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TMI Blog2008 (5) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... of refined copper cathodes. As part of basic engineering agreement other agreements were also entered into for basic engineering services, training cost, supervision and procurement, additional work and additional training and an agreement was also entered into for sale and supply of all the proprietary equipment pertaining to conversion of waste gases into sulphuric acid which involve import of sulfuric acid plant. The appellants applied for registration of both the agreements with the authorities under the project import of goods. Adjudicating authority while accepting the contention of the appellant as regards the import of plant and machinery for the manufacture of refined copper cathodes etc. did not load any amount/value on the said import of plant and machinery but when it came to the clearance of sulphuric acid plant, the adjudicating authority loaded the said equipment with a value of 2.03% to arrive at the correct assessable value. The appellant aggrieved by such order of loading of the assessable value by 2.03% under Rule 9 of Customs Valuation Rules, 1988 for the purpose of assessment, filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in the value of the capital goods imported. He relies upon the decision of the Hon'ble Supreme Court in the case of Essar Gujarat Ltd. [1996] (88) E.L.T. 609 (S.C.)] and also on the decision of the Tribunal in the case of Mahindra Suiting Ltd. in Order No. A/198/08/WZB/CSTB/C-I, dated 27-2-2008 [2008 (226) E.L.T. 747 (Tribunal)] for the proposition that the condition for sale can be implied and the contract need not expressly provide for it. It is his submission that in the current case the plant and machinery could not have been put into operation by the appellant without a technical know-how and the supply of the technical know-how was a condition of sale for the imported items. 5. We have considered the submissions made at length by both sides and perused the records. The issue to be decided by us is whether the value of the capital goods imported by the appellant for sulphuric acid plant has to be loaded by 2.03% of the value under provisions of Rule 9 of Customs Valuation Rules, 1988 for the purpose of assessment. It is the revenue's case that the payments made under the licence agreement by the appellant to Outokumpu, Finland was for the Monsanto Technology, of the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods from Outokumpu. The list of such capital goods imported by the appellants from Outokumpu is ("Vol. 1 Page 66") Annexure A to this order. 2.2 In addition to import of capital goods from Outokumpu, the appellants had imported various capital goods from others i.e. other than Outokumpu. Which are detailed at pages 67 to 69 of Vol. 1 of paper look. 2.3 They also procured .various capital goods indigenously as per details pages 72 to 76, Vol.1 of paper book. 2.4 Thus, the 'copper smelting plant' in India was set up by the appellants to manufacture copper, with the capital goods and other items procured from the sources mentioned in paras 2.1 to 2.3 above. 3. The imports of the capital goods was made under Project Import & under Heading 98.01 of the Customs Tariff. 4.1 The Assistant Commissioner of Customs after examining all the aspects, by a speaking order dated 8-11-1996 held that the Licence Fees of US $ 31 .82.000 and the basic engineering fees of US $ 48.34.000 paid by the appellants to Outokumpu are not includible in the value of the capital goods so imported by the appellants from Outokumpu. 4.2 No dispute was raised by the department with regard to other payments mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .......... (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." on perusal of the same, it is apparent that the above rule will come into play only in a situation where any engineering, development or art work, etc., has been supplied by the buyer free of charge or at reduced cost. The further requirement of this rule is that such engineering, development or art work, etc., should have been undertaken elsewhere than in India and it should be necessary for the production of imported goods. It is nobody's case herein, that the appellants, i.e. the buyer had supplied any engineering, development or art work, etc. to the exporter i.e. Outokumpu. None of the imported goods (imported either from Outokumpu or from others) were allegedly made with the help of or with reference to any engineering, development or art work, etc. supplied by the appellants free of charge. Hence, Rule 9(l)(b)(iv) is not applicable to the facts of the present case. On the other hand, the equipment supply contract entered into by the appellants with Outokumpu specifically states that the price pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of the movement to produce at the lower end of said path a molten charge and hot combustion gases, directing said combustion gases in a horizontal path at the base of said vertical path, collecting said molten charge beneath said combustion gases in said horizontal path, and separating said molten charge into layers of matte and slag, directing said matte and said slag out, cleaning said slag, recovering dust of and directing out said hot combustion gases in which sulphur is mainly inform of SO2 and (ii)Technical information, being all necessary information, technical data, and know-how relating to and for carrying out the Outokumpu Process set out in sub-paragraph (i) above; and (iii) Commercial information which shall mean all cost, purchasing, sales and other business information given by LICENSOR to LICENSEE in the negotiations leading up to the completion of this Agreement and in connection which the design construction and operation, of the Flash Smelting Furnace of LICENSEE as provided for by this agreement. 'Plant' shall mean the industrial complex to be constructed by LICENSEE, including but not limited to a smelter based on the Outokumpu Flash Smelting technol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and simultaneously as- (a) Reading of Rule 9(1)(c) of Customs Valuation Rules, 1988 reveal that Rule 9(1)(c) can be invoked only if the following conditions are satisfied cumulatively and simultaneously: (i) licence fees is relatable to the imported goods; (ii) and licence fees is a condition of the sale of the imported goods. Even if any of the above conditions is not fulfilled, then Rule 9(l)(c) cannot be invoked. Consequently, the licence fees paid by the importer-buyer cannot be included in the value of the capital goods. The Capital goods as imported from Outokumpu, as listed hereinabove are standard goods, otherwise available as off-the-shelf capital goods. They are not proved to or alleged to be otherwise. These capital goods, are offered for sale by others. Therefore, Licence Fees in this case do not relate to imported capital goods. (b) As, in the present case, the Licence Fees paid to Outokumpu by the appellants was for manufacture of copper matte from the copper concentrate. The fees paid were not for the manufacture of capital goods imported by the appellants. (c) The manufacture of copper is carried out by the appellants in the plant set up in India by installi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utokumpu or from others do not incorporate the flash smelting technology for which licence fees was paid to Outokumpu. Consequently, the licence fee is not related to imported goods as In the present case, there are two imports viz, one (d) of intangibles (technical know-how) and the other tangibles (capital goods). It is pleaded if the technology is incorporated in the capital goods, then there is only one import into India. Consequently for the purposes of valuation, the value of the capital goods will include the payments made for the intangibles also since the only practicable use of the goods will be only when it incorporates the patented process. This submission is explained with an illustrative given in Advisory Opinion 4.12 of the Technical Committee on Customs Valuation, World Customs Organization. "Advisory Opinion 4.12 reads as under: "1. Importer I and seller S enter into a sales contract for the supply of rolling mill equipment. This equipment is to be incorporated into a continuous copper rod plant already existing in the country of importation. Incorporated in the rolling mill equipment is technology involving a patented process which the rolling mill is intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement for supply of proprietary equipment is to supply at a price prevailing in the international market and there is no material to conclude otherwise. All the agreements refer to one another. For e.g. Article 16 of the Licence Agreement states that this agreement will be effective and binding upon both the parties when the basic engineering has become effective. Similar recital is found in the other two agreements also. Similarly payment clause in one agreement refers to other agreements also. This is only for the reason that fees payable to Outokumpu under the licence agreement does not involve supply of goods, Therefore, some measure through which the payment under the Licence agreement appears to be made. Such measure is, e.g. supply of documents under the Basic Engineering. Once some Basic Engineering documents are delivered by Outokumpu, the licence fees becomes payable. Thus, the reference to other agreements in the licence agreement was only for the purpose of executing the obligations of the appellants and Outokumpu. These clauses and references to other agreements cannot be treated as condition of sale of equipments. Further such price included the cost incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." We find force in the submissions made. Therefore, the contention of the department that the Basic Engineering fees will form part of the value of the capital goods by virtue of Rule 9(l)(e) is incorrect. Even if the Basic Engineering fees paid to Outokumpu was a condition of sale of imported goods, the said fees will form part of the capital goods only when it is shown that the fees related to imported goods. In the present case, it is demonstrated that the Basic Engineering fees has nothing to do with the imported goods. Therefore Rule 9(1)(e) is not invocable in the present case. 6.15 Moreover Decisions holding that Rule 9(1)(e) can be invoked only when the payment made by the importer is related to the goods imported into India and made as a condition for sale and not otherwise. (a) In Ferodo India (supra), the CEGAT held that Rule 9(l)(e) cannot be invoked since the licence fees paid by the importer was not related to the imported goods. in Jayaswal Neco - 2004 (166) E.L.T. 77 (Tri.), CEGAT held that 9(1)(e) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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