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TMI Blog2015 (11) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment only from SCI. Due to RBI restrictions of opening of LC, SCI requested the appellant to place order directly with TSDN Malaysia only for three equipments i.e. ID sterilizer doors, screw press P5 and Centrifuge. By virtue of this understanding, the appellants placed purchase order with TSDN for import of these three equipments. There is no direct agreement entered into between the appellant with TSDN for any transfer of technical know-how or for supply of engineering and design or for installation and erection of the palm oil plant. Basic engineering and design supplied by TSDN to CCI relates to lay out drawings of the palm oil plant, assembling and drawing of palm oil plant. Clause 3 of Appendix I provides a complete list of documentation, specifications, piping, valve, instrumentation for the entire setting up of the palm oil plant. Nowhere in the MoU there is any mention that the design, basic engineering designs are related to the imported goods in question. It is pertinent to state that the appellant GAVL has entered into contract with SCI vide No.1182 dated 28.11.1997. As per this contract, they placed revised purchase order dated 9.3.1998. As per this contract betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r manufacture of goods are not relatable to the imported goods and allowed the appeal. - both engineering & design charges and technical know-how fees are not includible in the assessable value and Rule 9(1)(b)(iv), 9(1)(c) and 9(1)(e) are not applicable and we hold that the invoice price is to be accepted as the actual transaction value. - Decided against Revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... required imported equipment and the equipments are manufactured by other companies in Malaysia and supplied to GAVL on the recommendations of CCL. The cost of designs and drawing provided by TSDN would be remitted by CCL to TSDN and CCL in turn will bill from GAVL. 4. CCL will use the technical documentation support of plant. TSDN supplied know-how to CCL for process of manufacture of final product using the assembled equipment. CCL reimbursed TSDN for the design, engineering carried out by TSDN for manufacture of import part of the equipment. CCL also reimburses for technical documentation assembling chemical of the plant. CCL also reimburses for TSDN for technical now how. 5. Commissioner of Customs, in the impugned order dropped the demand of RS.91,801/- in respect of Bill of Entry No. 51857 and he held that ₹ 27.32 lakhs paid by GAVL to TSDN through CCL is includible in the assessable value of goods covered by both Bills of Entry under Rule 9(1)(b)(iv) read with Rule 9(1)(c) of Rule 4 of Customs Valuation Rules, 1988 under Section 14 of Custom Act, 1962. The adjudicating authority had also held that ₹ 50 lakhs towards technical know-how documentation fees towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ail with reference to the scope of MOU contained in clause 1.5, 1.6, 1.7 where the definition of plant, basic engineering, the workshop, drawing, technical documentation has been spelt out. He submits that MOU is for the complete setting up of palm oil plant in India. He submits that as per the definition of basic engineering, it covers to two components Part (a) and (b). Part (a) relates to providing necessary drawings and specifications, data at the tendering stage and Part (b) covers at project execution stage, after CCL being awarded the project, where TSDN shall provide all detail drawings and specifications for execution of palm oil project in India. As per the specific clause in MOU on basic engineering, he submits that goods relates to cover all execution of the palm oil mill project in India and the said basic engineering nowhere relates to the engineering, designs of imported machinery covered under the present Bills of Entry. 9. He further submits that as per clause 1.7, workshop drawing is prepared indigenously by CCL on the basis of basic engineering design submitted by TSDN for manufacture of equipment indigenously. He further submits that the definition of technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o third party payments. The payments made by GAVL to CCL are not payments to third party. Department failed to prove with any evidence whether such payments are directly linked to the present import. He drew our attention to the invoice at page 101, 116 where the description of goods has been clearly spelt out. He also drew our attention to engineering drawings exhibited at A1 to A19 of the paper book which all relates to basic drawing of the plant, layout and location of machineries and their floor diagram. These engineering drawings are not related to equipments which are covered under the present Bills of Entry. 12. Regarding the Revenue appeal on technical know-how, he submits that the adjudicating authority has rightly excluded. He drew our attention to MOU agreement at clause 1.9 at page 150 the technical know-how relates to the entire payment of oil mill and not related to the imported machineries. The learned counsel submitted that the adjudicating authority has rightly not included. He relied on the following case laws:- (a) Associated Cement Companies Ltd. Vs. Commissioner of Customs - 2001 (128) ELT 21 (SC) (b) TISCO Vs. Commissioner of Central Excise 2000 (116) ELT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding on the CCI not to disclose or transfer the information to third parties and submits that the payment towards drawing and engineering is also related to supply of goods by TSDN. 14. He further relied on the agreement signed by SCI with CCI for the referred clause 2, 3, 7, 12 and 13. He also relied on letter dated 27.10.1997 at page 142 of paper book of SCI to GAVL wherein paragraphs 3 to 6 are relevant where SCI is confirming technology and the designs of TSDN and the equipment imported from Malaysia from TSDN. As per paragraph 6 of the letter, SCI has clearly intimated the complete break-up of the cost of each piece of equipment. He also relied on letter of indent dated 29.10.1997 at page 166. He also drew attention to the reply to the show-cause notice by the assessee at page 154 of the assessees paper book. In paragraph 2.8 it is mentioned that the assessee had initially signed contract with SCI and subsequently it was signed by CCI and therefore CCI becomes part of the main contract. There is a nexus between GAVL and CCI and the technology is transferred to GAVL. SCI disappeared from the scene after assigning the contract to CCI. He also relied on RBI letter at page 158 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is in Annexure VIII at pages 59 to 61. Items 1 to 19 are neither imported nor related to any of the items that are imported. He submits that they have categorically brought out the various clauses and detailed break-up of technical know-how and detail engineering as per Annexure VIII of the purchase order. They have explained in detail the technical know-how and engineering wherein it is specifically mentioned through diagrams and manuals and the category equipment details clearly shows the list of fabricated equipment in India. He further submits that as per Annexure the basic engineering will consist of the equipment which is fabricated at site. Nowhere it is specified that the design and engineering are also for the import of equipments. Pages 61 to 63 of paper book all relates to basic engineering of plant, layout, testing etc and not related to imported goods. 17. He further submits that the Department has failed to produce any single evidence to prove that all these are related to imported goods i.e. ID sterilizer door, screw press P5 and centrifuge. He submits that it is only a presumption and not based on the facts and evidence. He countered all the citations relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68 lacs ii. Technical know-how fee Rs.50.00 lacs iii. Detail Engineering Rs.27.32 lacs iv. Imported Equipment Rs.30.78 lacs Total Rs.300.78 lacs (Rs. 270 lacs excluding value of imported goods) 2. There is no evidence of any payment made by SCI/CCI to TSDN. However, as per the MoU between CCI and TSDN, CCI may have paid Malaysian Ringgit 2,60,000/- (about ₹ 26,00,000/-). The SCN and order state without any basis that which was paid by GAVL to CCI would in turn be remitted to TSDN. 3. The payments made by GAVL to TSDN are the following:- i. Bill of Entry No. 38637 dt. 16.7.1998 Rs.13,34,445/- ii. Bill of Entry No. 51857 dt. 11.9.1998 Rs.17,44,077/- Total Rs.30,78,552/- 21. On perusal of agreements and records, we find that as per original agreement the Indian entity SCI agreed to set up the palm oil plant to the appellant and it includes imported as well as indigenous machinery and equipments installation and erection of palm oil plant. Thereafter the SCI assigned the said contract to CCI another Indian entity who signed MoU with TSDN, Malaysia for technology transfer as well as for setting up of palm oil plant in India to any potential buyer in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem from THAS 3.2.2 Present to THAS the workshop drawings for checking 3.2.3 Manufacture the equipment according to the checked workshop drawings 3.2.4 Enable THAS to visit the factories in which the equipment will be or is manufacture for inspection of the quality of the manufactured equipment. 3.2.5 Manufacture and / or procure all the equipment and components from goods materials, according to THAS specification or closest equivalent. 25. We reproduce the relevant clauses i.e. 1.2, 1.4, 1.5., 1.6, 1.7, 1.8 and 1.9 relating to the Terms of the agreement as under:- 1.2 Purchaser The potential buyer of plants from CCI 1.4 Contract The future contracts which will be concluded between purchaser and CCI in India 1.5 Plant Complete palm oil mills to be set up in India 1.6 Basic Engineering Basic Engineering will consist of:- a. Tendering stage THAS will provide all necessary drawings and specification and also datas and details of equipment for CCI to do a cost estimate b. Project execution stage on CCI being awarded the project THAS shall provide all detailed drawings and specifications for execution of palm oil mill project in India 1.7 Workshop drawing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inent to state that the appellant GAVL has entered into contract with SCI vide No.1182 dated 28.11.1997. As per this contract, they placed revised purchase order dated 9.3.1998. As per this contract between GAVL and SCI, the supply of equipment to be made in India for an amount of ₹ 1.92 crores, technical know-how fee of ₹ 50 lakhs, the detail engineering of ₹ 27.32 lakhs. On perusal of the terms and conditions the original contract order No. 1182 dated 28.11.1997 as per Annexure VIII of the contract lists out various clauses including technical know-how, equipment, plant layout and detail engineering at S. Nos. 20 to 25 explains the list of details of engineering which is reproduced under:- EQUIPMENT 20) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions. 21) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions. 22) Weights and foundation details for supporting equipments of for additional steel structure 23) Shop test certificate of each functional equipment PLANT LAYOUT AND PIPING 24) Final equipment layout with exact position with reference points for actual e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to engineering design charges and design charges towards imported goods. Further, we find that this is not the case of a related transaction between the supplier i.e. TSDN and GAVL. The appellant directly placed purchase order with TSDN for supply of impugned goods covered in the Bill of Entry. No doubt this import has been made as per the recommendations of the SCI/CCI and this cannot be construed that GAVL and TSDN are related unless it is established with clear evidence. There is no agreement between GAVL and TSDN for transfer of know-how or supply of goods or payment of royalty. The appellant imported the impugned equipments goods from TSDN Malaysia as per their purchase order No. 1239 dated 9.1.1998. 32. In order to include any addition of amount in the transaction value, it should fall within the scope of Rule 9(1)(b)(iv) of Customs Valuation Rules. It is relevant to reproduce the said sub Rule as under:- (b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CE (supra) wherein the Honble Supreme Court has held that drawings and documents used for construction, erection and assembling are not includible in the assessable value. The relevant paragraphs are reproduced as under:- "11. A perusal of the order of the Tribunal shows that it has mainly proceeded on two sets of reasoning for holding against the appellant. Firstly, the Tribunal has examined the applicability of Rule 9(1) (b) (iv) and formed an opinion that benefit thereof was not available to the appellant. By reference to the Interpretative Note to Rule 4 it has held that to the extent the drawings and technical documents were referable to the manufacture and sale of the imported equipments, their value was liable to be included in the value of the equipments and material imported and inasmuch as separate values thereof have not been shown the entire value of 12.5 million DM of technical documentation covered by contract DM 301 was liable to be included in the value of the equipments. Secondly, the Tribunal has held the provisions of Rule 9(1)(e) being attracted and coming into play for the purpose of determining the valuation of the equipment and materials imported on the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar items used in the production of the imported goods; (iii) materials consumed in the production of the imported goods; (iv) engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods; xxx xxx xxx (e) all other payments actually made or to be made as a condition 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. xxx xxx xxx (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.[emphasis supplied]. xxx xxxxx xxxxxx xxx xxxxx 14. A bare reading of Rule 9(1)(b) shows that it refers to the value of the four specified goods and services supplied by the buyer free of charge or at a reduced cost for use in connection with the production and sale of imported goods to the seller a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or to a third party in order to satisfy such an obligation. The price paid by the appellant for drawings and technical documents forming subject matter of contract DM 301 can by no stretch of imagination fall within the meaning of an obligation of the seller to a third party. There was also no payment made as a condition of sale of imported goods as such. Rule 9(1) (e) also, therefore, has no applicability. 17. So far as Interpretative Note to Rule 4 is concerned it is no doubt true that the Interpretative Notes are part of the Rules and hence statutory. However, the question is one of their applicability. The part of Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub-rules (3) and (4) of Rule 9 clearly provide that additions to the price actually paid or payable is permissible under the Rules if based on objective and quantifiable data and no addition except as provided for by Rule 9 is permissible. 18. The abovesaid reasons demolish the edifice on which the order of the Tribunal is based. However, still the only thing that remains to be considered is whether there has been under valuation of blast furnace equipment covered by the contract MD 302. It is a pure and simple case of finding out the price actually paid or payable for the goods the phrase as occurring in Rules 2(f), 4 and 9, so as to find out the transaction value and levy duty thereon under Sections 12 and 14 of the Customs Act. One of the allegations made in the show cause notice given to the appellant was of the blast furnace equipments (BFE) having been undervalued by transferring a part of the value of the equipments to the value of engineering documents and drawings. In substance the show cause notice alleged the blast furnace equipment having been under valued by artificially excluding therefrom the value of technical documents. According to the Revenue such documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designs are clearly relatable to the layout of palm oil plant and are not related to the imported goods. 34. The Tribunal in the case of Birla Vs. Commissioner of Customs, Mumbai (supra) and the decision of the Special Bench of the Tribunal in the case of Collector of Customs Vs. Vishakapatnam Steel Plant (supra), on an identical case, the Tribunal held that cost of engineering and design are not includible in the value of imported goods. Further, we find that the adjudicating authority proposing to load the entire engineering fees of ₹ 27.32 lakhs to the imported equipment, in this regard, we find that the cost of the imported equipment is only ₹ 30.78 lakhs, this implies that as per Revenue more than 100% loading of the invoice of the imported goods. The reliance placed by learned AR for Revenue, particularly the case of Essar Gujarat (supra) has not relevance to the facts of the present case and all the case laws are distinguishable. 35. Therefore, respectfully following the above decision, we hold that the engineering fees of ₹ 27.38 lakhs paid by the appellants to CCI is not includible in the imported goods. Accordingly, the demand of differential duty conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of imported goods. It is observed that as regards royalty which goes under ordinary assistance relevant article of the agreement stipulates that upon request the foreign supplier shall furnish to the importer such technical know-how, information, data relating to the licensed products. The licensed products are the automobile to be manufactured in India under the agreement as well as specific parts. It is to be seen that the technical know-how, information etc. to be furnished are for studying the feasibility of Local Parts manufacturing, for manufacturing of local parts, for production preparation of licensed products etc. What is important that none of assistance is in relation to the goods under import. 10. For the purpose of the proper appreciation of the case, the relevant portion, in the case of Toyota Kirloskar Motors Pvt. Ltd. (supra) are reproduced below :- The transactional value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of import. A distinction, therefore, clearly exists between an amount payable as a condition of import and an amount payable in respect of the matters governing the manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." The said rule clearly states that the charges or costs. envisaged there under were not to be included in the value of the imported goods subject to satisfying the requirement of the proviso that charges were distinguishable from the price actually paid or payable for the imported goods. Interpretation of the said rule came up for consideration. before a Bench of this Court in Tata Iron & Steel Co. Ltd. v. Commissioner of Central Excise & Customs, Bhubaneswar, Orissa - [(2000) 3 SCC 472], wherein it was held : "This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods. To illustrate, if the seller has undertaken to erect or assemble the machinery after its importation into India and levied certain charges for rendering such service the price paid there for shall not be liable to be included in the value of the goods if it has been paid separately and is clearly dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng before the supply of the CKD packs and spares, the royalty due to the collaborators was paid, that there is no material to show that the supply of the CKD packs or spares weighed with the parties in fixing the payments under the collaboration agreement but, on the other hand, the collaboration agreement for the technical know-how and the supply of CKD packs and spares are independent commercial transactions; in other words, there existed no nexus between the lump sum payment under the agreement for the technical know-how and the determination of the price for supply of CKD packs or spares. It is by highlighting the above aspects that the learned Single Judge and the Division Bench concluded that the contention that the price quoted in the invoices tendered by Mahindra & Mahindra (respondents) does not reflect the correct price because a part of the value of imported packs and components was already received by foreign collaborator while determining the consideration of 15 million French Francs cannot be accepted, and the collaboration agreement does not support the claim nor was there any material available to the Assistant Collector to warrant such a conclusion, and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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