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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 ..... e that the appellant entered into an agreement with M/s. Outokumpu Finland for (1) License agreement, (2) proprietary equipment agreement and (3) Basic engineering agreement which includes - (i) Technical information, being all necessary information, technical data and know-how relating to and for carrying out the Outokumpu process. (ii) Commercial information etc. for the use of Outokumpu process for manufacturing 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 machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission that the amount of licence fees paid by them cannot be loaded to the value of the plant and machinery imported. 4. Ld. SDR appearing on behalf of the revenue submits that the loading is proportionate to the plant imported. He relies upon the agreement and reads the clauses therein. It is his submission that one of the conditions of licence agreements is that the licence fees and basic engineering fees are to be included 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 bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee needs to be loaded to the equipments which are imported by the appellant for installation of sulphuric acid plant. We find strong force in the contention raised by the ld. Counsel that the decision of the Division Bench in their own case reported at 2005 (182) E.L.T. 77 (T) will totally cover the issue in their favour. We are reproducing the relevant portion of the order which reads as under: "2.1 The appellants imported various capital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid or payable for the imported goods (a)............... (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 extend that such value has not been included in the price actually paid or payable, namely - (i)................. (ii)................. (iii)................ (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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d air, which can be preheated, solely at a single position at the beginning of their path of movement, reacting said air with raw material at the position where they are first brought together, causing said air and said raw material reacting therewith to move smoothly downwardly in a vertically elongated horizontally restricted path, with continuous reduction of the partial pressure oxygen in the air while increasing the reaction velocity through rise in temperature in the 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 SO 2 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 inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract matte which is then converted into pure copper. In the vertical shaft furnace, finely divided concentrate and oxygen enriched air come in contact. In a flash the concentrate melts and falls in droplets at the bottom of the furnace where slag and matte is separated. The technology supplied by Outokumpu is in the regulated flow of droplets of molten concentrates without damaging the furnace. 6.10 Rule 9(l)(c) can be invoked only when both the conditions are satisfied cumulatively 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 alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods, and the subsequent use of those goods after importation, a payment of royalty or license fee must be made. For e.g. if an importer obtains the right to use a patented process, and pays a royalty for obtaining that right, if he then imports goods which may or may not be used in that process would not be dutiable as the payment involves a manufacturing process and not the imported goods themselves." (Emphasis Supplied) and nothing contrary shown would induce to find that the amounts as proposed cannot be reduced for Customs Valuation. 6.12 The capital goods imported by the appellants from Outokumpu 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 us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.13 Licence fees paid to Outokumpu is also not a condition of sale of the imported goods. Hence later portion of Rule 9(1)(c) will not apply to the present case, as- Nowhere in the agreements entered into by the (d) appellants with Outokumpu, it could be shown or is provided that the appellants have to import the capital goods from them only. The contract for purchase of proprietary equipments is an independent and a distinct agreement. The fact that the licence fees was paid to Outokumpu, who is also the procurer, supplier/seller of capital goods will not make any difference. The services rendered under 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 licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue cannot invoke Rule 9(l)(c). It was submitted that every payment made by the (c) importer-assessee to the foreign supplier will not be included under Rule 9(l)(e). Only those payments, made as a condition of sale of the imported goods and which related to the imported goods shall be included in the value of the goods imported into India. This is to be upheld as it is made clear by the opening language as employed in Rule 9(1). This is to be submission finds support from Interpretative Note to Rule 4 of Customs Valuation Rules, reproduced as under: "The price actually paid or payable refers to the 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." 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 imp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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