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TMI Blog2001 (1) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajesh Nair, Ms. Shally Maggon, Gaurishankar Murthy, Ms. Nisha Bagchi, Ms. Rekha Pandey, P. Parmeswaran, Prakash Shah, Naresh Thakar, Kapil Sharma, Om Prakash, Ms. Meenakshi Ogra, Advs ORDER B.N. Kirpal, J. 1. These appeals have been filed against the common order dated 15th November, 1999 of the Customs, Excise and Gold (Control) Appellate Tribunal which, while confirming the order of the Commissioner of Customs held that drawings, designs etc. relating to machinery or industrial technology were goods which were leviable to duty of customs on their transaction value at the time of their import. 2. As principal arguments on behalf of the appellants were addressed in the case of M/s Hotel Leela Ventures Limited by Mr. Ashok H. Desai, learned senior counsel, for the sake of convenience we will refer to the relevant facts in that case in greater detail. 3. Leela Ventures are engaged in the business of setting up, operating and maintaining Hotels and Resorts. For designing the Hotels and Resorts, it engaged a foreign company M/s Wimberly Allison Tong Goo, USA ( WAT for short) for providing architectural services including design development drawings. Leela Ventures had entered into fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urier or by post parcels. In each case only a nominal value was declared at the time of its importation. 6. According to the respondents, intelligence gathered by the Directorate of Revenue Intelligence and Special Valuation Branch, Bombay revealed that the appellants had imported drawings, designs and plans through couriers on remitting the consideration for the same but these had been cleared without proper declaration and without payment of correct amount of duty. In view of the omission on the part of the appellants to declare the correct transaction value, show-cause notices under Section 28(1) read with Section 24 of the Customs Act, 1962 were issued asking the appellants as to why (a) the sum remitted or declared during investigation as consideration for drawings, designs and plans supplied by their collaborators should not be taken as transaction value under Section 14 of the Customs Act read with the Customs Valuation Rules, 1988 as the basis for assessment of goods to customs duty; (b) Customs duty should not be demanded under the provisions to Section 28(1) of the Customs Act, 1962 and the amount deposited towards customs duty should not be adjusted against the duty dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that in all these cases the transactions between the appellants and the foreign collaborators were for transfer of technology. The knowledge or know-how which is supplied, though valuable, was intangible. The media is only the vehicle of transmission and is only incidental to the main transaction, even if Government authorities regard this to be a contract for services and not for sale of goods. In support of this, reliance was placed on the fact that the Reserve Bank of India had required application for remission of foreign exchange on Form - A2 which is meant for foreign exchange remittance otherwise than for import of goods. On the remittances so made the appellants had deducted the income-tax at source. It was contended that if it was a case of sale of goods to the appellants then the question of deducting any income tax and paying the same would not have arisen and, on the contrary, the amount of excise duty which would have been payable would have been less than the income tax which was deducted. In the alternative it was contended that even if the transactions are composite the court has to determine whether these relate to contract for service or goods. In this conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deciding the point in issue. 11. Before we deal with the aforesaid contentions raised on behalf of the appellants, it is appropriate to first consider the relevant provisions applicable in the present case. Section 2(22) of the Customs Act contains the definition of the word goods which is as follows: (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of movable property; Section 156 of the Customs Act gives the Central Govt. power to make rules consistent with the Act and sub-section 2(a) thereof enables the framing of rules to provide for the manner of determining the price of imported goods under sub-section (1A) of Section 14. In exercise of the powers conferred by the aforesaid Section 156 of the Customs Act, the Central Govt. has framed Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. For the purpose of this case, two Rules which are important are Rules 3 and 4 which read as follows: 3. Determination of the method of valuation. For the purpose of these rules, (i) the value of imported goods shall be the transaction value; (ii) if the value cannot be determined under the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute values shall not be established under the provisions of clause (b) of this sub-rule. Rule 10 provides for declaration by the importer and is as follows: 10. Declaration by the importer.- (1) The importer or his agent shall furnish - (a) a declaration disclosing full and accurate details relating to the value of imported goods; and (b) any other statement, information or document including an invoice of the manufacturer or producer of the imported goods where the goods are imported from or through a person other than the manufacturer or producer, as considered necessary by the proper officer for determination of the value of imported goods under these rules. (2) Nothing contained in these rules shall be construed as restricting or calling into question the right of the proper officer of customs to satisfy himself as to the truth or accuracy of any statement, information, document or declaration presented for valuation purposes. (3) The provisions of the Customs Act, 1962 (52 of 1962) relating to confiscation, penalty and prosecution shall apply to cases where wrong declaration, information, statement or documents are furnished under these rules. Section 2 of the Customs Tariff A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was a contract for work and labour and not for the sale of goods as the substance of the contract was that skill and labour should be exercised upon the production of the portrait and that it was only ancillary to the contract that there would pass from the artist to his customer some material. In Robinson's case an earlier decision of Lee vs. Griffin (1861) 1 B S 272 was attempted to be distinguished. Lee vs. Griffin was a case where the plaintiff had contracted to make a set of artificial denture to fit them into his patient's mouth. The patient died after the denture was made without having accepted the denture though he had an opportunity of doing so. The plaintiff sued executor for the goods bargained and sold. It was held in that case that wherever a contract is entered into for the manufacture of chattel there the subject-matter of the contract is a sale and delivery of the chattel. Blackburn J, specifically observed as follows: If the contract be such that, when carried out, it would result in the sale of a chattel, the party cannot sue for work and labour but, if the result of the contract is that they party has done work and labour which ends in nothing that bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test laid down in Lee vs. Griffin had been preferred by the Australian Courts'. In Deta Nominees Pty. Ltd. vs. Viscount Plastic Products Pty. Ltd. 1979 VR 167 the Supreme Court of Victoria, Australia described Robinson vs. Graves as a hard case and rejected its test as illogical and unsatisfactory wrong in principle and too erratic to be useful. 17. The principle enunciated in Kame's case was followed by this Court in State of Tamil Nadu vs. Anandam Viswanathan [1989]1SCR301 : [1989]1SCR301. In this case, this Court held that a contract for printing of question paper for educational institutions constituted a works contract and, therefore, exempted from tax. In Everest Copiers vs. State of Tamil Nadu : (1996)5SCC390 : (1996)5SCC390 in respect of the Assessment Year 1978-79, this Court has held that making photostat copies on paper with xerox machine and delivering the same to the customer for payment was a contract for work or service and not a contract of sale. The transfer of paper was only incidental and hence such transaction was not exigible to sales tax. 18. In Hindustan Shipyard Ltd. vs. State of A.P. AIR2000SC2411 : AIR2000SC2411 , this Court was called upon to deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , sub-article 29A of Article 366 was inserted as a result whereof tax on the sale or purchase of goods was to include a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. Taking note of this amendment this Court in Rainbow Colour Lab at page 388-389 observed as follows: 11. Prior to the amendment of Article 366, in view of the judgment of this Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the 46th Amendment and the judgment of this Court in 'Builders' case is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction: (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as coming under Section 2(22)(e). Even though the definition of the goods purports to be an exclusive one, in effect it is so worded that all tangible movable articles will be the goods for the purposes of the Act by residuary clause 2(22)(e). Whether movable article comes as a part of a baggage, or is imported into the country by any other manner, for the purpose of the Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act. These items are moveable goods and would be covered by Section 2(22)(e) of the Customs Act. 23. The rate at which the customs duty is to be imposed has to be such as may be specified in the Customs Tariff Act. This is stipulated by Section 12 of the Customs Act. Thus the two Acts have to be read in conjunction with each other. Section 2 of the Tariff Act states that the rate at which duties of customs shall be levied under the Customs Act are specified in the First and Second Schedule to the said Act. Chapter 49 of the First Schedule relates to pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in Rainbow Colour Lab's case, which does not appear to be correct, the other decisions cited related to pre-Forty-sixth Amendment period. Furthermore the provisions of the Customs Act and the Tariff Act are clear and unambiguous. Any moveable articles, irrespective of what they may be or may contain would be goods as defined in Section 2(22) of the Customs Act. 25. It is true that what the appellants had wanted was technical advice or information technology. Payment was to be made for this intangible asset. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, that what is supplied becomes chattel. It is in respect of the drawings, designs etc. which are received that payment is made to the foreign collaborators. It is these papers or diskettes etc. containing the technological advice, which are paid for and used. The foreign collaborators part with them in lieu of money. It is, therefore, sold by them as chattel for use by the Indian importer. The drawings, designs, manuals etc. so received are goods on which customs duty could be levied. 26. The decision of Winter vs. Putnam's case (supra) is also of no help to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l content. While referring to Builders Association of India case (supra) it was submitted that there this Court had held that in the case of works contract levy of sales tax was permitted only on that component of the works contract which was relatable to goods. Similarly, in the case of M/s Gannon Dunkerley and Co. and Others vs. State of Rajasthan and Others (1993)1SCC364 : (1993)1SCC364 it was held that tax on sale of goods in works contract was based upon the value of goods as they relate to the entire project and charges for planning, designing and architect fee could be excluded. It was, therefore, argued that in the present cases only the media on which the know-how was transmitted could be subjected to duty and its value was only nominal. 28. In the case of Hotel Leela Ventures the Commissioner had taken the whole of the value of the contract for the purpose of levy of duty while in the case of Sterlite Industries, as also in some other cases, an ad hoc percentage of about one-third of the total contract value was taken as the basis for levy of the tax. At the time of importation the couriers had, however, given the value of dollar one in respect of the media on which the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Rule 9 reads as follows: 9. Cost and services.- (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods,- (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:- (i) commissions and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one for customs purposes with the goods in question; (iii) the cost of packing whether for labour or materials; (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 extent that such value has not been included in the price actually paid or payable, namely :- (i) materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the imported goods; (iii) materials consumed in the production of the imported goods; (iv) engineering, development, art w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansport for clause (iii) above. (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 30. As is evident from the perusal of the aforesaid provisions, namely, Sections 12 and 14 of the Customs Act and Rules 3,4 and 9 the value of the goods which are imported is deemed to be the price at which they are ordinarily sold. Sub-section (1A) provides that the price referred to in sub-section (1) of Section 14 shall be determined in accordance with the rules made in this behalf. As per Rules 3 and 4 the transaction value of the imported goods, subject to adjustment under Rule 9, is to be the price actually paid or payable for the goods when sold for export to India. Rule 9 (1) (b) (iv) is important for that shows that engineering, development, artwork, design work and plans and sketches would form part of the price of goods for the purpose of determining its value for levy of duty. In this connection, it will be useful to refer to the following passage from a decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogramme of any kind loaded on a disc or a floppy. For example in the case of music the value of a popular music cassette is several times more than the value of the blank cassette. However, if a pre-recorded music cassette or a popular film or a musical score is imported into India duty will necessarily have to be charged on the value of the final product. In this behalf we may note that in State Bank of India vs. Collector of Customs, Bombay 2000ECR529(SC) : 2000ECR529(SC) , the Bank had, under an agreement with the foreign company, imported a computer software and manuals, the total value of which was US $ 4,084,475. The bank filed an application for refund of customs duty on the ground that the basic cost of software was US $ 401,047. While the rest of the amount of US $ 3,683,428 was payable only as a licence fee for its right to use the software for the bank countrywide. The claim for the refund of the customs duty paid on the aforesaid amount of US $ 3,683,428 was not accepted by this Court as in its opinion, on a correct interpretation of Section 14 read with the rules, duty was payable on the transaction value determined therein and as per Rule 9 in determining the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present statutory scheme as we have already observed that the words goods as defined under the Customs Act has an inclusive definition taking within its ambit an immovable property. The list of goods as prescribed by the law are different items mentioned in various chapters under the Customs Tariff Act, 1997 or 1999. Some of these items are clearly items containing intellectual property like designs, plans etc. 34. In the case of St Albans City and District Council vs. International Computers Ltd. (1996) 4 All ER 481 Sir Iain Glidewell in relation to whether computer programme on a disc would be regarded as goods observed at page 493 as follows: Suppose I buy an instruction manual on the maintenance and repair of a particular make of car. The instructions are wrong in an important respect. Anybody who follows them is likely to cause serious damage to the engine of his car. In my view, the instructions are an integral part of the manual. The manual including the instructions, whether in a book or a video cassette, would in my opinion be 'goods' within the meaning of the 1979 Act, and the defective instructions would result in a breach of the implied terms in s 14. If this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be ascertained. In most of the other cases this has been done by adopting about one-third of the contract value as being the transaction value of the imported goods for the purpose of levy of customs duty. 37. In Leela Ventures case the Commissioner must re-determine the transaction value of the drawings etc. imported keeping in view the terms of the agreements and then impose the levy. Re: Limitation: 38. The next submission on behalf of the appellants was that in the case of short levy or non-levy of duty the normal period for issuing a notice seeking to realise the difference in the duty levied and imposable is that of six months. This period is extendable to five years only if the proviso to Section 28(1) can be validly invoked. It was the case of the appellants that there was never an intention on their part to evade duty. Agreements entered into with foreign collaborators had been disclosed to the Government of India who had approved the remittances as fees for technical services rendered. Payments had been made as directed by the Reserve Bank of India by resorting to Form A-2 and deducting tax at source on the remittances so made. Service tax which was payable was also d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such person or his agent, the provisions of this sub-section shall have effect, as if, for the words six months , the words 'five years' were substituted. Explanation. Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be. (2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined. (3) For the purposes of this section,- (i) refund includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India; (ii) relevant date means,- (a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid- (A) where under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to be contended that Section 28 of the Customs Act is in pari materia with Section 11A of the Excise Act, we find there is one material difference in the language of the two provisions and that is the words with intent to evade payment of duty occurring in proviso to Section 11A of the Excise Act are missing in Section 28(1) of the Customs Act and the proviso in particular. The said sub-section 28(1) of the Customs Act reads as follows:- ' 28. Notice for payment of duties, interest etc.- (1) When any duty has not been levied or has been short-levied or erroneously refunded, or when any interest payable has not been paid, part paid or erroneously refunded, the proper officer may,- (a) in the case of any import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, within one year; (b) in any other case, within six months, from the relevant date, serve notice on the person chargeable with the duty or interest which has not been levied or charged or which has been so short-levied or part paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Customs to make regulations in respect of baggage and the said Section 81 reads as follows: Section 81. Regulations in respect of baggage.- The Board may make regulations, (a) providing for the manner of declaring the contents of any baggage; (b) providing for the custody, examination, assessment to duty and clearance of baggage; (c) providing for the transit or transhipment of baggage from one customs station to another or to a place outside India. Under Rule 10 of the Customs Valuation (Determination of Price of Imported Goods) Rules 1988, the importers are required to furnish, inter alia, a declaration disclosing full and accurate details relating to the value of the imported goods and any other statement, any information or document etc. as considered necessary for determination of the value of imported goods. 43. Under the said Section baggage declaration forms have been prescribed which inter alia require the owner of the baggage to disclose the description of the goods as well as the value in respect thereof. It is as owner of the baggage containing the drawings and other technical literature and manual etc. that the couriers cleared the goods. They may not be the owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppression or mis-statement of the value of the goods imported and, therefore, the respondents were entitled to invoke the provisions of the proviso to Section 28(1) of the Customs Act and issue show-cause notice even if period of six months importation had expired but before the expiry of five years thereof in the case of all the appellants except in the cases of M/s H R Rolling Mill Engineers Pvt. Ltd. (C.A. No. 1493 of 2000) and M/s Videocon VCR Ltd. (C.A. No. 3632 of 2000). Re: Whether heading No. 98.03 appliable Prior to 26th January, 1995 goods which were imported by the appellants through couriers were taxed under Chapter 98 of the Customs Tariff Act. Heading No. 98.03 provides that all dutiable articles, imported by a passenger or a member of a crew in his baggage was taxable at the standard rate of 150 per cent. This rate of duty was, of course, subject to such exemptions which were issued from time to time. With effect from 26th May, 1995, when the President gave his assent to the Finance Bill, 1995, the Customs Tariff Act stood amended as a result whereof goods imported through courier services were exempted from the operation of Chapter 98. A circular dated 30th May, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants is of no consequence because the levy under Section 12 of the Customs Act is on the goods imported into India. In other words, the subject matter of the tax is not the person importing or exporting but the subject matter of the tax is the goods imported. If such goods are imported as a part of the baggage then by virtue of heading No. 98.03 rate of duty prescribed therein has to be paid. The underlying principle prior to May, 1995 in relation to taxing the passengers' baggage was that the said baggage which contained dutiable articles was not to be taxed separately as articles but the baggage as a composite unit was to be taxed in its entirety, after giving a credit for the free allowance which was available to the passenger. 47. It cannot be denied that the imports were made by the appellants. The courier or any other passenger may be the mode or the manner of physical importation of the goods, just as the said goods may have been imported by post. Section 28 of the Customs Act, however, enables the Government to issue notice to the persons importing the articles into India. It is by reason of the collaborators agreements that the drawings, manuals, technical mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der was passed against the appellant classifying the drawings and designs under sub-heading No. 4911.99 and diagrams and films under sub-heading 3705.90. No reason was given as to why these drawings and designs were not classifiable under heading No. 49.06. The entire contract value was taken as a valuation of technical information received and duty and penalty was imposed. On appeal to the Tribunal, the appellant met with partial success to the extent that the valuation was determined at one-third of the contract value of hundred million Yen, even though the settled value was seventy million Yen. The case of the appellant that import in 1992-93 was free was not considered as the Tribunal proceeded on the basis that all imports were during the period 1993-96 when under Chapter 49, import was dutiable but by notification the tariff rate was less or nil. 49. It was contended by Mr. Bulchandani on behalf of appellant that at the time when the drawings were imported into India, the import of the same was free and even if the drawings were to be regarded as part of the baggage of Mr. kato, thereby applying the provisions of heading No. 98.03, even then no duty could be imposed. It was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt . Under the Customs Act, there are two definitions which are relevant. Section 2(22) defines goods as follows: Goods includes- (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of movable property. In addition thereto, Section 2(14) defines dutiable goods as follows: dutiable goods means any goods which are chargeable to duty and on which duty has not been paid . Under the Central Excise Act, 1944 in definition of words excisable goods under Section 2(d), the very specification or inclusion of goods in the First and Second Schedule of the Central Excise Tariff Act would make them excisable goods subject to duty. Under the Customs Act, the provisions seem to be somewhat different. While by virtue of Section 2(22) all kinds of movable property would be 'goods' but it is only those goods which would be regarded as 'dutiable goods' under Section 2(14) which are chargeable to duty and on which duty has not been paid. The expression chargeable to duty on whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted at source for the payments made to the German company after permission of the Reserve Bank of India had been obtained. 55. In the show cause notice which was issued it was proposed to regard the drawings which had come through the courier at DM 60,000 equivalent to Rs. 11,03,800/- as being subject to levy of duty. In the show cause notice it was stated that these technical drawings were supplied by the German company and being goods imported through courier services were classifiable under heading No. 98.03 and duty and penalty was payable in respect thereof. Unlike other cases, we find that these drawings in respect of which customs duty had been levied were not something which had originated from Germany. These drawings were prepared by the Indian company of which the German company was a shareholder. These drawings were no doubt sent to Germany for approval but the agreement between the parties does not show that the payment of DM 60,000 was directly relatable or attributable to the approval and despatch of the said drawings to India. Under the agreements between the parties apart from the licence fee payable by the Indian company, for the use of the name of the German co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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