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TMI Blog1991 (3) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... cal know-how agreement with M/s. Automobile Peugeot, a French Company. The technical know-how agreement was in respect of a diesel engine manufactured by Peugeot and known as XDP 4.90. The agreement recites that as a result of long experience and extensive and continuous research and the development in the business of manufacture of motor vehicles, the foreign collaborators had developed or acquired and possesses designs and technical knowledge in the manufacture of an engine designated XDP 4.90. The foreign collaborators had industrial property rights consisting of designs, engineering, technological and all other information with respect to the engine. Mahindra desired for the purpose of carrying on business as a manufacturer of motor vehicles to obtain the right to manufacture, assemble and use the engine and use the technical knowledge and also to have continuing technical assistance from the foreign collaborators. The period of agreement was for a duration of 10 years from the date of securing the consent of Government of India to the agreement. 3. Article 'A' of the agreement refers to supply of Peugeot engine technology and, inter alia, provides that foreign collaborators ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine shall bear an apparent insignia with the marking "Peugeot Diesel Engine, type INDENOR, made by Mahindra and Mahindra". It is required to be stated at this juncture that the parties entered into a supplemental agreement on March 6, 1980 and Clause 5(a) of the main agreement was substituted by providing that unless otherwise agreed, during the period of five years from the effective date of the agreement Mahindra shall apply to all engines and parts thereof manufactured, assembled and sold under the agreement the marketing "Manufactured by Mahindra and Mahindra with Peugeot technology." Clause 5(c) provided that at the expiry of period of five years Mahindra shall cease use of the words "PEUGEOT" and shall apply to all engines and parts thereof manufactured, assembled and sold a trade mark belonging to Mahindra in such a way that there can never be any confusion with 'PEUGEOT' trade marks. 4. Article 'E' of the agreement deals with subject of payments and sets out that as consideration for providing the use of PEUGEOT technology, Mahindra shall pay to foreign collaborators in Paris a sum of 15 Million French Francs in three installments. It is not in dispute that the amount w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es approximately is considerably large amount and the agreement provides for facilities not only of technical know-how but also the right to use designs, patents and trade marks which are properties of the collaborators. It further recites that technical know-how fees are not chargeable to duty and cannot form part of the value of the goods imported from the collaborator but payments made for designs, patents and trade marks form part of the assessable value of the goods for calculation of customs duty. The communication further recites that out of the lump sum amount paid to the Peugeot, 15% is attributed towards designs, patents and trade marks. The Assistant Collector further claims that the circumstances under which CKD packs are imported warrant the application of valuation under Rule 8 read with Section 14(1)(b) of the Customs Act before assessment. The Assistant Collector informed the Company that tentatively he had decided to load the invoice of CKD components at the rate of 2.5%; 1.5% on account of patent, trade marks and designs, and 1% on account of royalty. The Company entered into a large correspondence with the Assistant Collector controverting the claim that the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h and finished state by Peugeot for the production of the engine. The learned Judge held that there is separate provision in the agreement relating to fixation of price of CKD packs and that fixation has no nexus whatsoever to the lump sum payment made for obtaining technical know-how. The learned Judge held that the provisions of Section 14(1)(a) of the Act are not excluded because the parties have no interest in the business of each other and consequently, the Assistant Collector was not justified in resorting to the provisions of Section 14(1)(b) of the Act and the Customs Valuation Rules. In consequence of the finding, the learned Single Judge quashed the order passed by the Assistant Collector and the Appellate Authority and issued the injunction restraining the respondents from loading any amount in the invoice value for CKD components imported by Mahindra. The learned Single Judge gave further direction to finalise the provisional assessments on the basis of the invoice values of the CKD components and without loading any amount to the invoice value of the said components and also directed the respondents to refund to the petitioners the excess duty recovered by loading the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged that Article F(2) clearly provides that the price of CKD packs is to be settled by the parties and Mahindras were not bound to purchase the CKD packs or any service parts from foreign collaborators. Shri Setalvad also submitted that there was no mutuality whatsoever between Mahindras and foreign collaborators, and there is nothing on record to indicate that the price was not the sole consideration for the sale of CKD packs. Shri Setalvad alternatively contended that even assuming that the Assistant Collector was entitled to rely upon the provisions of Section 14(1)(b) of the Act, still loading of invoice value by 1.5% by resort to best judgment doctrine is totally arbitrary. The Assistant Collector, claims Shri Setalvad, has no material whatsoever to indicate that the invoice value does not reflect the true price of the CKD packs. 9. Before examining the submission urged by the learned counsel, it is necessary to set out the relevant provision of Section 14(1)(a) and (b) as it stood at the relevant time and prior to the amendment: "14(1) For the purposes of the Customs Tariff Act, 1975, or any other law for the time being in force whereunder a duty of customs is chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther" connotes. The question need not detain us any longer because the Supreme Court examined somewhat parallel expression while examining the expression "related person" as defined under Section 4(4)(c) of the Central Excises and Salt Act. The expression "related person" is defined under Section 4(4)(c) of the Central Excises and Salt Act as under: "related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. x x x x x x x x" The Supreme Court in Atic Industries' case (supra) observed: "What the first part of the definition requires is that the person who is sought to be branded as a "related person" must be a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other. It is not enough that the assessee has an interest, direct or indirect, in the business of the person alleged to be a related person nor is it enough that the person alleged to be a related person has an interest, direct or indirect, in the business of the assessee. It is essential to attract the applicability of the first part of the definition that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of Shri Bhabha that the parties had interest in the business of each other cannot be accepted. Shri Setalvad, in this connection referred to the decision of the Supreme Court in the case of Collector of Customs, Bombay v. Maruti Udyog Limited reported in 1989 Vol. 24, E.C.C., 349. In the case before the Supreme Court, Maruti Udyog Limited had entered into collaboration agreement with Suzuki Limited, Japan and under the agreement, Suzuki acquired 26% equity shares in Maruti as also proportional representation on the Board of Directors of Maruti. The Maruti Udyog Limited imported CKD packs from Suzuki and the Assistant Collector loaded invoice prices at 1% for the purpose of assessment of customs duty. In appeal, the Collector held that the loading was not called for and thereupon the department went in appeal before the Central Excise and Gold Control Appellate Tribunal. Before the Tribunal, it was contended that Maruti Udyog Limited and Suzuki Company had interest in the business of each other, but the contention was turned down as there was no mutuality of interest and one-sided interest of Suzuki could not lead to the conclusion that Maruti Udyog Limited and Suzuki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any cognate subject. Both the Statutes are enacted for levy of duty. Shri Bhabha submitted that examination of provisions of the two Acts would reveal that the wordings are neither identical nor similar. The expressions "wholesale trade" and "related person" defined in Section 4(4)(c) of the Central Excises and Salt Act do not figure in the Customs Act and instead of "wholesale trade", the concept of "International trade" is referred to in the Customs Act. The provisions in the Central Excises and Salt Act state that for determination of normal price, the buyer should not be a related person, while, on the other hand, the provisions of the Customs Act state that the value should be ordinary price. In our judgment, the distinction suggested by the learned counsel is of no consequence and the crucial words "interest in the business of each other" are identical in both the statutes. While defining the expression "related person" under the Central Excises and Salt Act, it is positively mentioned that the person must be associated with the assessee and having interest directly or indirectly in the business of each other, while under the Customs Act under Section 14(1)(a), the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal benefit must have been conferred on Mahindra, in view of the lump sum payment made under the agreement. Shri Setalvad controverted the submission, and, in our judgment, with considerable merit. The plain reading of Article 'F' establishes that the foreign collaborator had agreed to supply CKD packs in rough or finished form as required by Mahindra during the period of five years from the effective date of the agreement. What is crucial is Clause (2) of Article 'F' which provides that the price of a complete engine in CKD form shall be Peugeot's ex-works price of the engine as exported in CKD from other parts of the world and as notified by Peugeot to Mahindra from time to time and as agreed by Mahindra. The plain reading of Clause (1) and (2) of Article 'F' establishes that there was no obligation on Mahindra to purchase CKD packs and service parts, though there was an obligation on the foreign collaborators to supply such parts during the period of five years on demand made by Mahindra. The clauses also establish that the prices of CKD packs shall be the price of the engine exported in CKD form by the foreign collaborator but the Mahindra was not bound to accept the said pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of CKD packs. We are in agreement with the conclusion of the learned Single Judge that Article 'F' of the Collaboration agreement dealing with supply of CKD packs and the determination of price thereof is de hors independent of the consideration of 15 Million French Francs paid by Mahindra to foreign collaborators for supply of technical know-how. In our judgment, there is nothing in the collaboration agreement to suggest that the price of CKD packs was to be determined by the parties by taking into consideration the amount of 15 Million French Francs paid under the collaboration agreement. As mentioned hereinabove, the price of CKD packs was to be quoted by the foreign collaborator and Mahindra was not bound to accept the price and purchase the CKD packs unless the price was found to be acceptable. There was no compulsion on the Mahindra to purchase CKD packs or any components thereof. The collaboration agreement leaves it to the discretion of Mahindra to accept the prices quoted by foreign collaborator for supply of CKD packs and components. The agreement also reflects that the prices were not static but were liable to be revised from time to time during the subsistence of agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d proper. It is really not necessary to examine this question as, in our judgment, the Assistant Collector was not right in holding that the provisions of Section 14(1)(a) of the Act are not applicable. It is true that the Assistant Collector had loaded the price by 1.5% by some assumption for which there was no foundation. Shri Bhabha submitted that there is always an element of guesswork while arriving at best judgment. The submission is correct but the guesswork should not be arbitrary. It is undoubtedly true that some discretion must be left with the authority reaching the best judgment and it is not possible for the Court exercising writ jurisdiction to interfere with the discretion, unless it is found to be totally arbitrary and unsustainable. We do not wish to express any opinion as to whether in the present case, the exercise of discretion was arbitrary in view of our finding that the Assistant Collector was not entitled to resort to provisions of Section 14(1)(b) of the Act and Rule 8 of the Customs Valuation Rules. In our judgment, the conclusion reached by the learned Single Judge is correct and appeal must fail. 16. Accordingly, appeal is dismissed with costs. Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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