supply of equipment agreement it can be seen that it incorporated the HYL III direct reduction process and there was a pre-existing arrangement between HYL and Davy in this regard. The production of the end product of the desir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusions are discussed in the ensuing paragraphs. 5.1 We have perused all the agreements entered into by the importer appellant with the foreign supplier. It will be useful and relevant to note some of the terms and conditions of these agreements to understand the nature of the transaction. It is also relevant to note that all the agreements were entered into on the same day. The salient features of these agreements are briefly discussed below: (I) Supply of equipment agreement: The agreement is between the appellant on the one part and M/s Davy (equipment supplier) and M/s HYL the owner of the process know-how used in the plant, on the other. The preamble of the agreement states that the equipment imported is for the direct reduction of iron oxide to manufacture hot briquetted iron incorporating the HYL III direct reduction process. HYL is fully acquainted with the type of equipment required for such plants. There are pre-existing arrangements between Davy and HYL pursuant to which Davy acquired expertise relating to the engineering and design of the HYL direct reduction process plant of the type required by the appellant and the equipment required for such plant. Discussions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonnel to provide specialised advice to the appellant to supervise the detailed engineering as also the erection, start-up, performance testing and commissioning of the plant and to train the appellant's personnel. 5.2 A combined reading of these agreements make it very clear that all these agreements are interlinked and inter-dependent and have direct nexus with each other. It is only in pursuance of these agreements, the supply of the equipment have been made by Davy/HYL and the services provided by these agreements are necessary and essential for the installation, operation, maintenance and use of the equipment by the appellant. Thus these four agreements constitute a package and cannot be separated from one another and the consideration paid under these different agreements, forms an integral part of the supply of equipment agreement. It is in the light of the factual matrix discussed above, the question whether the royalty payments made in respect of technical know-how and the various fees paid for engineering services and supervisory services are includible in the value of the equipment supplied under Rule 9 (1) (c) and 9(1) (e) of CVR, 1988 has to be examined. 5.3 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the intended purpose of manufacture of hot briquetted sponge iron and without these services, the plant and equipment could not have been made operational at all. In view of the significant variance obtaining in the facts of the present case with those obtaining in the facts of the cases relied upon by the appellant, the ratio of those decisions cannot be made applicable. The hon'ble Supreme Court in the case of CCE v. Al Noori Tobacco Products 2004 (170) ELT 135 (SC) held that : "Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed...... These observations must be read in the context in which they appear to have been stated ..... Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes". The Supreme Court further observed that "circumstantial flexibility, one additional or different fact may make a word of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper". Therefore, we are of the consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Midrex licence to operate the plant and the pre-condition imposed in Clause 11 of the purchase agreement about the operation licence from Midrex was to ensure that EGL got a plant which could be made operational with Midrex technology. 23. Therefore, the process licence fees of DM 2,000,000 was rightly added to the purchase price by the Collector of Customs. The order of CEGAT on this question is set aside. 27. Therefore, the payment of DM 10,100,000 was being made for the transfer of technology under the Process Licence Agreement entered into with Midrex. The services mentioned hereinabove are to be part of Licensing Agreement with Midrex. This agreement was a pre-requisite for finalisation of the contract with TIL to purchase the plant at Emden. The licence is not merely a permission to use the plant, but also to provide technical know-how to make the plant functional and also to improve the capacity of the plant by incorporating Hot Briquetting system. As all these services were to be rendered under the Process Licence Agreement with Midrex, the amount payable to Midrex as part of the Process Licence fee has to be included in the value of the plant. 28. So far as payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar issue came up for consideration before this Tribunal in the Otto India Pvt. Ltd. case [2002 (149) ELT 477]. The question for consideration was whether the price paid for technical know-how for import of equipment from collaborator of importer could be included in the assessable value of the goods imported. The relevant extracts from the said decision are reproduced below:- "It is admitted fact that the participation of M/s. HWIL in this Project was based on the technical know-how from their collaborators in Germany. It is also mentioned by the Appellants in the Memorandum of Appeals that they were "obliged to purchase and import certain machinery and equipment from them on the basis of normal commercial transaction on principal to principal basis with a view to ensure that the performance of the plant could be guaranteed by them, which was one of the conditions insisted upon by SAIL-DSP." Further M/s. KHD Humboldt Wedag A.G., Germany confirmed to M/s. SAIL under their letter dated 13-1-94 the supply of components and services by them to M/s. HWIL. The impugned goods were mentioned in the said letter. We also observe from the Adjudication Order that Shri A.N. Aash who appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering services and supervisory services are includible in the assessable value of the equipment imported under Rule 9(1)(c) and 9(1)(e) of CVR, 1988 as these payments are integrally connected with the supply of the equipment and formed part of a package deal. Therefore, we do not find infirmity in the order passed by the lower authorities in this regard. 5.5 A contention has been raised by the appellant that they have made a payment of only US $ 1,07,12,000/- to M/s Davy in terms of the Basic Engineering and Training Agreement and they have not paid any royalty to M/s Davy in terms of the Process Licensing Agreement. Two CA certificates dated 16/07/2005 and 26/05/2005 have been submitted in support of this contention. This contention has been rejected by the lower authorities on the ground it is not merely whether payment has been made, but the amount payable under the contract has to be taken into account for determination of valuation, relying on the decision of the hon'ble Apex Court in the case of Electronics Corporation of India (supra). A copy of a settlement agreement dated 01/08/1996 has been produced in this regard. We have perused the said agreement. From a reading ..... X X X X Extracts X X X X X X X X Extracts X X X X
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