TMI Blog2015 (4) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... sold for export to India, adjusted in accordance with the provisions of Rule 9 of these Rules. On an analysis of the technical services agreement dated 13.4.1991, it is clear that the respondent has only associated Met Chem Canada Inc. as a technical consultant. There is no transfer of know-how or patents, trademarks or copyright. What is clear is that technical services to be provided by Met Chem Canada Inc. is basically to coordinate and advise the respondent so that the respondent can successfully set up, commission and operate the plant in India. It will be noticed that coordination and advice is to take place post-importation in order that the plant be set up and commissioned in India. In fact, all the clauses of this agreement make it clear that such services are only post-importation. Clause 9 on which a large part of the agreements ranged again makes it clear that ownership of patents, know-how, copyright and other intellectual property rights shall remain vested in the technical consultant and none of these will be transferred to the respondent. The respondent becomes owner of that portion of documents, drawings, plans and specifications originally created by the tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rue that the Interpretative Notes are part of the Rules and hence statutory. However, the question is one of their applicability. The part of the Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods. The Tribunal has not doubted the genuineness of the contracts entered into between the appellant and SNP. Rather it has observed vide para 10.2 of its order that entering into two contracts (MD 301 and MD 302) was a legal necessity. The Tribunal has also stated that it was not recording any finding of “skewed split-up”. Shri Ashok Desai, the learned Senior Counsel for the appellant has pointed out that under Chapter Heading 49.06 of the Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achieving established operations of the Plant. Technical Consultant shall coordinate all technical matters such as, but not limited to studying various alternative specifications and processes for the Plant and for manufacturing of Products; making recommendation for the most suitable and economic process, final detailed specifications and processes for the selected route, advising as required regarding technical proposals from various suppliers, and Contractors for the supply of the Plant and equipment, and the erection thereof at the Site, including civil engineering, designs, construction and installation of project utilities necessary for the successful setting up of the plant; carrying out the detailed project engineering including giving approvals for the various construction and Project implementation activities, engineering drawings, methods of construction, etc. 2.1.2.Supervision and Monitoring of the Project: Technical Consultant shall provide advice regarding the activities in connection with the setting up of the plant from the technology, costs and time schedule angle. 2.1.3.Arrangement for Training of ESSAR s Employees-outside India. Technical Consultant shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9.2. The Copy right in all documents (including, but not limited to computer data, specifications, drawing and plan supplied by ESSAR, shall remain with ESSAR if originally owned by ESSAR. 9.3. The Technical Consultant may own and possess patents, know-how, copyrights, and other intellectual property rights with respect to the Plant and its operation and maintenance and/or the Products, which will be disclosed by the Technical Consultant to ESSAR, to the extent required as per the Scope of Services for the purpose of this Project, while rendering Services to ESSAR under this Agreement. ESSAR may disclose such information to other parties concerned for the Project only to the minimum extent necessary for implementation secrecy acceptable to all parties concerned prior to disclosure of information. Ownership of any and all the patents, know-how, copyrights and other intellectual property rights shall remain vested in the Technical Consultant or its subcontractors, as applicable, and ESSAR shall secure and otherwise protect such patents, knowhow, copyrights and other intellectual properties and keep them secret and confidential. 9.4. Nothing contained in the Agreement shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demanded the sum of DM 78.95 Million being technical knowhow charges which ought to be added to the sum of US$169,700,000. In their reply to the show cause notice, the respondent stated that none of the provisions of Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules of 1988 would apply as no payment is made for technical services as a condition of sale of imported goods. In any event, the agreement for technical services is to be performed in India post-importation and, therefore, would have to be excluded from the value to be taken into account at the time of import. 4. The Commissioner of Customs by an order dated 31.1.2002 added a sum of DM 78 Million on the following basis: 31. Since, the contract for technical consultancy was signed before the purchase order placed, it is evident that the payment made on account of the technical consultancy agreement is a condition of sale of imported goods. Even though, this aspect has not been covered in the agreement for technical consultancy as at the time of signing this agreement the purchase order was not placed to M/s. Metchem Inc. Canada. However, such an high amount of DM 78 million has to be ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 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- (a) the seller and the buyer have no interest in the business of each other; or (b) one of them has no interest in the business of the other, and the price is the sole consideration for the sale or offer for sale: Provided that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under Section 46, or a shipping bill or bill of export, as the case may be, is presented under Section 50. (1-A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf. (2) Notwithstanding anything contained in subsection (1) or sub-section (1-A), if the Board is satisfied that it is necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate, of the following goods and services where supplied directly or indirectly by the buyer 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) (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 s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s etc. of setting up, commissioning and operating the plant, all of which are post-importation of the plant into India. 10. In fact, clause 13 of the purchase order dated 21.6.1991 is important in that liquidated damages are only payable for delay in commissioning the plant and for failure to achieve the stipulated performance, both of which are post-importation activities. 11. Another thing to be noticed is that a conjoint reading of the technical services agreement and the purchase order do not lead to the conclusion that the technical services agreement is in any way a pre-condition for the sale of the plant itself. On the contrary, as has been pointed out above, the technical services agreement read as a whole is really only to successfully set up, commission and operate the plant after it has been imported into India. It is clear, therefore, that clause 9(1)(e) would not be attracted on the facts of this case and consequently the consideration for the technical services to be provided by Met Chem Canada Inc. cannot be added to the value of the equipment imported to set up the plant in India. 12. And now to the case law. Collector of Customs (Preventive) v. Essar Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lump sum The Court held that the amount of 20 Lakh Deutsche Marks and 101 Lakh Deutsche Marks were both payable for the right to use Midrex process and patents. In short, these amounts were payable for the transfer of technology under a process licence agreement entered into with Midrex. The judgment states that without such licence the plant could not be operated at all by the importer without the technical know-how from Midrex. In any case, the plant could not be operated or be made functional. This being the case, since these amounts had to be paid before the plant could at all be set up, these amounts would be added to the value of the imported plant. 13. However, so far as the sum of 231 Lakh Deutsche Marks is concerned, since this was payment for engineering and technical consultancy to set up and commission the plant in India, this amount would have to be excluded. This Court held that 10% of this amount only should be added to the value of the plant as the plant had been sold abroad on an as is where is basis and needed to be dismantled abroad before it was ready for delivery in India. Obviously, therefore this 10% is attributable to a pre-import s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is provided in Rule 9, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller. The costs of such activities shall not, therefore, be added to the price actually paid or payable in determining the value of imported goods. The value of imported goods shall not include the following charges or costs, provided that they are distinguished from the price actually paid or payable for the imported goods; (a) Charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment; (b) The cost of transport after importation; (c) Duties and taxes in India. The price actually paid or payable refers to the price for the imported goods. Thus the flow of dividends or other payments from the buyer to the seller that do not relate to the imported goods are not part of the customs value. Rule 9(1)(e) was not attracted on facts. This Court held: 15. Clause (e) of sub-rule (1) of Rule 9 is attracted when the following conditions are satisfied: (i) there is a payment actually made or to be made as a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be charges for construction, erection, assembly etc. of imported goods. Alternatively, even on the view as taken by the Tribunal on this Note, the drawings and documents having been supplied to the buyer-importer for use during construction, erection, assembly, maintenance etc. of imported goods, they were relatable to post-import activity to be undertaken by the appellant. Such charges were covered by a separate contract, i.e. contract MD 301. They could not have been included in the value of imported goods merely because the value of documents referable to imported equipments and materials was mixed up with the value of those documents which were referable to equipment which was yet to be procured or imported or manufactured by the appellant; the value of the latter category of documents also being neither dutiable nor clubbable with the value of imported goods. The Tribunal has not doubted the genuineness of the contracts entered into between the appellant and SNP. Rather it has observed vide para 10.2 of its order that entering into tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rex was being signed on 4-12-1987, although the agreement with TIL for purchase of the plant was executed on 24-3-1987. Therefore, we are of the view that the tribunal was in error in holding that the payments to be made to Midrex by way of licence fees could not be added to the price actually paid to TIL for purchase of the plant. 17. The Court noticed several curious aspects of the agreement stating that it started with the recital that the purchaser and the seller have today respectively purchased and sold a direct reduction iron plant, on the following terms and conditions , which, according to this Court, indicated that the purchase and sale of the plant had taken place on 24-3-1987, but in clause (2) it was stated that the purchaser would purchase the property from the seller at the stated price. Upon construing the terms of the conditions, it was opined: (SCC p. 749, para 24) 24. Therefore, the process licence fees of DM 20,00,000 was rightly added to the purchase price by the Collector of Customs. The order of CEGAT on this question is set aside. 19. However, in TISCO [(2000) 3 SCC 472] this Court took note of Interpretative Note to Rule 4 and held: (SCC p. 482 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008) 4 SCC 563, this Court dealt with Rule 9(1)(e) and the Essar Gujarat judgment as follows: 22. In the alternate, it has invoked Rule 9(1)(e). This Rule 9(1)(e) cannot stand alone. It is a corollary to Rule 4. There is no finding in the present case that what was termed as royalty/licence fee was in fact not such royalty/licence fee but some other payment made or to be made as a condition prerequisite to the sale of the imported goods. It is important to bear in mind that Rule 9 refers to cost and services. Under Rule 9(1), the price for the imported goods had to be enhanced/loaded by adding certain costs, royalties and licence fees and values mentioned in Rules 9(1)(a) to 9(1)(d). It refers to all other payments actually made or to be made as a condition of sale of the imported goods . In the present case, the Department invoked Rule 9(1)(c) on the ground that royalty was related to the imported goods, having failed it cannot fall back upon Rule 9(1)(e) because essentially we are concerned with the addition of royalty, etc. to the price of the imported goods. Further, in the present case, the Department has accepted the transaction value of the imported goods. 23. In Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Essar Gujarat Ltd. [(1997) 9 SCC 738] in para 18 must be understood in the factual matrix involved therein. The ratio of a decision, as is well known, must be culled out from the facts involved in a given case. A decision, as is well known, is an authority for what it decides and not what can logically be deduced therefrom. Even in Essar Gujarat Ltd. [(1997) 9 SCC 738] a clear distinction has been made between the charges required to be made for preimportation and post-importation. All charges levied before the capital goods were imported were held to be considered for the purpose of computation of transaction value and not the post-importation one. The said decision, therefore, in our opinion, is not an authority for the proposition that irrespective of nature of the contract, licence fee and charges paid for technical know-how, although the same would have nothing to do with the charges at the preimportation stage, would have to be taken into consideration towards computation of transaction value in terms of Rule 9(1)(c) of the Rules. 38. The transaction value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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