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TMI Blog2015 (11) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... at the discounts offered are exclusive discounts only to the appellant who is 100% subsidiary of the principal company. Therefore, the appellant s contention that they are eligible for discount of upto 30% for the transfer price is not acceptable. - the rejection of discount and loading of invoice price to different % for each imports made from their related suppliers is liable to be upheld. - Decided against the assessee. Whether the addition of lump sum fee and royalty paid to value of goods in terms of Rule 9 (1) (c) of CVR is correct or otherwise - Held that:- Supreme Court in the case of CC (Prev.) Ahmedabad Vs ESSAR Gujarat Ltd. [1996 (11) TMI 426 - SUPREME COURT OF INDIA] clearly held that Technical Knowhow and lump sum shall be includible in the value of imported goods - The ratio of the Apex Court decision is squarely applicable to the present case as the technical knowhow, lump sum payment, royalty are part of condition of executing the contract with Railways and certainly it is a condition of sale of imported Microlock-II components to the appellant falls within Rule 9 (1) (c) of CVR and includible in the invoice price of imported goods. - the lump sum fee, royalty p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny which holds 100% equity. M/s.Ansaldo Signal NV, Netherlands has their own subsidiary companies located in various countries which are listed below :- * M/s.Union Switch and Signal INC, USA * CSEE Transport, France * M/s.Union Switch and Signal Pty, Australia * M/s.Union Switch and Signal Sdn.Bhd, Malaysia * AT Signal System AB, Sweden * Ansaldo Segnalamentro Ferroviorio S.P.A. Italy * Ansaldo Signal, UK * Ansaldo Transport Signalling Ltd. Ireland. 3. The appellants have entered into agreements with various subsidiary companies including the unit viz. M/s.Union Switch and Signal, Inc. USA for import of components and parts and also for technical knowhow, software maintenance, design and servicing etc. and also paid lump sum payments as well as royalty for technical knowhow etc. The adjudicating authority after following the principles of natural justice in the OIO dt. 21.4.2006 has held as under : 1. The Importers, M/s.Union Switch and Signal Pvt. Ltd., Bangalore and the suppliers, M/s.Ansaldo Signal Nv, Netherlands and their subsidiaries are related in terms of Rule 2 (i), 2(2)(iv) and 2 (2) (v) of Customs Valuation Rules, 1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etherlands. He submits that the adjudicating authority has not accepted the transaction value on the imported goods and loaded the invoice price based on the pricelist of 2002 and rejected the discounts. He submits that the period of imports is from 1999 onwards. The adjudicating authority ordered for loading of all the previous imports from 1991 to 2002 as per the pricelist of 2002. He drew our attention to agreement dt. 1.1.2004 annexed at page 77 of the paper book and referred to clause 9(2) (4) which are related to right to information, technical information, permission to use trade mark and also to provide necessary skill and training to their staff in relation to railway signalling equipments supplied by the foreign company. He drew our attention to second agreement which is called as New General Services Agreement entered into between Ansaldo Signal NV, Netherlands and with various group companies including appellant which is annexed at page 97 w.e.f. 1.1.2002. He submits that the adjudicating authority has agreed that no addition is required as far as the service agreement. 6. He drew our attention to third agreement dt. 27.6.2000 entered with one of group companies i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmits that the adjudicating authority ordered for proportionate loading for the lump sum amount as well as royalty on the invoice price of the imported goods. He submits that as per Rule 9 (1) (c) of CVR, royalty payment can be added only if it is related to the goods imported and if it is a condition of sale. He further submits that in their case there is no condition of sale of goods in this case. Therefore no addition of royalty or lump sum is warranted. He submits that technical knowhow and royalty payment is only for the manufacture of final product and not related to the imported goods. He relied the following case laws :- (1) UOI Vs Mahindra Mahindra Ltd. 1995 (76) ELT 481 (S.C) (2) CC Vs Ferodo India Pvt. Ltd. 2008 (224) ELT 23 (SC) (3) Shasun Chemicals and Drugs Ltd. Vs CC Chennai 2010 (249) ELT 80 (Tri.- Chennai) (4) Vestas RRB India Ltd. Vs CC Chennai 2004 (178) ELT 336 (Tri.- Del.) (5) Engelhard Environmental Sys. India Ltd. Vs CC Chennai 2005 (189) ELT 155 (Tri.- Che.) Royalty and lump sum payments are nothing to do with import of goods and the department has not proved the case but it is only on presumption and assumption and the ingr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments are related to imported goods as well as with domestically manufactured goods and the adjudicating authority has not loaded the entire lumpsum and royalty to the imported goods but only proportionately ordered for loading after excluding the domestically manufactured goods. Since appellant is importing only through their group companies Rule 9 (1) (c) is applicable. 11. We have carefully considered the submissions of both sides and examined the records. The issue in the present appeals relates to (i) whether the appellants are related persons to the suppliers of imported goods within the scope of Rule 2 (2) (vi) of CVR. (ii) whether the denial of special discount offered to the supplier and loading of value of the imported goods as per the list price for each of import items in terms of Rule 4(2) of CVR is correct or otherwise and (iii) whether the addition of lump sum fee and royalty paid to value of goods in terms of Rule 9 (1) (c) of CVR is correct or otherwise and (iv) whether the loading ordered for previous imports of 1999 to 2002 based on price list of 2002 is valid or otherwise. 12. On perusal of the order in original dt. 21.4.2006 passed by the Additional Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards and they imported goods inter alia from their seven overseas 100% subsidiary group companies (overseas supplier) which are as under :- (a) Union Switch and Signal Inc., USA (b) CSEE Transport, France (c) Union Switch and Signal Pty. Ltd., Australia (d) Ansaldo Signal, UK (e) Ansaldo Segnalamento Ferroviario S.P.A. (f) Ansaldo Transport Signalling Ltd., Ireland and (g) AT Signal Systems AB, Sweden Appellant also admitted in their letter that they have imported significant quantities of goods from USS Inc. USA and CSEE Transport, France which are subject matter of dispute in this appeal and imports from other subsidiaries are minimal. With the above corporate background, we find that the appellant and all the 7 subsidiaries group companies are fully owned and controlled by M/s.Ansoldo Signals NV and all the imports are made only from the said group companies and there is no outside translation. Therefore, the transaction between supplier and appellants cannot be at arms length or normal transaction. This is evident from their own declaration submitted to the Department in Annexure-I questionnaire filed by them at para 9 (a) (b) they have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... howing a huge discount is nothing but a special discount limited to the appellant i.e. a 100% subsidiary unit and the appellant accepted the fact that there is no other suppplies of these products to any unrelated buyer in India. Therefore, the appellants reliance on the Hon ble Supreme Court decision in the case of Eicher Tractors Ld. Vs CCE (supra) and the Tribunal decision in the case of Tata Consultancy Services Vs CC (supra) pertains to when the transactions are at arms length and when there is no special consideration, where court held discount of 23% for price list to be accepted. The said decisions not applicable to the present case as the special circumstances is established in this case and the discount is not available to anybody except appellant. As per Rule 4 (2) (c) of CVR the transaction value is acceptable only where the sale does not involve special discount limited to exclusive agent/person. In the present case, it is established beyond doubt that the discounts offered are exclusive discounts only to the appellant who is 100% subsidiary of the principal company. Therefore, the appellant s contention that they are eligible for discount of upto 30% for the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the LICENSOR agrees that the licensee shall have the right to sublicense the technical information and US S Software to such third parties as may be approved by the LICENSOR subject to other terms and conditions of the agreement. It is evident from the above definition that the technical knowhow is directly related to the Microlock and Microlock II which is the patented product of their principal company. The goods imported are various components i.e. CPU, PCB, Relays, Software etc. of Microlock-II. It is relevant to see the copy of literature of Microlock-II. Wayside Control System submitted by the appellant in Annexure A at page 41 of paper book. The description of Microlock-II is reproduced as under :- Depending upon the particular application, wayside control systems could be quite complex with large quantities of relays and/or electronic component wired into wayside bungalows and control cases. To simplify wayside control system installations while increasing their capabilities, flexibility and economy of installation and operation, Union Switch Signal has consolidated vital and non-vital control logic, data transmission and coded track circuits into a sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd commissioning of signalling system. The term used in the above contract Solid State (Electronic) Interlocking System is nothing but Microlock-II Railway Signal Interlocking Control System . The same were imported by the appellants form their related another 100% owned subsidiary. It appears the appellants deliberately chosen not to quote the branded name Microlock-II instead described in general as Solid State Electronic System . The L.A have excluded that portion of amount of lump sum royalty related to certain items manufactured through their sub-contractor locally and added proportionately to the imported goods based on the appellants data. Therefore, there is no justification on the appellant s contention that the entire payments are related to manufacture of only indigenous goods. It is apparent that there appears that there is no manufacture and sale of indigenous components as all these are only PCB, CPU relays, electronic circuits etc. The agreements confirm that knowhow is directly related to imported goods i.e. Microlock-II and other components without these imported components the contract has no value and cannot be put to use. The appellants rely upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It has also to be borne in mind that these services were being rendered in order to improve the capacity of the plant by incorporating Hot Briquetting facilities. 28. So far as payment of DM 23,100,000 is concerned, this sum is to be paid for Technical Services . A sum of DM 2,200,000 was payable for theoretical and practical training. This sum cannot be added to the value of the plant in any way. The sum of DM 23,100,000 payable for engineering and consultancy fee as specified in the agreement includes services like basic engineering and re-engineering for relocation of the existing plant at Hazira, India and basic engineering pac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existing DR plant will be retained. The EMDEN Design Criteria and the Hazira Design Criteria are stipulated in Annexure III of this Agreement. Collaborator will perform all process calculations on the basis of the design criteria applicable for Hazira and perform the re-engineering work to the extent required simultaneously considering the incorporation of Hot Discharge and Hot Briquetting facilities. 2.3.4.1 Prepare complete list of all new, missing equipment, machinery, electrics, instrumentation, refractories, insulation, lubricants, chemicals, catalyst to be procured, modified erected and commissioned as well as a list of wear and spare parts for the first two years of operation, all with engineering specifications, sufficient to enable ESSAR to arrange timely procurement COLLABORATOR will assist ESSAR in providing technical clarifications during evaluation and negotiations with vendors. 2.3.4.2 Prepare a list of items requiring re-conditioning, along with relevant specifications for these items. Nature and extent of re-conditioning will also be specified by COLLABORATOR which will be further discussed and agreed with ESSAR and MECON in accordance with Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, designs etc. imported by ECIL no doubt incorporated the trent technology so reverently spoken of by the counsels before us. In the absence of this technology, M/s. ECIL could not or would not be able to put the machines together from the components imported by them. This technology fee by whatsoever title called, was thus dutiable. Duty evaded by M/s. ECIL therefore is legally recoverable. 22. An argument was made by Shri Parasurampuria that the responsibility to pay the fees for the technology was on ECIL-RPIL and not on ECIL, and therefore there was no call for loading of prices of imports made by ECIL. We have brought out about the circumstances in which the fees were agreed to be charged and paid and therefore do not wish to go into this argument except to state that ECIL-RSPL was only a child of convenience and at all times the physical imports were made and obligations were undertaken only by ECIL. 23. Both counsels stated that the quantum of duty confirmed in the impugned order was wrongly calculated. The show-cause notice alleged that the value of imported drawings/designs was US$ 10,90,000 equivalent to ₹ 3,75,23,700/-. Duty demanded consequently was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related party. We are surprised to know that the appellant being a multinational company knowing the legal requirements failed to disclose the facts before importation nor filed any declaration on the related party transactions and imported goods from 1999 to 2001 which are mandatory requirement for assessment and clearance of goods but chose to suppress the above facts and paid customs duty on the declared value. It is abundantly clear that but for the department s efforts, this could not have been brought to light. Therefore, we have no hesitation in holding that since the appellants had suppressed the facts of their related party transaction the adjudicating authority had rightly ordered for determination of value of all the imports made in 1999 to 2001 based on the Transfer price list of 2002. 20. In view of foregoing discussions and findings and by respectfully following the Apex Court s and Tribunal decision referred above, we hold that (i) the appellants and the suppliers are related in terms of Rule 2 (i), 2(2) (iv) and 2 (2) (v) of CVR. (ii) The adjudication order of rejection of discount and declared value and redetermination of value under Rule(8) and loadin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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