TMI Blog2001 (1) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and the Tariff Act applicable in the instant cases. The belief of the appellants that what was imported were not 'goods', as the Reserve Bank had also regarded the payment was being made for services and not goods, was clearly erroneous and misplaced. . 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. 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 parties took a chance in importing the articles through the courier. Initially they were successful in having the goods cleared by declaring a nominal value in respect thereof. They may not have been able to do this if the technical material and goods had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hitects. 4. Leela Ventures paid WAT under the said agreements for the services rendered and the amount was remitted through bank by following the procedure of remittance under Form A-2 prescribed by the Reserve Bank of India which form is meant for foreign exchange remittances, other than for import of foreign goods, pursuant to the permission given by the Reserve Bank. 5. In terms of the said agreements entered into with WAT, the appellants received drawings and diskettes through couriers during the period 30th October, 1995 and 12th May, 1996. The drawings so received were part of technical collaboration and/or technical know-how and were accompanied by an airway bill and an invoice issued by the consignor. The courier, in all the cases, declared the drawings with various descriptions such as "drawings", "architectural designs" etc. The value of these drawings and designs was declared at a nominal value of one dollar. According to Leela Ventures one dollar was the correct value because drawings by themselves have no value, since if the drawings are lost they could be replaced and the loss would merely be of the cost of paper. The value, declared by the courier was bona fide a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs Act, 1962. 8. In the case of Leela Ventures the show cause notice dated 21st January, 1998/18th February, 1998 valued the drawings and designs at Rs. 2,66,87,100/- being the transaction value and on that value the amount demanded under Section 28(1) of the said Act was Rs. 26,68,310/-. 9. In response to the show cause notice, the appellants sent their replies, inter alia, submitting that what was imported were not goods and there could be no excise duty on services since the remittances were in Form A-2 and tax at source under the Income-tax Act was paid in respect of the said contracts. It was also the case of the appellants that the demand was barred by limitation since there was no suppression or wilful mis-statement as the appellants bona fide believed that no customs duty was payable in the case of contracted services represented by drawings, designs, etc., which were imported. 10. After giving an opportunity of representation being filed and hearing the learned counsel the Commissioner passed a consolidated order dated 26th March, 1999. The Commissioner demanded duty and imposed penalty. The appellants then filed appeal before the Tribunal but without success. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for architectural services was stated to be like a contract by a solicitor to give a legal opinion or for a doctor to give a medical diagnosis since the essence of the contract is the expert's skill. 14. The learned counsel contended that the transaction between the appellants and their respective foreign collaborators was one for transfer of technology. This knowledge or know-how though valuable was intangible. The technology when transmitted to India on some media does not get converted from an intangible thing to tangible thing or chattel. Media is only vehicle for transmission and is wholly incidental to the main transaction. By way of analogy it was submitted that legal opinions or judgments of Courts when communicated on legal briefs or as certified copies do not constitute transfer of goods by the counsel to his clients or by a Court to a litigant. Reliance was placed on the decision of U.S. 9th Circuit Court of Appeals in Wilhelm Winter; Cynthia Zheng v. G.P. Putnam's Sons, 938 F. 2nd 1033 (9th Cir. 1991). In that case, the plaintiffs had bought an encyclopaedia on mushroom, a book published by the defendants. On the basis of the information contained therein the plainti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these Rules. (2) The transaction value of imparted goods under sub-rule (1) above shall be accepted: Provided that - (a) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which - (i) are imposed or required by law or by the public authorities in India; or (ii) limit the geographical area in which the goods may be resold; or (iii) do not substantially affect the value of the goods; (b) the sale or price is not subject to same condition or consideration for which a value cannot be determined in respect of the goods being valued; (c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of Rule 9 of these Rules; and (d) the buyer and seller are not related, or where the buyer and seller are related, that transaction value is acceptable for customs purposes under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. As specified in First and the Second Schedule, Chapter 98, inter alia, applies to passengers' baggage and Heading No. 98.03 states that on "all dutiable articles, imported by a passenger or a member of a crew in his baggage", customs duty will be paid at the standard rate of duly of 150%. 16. Reliance was placed by Mr. Desai on a number of decisions of this Court, relating to levy of sales tax, in support of his contention that in contract by supply of services there is no sale of goods and, as such, no customs duty could be imposed on the intellectual property which was obtained. We will first refer to the decisions so cited. 17. This Court in the Assistant Sales Tax Officer and Others v. B.C. Kame, Proprietor Kame Photo Studio (1977) 1 SCC 634 was called upon to decide the question that when a photographer undertakes a photograph and thereafter supplies prints to his clients whether it could be said that he had entered into a contract for sale of goods. The question which this Court posed was whether the contract is a contract of work and labour or a contract for sale. It held that a contract for sale is one whose main object is the transfer of property in, and the deliver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of an attorney employed to prepare a deed is an illustration of this latter proposition, it cannot be said that the paper and ink he uses in the preparation of the deed are goods sold and delivered. I do not think that the test to apply these cases is whether the value of the work exceeds that of the material used in its execution for, if a sculptor were employed to execute a work of art, greatly as his skill and labour, supposing it to be of the highest description, might exceed the value of the marble in which he worked, the contract would in my opinion nevertheless be a contract for the sale of chattel." Referring to the cases of Robinson v. Graves and Lee v. Griffin in Contract for Sale of Goods, Benjamin's Third Edition states at pages 39-40 as follows : "In Robinson v. Graves however, the Court of Appeal reintroduced, purportedly as a qualification to this rule, what is in effect the criterion of relative importance as between work and materials which had been rejected in Lee v. Griffin, although the court professed to be considering what was the substance of the contract rather than the more substantial component in the product ultimately delivered. In Robinson v. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Sales Tax Act or was it a works contract. While coming to the conclusion that the transaction in question had amounted to a sale this Court observed that in order to decide whether such a transaction is a contract of sale or contract for works or service the same had to be culled out from the term of the contract. 21. All the aforesaid decisions related to the period prior to the Forty-sixth Amendment of the Constitution when Article 366 (29A) was inserted. At that time in the case of a works contract it was held that the same could not be split and State Legislature had no legislative right to seek to levy sales tax on a transaction which was not a sale simpliciter of goods. Rainbow Colour Lab Anr. v. State of M.P. and Others (2000) 2 SCC 385 was, however, a case relating to the definition of the word "sale" in the M.P. General Sales Tax Act, 1958 after its amendment consequent to the insertion of Article 366 (29A). The question there was whether the job rendered by a photographer in taking photographs, developing and printing films would amount to works contract for the purpose of levy of sales tax. This Court held that the work done by the photographer was only a ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of materials used incidentally in such contracts. What is pertinent to ascertain in this connection is what was the dominant intention of the contract. Every contract, be it a service contract or otherwise, may involve the use of some material or the other in execution of the said contract. The State is not empowered by the amended law to impose sales tax on such incidental materials used in such contracts " 23. In arriving at the aforesaid conclusion the Court referred to the decision of this Court in Hindustan Aeronautics Ltd. v. State of Karnataka (1984) 1 SCC 706 and Everest Copier (supra). But both these cases related to pre-Forty-sixth Amendment era where in a works contract the State had no jurisdiction to bifurcate the contract and impose sales tax on the transfer of property in goods involved in the execution of a works contract. The Forty-sixth Amendment was made precisely with a view to empower the State to bifurcate the contract and to levy sales tax on the value of the material involved in the execution of the works contract, notwithstanding that the value may represent a small percentage of the amount paid for the execution of the works contract. Even if the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lans. Note 2 in Chapter 49 states that the term "printed" also means reproduced by means of a duplicating machine, produced under the control of a computer, embossed, photographed, photocopied, thermocopied or typewritten. Heading 49.05 pertains to "maps and hydrographic or similar charts of all kinds, including atlases, wall maps, topographic plans and globes". Heading No. 49.06 specifies "plans and drawings for architectural, engineering, industrial, commercial, topographical or similar purposes, being originals drawn by hand; handwritten texts; photographic reproductions on sensitised paper and carbon copies of the foregoing. The residuary Heading No. 49.11 reads as follows: "Other printed matter, including printed pictures and photographs Rate of duty Standard Preferential Areas 4911.10 Trade advertising material, commercial catalogues and the - like 25% ... - Others 4911.91 - Pictures, designs and photographs 25% ... 4911.99 - Other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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. 31. The decision of Winter v. Putnam's case (supra) is also of no help to the appellants as in that case, it was the quality of information regarding mushrooms which was not regarded as a product event though the encyclopaedia containing the information was regarded as goods. Here we are not concerned with the quality of information given to the appellants. The question is whether the papers or diskettes, etc., containing advice and/or information are goods for the purpose of Customs Act. The answer, in our view, is in the affirmative. 32. With regard to the submission on behalf of the appellants that the contracts in these cases were for services and it is on that basis that permission from Reserve Bank of India was obtained for release of foreign exchange. The submission of Mr. Rohatgi, in reply, was that the Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 information was stored. 35. Section 14 of the Customs Act deals with valuation of goods for purposes of assessment. The said section is as follows : "14. Valuation of goods for purposes of assessment. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer 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; (c) 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 that such royalties and fees are not included in the price actually paid or payable. (d) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues, directly or indirectly, to the seller; (e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision of this Court in the case of Collector of Customs (Prev.), Ahmedabad v. Essar Gujarat Ltd. - 1996 (83) E L T. 609 (S.C.) at page 616 para 17 : "The entire purpose of Section 14 is to find out the value of the goods which are being imported. The EGL in this case was purchasing a Midrex Reduction plant in order to produce sponge iron. In order to produce sponge iron, it was essential to have technical know-how from Midrex. It was also essential to have an operating licence from them. Without these, the plant would be of no value. That is why the pre-condition of a process licence of Midrex was placed in the agreement with TIL. It will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the licence fee for which the buyer is required to pay, directly or indirectly as a condition of sale of goods to the extent that such royalties and fees are not included in the price actually paid or payable. This clearly goes to show that when technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof. 41. It is misconception to contend that what is being taxed is intellectual input. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amme 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 of 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 Section 14. If this is correct, I can see no logical reason why it should not also be correct in relation to a computer disk onto which a program designed and intended to instruct or enable a computer to achieve particular junctions has been encoded. If the disk is sold or hired by the computer manufacturer, but the program is defective, in my opinion there would prima facie be a breach of the terms as to quality and fitness for purpose implied by the 1979 Act or the 1982 Act." 45. The above view, in our view, appear to be logical and also in consonance with the Customs Act. Similarly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 deposited and this clearly shows that the appellants bona fide believed that the value of the drawings and other technical material imported was only nominal. 50. While relying on various decisions of this Court, it was submitted that the proviso to Section 28 (1) of the Customs Act can only apply if there is a positive inaction or deliberate attempt to mislead the revenue. On the facts of the present case, it was submitted that none of the ingredients of the proviso would enable the enlargement of the limitation from six months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) "refunds 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 removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed; (B) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules; (C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder; (b) in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oms 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 specified in the notice : Provided that where any duty has not been levied or has been short-levied or the interest has not been charged or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, the provisions of this sub-section sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customs station to another or to a place outside India." 56. 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. 57. 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 owners of the drawings etc. but for the purpose of clearance of the baggage, containing the said articles, the courier was the owner of the baggage. The Tribunal has held, and in our opinion correctly, that the sender as well as the receiver were aware of the value of the goods. The courier acted as the conduit or the agent and would only have declared such value in respect of the goods imported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicable 59. 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 duly was, of course, subject to such exemptions which were issued from time to time. 60. 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, 1995 issued by the Ministry of Finance, Govt. of India specifically provided that henceforth imports by couriers shall not be classified as baggage under Heading No. 98.03. The practice of charging a uniform duty at the rate of 80 per cent ad valorem on articles imported through couriers in terms of exemption notification dated 1st March, 1994 was to be discontinued wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed 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. 63. 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 material, etc., were sent by the foreign collaborators to the appellants and it is the appellants who were the importers who alone could be made liable in case of non-levy or short-levy of customs duty. The word 'importer' in Section 2(26) of the Customs Act includes the owner and as the appellants were the owners of the goods, certainly after these were received by them, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and duty and penalty was imposed. 71. 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. 72. 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. 73. It was further contended that in any case the extended period of limitation of five years could not be attracted in the present case. 74. We find force in the contention of the appellant. Heading No. 98.03 of Chapter 98 of the Schedule in the Tariff Act imposes a prescribed duty of 150 per cent on 'dutiable articles' imported by a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es; (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". 79. 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 which duty has not been paid" indicates that goods on which duty has been paid or on which no duty is leviable, and therefore no duty is payable, will not be regarded as 'dutiable goods'. It is only if payment of duty is outstanding or leviable that goods will be regarded as dutiable goods." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. 84. 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 company and engineering fee, money was payable in terms of the agreement. As we have already observed there is nothing to show that this amount of DM 60,000 was relatable only to the approval of the said designs and drawings. 85. Be that as it may the value of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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