TMI Blog1997 (8) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... el plant equipment mostly from an Italian supplier, known as Italimpianti (ITP). The equipment had not yet been installed in Portugal when that country decided to join European Economic Community (EEC). As a result, Portugal could not expand its steel-making capacity. Price of 26 MDM for the aforesaid equipment, proposed to be paid by the appellant was therefore, on as is where is basis , F.O.B. Portugal (Lisbon) which was lying unpacked for several years. 1.3 Accordingly, a protocol was signed by the two Cos. On 14th April, 1988 wherein it was stipulated as follows :- Clause 1 : The total price will be price for the equipment plus price for the engineering. FOB Portugal/Setubal port The price for the equipment with suitable sea-worthy packing to be provided by S.N. The price for engineering will be DM 13.5 Million (Deutsche Marks thirteen million five hundred thousand only) DM 12.5 million (Deutsche Marks twelve million five hundred thousand only) Clause 2 : The equipment is sold without any operation or performance guarantees, in as is where is condition." The said protocol contained other terms and conditions including obtaining of appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3 Following allegations have been made against the main appellant TISCO : (i) Undervaluation of Blast Furnace Equipment by transfer of part of the value of equipments to value of engineering, (ii) Suppression of facts, (iii) Suppression of facts relating to other costs, (iv) Undervaluation by exclusion of cost of technical documents, (v) Importation of part of the goods falling short of value in I.T.C. as a result of enhancement of value. 4.1 We would take up the allegation No. (iv) in the first instance because it is the contention of the first appellants, that the cost pertaining to technical documentation is not liable to Customs duty at all inasmuch as it does not pertain to production or manufacture of the goods imported and have no nexus with those goods. Therefore, such a cost will not form part of the value of the imported goods at all in terms of the Customs Valuation Rules, 1988. 4.2 Adjudicating Officer has held in the findings in the impugned order that the cost of technical documents included the cost of drawings and technical documents required for assembling the equipment from knocked down/semi knocked down condition in which they were imported and fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , installation, commissioning and maintenance of the equipment are not includible as these are expenses on activities subsequent to importation undertaken by an importer. He points out that in terms of Rule 9 of the Customs Valuation Rules, 1988, only design and engineering charges alone relating to sale and manufacture of the imported equipments are includible along with the value of equipments for the purpose of assessment of Customs duty. For this proposition, ld. Advocate, Dr. Samir Chakraborty relies on the following cases :- (i) 1992 (62) E.L.T. 572 (para 13) [Vishakhapatnam Steel Plant v. Collector of Customs], (ii) 1996 (67) ECR 592 (Tribunal) = 1996 (16) RLT 736 (CEGAT EB) [National Aluminium Co. Ltd. v. Collector of Customs], (iii) 1996 (88) E.L.T. 609 (para 28) = 1996 (17) RLT 588 (para 27) [Collector of Customs (Prev.), Ahmedabad v. Essar Gujarat Ltd.], (iv) 1996 (87) E.L.T. 286 (IFGL Refractories v. Collector of Customs]. (v) 1997 (90) E.L.T. 276 (paras 11 12) [Bombay Dyeing Manufacturing Co. Ltd. v. Collector of Customs]. 4.5 Dr. Ginwala, while assailing the penalty imposed on M.N. Dastur Co. has urged that Dastur Co. were never consulted on the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .................................................................................................................................. ......................................................................................................................................... The Technical Documentation for construction, erection, operation and maintenance as received from original suppliers for the Blast Furnace and Torpedo Ladles is also offered for sale by the Seller. The Buyer intends to purchase the Equipment, Materials and Technical Documentation of the said Blast Furnace and Torpedo Ladles. Scope 1 1. ...........the scopes are detailed in the following documents, also signed on this date, which form integral part of this Contract : (i) MD-301 - Agreement for supply of Technical Documentation, and (ii) MD-302 - Agreement for sale of Equipments and Materials. (emphasis supplied) 2 3 4 5 1. The overall price of the sale scope of the present Contract is fixed and not subject to any revision, and amounts to DM 26,000,000,00 (twenty six million German Marks), being : - DM 13,500,000,00 (thirteen million five hundred thousand German Marks) FOB Lisbon/Setubal port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structure and plate work 2. Steel structures for charging zone 3. Electrical 4. Process and Basic Engineering 5. Instrumentation and automation 6. Dedusting system and Gas cleaning 7. Fluids System 8. Water treatment and circulating system 9. Technical specifications. 10. The drawings and technical documents correspond to the following zones of the Blast Furnace :- Charging 1. Cold and Hot Blast 2. Blast Furnace shell 3. Cast House 4. Slag treatment 5. Gas cleaning 6. Water plants 7. Fluids, Electricity, Instruments and Automation Services 8. Torpedo Ladle Cars. 9. I. BLAST FURNACE - General engineering - design of the whole plant and ancillaries - basic civil engineering - specification for final painting - operating and maintenance manuals - Detailed engineering and technical specifications - civil engineering (interrupted at 65% of the total) - steel structures and plate work - process electrical equipment and related network - instrumentation, automation and related network - process and service fluid system - Technical specifications - process, mechanical and fluid equipment - overhead cranes and other maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms referred to in numbers 2, through 4, and in general, with the scope of this Agreement. 7. The BUYER shall designate in writing its permanent representative in Portugal, who shall stay personally at the checking and delivery places during working hours; he may be replaced by a delegate, if such replacement is communicated to the SELLER in writing, at least 5 working days in advance. EQUIPMENT AND MATERIALS FOR BLAST FURNACE TO BE SUPPLIED BY S.N. PORTUGAL TO TISCO One 1578.5 cubic meter working volume Blast Furnace with 3 Nos. 200-Ton capacity Torpedo Ladle Cars consisting equipment and materials for stockhouse, charging system, cold blast line, hot blast line including stoves, furnace structure, cast house, gas cleaning system, slag treatment system, electrical equipments, Instrumentation and automation, fluid system (for water, steam, air and gases) etc. Refractories bricks for stove, burner, hot blast line, chimney, shell, cast house etc. required for initial setting-up of Blast Furnace are also included in SN s scope. The general specification are as given below: I- GENERAL CHARACTERIZATION 1. Capacity and operation parameters : - Nominal cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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; ............................................................................................................................. (e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. 12. Interpretative Notes. - The interpretative notes specified in the Schedule to these rules shall apply for the interpretation of these rules." 5.2.V Interpretative Notes to Rule 4, relied upon by the first appellant and Interpretative Notes to Rule 9(1)(b)(iv) are reproduced below : THE SCHEDULE (See Rule 12) INTERPRETATIVE NOTES Notes to Rules Note to Rule 4 The value of imported goods shall not include the following charges or costs, provided that they are distinguished from the price actually p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Dr. Samir Chakraborty and Dr. Jinwala. We agree with the ld. Advocate, Shri R.N. Das for the Revenue on the question of jurisdiction of the Commissioner of Customs, Bhubaneswar. It has been held by the Apex Court in para 5 of the Bombay Dyeing case that once the assessment on registration of a contract for project import are provisional, as indeed they are, the proper Customs Officer can take all relevant factors into account while finalising the assessment. Although this observation was made in the context of another plea by the appellant Bombay Dyeing that the plant had been pre-assessed inasmuch as their contract had already been registered and thus there was assessment, such a plea is not acceptable. As observed by the Apex Court, the assessment under the Project Import Regulations on registration of contract is only provisional. Final assessment under Project Import Regulations is finalised only after completion of all imports against the registered contract. That being the position, the Commissioner of Customs, Bhubaneswar had all the jurisdiction in the facts and circumstances of the case. 6.1.II Next plea of Dr. Ginwala is that Rule 9(1)(b)(iv) has no application in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no dispute about the value of drawings and technical documents not being includible pertaining to balance procurement/manufacture/civil construction at site, etc. to be undertaken in India. Commissioner has included the value of those technical documents which are essential for setting up and operating the equipments. Such documents, it has been further held are normally supplied with an equipment without any extra charge. To the extent Commissioner s finding goes against the express provisions in Interpretative Note to Rule 4, it is not sustainable. Interpretative Notes in the Schedule to the Valuation Rules, 1988 have a statutory character because of Rule 12 (already extracted above) of the said rules. 6.2.II But it does not mean that the drawings and technical documents are only for erection, operation and maintenance of the imported equipment or for manufacture/procurement of the balance items to be undertaken in India, as contended by the appellants. A close reading of Annexure I to contract MD-301 reveals so. It will be observed from the said list that in case of blast furnace it includes specifically the drawings and technical documents for site and erection engineer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be taken. Hence the entire value of 12.5 million DM of technical documentation will have to be included in value (13.5 million DM) of the equipment of B.E. and T.L.Cs. 6.3.I We arrive at a similar result if the problem is looked at from the angle proposed by ld. Counsel, Shri R.N. Das for Revenue. He submits that Contracts MD-301 and MD-302 are merely parts of Sale Contract. All the three contracts have to be read together. It emerges therefrom that 26 million DM is the price of all the goods - equipment, materials and technical documents. Sale contract further indicates, submits the ld. Advocate, that the appellants were bound to take the equipment and materials and they had no choice to go back on either contract. In other words, it is the submission of the ld. Advocate, Shri Das that sale of technical documents at 12.5 million DM was a condition of sale of equipments and materials at 13.5 million DM. In support of his proposition, ld. Advocate relies on Apex Court s judgment in the case of Andhra Petro Chemicals (supra). In that case, the appellant had entered into three agreements with DML namely, (i) for supply of equipment and materials, (ii) for technical know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot back out of contract for supply of technical documents, even if they wished, without the written consent of the other party i.e. S.N. Portugal. These facts brings out the element of compulsion in purchase of the technical documents of whatever nature along with the purchase of equipments and materials. That being the factual position, provisions of Rule 9(1)(e) of the Valuation Rules, 1988 come into play. Clause (e) of sub-rule (1) of Rule 9 envisages addition of all other payments actually made or to be made as a condition of the sale of the imported goods, by the buyer to the seller ....... Therefore, entire 26 million DM will have to be taken as value of the equipments and materials. 6.3.IV As regards the various judgments relied upon by the ld. Counsel, Shri Chakraborty, we observe that the essential ratio of Vishakhapatnam Steel Plant and NALCO (supra) have been followed in the present case that only those engineering charges which are necessary for production and sale of the imported goods has to be added to the value under Rule 9(1)(b)(iv). In V.S.P. (supra), it was found as a fact that engineering charges did not relate to production of the goods unlike the finding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on conjectures and are not based on any evidence that these charges have been incurred by the first appellant. Commissioner, in his fairness, has accepted that there is no evidence that these charges have been paid by the appellants, yet he has gone on to add these charges to the value of goods. Accordingly, differential demands of duty on account of inclusion of these charges are set aside, being based on conjectures. e. g. demand of Rs. 3,92,35,405.40 has been raised on the ground that the appellants required a certificate of completeness of blast furnace. This certificate was obtained from ITP who had also entered into a contract with the appellants for supervision of erection and commissioning of the Plant. There is no evidence of payment by the appellants for such a certificate. Adjudicating officer has confirmed the duty on entire amount of contract value for supervision of erection and commissioning of the plant on the ground that charges for certification of completeness have not been separately indicated without verifying from the said contract whether it includes the item of certification of completeness. Supervision of erection and commissioning of the plant is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vals and the licence for import of equipment was required to be given by the C.C.I. E. As regards the second reason, namely, skewed split up, we observe that we have not given any finding that it was a one as alleged because we do not consider it necessary to determine that question. This offence also, if any, does not survive as an issue. As regards obtaining approval of the Ministry by fraudulent means for importation of the blast furnace, we are unable to understand its relevance to imposition of penalty under Section 112 of the Customs Act when the goods had been imported against a valid licence and which has not been cancelled till now. As regards undervaluation by not including charges for Computer Simulation study we have held that such charges are not required to be included. We, therefore, hold that Dr. J.J. Irani, Shri S.L. Srivastava and M/s. M.N. Dastur Co. cannot be held liable to penalty under Section 112 for the reason given in the impugned order. 10.3 As regards TISCO, the position is different. One of the factors, namely liability of the goods to confiscation, though not seized and not available for confiscation, has been set aside by us. Yet we are of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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