TMI Blog2011 (8) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, the DGCEI officers have been appointed as Customs Officers under Section 4 of the Customs Act. The only objection of the appellant seems to be that in Notification No.31/2000, the area of jurisdiction of the DGCEI officers has not been specified. If no area is specified, it has to be presumed that the jurisdiction is all India. Valuation of goods - inclusion of value certain items - The appellant's contention for the exclusion of payments made to Nichimen, Japan, under the two agreements is that if this value is included in the assessable value of the goods under importation, then the assessable value per body will work to ₹ 49 to ₹ 51 lakh whereas the complete vehicle is being sold in the market at a price ranging from of ₹ 6 to 8 lakhs. Therefore, there is something fundamentally wrong in the value computed in the show-cause notice. - Held that:- Without these models, soft tools, soft jigs/fixtures, the BIWs and panels which were imported could not have been produced at all. Therefore, these costs have to be necessarily added to the value of the imported goods for the purpose of levy customs duty in terms of the provisions of Rule 9 (1) (b) (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The facts arising for consideration in the case are as follows: 2.1 M/s. Mahindra Mahindra Ltd. (Mahindra in short) are manufacturers of motor vehicles and parts thereof falling under Chapter 87 of the Central Excise Tariff. The Director General of Central Excise Intelligence (DGCEI in short) received intelligence to the effect that M/s. Mahindra had under-valued certain goods imported by it and, therefore, they visited the factory of M/s. Mahindra at Nasik on 31/08/2004. During the visit, it was found that M/s. Mahindra had not declared the assessable value of the imported goods correctly inasmuch as they had not included the assessable value of design and engineering charges in the value of the imported goods. Therefore, a detailed investigation was undertaken on the imports made by M/s. Mahindra. Investigation revealed that M/s. Mahindra intended to develop a new vehicle under its Scorpio vehicle programme. Pursuant to this, they entered into two separate agreements with M/s. Nichimen Corporation, Japan (Nichimen in short). These agreements were as follows: i) Agreement bearing No.IDAM/REV/RUP/02 dated 20/11/98 (referred to as design agreement) for technical consultanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ichimen and that the design and engineering of the said BIWs and panels was carried out by M/s. Hawtal Whiting Design Engineering Co. Ltd., England (HW in short) by the engineers of both M/s. Mahindra and HW. He also informed that the initial styling of BIW and panels was done by the engineers of M/s. Mahindra in India and subsequently the design house facility of HW was used by engineers of both M/s. Mahindra and HW. He also admitted that the design and engineering of said BIW was carried out by HW, England and fine tuned in India by the engineers of M/s. Mahindra and these engineering designs and specifications were given to M/s. Nichimen for the manufacture of the said BIWs by using soft tools, soft jigs/fixtures, at M/s. Chibha, Japan. 2.4 Investigation further revealed that HW was an international consultancy agency specializing in automotive design and engineering and product development and M/s. Mahindra had entered into an agreement with HW on 22/10/1996 for 'concept and feasibility - design and engineering of the IDAM vehicles'.As per this agreement, all designs, models, technical documentation, calculations, data and other information was developed or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. 2.7 Thus, M/s. Mahindra entered into a supply agreement with M/s. Nichimen for supply of 34 BIWs and two sets of panels and as per the agreement M/s. Mahindra was required to inform M/s. Nichimen of any further requirement over and above the said 34 BIWs and 2 sets of panels. Further, in terms of the agreement, soft jigs and pressing and hammering tools were required to be dismantled and disposed of six months after the completion of last shipment of BIW and panels. 2.8 Scrutiny of bills of entry relating to imports made by M/s. Mahindra revealed that M/s. Mahindra did not include in the assessable value of the goods imported, the amounts of UK $ 7,21,366.75 paid to HW for the design and engineering of BIW and panels and Japanese % 23,28,10,165 paid to M/s. Nichimen towards design and engineering of models, soft tools, soft jigs/fixtures and assembly fixtures. In terms of Rule 4 read with Rule 9 (1) (b) (ii) and rule 9 (1) (b) (iv) of the Customs (Valuation) Rules, 1988 read with Section 14 of the Customs Act, 1962, the aforesaid amounts were required to be added to the assessable value of 34 BIWs and 2 sets of panels inasmuch as the same were manufactured by using mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,01,70 10 Total 9,50,39,788 34 2.11 After receipt of replies to the show-cause notice and grant of personal hearing, the Commissioner of Customs, New Customs House, Mumbai, adjudicated the three show-cause notices vide the impugned order. The Ld. Commissioner confirmed the demand for differential Customs duty amounting to ₹ 7,78,67,696/- after holding that the balance amount of ₹ 1,71,72,092/- is time barred (beyond the extended time limit of 5 years). The Commissioner further held that no interest is payable under Section 28AB of the Customs Act, 1962 on the duty demanded since the importer had already paid the differential amount of customs duty even before the issue of show cause notice. The Commissioner also held that 34 BIW and one set of panels, which were imported, totally valued at ₹ 17,76,27,591/- were liable to confiscation under Section 111 (m) of the Custom Act, 1962 and since the goods were not available for confiscation, the Commissioner imposed a fine of ₹ 3 Crore in lieu of confiscation. The Commissioner imposed a penalty of ₹ 1.5 Crore on M/s. Mahindra under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 28 of the Customs Act, seeking to demand differential duty, which is not sustainable in law. 4.1.1 In support of the above convention, the Ld. Counsel relies on the judgment of apex Court in the case of CCE Vs. Cotspun Ltd., reported in 1999 (113) ELT 353 (SC) wherein the apex Court held that show-cause notice under Section 11A of the Central Excise Act, cannot be issued contrary to approved classification list. Similarly in the case of CC, Mumbai Vs. K.C. Shah Others, reported in 2004 (64) RLT 314 (T), this Tribunal had held that where final assessments have not been reviewed under Section 129D, notice of demand under Section 28 cannot be issued. 4.1.2 The Ld. Counsel further relies on the judgement of the apex Court in the case of Priya Blue Industries Ltd., Vs. CC, reported in 2004 (172) ELT 145 (SC) wherein the apex Court held that in a case where the importer has not challenged the order passed while assessing the bill of entry, the refund claim is not maintainable. The Ld. Counsel also relies on the judgment of the apex Court in Additional CCE Vs. Mahindra Mahindra Ltd., reported in 2000 (120) ELT 290 (SC) wherein it was held that even when demand is sough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... components and 250 assembly drawings, which clearly shows that engineering design of the vehicle was undertaken in India and it was these drawings and designs, which were given to Nichimen, Japan in the form of DAT tapes to enable them to make the prototypes according to M/s. Mahindra's specifications. 4.2.1 The extensive engineering done in India cannot be referred to as some preliminary work as held by the Commissioner. Therefore, the question of adding the amount paid to HW, UK, in the value of the prototype bodies received from M/s.Nichimen, Japan cannot arise. Rule 9 (1) (b) (iv) of the Customs (Valuation) Rules deals with '(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'. Thus, the said clause deals with assists, which are necessary for the production of imported goods. Thus, this clause can be invoked only when the assists are necessary for the production of imported goods and it should be undertaken elsewhere than in India. It is their contention that the sketches obtained from HW, UK cannot be held to be necessary for the producti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no body/vehicle named as Scorpio existing anywhere in the world. The body was created by Nichimen, Japan at the appellant's request and pursuant to the agreement with the appellants. The design of Scorpio body was for the first time registered under the Design Act, 2000 in India by the appellants as evidenced from the copy of the certificate issued in this regard. The certificate enumerates various novelty aspects in the design of the Scorpio body. For a design to be registered, it must be both new and original. Thus an IPR in the body was created for the first time ever which at all times vested in the appellants. This is clear from clause 13 relating to intellectual property right in the agreement (dated 20/11/98) wherein it is provided that: The technical information generated/developed/ obtained by Nichimen and/or its sub-contractor pursuant to this agreement shall become the sole and exclusive property of M M, and Nichimen nor its sub-contractor shall not be entitled to use the same for any purpose other than for the purpose of this agreement and shall not be entitled to apply for and register industrial property in its own name, either in or outside Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value.'. This interpretative note makes it very clear that the payments made for the right to reproduce cannot be part of the customs value, whether it be under Rule 9 (1) (c) or 9 (1) (b). 4.6 The reliance placed by the department in the case of Associated Cement Companies Ltd., reported in 2001 (128) ELT 21 (SC) is of no help as the case pertained to valuation of drawings imported through a courier. In that case, the Supreme Court held that IPR when put on a media is to be regarded as an article and duty is payable on the total transaction value since there is no scope for splitting the engineering drawing or the encyclopedia into intellectual input on the one hand and the paper on which it is scribed on the other. In other words in the Associated Cement Company's case, the articles imported were copyrighted goods whereas in the case of imports under consideration, they are prototype goods incorporating registrable IPR like Design or Copy right and the transaction value would be only the material cost and will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done in the instant case. Therefore, the proposal in the show-cause notice apportioning the entire cost on 34 BIWs/2 panels is against well settled principles of valuation. 4.9 The show-cause notice was issued by the DGCEI without jurisdiction. Though the show-cause notice has been issued in terms of Notification No.31/2000-Cus (NT) dated 09/05/2000, the said notification does not specify any area in respect of which the Additional Director General could have issued the notice. The counsel relies on the judgments of this Tribunal in the following cases: i) C.K. Geever Vs. CC (Seaports-Imports, 2009 (235) ELT 304 (T) ii) Copier Force India Ltd., Vs. CC (I) Chennai, 2009 (235) ELT 282 (T) In the light of these decisions, the present show-cause notice issued by ADG, DGCEI, Mumbai is without jurisdiction even in respect of imports made through Mumbai port, Mumbai Airport and Nhava Sheva port. 4.10 Notification 31/2000 was given retrospective effect vide section 92 of the Finance (No.2) Act, 2009. As per explanation to the said Section 92, it has been declared that 'no act or omission on the part of any person shall be punishable as an offence which would not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two views are possible. Under such circumstances, the appellant cannot be faulted when subsequently it was found that the belief held by the appellants was untenable in law. 4.14 The confiscation of goods and imposition of fine in lieu thereof is untenable in law. In this case, the goods are not available for confiscation and they were cleared on payment of proper duty and the clearance was not provisional. Therefore, imposition of fine is not warranted and relied on the following judgements: i) Shiv Kripa Ispat Vs. CCE 2009 (235) ELT 623 (T-LB) ii) Bombay High Court order in Customs Appeal No.70 of 2009 in CC Vs. Rishi Ship Breakers iii) Bombay High Court Order in Customs Appeal No.66 of 2009 in CC Vs. Finesse Creations 4.15 Lastly, no penalty is imposable as there was no suppression or mis-statement of facts. In any case, penalty cannot exceed 25% of the duty demanded since the duty demanded has already been paid prior to the passing of the impugned order. 4.16 As regards the penalty imposed on Shri R.U. Prabhu, Dy. General Manager, the Counsel submits that he acted only on behalf of the company and acted bona fide and in accordance with the well settled c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, reassessment and any order of assessment in which the duty assessed is nil . 5.3 In a Customs case, short levy or non-levy can be detected only after clearance of the goods. Therefore, for raising any demand under Section 28 of the Customs Act, there is no requirement of reviewing the assessment order on the bill of entry. The demand can be straightaway raised within the prescribed time limit under Section 28 and this position of law has been upheld by the hon'ble apex Court in the case of UOI Vs. Jain Shudh Vanaspati Ltd., reported in 1996 (86) ELT 460 (SC). In that case, the hon'ble apex Court held as follows: It is patent that a show cause notice under the? provisions of Section 28 for payment of Customs duties not levied or short-levied or erroneously refunded can be issued only subsequent to the clearance under Section 47 of the concerned goods. Further, Section 28 provides time limits for the issuance of the show cause notice thereunder commencing from the 'relevant date'; 'relevant date' is defined by sub-section (3) of Section 28 for the purpose of Section 28 to be the date on which the order for clearance of the goods has been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the notification does not mean that the DGCEI officers have no jurisdiction at all. Even if it is assumed that ADG DGCEI, Mumbai, does not have all India jurisdiction, it cannot be disputed that he has jurisdiction over Mumbai zone. In the present case imports have been made through three Custom Houses, namely, New Customs House, Mumbai, Jawahar Customs House, Nhava Sheva Port and Air Cargo Complex, Sahar, Mumbai, which fall within the jurisdiction of Mumbai zone. Therefore, the show-cause notices issued by ADG, DGCEI are perfectly in order and legally valid. When a similar contention was raised before this Tribunal in the case of OMI Textile Vs. CC CE, Nashik, reported in 2004 (174) ELT 180, this Tribunal rejected the said contention by holding that the DGCEI officers have been appointed as Customs Officers by the Central Government and, hence, there is no lack of jurisdiction in so far as the issue of show-cause notice is concerned. 5.6 As regards the contention of the appellant that costs and services pertaining to models, jigs and fixtures cannot be added to the assessable value of the 34 prototype BIWs and 2 sets of panels for the reason that soft models w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apan via India, i.e., through Mahindra. This, in no way alters the factual position that the design and engineering drawings were made outside India by HW and eventually supplied to M/s. Nichimen/Chiba, Japan, who manufactured the BIWs and panels using the said designs and engineering drawings. 5.9 The Ld. Special Consultant also relied on the judgment of Gujarat Mineral Development Corporation Ltd., Vs. CCE C 2005 (190) ELT 5 (SC) wherein the hon'ble apex Court held that design and engineering charges are addable to the assessable value of the goods manufactured. 5.10 In the Dabhol Power Company Vs. CCE, Pune, case reported in 2004 (171) ELT 354 (T-Del), an identical issue came up for consideration by the Tribunal. In that case, the LNG project was manufactured/assembled by a foreign vendor on the basis of drawings, data sheets, designs and engineering specifications, etc. of an offshore service contractor and there was constant co-ordination between the vendor and the off shore contractor. The Tribunal held that the value of services rendered by the offshore contractor should be included in the value of the goods as per Rule 9 (1) (b) (iv) of the Customs Val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving at the assessable value of the imported goods. So is the case in respect of income tax payments in respect of HW. Such payment of taxes, duties, etc. are reciprocal. Whatever taxes, duties, etc. are payable in India will be paid by M/s. Mahindra and wherever similar taxes are payable in England, it will be paid by HW. Therefore, the contention that interpretative note to Rule 4 of Customs Valuation Rules, 1988 provides for exclusion of duties and taxes in India from the transaction value has no basis because the income tax is a direct tax and it is not on the goods whereas Rule 4 and the interpretative note thereto refers to taxes payable on the imported goods. 5.13 As regards the contention of the appellant that when they acquired the BIW and panels and made payment thereto, it was in respect of two things - (i) for the supply of goods and (ii) for the right to get the design registered in India and exploit it further, this submission is without any merit. Neither the design agreement nor the supply agreement provided for any such thing. On the contrary, it can be seen from the agreement itself that intellectual property is the sole and exclusive property of M/s. Mahi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppression of facts and mis-declaration of value with intent to evade Customs duty. In respect of similar four other cases, the appellant admitted the duty liability before the hon'ble Settlement Commission and discharged the duty liability along with interest. In the light of these, the Special Consultant submits that the appellant/importer suppressed the facts and willfully mis-stated the facts with an intent to evade customs duty and, therefore, the duty demand confirmed invoking the extended period of time is valid and correct in law. 5.15 As regards the confiscation of imported goods and imposition of fine in lieu thereof, the Ld. Special Consultant relies on the judgment of the hon'ble Supreme Court in the case of Weston Components Ltd., Vs. Commissioner - 2000 (115) ELT 278 (SC). Though in that case the goods were allowed under a bond, the hon'ble apex Court nowhere held that its decision in that case will not be applicable to a case where clearance has been obtained without furnishing any undertaking or bond and, therefore, even though the goods were not available for confiscation, the Commissioner's decision to confiscate the same and impose a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or erroneously refunded can be issued only subsequent to the clearance under Section 47 of the concerned goods. Further, Section 28 provides time limits for the issuance of the show cause notice there under commencing from the relevant date ; 'relevant date' is defined by sub-section (3) of Section 28 for the purpose of Section 28 to be the date on which the order for clearance of the goods has been made in a case where duty has not been levied; which is to say that the date upon which the permissible period begins to run is the date of the order under Section 47. The High Court was, therefore, in error in coming to the conclusion that no show cause notice under Section 28 could have been issued until and unless the order under Section 47 had been first revised under Section 130. 7.1 From the above decision of the Supreme Court it is clear that when there is a short levy or non-levy or short payment or non-payment or erroneous refund, show-cause notice under Section 28 for recovery of duty can be issued and the proceedings are sustainable. A similar view was taken by this Tribunal in the case of Venus Enterprises cited supra wherein this Tribunal observed as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the Cotspun case and Mahindra and Mahindra case cited supra does not help their cause because these decisions pertains to interpretation of section 11A of the Central Excise Act. When there are decisions by the hon'ble apex court, the hon'ble high court of Madras and this Tribunal directly on the scope of section 28 of the Customs Act itself, there is no need to refer to any decisions pertaining to Central Excise Act at all. Therefore, we reject the contention of the appellant that the show-cause notices issued demanding duty short levied under Section 28 of the Customs Act, after assessment of the bills of entry is not valid in law. In other words, we uphold the right of the revenue to demand duty short levied or paid or not levied or paid or erroneously refunded under section 28 of the Customs Act, 1962. Thus there is no infirmity or illegality in the instant case as far as demand of duty made under section 28 ibid is concerned. 8. The next contention of the appellant relates to the competency of the ADG, DGCEI to issue show-cause notice in the instant case. The contention of the appellant is that even though the officers of DGCEI have been appointed as officers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit functions of ICD, Bangalore. There was no notification conferring powers on Asst. Commissioner, Madras for the purpose of issue of notice under Section 28 in respect of imports through ICD, Bangalore and, therefore, the High Court held that there was lack of jurisdiction for issue of show-cause notices. No such situation exists in the instant case. The ADG, DGCEI, Mumbai, has been appointed as an officer of Customs and has been vested with all the powers of the officer of Customs. Thus the facts of the instant case are quite distinct and distinguishable and the judgment of the hon'ble High Court of Karnataka in Devlilog Systems case has no relevance whatsoever to the facts under consideration. In fine,we hold that the ADG, DGCEI, Mumbai has jurisdiction to issue show-cause notices in the instant case and the contention to the contrary by the appellant has no merits whatsoever and accordingly, we reject the same. 9. The next issue for consideration is whether the payments made by the appellant to HW, UK amounting to UK $ 7,21,366.75 and to Nichimen, Japan amounting to Japanese % 23,28,10,165 is liable to be included in the assessable value of 34 BIWs and one panel im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st advantage without delay. 3.2 HW shall at the request of Mahindra, permit a reasonable number of personnel designated by Mahindra to have the opportunity to study the design and assist in the Project at HW premises pursuant of Article 7. 3.3 HW shall arrange to make available qualified personnel for consultations with Mahindra personnel. Cost for round trips, meals, lodging and other expenses of Mahindra's personnel sent for liaison shall be borne by Mahindra. 3.4 All products, documentation and materials delivered to Mahindra by HW will be produced to the appropriate HW standards, unless otherwise mutually agreed in writing. 3.5 The Information to be provided to Mahindra shall be fully reflected in the Project which HW shall conduct and be provided to Mahindra as required, by means of exchange of documents, forwarding of drawings, electronic data and reports to Mahindra, or through the visits of Mahindra's personnel to HW during the period of the Agreement. ARTICLE 4 PAYMENT 4.1 In consideration of the Information supplied and services rendered by HW under this Agreement, Mahindra shall pay to HW the amount as shown below. The budgeted cost, in Pou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting. For detailed description see Appendix A. The Total Project time shall be targeted for Twelve (12) weeks as per Article 6 herein below. Time shall be of the essence of the contract. HW shall execute the Project in accordance with the Schedule agreed and as per Appendix A hereto. ARTICLE 3 SERVICES AND INFORMATION TO BE PROVIDED BY HW 3.1 HW shall supply Mahindra with the data specified in Appendix A in order that Mahindra may use the Product to the best advantage without delay. 3.2 HW shall at the request of Mahindra, permit a reasonable number of personnel designated by Mahindra to have the opportunity to study the design and assist in the Project at HW premises pursuant of Article 7. 3.3 HW shall arrange to make available qualified personnel for consultations with Mahindra personnel. Cost for round trips, meals, lodging and other expenses of Mahindra's personnel sent for liaison shall be borne by Mahindra. 3.4 All products, documentation and materials delivered to Mahindra by HW will be produced to the appropriate HW standards, unless otherwise mutually agreed in writing. 3.5 The Information to be provided to Mahindra shall be fully re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents, forwarding of drawings, electronic data and reports to Mahindra, or through the visits of Mahindra's personnel to HW during the period of agreement. HW is an international consultant specializing in automotive design engineering and project development. Similarly, in the case of supplemental agreement entered into on 04/11/96 it was for CAD surface development on a 2/4 wheels drive concept clay. It is inconceivable that M/s Mahindra engaged HW, an international consultancy specialising in automotive design, engineering and product development and paid them a huge amount of UK $ 7,21,366.75 only for some preliminary sketches which has no nexus with the production of Scorpio Vehicle production. The terms and agreement of the contract entered into with HW completely belies this proposition. Shri Bhaumik, General Manager (Scorpio Project) in his statement given on 26/10/2004 has, inter alia, admitted that 'the concept and feasibility design and engineering of BIW was executed by HW with participation from Mahindra and it was carried out at their facilities in UK. Similarly, in the context of supplemental agreement Shri Bhaumik has stated that the CAD (Computer Ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Valuation Rules, 1988 reads as follows:- (1) In determining the transaction value, there shall be added to the price actually 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 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 work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods. 9.5 A perusal of the Rule 9 (1) (b) (iv) indicates that it includes engineering, development, art work, design work and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it is obvious that these drawings and sketches were brought in the personal baggage of the officials, who visited UK. When goods are brought as part of baggage, they are assessable to customs duty not in their respective chapters or headings but as baggage under Chapter 98 of the Customs Tariff. The duty exemption limit for personal baggage, even now is only ₹ 25000/- and above this limit, duty is payable at a flat rate. In the instant case, the goods are valued at more than ₹ 7.5 lakhs, which is far in excess of the exemption limit for goods, brought under baggage. Further, engineering drawings and sketches cannot be considered as bona fide baggage so as to attract any duty exemption. Therefore, import duty at the tariff rate(s) as provided for in the Customs tariff would have been attracted, if proper declarations had been made. No such thing appears to have been done. Similarly, when a question was put as to how the designs further developed in India were sent to M/s Nichimen, Japan, it was informed that this had been sent by e-mail or through CDs, which were carried across by the staff of Mahindra. It is, thus, obvious that the import of engineering draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation on schedule (including DESIGN CHANGE notice) and make payment as per the terms and conditions of this Agreement. c) The responsibilities and obligations of M M for acquiring the technical services of design, engineering and development of MODEL, SOFT TOOLS SOFT JIGS/FIXTURES for the SCORPIO PROGRAM by NICHIMEN as per the data and information provided by M M set forth in clause 4 of this Agreement. d) The responsibilities and obligations of NICHIMEN for destroying the MODELS, SOFT TOOLS 7 SOFT JIGS/FIXTURES after completion of WORK for the SCORPIO PROGRAM as mentioned in Point 2.a) 2.b). 3. SCOPE OF WORK 1. NICHIMEN will employ or cause to employ the following process for the design and engineering of MODELS, SOFT TOOLS and SOFT JIGS/ FIXTURES based on its or its sub-contractor's experience and know-how. (a) To receive fully surfaced trimmed CAD data in CATIA format form M M (b) To establish preliminary assembly process with inputs from M M. (c) To establish optimum die tip angle and binder developments, if applicable. The tip angle and binder development in case of all MAJOR PANELS shall be same as that to be followed by M M Die maker f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Japanese Yen One hundred seventy seven million eight hundred twenty thousand (J% 177,820,000) in the following instalments: 10. TAXES All income taxes in respect of the payments by M M pursuant to this agreement levied / to be levied by the Indian income tax authorities on NICHIMEN, shall be borne by NICHIMEN. The parties understand that the current rate of taxation is 20%. Any increase in the rate of taxation shall be borne by NICHIMEN and any decrease in the rate taxation will be to the benefit of NICHIMEN. M M shall deduct said withholding tax assessed on NICHIMEN's income and pay the same amount to Indian income tax authority. M M shall provide the originals of the tax deduction certificates to NICHIMEN within one month after deduction of said withholding tax. Any benefits received on account of such certificates as a result of Avoidance of Double Taxation Treaty between Government of India and Japan, shall be to the account of NICHIMEN. All taxes (including income tax) levied outside India, on such amounts payable to NICHIMEN shall be borne and paid by NICHIMEN. ............................................... 13. INTELLECTUAL PROPERTY/TITLE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soft jigs/fixtures, the prototypes could not have been developed and without prototype, the commercial production of Scorpio vehicles in India subsequently could not be undertaken. In any product development project, the production of prototype entails a very high cost. Once the prototype is developed and commercial production commences, the economies of scale of production brings the cost of production down. Therefore, comparison of the cost of production of the prototypes with that of commercially produced vehicle is meaningless as the two are not comparable at all. They represent two different categories of products altogether. The products under assessment are the BIWs and panels which are the prototypes. In the manufacture of these BIWs and panels, the models, soft tools, soft jigs/fixtures have been used and payments have been made for the same. Therefore, the argument that the cost of design, engineering and development of models, soft tools, soft jigs, fixtures, etc. should not be included in the cost of the goods imported has no basis whatsoever and has to be out rightly rejected as devoid of logic and merits. Rule 9 (1) (b) (ii) specifically states that the cost of to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra. The IPR claimed by Mahindra is the copy right in design of the vehicle in terms of the Copyright Act and the Designs Act. The design registered by the appellant in the instant case is the design of the 'Land Vehicle' as can be seen from certificate of registration dated 7-8-2001. The vehicle is comprised of not only the body, but also the glass, mirror, lights, the structure of the chassis, tyres, etc. and all these form part of the design of the vehicle. Therefore, the design registered by the appellant is different from the design of the body for the simple reason that the design of whole vehicle is distinct and different from the design of the body even though the latter may form part of the former. That does not mean that the latter and former are the same in design. Further, in the case of IPR, there are two important concepts - that is - authorship and ownership. As per section 17 of the Indian Copyright Act, 1957, in the case of work created at the instance of another for a valuable consideration, the ownership belongs to the provider of such valuable consideration. Similarly in the case of design, the design can be registered by the proprietor of the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l extracts from books relating to IPR in support of their contention. However these have no bearing to the facts of the case in view of the specific wordings of the agreement contained in clause 9 relating to consideration and also the wordings of Rule 9(1) (b) (iv) of the Customs Valuation Rules. Accordingly we reject the contention of the appellant that the consideration paid to M/s Nichimen has to be apportioned between IPR and non-IPR and only the consideration for non-IPR is to be added to the price to arrive at the transaction value. 10.5 There is one more reason for holding the above view. As per Rule 9(1)(c) of the Customs Valuation Rules, 'royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent such royalties and fees are not included in the price actually paid or payable' have to added to the price to arrive at the transaction value. Royalties and licence fees are in the nature of payments for use of intellectual property. Since as per the appellant's contention, the payments made for IPR is as per the agreement entered into wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven dual identity, once as data, and then separately in terms of medium in which it happens to be recorded. 10.7 In the Associated Cement Companies Ltd case cited supra, a question arose whether intellectual property when put on a media is to be regarded as an article on the total transaction value of which customs duty is payable or the value should be split into two - one for the intellectual input and other for the media. The hon'ble apex Court held as follows: It is misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, paintings are also to be taxed. Valuable paintings are worth millions. A painting or a portrait may be specially commissioned or an article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Customs Valuation Rules,1988. 11. The next argument of the appellant is that the tools, moulds, etc. which were designed and developed by Nichimen were capable of producing 150 Nos. of BIWs and panels whereas they have actually imported only 34 BIWs and one panel and while distributing the cost, the capability of moulds and dies should be taken to account. In terms of the agreement, Nichimen supplied only 34 BIWs and one panel and thereafter, they were required to destroy these moulds and panels. In other words, the soft tools, moulds, jigs/fixtures etc. developed by Nichimen were used for the production of only 34 BIWs and one panel and, therefore, the cost of these goods etc. has to be apportioned over only for 34 BIWs and one panel and not based on the capability of what could have been produced, using the moulds and dies. Clause 2(d) of the agreement dated 20-11-1998 specifically casts the responsibility and obligation on M/s Nichimen 'for destroying the MODELS,SOFT TOOLS AND SOFT JIGS/FIXTURES after completion of WORK for the SCORPIO PROGRAM'. 11.1 The appellant has relied on CBEC circular dated 23-1-96 and certain judgments in this regard. The sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not include duties and taxes in India provided they are distinguishable from the price actually paid or payable for the imported goods. 12.1 The appellant argues that duties and taxes in India will include all types of duties and taxes including Income Tax, which is payable by the appellants on behalf of the foreign supplier of the goods. They have also relied on Advisory opinion issued by the WCO in this regard. The WCO advisory opinion merely states that 'since the duties and taxes of the country of importation are by their nature distinguishable from the price actually paid or payable, they do not form part of the Customs value'. What is being determined under Section 14 read with the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, is the price paid or payable for the imported goods. All the elements which are provided for in the rules, whether for inclusion or exclusion relates to the price paid or payable. Therefore, the duties and taxes in India referred to in the interpretative note to Rule 4 should also be relatable to the goods. In other words, only those duties and taxes, which are related to the imported goods can be deducted whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d engineering agreement dated 20/11/98 and supplemental agreement dated 04/01/2000 have to be added to arrive at the transaction value of the 34 BIWs and one panel imported by the appellant, in terms of provisions of Rule 9 (1) (b) (ii) and Rule 9 (1) (b) (iv) read with Rule 4 of Customs Valuation Rules, 1988, and section 14 Of the Customs Act, 1962 and we hold accordingly. Accordingly the duty demand of ₹ 7,78,67,696/- after re-determination of value at ₹ 17,76,27,591/- as aforesaid made in the impugned order has to be sustained and we do so. 14. The next issue for consideration is whether extended period of time could be invoked in the instant case for demand of duty. The appellant has contended that there was no suppression of facts and, therefore, extended period of time could not have been invoked at all for demand of duty. This argument is without any merit whatsoever. Along with bill of entry, the appellant was required to file a declaration in form Annexure-I along with the bill of entry as per the provisions of Section 46 of the Customs Act, 1962. This annexure is in terms of provisions of Rule 10 of the Customs Valuation Rules, 1988. Against Sl.No.21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, the goods were rightly held as liable to confiscation. However, since the goods were not available physically, no actual confiscation would have been possible. When the goods are not available for confiscation, imposition of fine under Section 125 of the Customs Act can not be made unless the goods had been previously released under bond. Section 125 of the Customs Act states that whenever confiscation of any goods is authorised by this Act, the officer adjudging it may give to the owner of the goods or from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as he deems fit. There is no seizure of goods in this case and consequently no confiscation either. In the absence of actual confiscation, the question of payment of fine in lieu of confiscation does not arise and, therefore, the imposition of redemption fine of ₹ 3.00 Crore on the appellant in lieu of confiscation is not tenable in law and has to be set aside. 16. The department has also filed an appeal (C.No. 432/07) against the order passed by the Commissioner on the ground that the Commissioner's finding that interest is not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relied on the judgements of this Tribunal in the case of Chemo Pulp Tissues Vs. CC reported in 2000 (119) ELT 715 (T-LB) and CCE Vs. Ranga Vilas GS W Mills, 2002 (149) ELt 742 (T-LB). The case laws relied upon by the appellant pertain to a totally different situation altogether. In the Chemo Pulp Tissues and Ranga Vilas cases cited supra, the facts are altogether different. Vide clause(1) of section 112 of the Finance Act, 2000, it was provided that no credit of any duty paid on high speed diesel oil shall be deemed admissible during the period from 16-3-95 to the date on which the said Finance Act, 2000 received Presidential assent. An explanation was provided in Section 112 for non-imposition of penalty in case the credit has been taken wrongly prior to Finance Act, 2000 coming into force. If anybody had aken the credit wrongly, then they were not eligible for the same. However, taking of such inadmissible credit was not made punishable if the credit had been taken prior to the coming into force of Finance Act, 2000. In other words, in those cases there was a doubt or dispute regarding admissibility of Cenvat credit and if anybody had taken the credit wrongly, the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant company is liable for penalty under Section 112 (a) of the Customs Act or not. Shri R.U. Prabhu was only an employee of the appellant and he did not stand to gain personally by making the wrong declarations. In as much as the appellant has been penalised, we are of the view that penalty on Sri. Prabhu is not warranted and accordingly we set aside the same. 19. In sum, we uphold the confirmation of demand of differential duty amounting to ₹ 7,78,67,696/- under Section 28 of the Customs Act, 1962. We also hold that the appellant/importer is liable to pay interest thereon at appropriate rates on the said differential duty amount under the provisions of Section 28AB of the Customs Act, 1962. We uphold the liability to confiscation of the goods under the provisions of 111 (m) of the Customs Act, 1962. Inasmuch as the goods are not available for confiscation, we set aside the redemption fine of ₹ 3.00 crore imposed on the appellant in lieu of confiscation. We uphold the imposition of penalty of ₹ 1.5 Crore on the appellant M/s.Mahindra Mahindra Ltd. under Section 112 (a) of the Customs Act, 1962. We set aside the penalty imposed on Shri R.U. Prab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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