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TMI Blog2017 (3) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... rough diamond were exempted from payment of duty, no penalty can be imposed upon the importer in terms of the provisions of Section 112 of the Customs Act - Identical situation is available in the present case also when the import of design and drawings is exempted in terms of N/N. 12/12-Cus, dated 17.3.2012, the charge of over-valuation of the same cannot be sustained inasmuch no valuation is required to be arrived at by the Customs. We are of the view that in such circumstances neither the goods can be confiscated nor any penalty can be imposed upon the appellants. The receipt of drawing and designs by the appellant form M/s. CIPL was admittedly part of the rendered service on which the appellant has already discharged their Service tax liability under reverse charge basis. The said payment of Service Tax stand accepted by the Revenue. When the appellant brought the said fact to the notice of the adjudicating authority, he simply dismissed it without giving any concrete finding on the same. The appellant have already discharged the Service Tax on the said receipt of drawings, we are of the view that there was no further requirement to file further Bill of Entry with the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other activities of the Company. He was instrumental in inflating the import value by mis-declaring the same and thus fraudulently remitting the foreign exchange outside India. 2. Before going into the legal submissions made by both the sides, duly represented by Shri C Harishankar, Senior Advocate, Shri Krishna Kant, Shri Sanjeev Kr Singh, Shri R K Handoo, Advocates appearing for the appellants and Shri Amresh Jain and Dr. S K Sheoram, learned DRs appearing for the Revenue, it is worthwhile to refer to the factual aspects. 3. The appellants herein is a company registered under the Companies Act, 1956 and was set up as a Special Purpose Vehicle originally by the U P Power Corporation Ltd. for setting up a 3x660 MVV Super Critical Thermal Power Plant in the most backward region of Bundelkhand in UP. The said site for setting up of the power plant was identified by State nominated agency, i.e. UP Power Corporation Ltd. It is seen that on 22.4.2010, the Government of Uttar Pradesh in furtherance of the said Energy Policy of 2009 and with an objective to boost the energy sector and allow the power generation projects in private sectors through Memorandum of Underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-activities for timely execution of project. iv. Basic engineering of civil and structural work of the main plant area and general civil work of balance of plant area. v. Review of post contract award engineering services and approvals, whenever necessary of contractors‟ engineering documents, review and approval of procurement documents viz. agreed technical specification. vi. Review and approval, whenever necessary, of quality assurance plans, vii. Any assistance required by owner related to site development works and related civil structural works. viii. Periodic review and updating of project schedule whenever necessary. Advising owner for any shortfall/ lagging in project schedule. ix. Attending meetings whenever required, assisting the owner in the project work and executing other project co-ordination activities. x. Review of various manuals / procedures related to; a) Pre commissioning stage, b) Commissioning stage, c) Operation stage, xi. Review and monitoring, wherever required, of adherence / meeting of agreed performance / guaranteed parameters of various contractors etc. xii. Thereafter, BHL in consultation with TCEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of power and has got proven experience in implementation of such engineering, procurement and construction projects in power sector. Based on the aforesaid and based on its lowest bid and based on techno commercial evaluation of BPO package by TCEL, CIPL was nominated for award of the said contract of BOP. d. It would be relevant to mention here that CIPL is a Company incorporated in Singapore as a wholly owned subsidiary of Bajaj Infrastructure Development Company Ltd. (BIDCO). BIDCO, for the purpose of having technical qualification to handle mega power projects, entered into an agreement on 07.10.2010 with Israel Electric Corporation Ltd. and agreed to create an SPV for the specific contractual obligations. CIPL was set up as a SPV in accordance with the said agreement between BIDCO and IEC. e. As a matter of fact, the IEC insisted for setting up Special Purpose Vehicle (SPV) outside India (for which the origin of Singapore was mutually agreed) for the collaboration to bid for and to undertake LPGCL project in India. BIDCO agreed to the proposal of IEC and accordingly CIPL was established at Singapore as a Wholly Owned Subsidiary of BIDCO in October 2010, the requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation, Designs and Drawing (as per Para 3.1.4) 300 Project Management (as per Para 3.1.5) 225 Total INR 2997 h. It may be mentioned that all the payments were subject to stage linked plan and as per the progressive competition of work. 7. The scope of work of contractor for BOP package is much more that are very crucial packages of BOP- (i). Coal Handling Plant, (ii). Ash Handling Plant, (iii). Water Treatment Plant, (iv). Condenser Circulating Water Systems, (v). Induced Draft Cooling Tower, (vi). Chimeny. (Vii). Fuel Oil Handling / Storage System, (viii). Air Conditions Systme, (ix). Heat Ventilation System, (x). Compressed Air System, (xi). Critical Civil Works related to BTG Island, (xii). General Civil Work Package, (xiii). Electrical Work Package This is the most complicated system to maintain generation and transmission totally synchronized. The major subpackage include- (a). Power Transformer, (b). Switchyard Station for 765 220 KVA, (c). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is more difficult and BOP engineering know how is more valuable than BTG, which has straight technology. 12. The scope of work and broad heads and their respective prices in relation to the BOP contract have already been mentioned above. The terms of payment under each head of the Works were set out in Schedule 1 of the contract. The terms of Payment under the contract provides for a stage linked payment for each of the five Heads under the Scope of work. Therefore, the payments are to be made on the basis of milestone identified against each of the specific work items. 13. Thereafter, the CIPL looking to the major involvement of onshare supply, civil erection work etc. made a proposal to its holding company BIDCO to take up the work of BOP contract related to Supply, Civil Erection/Commissioning work to the tune of ₹ 2472 crores, as BIDCO since had successfully commissioned 5 thermal power projects in up itself and had adequate experience and technical expertise in such work. The said proposal was accepted by BIDCO and thereafter, all such work related to Supply, Civil Erection/Commissioning got assigned to BIDCO with due approval of the appellant. The ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head of Project management and Supervision as per sub clause 3.1.5 of clause 3 of the contract:- (a) Complete project management and implementation of BOP package from concept to completion, including integration of the BOP package with BTG plant for commissioning and trial run and successful performance testing and handling over of BOP package and fulfilling of warranty obligations during defect liability period; (b) Preparation of required manuals for project implementation, scheduling and quality control and all other aspects of project; (c) The contractor shall perform Services relating to project management of BOP Palckage at/through its Home Office or at its Affiliate Offices outside India. Accordingly, Project management Services rendered in Home Office or Affiliate Offices shall be treated as Offshore Services. 15. Various types of drawings and engineering information and documents relating to BOP contract can further be summarized as under;- Tender Drawings:- These are prepared by Owner‟s Engineer and are preliminary drawings which contains information/ technical data which enable bidders to understand the scope and technology to be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at based on the above considering the criticality and essentiality of BOP packages, a complete EPC contract for BOP was awarded to CIPL which covers the scope of equipment‟s for BOP, Civil Construction, erection and Commissioning together with project desing engineering information, specifications, network schedules, tender documentation designing, drawings for civil and structural work related to Boiler and Turbine Generator System (BTG) as well as BOP foundations, Chimney, Coal Ash Handling Plant, water system and reservoir cooling tower, demineralization plant, drainage and sewage system foundations, plant buildings etc. The scope of BOP contract also includes complete synchronization of all package of BOP with BTG functionality together with erection, installation, startup and commissioning of complete BOP plant including trial operation, successful performance testing handling over of the BOP package supported by complete procedure manuals, designs drawings, as may be required for erection, installation, start up and commissioning of complete BOP items including trial operation, successful performance testing handling over of entire BOP package. 17. The BO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 as it permitted CIPL to raise 20% of the value of the price for Engineering Information, Designs and Drawings. Invoices No.3 was raised in terms of Item 1 of Sub-paragraph E of Paragraph 1.2.2 of Schedule 1 to the Contract dated 08.05.2011 as it permitted CIPL to raise up to 20% of the value of the price for Project Management Services. 21. In each of the said invoices, under the heading particulars , CIPL mentioned full details about the relevant clause of the contract relating to the stage linked payment for which the invoice was raised. Details of the said invoices, details of particulars mentioned therein and all other relevant details about the same are mentioned below- Invoice No. and date Particulars mentioned in the invoice Amount of invoice of US dollars Corresponding amount in Indian Rupees Relevant serial number/clause/schedule of the contract. 07/CPI L/2011 dt.20.06.2011 Payment (5% of the amount of INR 300 Cr for Engineering, Design and Drawings in terms of schedule no. 1 of our contrctdt. 08.05.2011 read with your letter no. LPGCL/ CPIL/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for civil works, erection, , installation and commissioning etc. of chimney for LPGCL (Finalized specification submitted vide letter no. CIPL/ LPGCL/specs/02 dt. 20.05.2011) (being 2.5% of INR 300 Cr.=INR 7.5 Cr @ 1 USD=INR 44.3107 rounded off) sum. 16,92,595 7.50 cr As per clause 1 of Para D of schedule 1 of the contract dt. 08.05.2011 06/CIP L/2011 dt. 08082011 contract dt. 08.05.2011 read with your letter no. LPGCL/CIPL/June11 dt. 18.06.2011, due upon finalization/ submission of complete technical specification, schedules and drawings for civil works, erection, , installation and commissioning etc. of chimney for LPGCL (Finalized specification submitted vide letter no. CIPL/ LPGCL/specs/02 dt. 20.05.2011) (being 2.5% of INR 300 Cr.=INR 7.5 Cr @ 1 USD=INR 44.3564 rounded off) sum. 16,90,85 0 7.50 cr. As per clause 1 of Para D of schedule 1 of the contract dt.08.05.2011 07/CIP L/2011 dt. 15.08.2011 Payment (2.50% of the amount of INR 300 Cr. for Engineering, desing, and Drawings) in terms of schedule No.1 of our contract dt. 08.05.2011 read with your letter no. LPG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08.05.2011 with CIPL and forwarded a copy thereof to the Deputy Director of Income Tax (International Taxation) along with letter dated 25.05.2011. In the said letter the appellant also mentioned the scope of work under the contract including the aforesaid engineering information, design and drawings as per para 3.1.4 of the contract. The appellant mentioned breakup of the amounts as well as stage wise payments envisaged during the financial year 2011-12 towards the engineering information, design and drawings as well as towards other items. The said letter in the Deputy Director of Income Tax was requested to issue an order under section 195 (2) of the Income Tax Act 1961. Thereafter the contract and all relevant facts as well as the amounts payable under the contract on account of various heads including on account of engineering information, design and drawings as well as on account of project management services were examined by the income tax Department and a certificate under section 195 (2) of the Income Tax Act was issued on 19.08.2011 for the financial year 2011-12. Similar application for the financial year 2012-13 was filed on 24.05.2012 and certificate for the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving any intention to cause any loss to the revenue. 29. CIPL started sending the requisite set of documents through customs channel starting from February, 2012. All these sets were being cleared and received through Delhi Customs and no objection was ever raised by the authorities while clearing the consignments during the period from 24.02.2012 to 04.09.2012. The said consignments were cleared by the Delhi Customs by proper verification after opening the same before clearing. One of the imported consignments covered by Way Bill No. 8514263785 was wrongly delivered / sent by DHL to Bangalore instead of Delhi and since the Appellant did not have any establishment at Bangalore, it requested DHL to abandon the said consignment and further asked CIPL to resend the said consignment through Delhi Customs. Accordingly the CIPL has sent the another set through Delhi customs which was cleared on filing of Bill of Entry No. 504746 on dated 07.08.2012 through Delhi Customs. However, in the meantime, DRI Zonal Unit visited the Air Cargo Complex, Bangalore, and conducted its investigations relating to the courier parcel in question on 24.09.2012 and detained the same. Thereafter a se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in the Show Cause Notice and made its submissions. All relevant facts relating to the matter as mentioned above were briefly stated in the reply. It was further stated that along with each Bill of Entry, the Appellant had filed copy of the connected invoice and from the invoice itself it was quite clear that it related to the amount payable in terms of the contract upon reaching the concerned stage inasmuch as the payment was linked to the completion of work upto a particular stage. It was submitted that it was only an inadvertent error that the said landmark based value was mentioned in the Bills of Entry. Detailed submissions on each of the allegations in the Show Cause Notice were made in the reply. 33. The Commissioner of Customs (imports General), New Delhi, thereafter passed the impugned Order on 23.05.2014 rejecting the submissions of the Appellant and confiscating the drawings/ designs in question under Sections 111(d) and 111 (m) of the Customs Act and giving an option to the Appellant to redeem the same on payment of fine of ₹ 1 lakh. The Commissioner also levied a penalty of ₹ 20 crores upon the Appellant under Section 112(iii) of the Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation for all areas of the project using the basic engineering package and technical specifications as provided by the Consulting Engineer and approved by the owner, as detailed below:- a) Detailed engineering information, specifications, network schedules, tender documentation, designing, drawings for the complete BOP package comprising inter alia, of Coal handling plant, ash handling plant, water system, water treatment plant, fuel oil system, compressed air system, complete fire protection system, air conditioning systems, electrical system. Air conditioning system, CW and ACW systems, instrumentation and control, cooling tower; b) detailed engineering information, specifications, network schedules, tender documentation designing, drawings for civil and structural work related to Boiler and Turbine Gneerator system, Chimney, as well as for complete BOP package including coal handling, ash handling including ash silos, ash dykes etc. water system excluding external water intake system up to plant) all BOP foundations, plant buildings, regular plant water reservoir etc. (c) Complete procedure manuals, designing and drawings, as may be required for erec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty, the Revenue was not authorized to adjudge the value of the same and consequently to impose penalty on them. For the above proposition, he relied upon Tribunal‟s decision in the case of Sahil Diamonds Pvt. Ltd. vs. Commissioner of Customs [2010 (250) ELT 310] wherein it was held that inasmuch the import of rough diamonds were exempted from payment of duty and the same were not dutiable, no penalty can be imposed under section 112 of the Customs Act, 1962. The said decision of the Tribunal stands affirmed by the Hon‟ble Supreme Court when the Revenue‟s Civil Appeal filed thereagainst was dismissed reported as CC vs. Sahil Diamonds Pvt. Ltd. [2010 (257) ELT A 22 (SC)]. According to the learned Senior Advocate, Tribunal‟s decision merged with the decision of Hon‟ble Supreme Court decision and in view of the law laid down by the Hon ble Apex Court in the case of Kunhayammed vs State of Kerala [2001 (129) ELT 11 (SC)] the same should be followed. We agree with the above stand of the appellant. Admittedly, designs and drawings attract Nil‟ duty and as such valuation of the same was not required to be done by the Customs and consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract itself. The revenue having not disputed about the correctness of the contract cannot allege that payment of ₹ 300 crores was an attempt to siphon out the foreign exchange to CIPL. The examination of various clauses of the contract clearly establish that the amount of ₹ 300 crores was not only the consideration of the supply of drawing and designs, the same cover the number of services which were, for convenience sake mentioned under the description that engineering information, design and drawings . The work of engineering drawing is intangible property and would depend upon the material contained in the said papers and the use to which they were to be put to. The revenue has not verified the correctness of the invoices raised by CIPL. He further submits that reliance on the irrelevant part of the statements recorded by the investigating authority, is not justifiable inasmuch as it is the totality of the statement which has to be taken into consideration. In any case, the statements recorded in terms of section 108 of the Act, are legally unsustainable. Same have not been supported by any tangible evidence and information has not been teste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be related if both of them are directly or indirectly controlled by a third person. Shri G S Mahal, Head, designs Engineering, of the appellant company in his statement dated 17.12.2012 also admitted that he was responsible for design and engineering of Lalitpur STPP Stage-I; and also admitted that he was not on the roll of M/s. BIDCO but engineering and technical matter were overviewed by him. He precluded that impugned transactions had taken place between related parties in terms of above Customs Valuation Rules, 2007 and it has not been declared / disclosed in the Bills of Entry filed by the Importer. Any importer, who presents Bills of Entry is required to file correct declaration in terms of statutory requirement of B ill of E (Forms) Regulations, 1976 and the appellant having not declared the correct value with the malafide intention, is guilty of suppression and mis-statement, thus requiring confiscation of the designs and imposing penalties upon them. The provisions in the contract was made lawfully to transfer the foreign exchange worth ₹ 300 crores to CIPL which was their related parties. This unlawful transferred foreign exchange in the guise of dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded to them vide letter of award dated 17.3.2011 and accepted by them on 08.5.2011. Various terms and clauses of the contract dated 8.5.2011 stand scrutinized by us and it stand revealed that out of total scope of work amounting to ₹ 2997 crores, ₹ 300 crores is for engineering information design and drawings. The present appeal is concerned only with said ₹ 300 crores and there is no dispute about the other payments related to the other works to be done by M/s. CIPL. Further the clause of contract also gives the stage wise break up of payments to be made to M/s. CIPL. Revenue in their investigations have nowhere challenged the correctness or legality of the contract. If that be so, we really fail to understand as to how the contract entered into, between the appellant and M/s. CIPL reflecting upon the consideration for various jobs to be done by M/s. CIPL, can be held to be invalid for the purpose of consideration of ₹ 300 crores for the designs and drawings. We also agree with the learned advocate that the Revenue has no jurisdiction to adjudge the terms of contract and to hold the same to be invalid inasmuch as the same is a civil contract betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of fact that the appellants were not required to file bank declaration in form A I and if the same would have been filed in proper form A 2 , there was no requirement of filing any Bill of Entry. If there was no requirement to file Bill of Entry, there was, consequentially, no requirement to give any value declaration, in which case, the charge of over valuation could not have been made against them. 42. The appellants have further submitted that the value of ₹ 300 crores reflected by them in the Bill of Entry was not only the value of designs and drawings but the same was for the entire services to be rendered by M/s. CIPL under the head Engineering information, design and drawings. The Revenues‟ adoption of the said price only for design and drawings by eliminating engineering information aspect is against the factual position, as reflected in the contract. The rejection of the appellants plea as an after-thought is neither proper nor justified inasmuch as reading of the contract between two parties clearly lead to the inevitable conclusion that the amount of ₹ 300 crores was not only for drawing and designs but same was for engineering information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised the invoices as per the contract between the appellant and them and in our views, Revenue has no authority to go into the legality or otherwise of the same. 44. Apart from the above, we also find that the Revenue itself has treated the receipt of designs and drawings as receipt of service by the appellant from M/s. CIPL and has received the Service Tax from the appellants on reverse charge basis. As the recipient of service, from the foreign service provider, the appellant is under a legal obligation to discharge service tax on the same, which they have already paid in respect of said services so received and have placed on record the evidence to that effect. This factual position is also not being doubted by the adjudicating authority, who has simply observed that the same are nowhere related to the impugned show cause notice . It is seen that even subsequently, the appellants vide their letter dated 5.10.16 deposited the differential amount of Service Tax of ₹ 55,49,497/- along with interest of ₹ 60,26,432.00, which deposit stand accepted by the Deputy Director DGECI vide its letter dated 14.10.2007. If that be so, we really fail to understand the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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