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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 ..... tand imposed upon the appellants on the allegations and findings that the drawings / designs, specifications, imported by the appellant vide 7 Bills of Entries, on the declared value, in fact, have no intrinsic value and value declared by the appellant is grossly over-valued in contravention of section 111 (m) of the Customs Act and Rule 11 & 14 of Foreign Trade (Regulation) Rules, 1993, and as such, the same are liable to confiscation under section 111(d) and 111(m) of the Customs Act and the appellants are liable to penalty under section 112 (a)(iii) of the said Act. Further penalties stand imposed upon the Director on the findings that as he was running day-todays affairs of the company and was fully in charge of the financial 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions about usage of technology as well a financial model are given in DPR. Based on such DPR only, the lenders have appraised and approved the project for its financing. ii. Pre- Contract award- engineering services of packages (BTG & BOP Packages) it includes: (a) Basic engineering and preparation of enquiry specifications for selection of vendors/contractors for the enquiry of all packages, (b) Issue of clarifications to prospective bidders as per their requirements, (c) Assisting owner in discussion with the prospective bidders, (d) Preparation of bid valuation report, and (e) Assistance to owner in the placement of Letter of Awards on the selected bidders, review and finalization of contract documents to be signed with each selected bidders. iii. Preparation of L1 network detailing various activities and sub-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 approva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for BPO, bids were received from five parties including the Carbery Infrastructure Pvt. Ltd. ("CIPL"). The CIPL, vide its two separate letters dated 18.02.2011 submitted its techno commercial and the price implication Bid "offer" for the Works as per the tender. c. Out of five bids, only three parties were fulfilling the requirements of bids, and amongst them, the offer of CIPL for BPO package was technically and commercially evaluated as the lowest with the back up support of the technical expertise from its Israeli Collaborators, namely, the Israel Electric Corporation Ltd (in short IEC). IEC is a state owned undertaking of the government of Israel and is engaged in Israel in electricity utility and has got Know-how and experience in engineering, procurement, constructing and operating of energy generation, transmission and distribution facilities and all related activities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment & Supervision" (as per Para 3.1.5 of Schedule 1 of the contract). Relevant details and break up provided under clause 1.1 of the Schedule 1 of the contract are mentioned below- Component Price (INR in Crore) Remarks, if any Procurement and Supply of all equipments under BOP Package (as per Clause 3.1.1) 1015 Inclusive of on-scale as well as off-shore supplies, ocean freight & marine insurance charges, local transportation charges, loading/unloading & price of mandatory spares. Civil Construction and Structural works (as per Clause 3.1.2) 1260 Erection, installation and Commissioning (as per Para 3.1.3) 197 Engineering Information, 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 Treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of plant. 11. The BOP work is performed by a number of contractors of each sub-package but management of such large number of contractors is quite Himalayan task and synchronization and integration of their activities at execution stage is not an easy task. Therefore in order to ensure proper co-ordination of supplies and schedules, these packages are clubbed together and ordered as a single package called BOP package to one contractor. This has been an industry practice as owner can avoid hassles of coordination and integration of various packages and there is a single point responsibility of successful and execution of BOP package on one organization. Thus BOP contractor‟s work 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. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over of the BOP package; (e) Preparing necessary design calculations and drawings as required for submission to Indian Statutory authorities. However, all approvals, sanctions and permits as may be required under such regulations shall be obtained by the Owner under its own cost; (f) The Engineering Information shall be prepared in the English language and using the metric system; (g) The contractor shall perform Engineering Services relating to design and engineering of BOP Package at its Home Office or at its Affiliate Offices outside India. Accordingly, engineering services rendered in Home Office or Affiliate Offices shall be treated as Off-shore Services". Similarly, the contract provides the following Scope of works under 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) Preparati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d forward it to sub-contractor for incorporation and resubmission of these drawings/data sheet/documents for final approval by the BOP Contractor subsequently sends these drawings to owner for their approval and finally releases for commencing the process of setting up of the project. Erection Drawings:- These drawings are also prepared initially by the contractor providing the details as to how their equipment shall be erected for the project. As Built Drawings:- These are prepared by the BOP contractor after the plant is constructed & provides the details about "As Built" of project/equipment system, these are required for the purposes of future maintenance, rectification or the modification which may be required at later stage. 16. It is mentioned that 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted by CIPL to the appellants. 19. For rendering the services in terms of the contract, on the instructions of CIPL, the engineers and technical experts of Israel Electric Corporation Ltd. visited the appellant‟s plant from time to time. The team of the IEC has reviewed the designs, drawings and assisted in other allied services including the preparation of technical documents and manual etc. 20. Upon reaching the stages contemplated and provided for in the contract, CIPL raised invoices on the appellant. All the invoices were raised by CIPL in terms of the stage linked payment identified in terms of Schedule No. 1 of the Contract dated 08.05.2011 between the appellants and CIPL. Invoice No. 1,2,4 to 7 were raised in terms of Item 1 of Sub-para D of Para 1.2.2 of Schedule 1 to the Contract dated 08.05.2011 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted vide letter no. CIPL/ LPGCL/Specs/01 dt. 20.05.2011) (being 5% of INR 300 Cr=INR 15 Cr @ 1 USD=INR 44.3616 rounded off) sum. 33,81,300 15 cr. As per clause 1 of Para "D" of schedule 1 of the contract dt. 08.05.2011 05/CIP L/2011 dt. 13.07.2011 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. 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 44.3107 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract dated 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 24.05.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract may be remitted to the contractor. Thus there was no double import of any such information involving 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and imported drawings/ designs had no true worth/ value. 32. The Appellant duly filed its reply to the said Notice and in the said reply the Appellant denied and disputed the allegations 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 givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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, desig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their import are exempted from duty under notification No. 12/12 Cus dated 7.3.2012. Inasmuch as the drawings were exempted from payment of customs 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments by submitting that inasmuch as the payment of Rs. 300 crores to M/s. CIPL was not a stand alone payment and was a part of entire contract representing the total work required to be done by CIPL, the Revenue cannot pick up the same from the contract without first contesting the legality of the contract itself. The revenue having not disputed about the correctness of the contract cannot allege that payment of Rs. 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 Rs. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their statements. Prior to the present import, the drawings were earlier prepared by M/s. Tata Consultancy Engineering Ltd. Bangalore (TCEL) and was already in the possession of appellant. He submits that mis-declaration of value invites an action under the Customs law inasmuch as the same amounts violation of provisions of section 111(m) of Customs Act, 1962. He further submits that as per Rule 2(2) (vi) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, persons shall be deemed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) package comprising generators and auxiliaries, constituting the main generation equipments for the plant; and (b) the Balance of Plant (BOP) package comprising the entire balance of plants and auxiliaries, including civil and structural work, For the he BOP package, global tenders were published on 17.12.2010 and various bids were received by the appellant. M/s. Carbery Infrastructure Pvt Ltd. vide letter dated 18.2.2011, submitted its technical and price bids, which were found compliant by the appellant and as CIPL had the backup support of the technical expertise of M/s. Israel Electronics Corporation, the contract was awarded 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 Rs. 2997 crores, Rs. 300 crores is for engineering information design and drawings. The present appeal is concerned only with said Rs. 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of filing any Bill of Entry inasmuch as the goods being imported by them were not taxable item. The Bills of Entry were filed inadvertently inasmuch as the while the Bank declaration, they attached Form 1 whereas the declaration were required to be filed in F 2. Inasmuch as the F 1 form is for import of goods, the Bank insisted on filing Bill of Entry and it was in these circumstances Bill of Entries were filed. When the said plea was taken up by the appellant before the Commissioner, he simply observed that this contention putforth by noticee was an afterthought and does not merit any discussion as no evidence of appellant having taken up the matter with the relevant authority has been produced. Rejection of the appellants plea on the ground of an after thought cannot be appreciated inasmuch as it is the matter 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 cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved and rectified by M/s. CIPL and after having done so, they have sent back the same to the assessee and the same, stands sidelined by the adjudicating authority on the short ground that for Customs purpose, the value declared in the Bill of Entry is that of goods themselves in terms of provision of Valuation Rules. The adjudicating authority has also relied upon various statements of the appellants representatives. However, on going through the above statement, we find no confession in the same as regards over-valuation of the drawings. Even though, the same were earlier prepared by M/s. TCEL, the same were sent by the appellant to M/s. CIPL for their approval and improvement, if any. The drawings and design being essential basic requirement of the power plant which involve highly technical specification are required to be „doubt free‟ assurance for which purpose the job was entrusted to CIPL. M/s. CIPL has raised 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. Apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the present case also when the import of design and drawings is exempted in terms of notification No. 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. In view of the above, it is seen that 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 declared value. It may also be noted that while charging the service tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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