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TMI Blog2021 (12) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment due on invoice dated 10th December 2002 for technical knowhow and invoice dated 19th December 2002 for technical assistance raised by M/s Atofina France in pursuance of the agreement which was sought to be added to assessable value of the goods. It would appear to have been assumed that the qualifying expression, as a condition of sale , in rule 9(1)(c) and 9(1)(e), can be stretched limitlessly to encumber the transaction value of imported goods with any, and all, other outflows of the importer to the seller merely by being so. The mismatched concatenation of facts, contrived for confirming the demand in the impugned order, is mirrored in the confused categorization of the impugned payments under two different, and mutually exclusive, contingencies that permitted inclusion of services in assessable value. We cannot accord judicial sanction to a proposition that subsumes all commercial transactions between two entities merely for sharing commercial objective in common with a cross-border transaction in goods. The facts of the case must lead to that conclusion for approval of the proposed addition. The payment for the services, sought to be included by custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumscribed with precision, are permissible to be taxed along with the commodity. It is the inextricable association with goods under import that imparts the necessity for inclusion in the assessable value and lying, as it does, on the very edge that separates the tangible from the intangible, approval of inclusion has to be carefully considered to avoid opening the floodgates of revenue enthusiasm that may transcend constitutional intendment. It is that monitorial assignment which falls to us in resolution of this dispute. 2. The appellant-assessee had filed bill of entry no. 172123/26.02.2001 for the import of reactor set valued at ₹ 24,66,854/- on which duties of customs totaling ₹ 15,65,381.90 had been discharged. In the course of investigation, the revelation of two payments US$ 1,00,000/- (₹ 47,18,000/) for technical know-how against commercial invoice dated 10th December 2002 and US$ 27,061 (₹ 13,01,364/-) for technical assistance agreement against commercial invoice dated 19th December 2002 was considered sufficient to initiate proceedings for including these in the assessable value under the empowerment of rule 9 of Customs Valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees was paid only after the complete setting of manufacturing unit by using that technology. Therefore both technology and plant are part and parcel of each other. This fact is supported by two things; one the plant would not have been set up and run without supply of the technical knowledge. Second the technical assistance agreement and licence agreement for survey of plant and machinery were signed on same day i.e. 15.09.1999. Therefore in such circumstances the technology know how fees becomes liable to be included in the transaction value of plant for the purpose of assessment of Customs duty. 27. I find that the noticees suppressed the fact that they had procured technical know how alongwith said plant, knowingly from the department at the time of import of said goods with a view to evade the Customs duty ₹ 40,38,173/- as calculated in the show cause notice. Further, the noticee did not disclose the conditions and agreements related to sale/procurement of said plant in the GATT declaration filed at the time of import. Hence the extended period of limitation envisaged under proviso to section 28(1) of the Customs Act, 1962 is invokable for demand of recovery of Cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon ble Supreme Court in Commissioner of Customs (Import), Mumbai v. Hindalco Industries Ltd [2015 (320) ELT 42 (SC)], in Commissioner of Customs (Port), Chennai v. Toyota Kirloskar Motor Pvt Ltd [2007 (213) ELT 4 (SC)], in Commissioner of Customs, Ahmedabad v. Essar Steels Ltd [2015 (319) ELT 202 (SC)] and in Commissioner of Customs (Port), Kolkata v. J K Corporation Limited [2007 (208) ELT 485 (SC)] which have placed the relied upon judgments within contextual limit before going to on to elaborate the legislative intent of the enumerated inclusions. 5. It is also contended by him that, with the demand having been computed solely from the details available in the books of accounts and public documents such as financial statements, the finding of suppression for justifying resort to the extended period of limitation under section 28 of Customs Act, 1962 is bereft of credibility. Reliance was placed on the decision of the Tribunal in UT Limited v. Commissioner of Central Excise, Calcutta-I [2001 (130) ELT 791 (Tri.-Kolkata)], in Hindalco Industries Ltd v. Commissioner of Central Excise, Allahabad [2003 (161) ELT 346 (Tri.Del.)] and in Blackstone Polymers v. Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. As regards the judgment in the case of Tata Iron Steel Co. Ltd. v. Commissioner 2000 (116) ELT 422 (SC), the facts of the said judgment are different from the facts of the present case. Therefore, the same is not applicable. We have also gone through the findings of the learned Commissioner (Appeals) for upholding the order-in-original. On going through the findings of the learned Commissioner (Appeals) s order, we do not find any infirmity therein. The learned Commissioner (Appeals) has considered all the judgments relied upon by the appellant and came to conclusion that 10% towards technical know-how fees is includible in the value of the goods. 9. It was also contended by him that the advisory information 4.12 of the Technical Committee of World Customs Organisation pertaining to ROYALTIES AND LICENCE FEES UNDER ARTICLE 8.1 (c) OF THE AGREEMENT 1. Importer I and seller S enter into a sales contract for the supply of rolling millequipment This equipment is to be incorporated into a continuous copper rod plantalready existing in the country of importation, incorporated in the roiling mill equipmentis technology involving a patented process which the rolling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gagement but for which customs authorities would have no jurisdiction. By default, the rate of duty intended in section 12, after adjustment in accordance with notification, if any, issued under section 25, is applied to the value of goods as intended in section 14 of Customs Act, 1962 for determination of duty; these are the twin, and parallel, tracks to confine assessment within the law. Our concern here being the latter of the two, we must, necessarily dwell on valuation at some length. Value - susceptible, even at the best of times, to multifarious dimensions and which, for commercial engagement, is manifest as a figure agreed upon between buyer and seller - is further complicated when it comes to public finance; the mandate of uncompromising adherence to consistency in treatment and the imperative of consensual constancy across customs jurisdictions compels eschewing of specificity which, all too often, nudges cost minimization and revenue maximization into conflict. The balance of the twain lies in the transposing of legislative intent designed for universal acceptance in the subordinate legislation crafted for national needs. 12. During the relevant time, the concept of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranged as transaction value of identical and similar goods, the deductive or computed value, and the ascertained value - and the invisibles, or cost of services, in rule 9 with the first two being mutually exclusive as is evident from rule 3 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The interpretative notes, appended as Schedule to the Rules, are integral to appraisal of value for assessment. 14. There is no whiff of suggestion in the proceedings thus far that there is any dispute on the contracted value of the goods requiring resort to one of the substitute value by sequential elimination. Hence, it is the cost of services that are liable to be subjected to duties of customs in accordance with 4. Transaction value. - (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules.... of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 which is of concern to us. Again, from rule 4, it is apparent that rule 9 of the said Rules is intended only for addition to the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of sale. 17. Customs Act, 1962 is legislatively erected on the constitutional empowerment at serial no. 83 of List I of the Seventh Schedule to the Constitution. The Rules framed under section 14 of Customs Act, 1962 provide transcending the goods to include value of services, though in the restricted context elaborated supra. This contrived subjecting of specified, and unspecified, services to duties of customs predates the assumption of legislative jurisdiction to tax services - both domestic and overseas and survives even after Finance Act, 1994 did impose levy on services. Therefore, neither can there be a claim that the unfilled gap was taxable without bounds before 1994 nor that tax levied on services provided from outside the country from 2006 blurs the bounds to such extent as to erase any restriction in the inclusion envisaged in rule 9 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. Clearly, the services leviable to tax by the inclusion thereof are not services rendered by an overseas provider that are liable to tax within the meaning of section 66A of Finance Act, 1994 and, as the provisions under Customs Valuation (Determination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not a condition of sale, but a clause inserted to protect EGL. Without a licence from Midrex, the plant would be of no use to EGL. That is why this overriding clause was inserted. This overriding clause was clearly a condition of sale. It was essential for EGL to have this licence from Midrex to operate this plant and use Midrex technology for producing sponge iron in India. Therefore, in our view, obtaining a licence from Midrex was a pre-condition of sale. In fact, as was recorded in the agreement, the sale of the plant had not taken place even at the time when the contract with Midrex was being signed on 4-12-1987, although the agreement with TIL for purchase of the plant was executed on 24th March, 1987. Therefore, we are of the view that the Tribunal was in error in holding that the payments to be made to Midrex by way of licence fees could not be added to the price actually paid to TIL for purchase of the plant. xxxxxxxx 15. It is difficult to see how these Interpretative Notes come to the aid of the importer in this case. Midrex has granted licence to EGL not only for the right to produce in the Midrex Direct Reduction Process Plant and sell the products produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the other condition in Clause 11 that the agreement would be subject to the purchaser obtaining the transfer of the operation licence from Messrs Midrex of Charlotte, USA . It appears from the agreements with V.A. and Midrex that unless and until the requisite licence and know-how was obtained from Midrex and also V.A., it would be impossible to shift the plant from Emden, West Germany and install it at Hazira, India and produce sponge iron from that plant. It appears that if Midrex did not grant operation licence for running the plant, the usefulness and value of the plant will considerably diminish if not evaporate altogether. on that limited argument in which the connection with the imported goods was not disclaimed by the importer. This decision, therefore, does not offer assistance in ascertaining the scope of inclusion of value of services in assessment to duties of customs. 20. It is, therefore, in the light of the limited issue considered therein that the Hon ble Supreme Court felt obliged to elaborate on the legal empowerment thus 16. It is nobody's case that the seller had an obligation towards a third party which was required to be satisfied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted goods, they were relatable to post- import activity to be undertaken by the appellant. Such charges were covered by a separate contract, i.e. contract MD 301. They could not have been included in the value of imported goods merely because the value of documents referable to imported equipments and materials was mixed up with the value of those documents which were referable to equipment which was yet to be procured or imported or manufactured by the appellant; the value of the latter category of documents also being neither dutiable nor clubbable with the value of imported goods. The Tribunal has not doubted the genuineness of the contracts entered into between the appellant and SNP. Rather it has observed vide para 10.2 of its order that entering into two contracts (MD 301 and MD 302) was a legal necessity. The Tribunal has also stated that it was not recording any finding of `skewed split up'. Shri Ashok Desai, the learned senior counsel for the appellant has pointed out that under Chapter Heading 49.06 of the Customs Tariff Act, 1975 plans and drawings for engineering and industrial purposes being originals drawn by hand as also their photographic reproductions on sentis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind. 10. Rule 12 of the Rules provides that the interpretative notes specified in the Schedule appended thereto would apply for construction thereof. They are statutory in nature being integral part of the Rules themselves. The relevant portion of Interpretative Note to Rule 4 reads as under : The value of imported goods shall not include the following charges or costs, provided that they are distinguished from the price actually paid or payable for the imported goods : (a) Charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment; (b) The cost of transport after importation; (c) Duties and taxes in India. 11. What would, therefore, be excluded for computing the assessable value for the purpose of levy of custom duty, inter alia, has clearly been stated therein, namely, any amount paid for post-importation activities. The said provision, in particular, also apply to any amount paid for postimportation technical assistance. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of Mr. Salve that the precondition of obtaining a licence from Midrex was not a condition of sale, but a clause inserted to protect EGL. Without a licence from Midrex, the plant would be of no use to EGL. That is why this overriding clause was inserted. This overriding clause was clearly a condition of sale. It was essential for EGL to have this licence from Midrex to operate this plant and use Midrex technology for producing sponge iron in India. Therefore, in our view, obtaining a licence from Midrex was a pre-condition of sale. In fact, as was recorded in the agreement, the sale of the plant had not taken place even at the time when the contract with Midrex was being signed on 4-12-1987, although the agreement with TIL for purchase of the plant was executed on 24th March, 1987. Therefore, we are of the view that the Tribunal was in error in holding that the payments to be made to Midrex by way of licence fees could not be added to the price actually paid to TIL for purchase of the plant. Likewise, the decision in Mukund Limited v. Commissioner of Customs, ACC, Mumbai [1999 (112) ELT 479] was also referred therein and the approval of opinion of the Tribunal on inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 31. 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 activities, which may not have anything to do with the import of the capital goods. 23. In the light of judicial decisions that, unarguably, restrict import duties to service rendered in the transaction of import, advisory information 4.12 of the Technical Committee of World Customs Organisation does not advance the case of Revenue. 24. It is on record that the licence agreement for know-how and technical assistance and the purchase order for supply of the impugned goods, were both contracted separately with M/s Atofina France. Thereafter, M/s Arcil Catalyst Pvt Ltd, a producer of aluminum chloride anhydrous and intending to expand manufacturing capacity, placed order for reactor set from M/s Atofina France on 13th December 2000 which was assessed to duty on the contract value of the goods in bill of entry filed on 26th February 2001. Well be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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