TMI Blog1996 (11) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... he plant was originally installed at Emden, Germany, in 1981 by a firm which went into liquidation. NORD/LB, a Bank, was appointed receiver of the plant. The bank floated a global tender for the sale of the plant on as is where is basis. EGL made an offer of DM 26 million for the plant, but could not obtain clearance of Government of India for payment within the stipulated period. The deal, therefore, fell through. The Bank sold the plant to M/s. Teviot Investments Limited (TIL). On 24th March, 1987, EGL entered into a contract with TIL for purchase of the Direct Reduction Iron Plant on certain terms and conditions. The entire agreement was subject to two conditions - (1) approval of Government of India within 30th April, 1987 and (2) obtaining transfer of the operation licence from M/s. Midrex of Charlotte, USA. The contention before this Court, on behalf of the appellant, Collector of Customs, has been that these clearly were the conditions which had to be fulfilled before the sale could take place. As a matter of fact, EGL obtained transfer of the operation licence from Midrex before proceeding with the dismantling of the plant and exporting the plant in semi-knocked-down cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Gujarat, a gas based Direct Reduction (DR) Plant which is to be re-engineered for a rated capacity of 8,80,000 tpy of Hot Briquetted Iron (HBI) and for this purpose decided to buy the existing gas based DR plant of NOHDDEUTSCHE FERROWERKE (MORD FERRD) located at Emden, West Germany, which had a rated capacity of 8,00,000 tpy DRI under the prevailing operating conditions at Emden based on the Midrex Process and to incorporate Hot Discharge and Hot Briquetting facilities. 4. It was further recited in the agreement that the Collaborator (V.A.) was holding construction licence and rights to use patents from Midrex International B.V. for marketing, sale, design and construction of the Midrex plants at Hazira, India. 5. The agreements with V.A. and Midrex go to show that the plant located at Emden was described as a Midrex plant. Its rated capacity was calculated under the prevailing operating conditions at Emden based on the Midrex process. V.A. undertook to incorporate Hot Discharge and Hot Briquetting facility and for this purpose carried out refurbishing, replacement and modification of the plant. This would enhance the usefulness and value of the plant. It was noted that EGL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed technical services DM (German Marks) 10.1.1 Process license fee payable to MIDREX Corporation for the right to use the Midrex process and patents DM 2,000,000 lump sum 10.1.1.2 Cost of Technical services provided under Article 3 in connection with Midrex process DM 10,100,000 lump sum Technical Services : 10.1.2.1 Payment for engineering and consultancy fee as specified under this agreement DM 23,100,000 lump sum 10.1.2.2 Payment for theoretical and practical training outside India DM 2,200,000 lump sum Total DM 37,400,000 lump sum 8. The agreement signed by EGL with Midrex International B.V., recorded that the licensee, EGL, had entered into an agreement for purchase of a Midrex Direct Reduction Plant installed at Emden, West Germany, and intended to have the same dismantled, refurbished, adapted for production of Midrex Hot Briquetted Iron (HBI) and re-installed in India. The licensee had approached Midrex for an appropriate process licence for the operation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Midrex and will be subject to the approval of Government of India and Midrex. 11. The agreements with Midrex and also V.A. bring out the real nature of the agreement with TIL, which had been made subject to obtaining a licence from Midrex. This agreement with V.A. recites that the plant, when it was bought, had a rated capacity of 8,00,000 tpy DRI under the prevailing operating conditions based on the Midrex Process. It was recited that the Collaborator (V.A.) was holding construction licence and rights to use patents from Midrex for marketing, sale, design and construction of the Midrex plants at Hazira, India. The services that were to be rendered by V.A. would also include technical services in connection with the Midrex Process and engineering services necessary for this purpose. The Collaborator agreed to use Midrex construction and process licence for this project at Hazira, India. It was recorded that EGL s contract with Midrex had been annexed to the contract with the Collaborator. 12. Reading all these agreements together, it is not possible to uphold the contention of Mr. Salve that the pre-condition of obtaining a licence from Midrex was not a condition of sale, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds 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. (2) Payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for export to the country of importation of the imported goods." 15. It is difficult to see how these Interpretative Notes come to the aid of the importer in this case. Midrex has granted licence to EGL not only for the right to produce in the Midrex Direct Reduction Process Plant and sell the products produced by the plant worldwide, but has also given the licensee (EGL) the right to use all patents, confidential information for the operation of the plant. Midrex has undertaken to supply all confidential information and patents updated from time to time during the period of the agreement. Therefore, we are of the view that licence fees paid to Midrex will have to be added to the price of the plant to arrive at the transaction value of the plant. 16. There is another way of looking at the problem. Section 14 of the Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-condition of a process licence of Midrex was placed in the agreement with TIL. It will not be proper to view that agreement with TIL in isolation in this case. The plant would be of no value if it could not be made functional. EGL wanted to buy the plant in working condition. This could only be achieved by paying not only the price of the plant, but also the fees for the licence and the technical know-how for making the plant operational. Therefore, the value of the plant will comprise of not only the price paid for the plant but also the price payable for the operation licence and the technical know-how. Rule 9 should be construed bearing this in mind. 18. Mr. Salve, appearing on behalf of the EGL has laid great stress on the various clauses of the agreement between Essar and TIL to show that the title to the plant had passed to the purchaser without any pre-condition after payment was made in terms of Clause 2 of the agreement. The delivery was also deemed to have taken place at the time and on the date of payment in full, in accordance with Clause 2. 19. Clause 2 merely states that the purchaser shall purchase the property from the seller at an inclusive purchase price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade. The question of payment did not arise till Government of India gave its approval to the agreement. Title to the property would devolve upon the purchaser only after complete, unconditional and irrevocable payment of the purchase price. The risk of destruction, loss or damage to the plant remain with the seller till after the date of delivery of the plant. Therefore, title to the plant was not to pass to the purchaser unless and until full payment was made. The entire contract was subject to the condition of the purchaser obtaining the necessary licence from Midrex to operate the plant. This clause may have been inserted to protect the interest of the purchaser but it was a pre-condition of sale of the plant. 22. Although the agreement with TIL does not describe the plant as Midrex Direct Reduction Plant, the agreement with Midrex leaves no room for doubt that what the assessee had purchased was a Midrex Direct Reduction Plant at Emden. Although the plant was described in the agreement with TIL merely as a Direct Reduction Plant and the name of Midrex was carefully kept out, the agreement with Midrex makes it abundantly clear that the assessee had entered into an agreement to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the plant and its re-erection at Hazira after necessary refurbishing, replacement and/or modifications. It was also recorded in the agreement that Essar had entered into an agreement with Midrex for process licence, which was annexed to the agreement and V.A. was holding construction licence and rights to use patents from Midrex for marketing, sale, design and construction of the Midrex Plants at Hazira, India. 25. Therefore, it appears from the two agreements that the plant was a gas based Midrex Direct Reduction Plant. Its rated capacity based on Midrex Process was 800,000 tpy. Essar had acquired the operating licence by virtue of an agreement with Midrex International, which was annexed to the agreement with V.A. V.A. had a construction licence and rights to use patents for marketing, sale, design and construction of the Midrex Plants. One of the stated objects for appointing V.A. was to raise the existing rated capacity of plant of 800,000 tpy to 880,000 tpy and also to incorporate Hot Discharge and Hot Briquetting facilities. The agreement also recorded :- WHEREAS Essar is desirous of engaging the COLLABORATOR under this agreement for providing the services for the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance for Gases and Solids including preliminary water data for the Hot Briquetting System; (b) Development of the Basic Process and Instrument Diagrams for the Hot Briquetting, Gas and Solid system. (c) Development of the guide drawings for furnace modification required for Hot Discharge Conversion. (d) Development of the Overall general arrangement drawing for Hot Discharge Furnace and Briquetting Facility. (e) Development of the guide drawings for the furnace Product Discharge Chamber, Briquetter Food Legs, and bubbles. (f) Development of the guide drawings for the Bottom seal Gas System Scrubber and Heater. (g) Development of general arrangement drawings for the Briquetting System including Brakers, Quench system, Hot Finers Recycle System, Dust Collection, and Vapour Removal. (h) Preparation of duty specifications for the Briquetting System Equipment. (i) Preparation of duty specifications for the Bottom seal Gas system compressors, Nitrogen Generator, and Bottom Seal Gas Dryer." 27. Therefore, the payment of DM 10,100,000 was being made for the transfer of technology under the Process Licence Agreement entered into with Midrex. The services mentioned herein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Auditing of all the documentation available at Emden to determine the nature and extent of missing documents/information (if any) as described in Annexure I. Documents/Information will mean, without exception, all the drawings, manuals, diagrams, calculations and records, etc. available at Emden, ESSAR will make available the documents to the extent available at Emden. 2.3.3 Assessment of Process Related Units and facilities (equipment, machinery, piping, instrumentation, electrics and control system, related wear and spare parts) as available at Emden, jointly with ESSAR AND MECON and confirm the suitability of these facilities for refuse as such as evidenced at Emden or alternatively establish the extent of revamping/replacement/debottle-becking between dismantling and re-installation. Details of plant and equipment audit are described in Annexure II. 2.3.4 Engineering services for Process Related Units. For the Hazira DR Plant, the basic process design parameters and ambient conditions will be different from that originally applicable and used for the design of the two modules at EMDEN. For electrical and instrumentation equipments the basic concept of the control system of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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