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TMI Blog2014 (3) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (INKOR) and the appellant. The Co-ordination Agreement provided that the appellant would enter into negotiations with HDCM for supply of equipment under Offshore Equipment Supply Contract (OESC) and with SAE for Offshore Engineering Technical Assistance Contract (OETAC). Further, the appellant also entered into negotiations with INKOR for Onshore Equipment Supply and with KHIL for Onshore Civil Contract (OCC). Negotiations culminated into OESC, OETAC, OESC and OCC with companies as proposed in the Co-ordination Agreement on 01.2.1998. We are concerned with only two agreements namely OESC and OETAC which are the subject matter of dispute between the department and the appellant. Subsequently, both HDCM and SAE were taken over by M/s Doosan by virtue of Novation Agreement in November 1998. As a result, both OESC and OETAC were executed by M/s Doosan. 2. In terms of OESC dated 1.2.1998, 12 equipments were to be sourced and supplied by M/s Doosan to the appellant for its Power Project for consideration of US $103 Millions. Since the equipment to be imported were for Power Project classifiable under Chapter Heading 98.01, the appellant applied on 11.2.1999 for Registration for impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that OETAC was not related to OESC and application and performance of both contracts were mutually exclusive. 6. The issues that come up for consideration in this case are as follows:- a. the core issue is whether the appellant resorted to misdeclaration of the value of plant & machinery imported under the Project Import Regulations by deliberate non-addition of the value of certain costs and services forming part of Off-Shore Engineering/Technical Assistance Contract (OETAC) and whether such value of costs and services are required to be added to the declared value of plant & machinery under Rule 9(1) (b) (iv) of Customs Valuation Rules, 1988. b. Whether action taken by the Revenue in issuing a show-cause notice for short-levy under Section 28 of Customs Act, 1962 was in order when the assessments were provisional. c. Whether goods could have been confiscated and penalty could have been imposed without finalizing provisional assessments. 6 (a) whether the appellant resorted to misdeclaration of the value of plant & machinery imported under the Project Import Regulations by deliberate non-addition of the value of certain costs and services forming part of Off-Shore Engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to be used in connection with and necessary for the provision/sale of the imported goods. According to the scope of work which comes under the broad heading of Performance Standards in Article 4 of OETAC, the scope of work of the contractor are: 6(a) (2) The introduction itself provides that contractor shall be solely responsible for all means, methods, techniques, sequences, procedures and safety programs in connection with the performance of the work without limiting the generality of the earlier provisions. 6(a) (3) The contractor is required to supply and provide all engineering and detailed design for the scope of work as set out in attachment 1. In attachment-1, under the heading Engineering and design service, the KHIL was expected to undertake mechanical engineering and design, electrical engineering and design, instrumentation and control engineering, design, system engineering and thermal design, purchasing support. Under the category of equipment and system design, item such as gas turbine generator and auxiliaries, cooling water system, heat recovery steam generator, steam turbine generator and auxiliaries etc. are listed and in each case, it has been provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn services related to the imported equipment and also provide procurement assistance and technical obligation in respect of imported equipments and materials. According to Article 15.1, KHIL was to submit 10 copies of drawings and documents including imported equipments and materials. It was submitted by the learned special counsel that from the above facts extracted from the OETAC, it is evident that KHIC was entrusted with the task of setting up of a power plant on turn-key basis. Though there were two contracts OESC and OETAC, there were identical provisions and reference to the imported equipment in both would show that the services under OETAC were substantially used in connection with the provision of imported goods. 6(a) (6) However, the appellants submitted that this has nothing to do with the supply of imported goods and the designs etc. provided by the contractor under OETAC were not for use in connection with the supply. Some of the sample agreements were relied upon by the learned counsel to support his submission that in all the cases of major equipments supplied, equipments were standard supply and there was no question of providing any design or specification in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have similar provisions with regard to designing and engineering both on conceptual as well as project management aspects goes against the submissions by the counsel for the appellants. 6(a) (7) In fact, it is seen that in paragraph 79 to 84, Commissioner has examined the scope of work and other features under OETAC and OESC and came to the conclusion that two contracts are closely related. In fact on going through the relevant paragraphs, it is seen that Commissioner has compared the work undertaken in respect of separate equipments in paragraph 81. Further he has also taken note of a striking similarity between the payment schedules for both the contracts in terms of date of payments and proportions of payment. It is seen from the table extracted by the Commissioner on comparing both the contracts, the dates as well as the percentages of payment to be made exactly tallies between OESC and OETAC and even the dates are same. Except for the advance payment of 31.4% under OESC, all other payments are to be made on the same dates in both the contracts. 31.4% advance has been adjusted in 2nd and 3rd payments by adding 15.7% to each payment. When there is no relation between the two co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner has passed the order on presumptions and assumptions, the fact that Commissioners observations are based on a reading of the contract and interpretation of the contract and without showing why such interpretation does not emerge from the contract, simply stating that order is passed on presumptions and assumptions, in our opinion, would not take the case of the appellant any further. 6(a) (9) The learned counsel drew our attention to the Commissioner's observation in paragraph 89 I have gone through the clause 8.1 of OESC and could not find any reference to the effect that the price is inclusive of design and drawings. In fact the clause does not contain the words/phrase 'design and drawings'. In the absence of this, KHIL statements and assessee's claim that the price of the above equipment is inclusive of cost of design and drawing is not acceptable. It was submitted that this observation is not correct. However, we have already taken note of the fact that according to the contract, KHIL was required to provide 10 copies of designs and drawings to the buyer. The responsibility for providing the designs and drawings was of KHIL and not of the overseas suppliers as far as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 4.1 above purport to system design only. They provide system requirement and furnish data for equipment sizing. To a query which may arise whether the design, manufacture and supply of imported equipment has been carried out without the activities listed in OETAC, we can state that these activities can be carried out without the activities listed in OETAC. During the discussions, it was argued this observation is like saying that sambar can be prepared without toor dal or curd rice can be eaten without pickle. No doubt, sambar can be prepared without toor dal also or it can be prepared by using some other dal also. If somebody asks when sambar is prepared and given, whether the sambar has been prepared by using toor dal or not, the answer has to be specific whether toor dal has been used or not in the preparation of that sambar. If the answer is that the sambar can be prepared without toor dal, can we say that supports the claim that sambar has been prepared without using toor dal. This does not seem to be a correct way of confirming that the activities under OETAC had nothing to do with the equipments and machinery purchased form the suppliers. An examination of OETAC and OES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction. In the present case, the assessee received Rs.36, 47,585/- in Assessment Year 1998-1999. As per the statement made by the learned counsel for the assessee in Court on 06/09/2012 (which statement is ordered to be taken on record and marked 'x'), the said sum of Rs.36,47,585/- was not kept in a separate interest-bearing bank account but it formed part of the business turnover. In view of the said statement, we see no reason to interfere with the impugned judgment. Applying the substance over form test, we are satisfied that the in the present case the said sum of Rs.36, 47,585/- constituted income. The said amount was part of the turnover. The said amount was collected from the customers. The said amount was collected towards sales tax liability. The said amount formed part of the turnover. We are unable to appreciate how this decision is helpful to the submissions on behalf of the appellant. After citing this decision, it was submitted that terminology contained in OETAC cannot be the basis for taking a view that design of imported equipments is part of OETAC. It was submitted that appellant had produced overwhelming evidence to show that the design of the impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Commissioner has discussed this issue elaborately item wise and head-wise and has allowed substantial amount as deductible and has added only a portion of the total OETAC to the value of imports. In paragraph 101 and 102 of the Order-in-Original, the learned Commissioner has examined each and every category of the amount and has discussed the issue. It is also to be noted that while discussing the question of inclusion of the amount of USD 8,89,199 paid to KHIL who had in turn sub-contracted M/s. Fichtner, the learned Commissioner has found that the work done by M/s. Fichtner involved conceptual as well as detailed design under the heading 'equipment and system design and engineering' and designing services provided by them related to certain items/elements of the equipments imported under the OESC and they were paid by KHIL for such design and engineering services. Since we find the additions to be fair and reasonable and in accordance with rules and we may have to reproduce what the Commissioner has written in the order just to show we agree with him, we consider it is sufficient if we say so. 6 (b) The next issue is whether show-cause notice for short-levy could have been is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not require the same to be done. In central excise law, the system of assessment by the central excise officer is no longer in existence. Assessee is required to assess the goods himself, collect the tax and pay the tax and if there is a short levy or short payment, the Central Excise Officer can issue a show-cause notice without assessment. Therefore the most important decision relied upon by the learned counsel in the case of Serai Kella Glass Works becomes totally inapplicable in the present situation. In that case, in paragraphs 16, 17 & 18 the Honble Supreme Court has considered the relevant provisions and observed as follows: 16. The assessee is entitled under Rule 173F to determine his liability for copy on the excisable goods manufactured by him and to remove such goods on payment of duty on self assessment in accordance with the provisions laid down in the Rules. But this is only the first step in making of the assessment. The proper officer is empowered to assess the duty on the goods so removed by the assessee and complete the assessment on the return filed by the assessee. A copy of the return so computed by the proper officer has to be sent to the assessee. The duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions which resulted in such observations are no longer in existence. In fact Hon'ble Supreme Court was not examining a situation where final assessment order is passed without issue of show-cause notice. Normally what happens in such cases is that the matter is remanded to observe principles of natural justice and finalize assessment. In fact in none of the decisions relied upon by the learned counsel listed above, there is no discussion as to what would happen if there is a dispute about finalization of assessment by the proper officer itself and assessee does not pay the amount which is required to be paid as per law. Because short levy resulting as a result of assessment is covered by the provisions of Section 11A in Central Excise Act 1944 and Section 28 in Customs Act 1962. In all such cases, the matter was sent back so that whether as a result of finalization of assessment short levy occurred or not itself can be reconsidered and finalizing the assessment which does not result in payment, procedure for recovery under Section 11A and Section 28 of Customs Act 1962 are being invoked. Therefore as argued by the learned special counsel for the Revenue, if the finalization of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been collected under Section 28 of Customs Act is not correct. 6 (b) (4). As rightly submitted by the learned special counsel for the Revenue, in this case no doubt the show-cause notice was issued invoking Section 28 of Customs Act 1962. In the very first order-in-original, the objection raised with regard to this procedure was accepted and in all the three adjudication orders, passed in the different rounds of litigation, assessments have been finalized and differential duty has been demanded under Section 18(2) of the Customs Act 1962. 6 (b) (5). Moreover, as submitted by the learned Spl. Counsel, in the very first order-in-original, the Commissioner after taking note of the decisions cited by the appellants had followed the decision in the case of Dhabol Power Company 2004 (171) ELT 354 (T-Del). Delhi Bench of this Tribunal while considering the appeal filed by Dabhol Power Company ordered the finalization of provisional assessment as done by the Commissioner in the light of the findings of their order. We find that in the case of Dabhol Power Co., the Tribunal had approved the course adopted in finalizing the provisional assessment simultaneously invoking provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der was passed on 22.06.1994 without taking notice of the show-cause notice issued by DRI. The Hon'ble High Court observed: 'in the facts of the present case', since the goods were provisionally assessed, there could not be any short-levy and consequently show-cause notice on the ground of short levy could not be issued. The Hon'ble High Court did not examine nor did the department resort to the finalization of assessment under Section 18 taking note of the show-cause notice and thereafter resorting to confiscation and penalty, if called for, as has been done in this case. If the action of the Revenue was as in the present case, the Hon'ble High Court probably would have examined as to whether the procedure followed for simultaneous finalization of provisional assessment and imposition of penalty and confiscation was proper. Therefore this decision also cannot be applied to the present case before us. In the case of CC (imports) Mumbai Vs Orkay Steel Mills [2001(133)ELT 698 (Tri-Mum)], the Tribunal relied upon the decision of the Hon'ble Supreme Court to hold that where assessments are provisional, show-cause notice invoking extended period could not be issued. Since we have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so. The decisions relied upon by the learned counsel have proceeded on the basis that the relevant date has been defined both under Section 11A and Section 28 of the Central Excise Act and Customs Act respectively. Since the relevant date speaks of the limitation running from the date of finalization of provisional assessment, it has been held that show-cause notice for short-levy cannot be issued when assessment is provisional. In both customs and central excise at present self-assessment is provided for. Even if it is not provided for, there cannot be any dispute that provisional assessment is also assessment. Let us take the example of the present case itself. Assessee in this case is importing several items for setting up a refinery and the importation takes place over a period of 2-3 years. Thereafter, the importer is required to submit the final invoices issued by the supplier, the total quantity of goods imported vis-a-vis the plan made at the time of taking permission under Project Import Regulations. The question that arises is when there was a contract in existence, even before the supply contract came into picture and legitimately and legally such values were to be inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified a time limit so that relief will be available to the assessee. A question of res judicata may not arise in view of the fact that provisional assessments are resorted for specific purposes and once the assessee is able to specify the purpose for which provisional assessment was resorted to, the assessment can be finalized. Therefore, even if short-levy is disputed, notice issued, adjudicated, the finalization of provisional assessment or assessment process as per the document can be a separate subject and in both cases issues involved will be different. 6 (b) (10). These observations are not the basis for coming to the conclusion against the appellants and while considering the issue and going through decisions and going through the law, it was felt that law can be looked at it in this manner also and it was also felt that it would result in fairness and justice to both sides. Therefore, we have chosen to make mention of these aspects also in the order even though the conclusion as regards the duty demand has no relevance or the conclusions reached are not required to be considered. The fact remains that these conclusions also support the case of the Revenue. 6 (b) (11). In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of Commissioner of Customs vs. Exotic Fashions [2010 (262) E.L.T. 651 (Tri.-Mum)], the Tribunal held that no duty demand could be made until finalization of provisional assessment and if there was no finalization of provisional assessment, proposal for confiscation of the goods and penalty would have no relevance. As already observed by us, in this case the Commissioner has finalized the assessment and demanded differential duty and thereafter proceeded to confiscation of the goods and imposed penalty. Therefore, this decision does not help the importer. 6(c) (5). Learned special counsel for Revenue has also relied upon decision of the Tribunal in the case of Sri Ganesh Overseas vs. Commissioner of Customs, Ahmedabad [2002 (150) E.L.T. 145 (Tri. Del.)] which was affirmed by Hon'ble apex court. Learned counsel submitted that this decision cannot be applied to the facts of this case. It was submitted that in that case, the proprietor attempted to defraud revenue. Instead of producing satisfactory evidence in support of the declared value, he disowned the transaction and stated that he was hold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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