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TMI Blog2015 (1) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... Welspun Maxsteel Ltd., Indore under the provisions of Rule 9(1) (c) and 9 (1) (e) of the Customs Valuation Rules, 1988 (CVR in short) read with Section 14 of the Customs Act, 1962 and differential customs duty on account of the above inclusions along with interest thereon are liable to recovered from the appellant accordingly while finalising the assessment of the capital goods. Aggrieved of the same, the appellant is before us. 2. Brief facts relating to the case are as follows. The appellant M/s Welspun Maxsteel Ltd., Indore, imported capital goods, equipment, components, etc. for the initial setting up of a plant to manufacture 'hot briquette sponge iron' in Raigad District of Maharashtra State under the Project Import Regulations, 1986. For this purpose they entered into four agreements, all dated 22/10/1989 with two foreign suppliers/collaborators, namely, M/s. Davy Dravo, Pennsylvania, USA (Davy in short) and M/s. HYLSA, S.A. de CV, Mexico (HYL in short). The agreements pertained to (a) Supply of Equipment Agreement; (b) Basic Engineering Services Agreement; (c) Process Licence Agreement and (d) Supervisory Services Agreement. The suppliers and the appellant are not rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements as part of a package deal and has accordingly sought to include the consideration paid in terms of Rule 9(1)(c) and 9(1)(e). 3.3 As regards Process Licence Agreement, Rule 9(1)(c) applies only when royalty paid is related to the imported goods and payment of royalty is a condition for sale of the imported goods. Even if one of the conditions is not satisfied, the rule will not apply. As per clause 6.1 of the said agreement, the appellant is required to pay royalty @ $ 1 per ton of briquettes actually produced at the plant for a period of three contractual years. There is no lumpsum payment of royalty and the amount of US $ 2,250,000/- has been determined based on the actual production of 2.25 million for 3 years. The royalty is not linked to the imported capital goods at all but to the manufacture of final product with the use of the capital goods and therefore the condition that royalty paid should be relatable to the imported goods is not satisfied. The said agreement also does not stipulate that the capital goods shall not be sold to the appellant in case royalty is not paid and the very fact that the plant has been set up with the help of capital goods imported from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operating that plant, licence fee was to be paid. In the present case, the plant has been set up not only out of capital goods imported from Davy/HYL but also from various indigenous manufacturers. The decision in the Andhra Petrochemicals case [1977 (90) ELT 275 (SC)] relied upon by the Revenue is also of no consequence as in the said case inclusion was done under the provisions of Rule 9(1)(b)(iv). In the present case, the adjudicating authority has clearly held that Rule 9 (1) (b) has no application and hence, the said decision, is not applicable to the facts of the present case. For the same reason the decision in the case of Mukund Ltd. [1999 (112) ELT 479 (SC)] is also inapplicable. 3.7 Reliance is mainly placed on the following decisions - (a) J.K. Corporation Ltd. [2007 (208) ELT 485 (SC)]; (b) Toyota Kirloskar Motor Pvt. Ltd. [2007 (213) ELT 4 (SC)] (c) Indo-Gulf Corporation Ltd. [2005 (182) ELT 77] In the light of the above, it is pleaded that the impugned order is not sustainable in law and the appeal be allowed by setting aside the same. 4. The ld. Additional Commissioner (AR) appearing for the Revenue made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an import of Direct Reduction Iron Plant, the said firm entered into different agreements for supply of technical/process knowhow, engineering and consultancy services and theoretical and practical training to the personnel and paid consideration therefor and the hon'ble apex court held that all these payments relate to the equipment imported and therefore, liable to be included in the value of the equipment supplied. It is submitted that the ratio of the above decision applies squarely to the facts of the present appeal. In the light of the above, it is pleaded that the impugned order is eminently sustainable in law. 5. We have carefully considered the rival submissions. Our findings and conclusions are discussed in the ensuing paragraphs. 5.1 We have perused all the agreements entered into by the importer appellant with the foreign supplier. It will be useful and relevant to note some of the terms and conditions of these agreements to understand the nature of the transaction. It is also relevant to note that all the agreements were entered into on the same day. The salient features of these agreements are briefly discussed below: (I) Supply of equipment agreement: The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss). The appellant has approached HYL for grant of licence to use HYL III reduction process and Davy has agreed to grant sub-licence to the appellant for operation and use of CO 2 removal process and Koppern Process subject to payment of royalty for the process know how incorporated in the plant and equipment supplied. (IV) Supervisory Services Agreement: In view of the pre-existing arrangements between Davy with - HYL (HYL III direct reduction process), Giamarco Vetrocoke (CO 2 removal process) and Koppern Equipment (koppern process), HYL and Davy has agreed to supply the equipment to the appellant and certain basic engineering and other related services, to assign an agreed number of technical personnel to provide specialised advice to the appellant to supervise the detailed engineering as also the erection, start-up, performance testing and commissioning of the plant and to train the appellant's personnel. 5.2 A combined reading of these agreements make it very clear that all these agreements are interlinked and inter-dependent and have direct nexus with each other. It is only in pursuance of these agreements, the supply of the equipment have been made by Davy/HYL and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or providing specialised advice to the appellant in respect of the detailed engineering as also erection, start-up, performance testing and commissioning of the plant and to train the appellant's personnel. Further there was a pre-existing agreement between Davy and HYL and other know how providers to furnish the know-how and confidential information relating to the processes and to give a licence to the appellant importer to use and operate the same. Thus the various engineering design services, technical know-how services and supervisory services were an integral part of the supply of equipment agreement and it provided a complete package so that the imported equipment could be made operational for the intended purpose of manufacture of hot briquetted sponge iron and without these services, the plant and equipment could not have been made operational at all. In view of the significant variance obtaining in the facts of the present case with those obtaining in the facts of the cases relied upon by the appellant, the ratio of those decisions cannot be made applicable. The hon'ble Supreme Court in the case of CCE v. Al Noori Tobacco Products 2004 (170) ELT 135 (SC) held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchase a Midrex plant for which it was essential to have Midrex operation licence and Midrex technology to make the plant functional. That is why the overriding clause of having prior licence of Midrex was inserted in the purchase agreement with TIL. Without this licence and various other technical information to be provided by Midrex, it might not have been possible to operate the plant at all. It was only after this agreement with Midrex that the purchase of the plant was completed. Bearing in mind the terms and conditions of all the three agreements, we are of the view that it was essential for EGL to have the Midrex licence to operate the plant and the pre-condition imposed in Clause 11 of the purchase agreement about the operation licence from Midrex was to ensure that EGL got a plant which could be made operational with Midrex technology. 23. Therefore, the process licence fees of DM 2,000,000 was rightly added to the purchase price by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng it ready for delivery has to be added to the value of the plant. The specialist supervision for dismantling of the plant and also engineering and consultancy services for this purpose will have to be added to the value of the imported plant. But this apart, other services rendered cannot be treated as adding in any way to the value of the plant. Since there is no clear indication as to how the various services have been valued separately, 10% of the amount of DM 23,100,000 should be added to the value of the plant on this account. 30. Therefore, we are of the view that DM 2,000,000 being the process licence fee paid to Midrex Corporation, DM 10,100,000 being the cost of technical services provided by Midrex and a sum of DM 2,310,000 being payment on account of engineering and consultancy fee payable to V.A., should be added to the value of the imported plant." (B) A similar issue came up for consideration before this Tribunal in the Otto India Pvt. Ltd. case [2002 (149) ELT 477]. The question for consideration was whether the price paid for technical know-how for import of equipment from collaborator of importer could be included in the assessable value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal. The appeal is, therefore, dismissed." (C) In the Andhra Petrochemicals Ltd. case (supra) relied upon by the Revenue, a question arose as to whether the design and engineering charges paid by the importers to the foreign collaborators could be added to the invoice value of imports of capital equipment and it was held that in terms Rule 9(1)(b)(iv) of CVR, these could be added to the value of the imported equipment. The decision of this Tribunal in the case of the Mukund Ltd. (supra) wherein it was held that design and engineering charges, supervision charges including design, erection, commissioning and performance guarantee tests are includible in the assessable value of the goods supplied under Rule 9(1)(e) of CVR also applies squarely to the facts of the present case before us. If we apply the ratio of the above decisions to the facts of the present appeal, in our considered view, the royalty paid for the Process Know-how and the various fees paid for basic engineering services and supervisory services are includible in the assessable value of the equipment imported under Rule 9(1)(c) and 9(1)(e) of CVR, 1988 as these payments are integrally connected with the supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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