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2015 (4) TMI 486 - SUPREME COURT

2015 (4) TMI 486 - SUPREME COURT - 2015 (319) E.L.T. 202 (SC) - Addition in the value for assessment to customs duty of charges paid by the respondent to Met Chem Canada Inc. for supply of technical services required for setting up and commissioning a plant for the manufacture of Hot Rolled Steel Coils in India - Held that:- customs duty is chargeable on goods by reference to their value at a price at which such goods or like goods are ordinarily sold or offered for sale at the time and place of .....

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in turn states that the transaction value of imported goods shall be the price actually paid or payable for the goods when 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 .....

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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 technical consultant pursuant to the agreement. This again refers only to documents, drawings etc. of setting up, commissioning and operating the plant, all of which are pos .....

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e 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.

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 amo .....

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mmissioning and operation of the plant, which would, therefore, be attributable to a post-importation event. - seller had an obligation towards a third party which was required to be satisfied by it and the buyer (i.e. the appellant) had made any payment to the seller or to a third party in order to satisfy such an obligation. The price paid by the appellant for drawings and technical documents forming the subject-matter of contract MD 301 can by no stretch of imagination fall within the meaning .....

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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 .....

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or engineering and industrial purposes being originals drawn by hand as also their photographic reproductions on sensitised papers and carbon copies thereof are declared free from payment of customs duty. Subrules (3) and (4) of Rule 9 clearly provide that additions to the price actually paid or payable are permissible under the Rules if based on objective and quantifiable data and no addition except as provided for by Rule 9 is permissible. - it is clear that the facts of the present case do no .....

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of Hot Rolled Steel Coils in India. An agreement dated 13.4.1991 was entered into between the respondent and Met Chem Canada Inc. to associate Met Chem Canada Inc. as a technical consultant to render technical services in relation to implementation of a project to set up a plant in India for production of Hot Rolled Steel Coils and Strips. Under clause 1.1.6 plant is defined as: 1.1.6. Plant shall mean the integrated steel plant having an estimated annual capacity of Eight Hundred Thousand Tonn .....

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COPE OF SUPPLY: 2.1. Technical consultant shall render following engineering and other technical Services from outside India; 2.1.1. Project Engineering Services: Technical Consultant shall act as technical coordinator for the successful setting up, commissioning of all the facilities and 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 .....

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tailed 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 shall be responsible fo .....

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chnology: Technical consultant shall select appropriate subcontractor/contractors depending on the source of technologies and organize transfer to ESSAR of technology necessary for successful operation and maintenance of the Plant. 2.1.5.Procurement support services: Technical Consultant shall provide procurement support Services for procurement of Equipment in India such as assistance in finalization of lists, specifications and sizes and configuration of equipment to be purchased, listing of s .....

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S. 9.1. The Technical Consultant make no representation or warranty that any process, equipment or facilities which may be recommended by the Technical Consultant in respect to the Project can be employed, operated in India or otherwise used without infringing any patent, trademark, or other industrial property right of any third party in respect of the same. ESSAR acknowledges that the Technical Consultant shall not be liable in the event of claims against ESSAR by any other party for such infr .....

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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 ot .....

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idential. 9.4. Nothing contained in the Agreement shall be construed to mean that such patents, know-how, copyrights and other intellectual properties (referred to as the Technical Information in the Agreement) will be granted or transferred to ESSAR, unless otherwise specified in the Agreements. 9.5. ESSAR shall take all reasonable measure to avoid disclosures of the Technical Information to any third party and shall disclose the said Technical Information to third parties only to the extent me .....

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riginally created by the Technical consultant specifically pursuant to this Agreement. The Technical Consultant may keep copies of all documents, drawings, plans and specifications and use them. By a supplementary agreement, the main agreement of 13.4.1991 was added to, the main difference being that the plant would now be having an estimated capacity of 16,00,000 tonnes instead of 8,00,000 tonnes. Further, the lump sum fee payable was increased by DM 15,0050 Million making the total lump sum fe .....

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e to achieve performance. This purchase order was amended by a purchase order dated 28.7.1992 by which the CIF price of the said steel plant was revised to US$ 169,700,000. This was in view of the fact that the plant capacity as stated earlier had been doubled, and a sponge iron manufacturing plant of a capacity of one million tonnes which was originally to be sold was now deleted. 3. Vide a show cause notice dated 20.7.1993, Revenue demanded the sum of DM 78.95 Million being technical knowhow c .....

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e 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 a .....

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Thus, I find that these two payments were not independent to each other but the buyer has no option but to buy machinery once they have made commitment for technical services. Therefore, I have no doubt in my mind that the payment made as per the technical consultancy agreement is a condition of sale of imported goods. 5. An appeal by the respondent to CEGAT succeeded, and CEGAT by its judgment dated 24.6.2003 set aside the order of the Commissioner holding that the plant could have been set up .....

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Gujarat s case (supra). According to him, on a conjoint reading of the purchase order for supply of the plant and the agreement for technical services it is clear that payments are made under the technical services agreement as a condition for the sale of the imported plant which cannot be set up without the technical services to be provided. In reply, Shri Bagaria, learned senior advocate appearing on behalf of the respondent, took us through the said agreements and contended that it was clear .....

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iff Act, 1975 (51 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) o .....

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oods 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 or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tarif .....

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e Section makes it clear that customs duty is chargeable on goods by reference to their value at a price at which such goods or like goods are ordinarily sold or offered for sale at the time and place of importation in the course of international trade. This would mean that any amount that is referable to the imported goods post-importation has necessarily to be excluded. It is with this basic principle in mind that the rules made under sub-clause 1(A) have been framed and have to be interpreted .....

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ermining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (a) The following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:- (i) Commissions and brokerage, except buying commissions; (ii) The cost of containers which are treated as being one for customs purposes with the goods in question; (iii) The cost of packing whether for labou .....

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he 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 .....

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x xxx 9(3) Additions to the price actually paid or payable shall be made under this on the basis of objective and quantifiable data. 9(4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. A reading of Rule 4 and Rule 9 makes it clear that only those costs and services that are actually paid or payable for imported goods pre-import are to be added for the purpose of determining the value of the impor .....

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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 .....

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inally created by the technical consultant pursuant to the agreement. This again refers only to documents, drawings 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. Anoth .....

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ot 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 Gujarat Ltd., (1997) 9 SCC 738, was strongly relied upon by Shri Neeraj Kaul. The said judgment related to the question whether licence fees payable should be added to the invoice value of a plant tha .....

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and effectively operational but it was not a condition of sale of the plant. It was quite an independent contract. From a plain reading of the agreement with TIL, it appears that the overriding clause may have been inserted to protect EGL but nonetheless it was a condition of sale. If this condition was not fulfilled, the sale would have fallen through. Moreover, it appears that the plant without Midrex licence would have been of no value at all. EGL had purchased the plant on as is where is bas .....

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under Article 3 in connection with Midrex process DM 1,01,00,000 lump sum Technical Services 10.1.2.1 Payment for engineering and consultancy fee as specified under this agreement DM 2,31,00,000 lump sum 10.1.2.2. Payment for theoretical and practical training outside India DM 22,00,000 lump sum Total DM 3,74,00,000 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 amoun .....

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r 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 stage. Fu .....

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services in India cannot be added to the value of the imported plant. Also, in the present case, there is no transfer of technology under a license. Therefore, no question arises as to whether without such license the plant to be set up in India could be operated at all. The judgment also concludes in favour of the respondent the fact that all amounts payable for training of personnel outside India cannot be added to the value of the plant. 14. In Tata Iron & Steel Co. Ltd. v. Commissioner .....

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which reads as follows: 12. Interpretative Notes. - the interpretative notes specified in the Schedule to these rules shall apply for the interpretation of these rules. The relevant interpretative note which was relied upon is important and reads as follows: Note to Rule 4 Price actually paid or payable The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods. The payment need not necessarily take the form .....

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t 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, ma .....

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ayment actually made or to be made as a condition of sale of the imported goods by the buyer to the seller or to a third party; (ii) such payment, if made to a third party, has been made or has to be made to satisfy an obligation of the seller; and (iii) such payments are not included in the price actually paid or payable. 16. It is nobody's case that the seller had an obligation towards a third party which was required to be satisfied by it and the buyer (i.e. the appellant) had made any pa .....

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no doubt true 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 .....

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he goods if it has been paid separately and is clearly distinguishable from the price actually paid or payable for the imported goods. Obviously, this Interpretative Note cannot be pressed into service for calculating the price of any drawings or technical documents though separately paid by including them in the price of imported equipments. Clause (a) in the third para of the Note to Rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection e .....

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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 .....

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d as also their photographic reproductions on sensitised papers and carbon copies thereof are declared free from payment of customs duty. Subrules (3) and (4) of Rule 9 clearly provide that additions to the price actually paid or payable are permissible under the Rules if based on objective and quantifiable data and no addition except as provided for by Rule 9 is permissible. 15. In Commissioner of Customs (Port), Kolkata v. J.K. Corporation Limited, (2007) 9 SCC 401, on facts the agreement ther .....

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plant, which was in reality nothing but was held to be an additional price payable for the plant itself and was, therefore, held to be includible in its assessable value. It is in the aforementioned fact situation, this Court held: (SCC pp. 745-46, para 13) 13[12]. Reading all these agreements together, it is not possible to uphold the contention of Mr. Salve that the precondition of obtaining a licence from Midrex was not a condition of sale, but a clause inserted to protect EGL. Without a lice .....

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ract with Midrex 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 resp .....

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rice 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, para 17) 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 .....

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ue of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia, by way of transfer of licence or technical knowhow for the purpose of setting up of a plant .....

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Act, therefore, must be construed, having regard to the basic principles of interpretation in mind. 11. What would, therefore, be excluded for computing the assessable value for the purpose of levy of customs duty, inter alia, has clearly been stated therein, namely, any amount paid for postimportation activities. The said provision, in particular, also applies to any amount paid for postimportation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for .....

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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, .....

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) 195 ELT 206 (Tri) and (2006) 205 ELT 208 (Tri)] the buyer had entered into a contract with TIL for purchase of direct reduction iron plant ( the plant ). The entire agreement was for import of the plant. The agreement was subject to two conditions-(a) approval of GOI and (b) obtaining transfer of licence from M/s Midrex, USA. Without the licence from Midrex, the imported plant was of no use to the buyer. Therefore, it was essential to have the licence from Midrex to operate the plant. Therefor .....

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the judgment of this Court in Essar Gujarat Ltd. [ From Final Order No. 91 of 2002 dated 12-2-2002 of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. C/573/2001-A : See (2002) 142 ELT 343 (Tri); (2003) 156 ELT 62 (Tri); (2006) 195 ELT 206 (Tri) and (2006) 205 ELT 208 (Tri)] 17. Essar Gujarat has also been distinguished in Commissioner of Customs (Port), Chennai v. Toyota Kirloskar Motor (P) Ltd., (2007) 5 SCC 371, as follows:- 36. Therefore, law laid down in E .....

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at the post-importation service charges were not to be taken into consideration for determining the transaction value. 37. The observations made by this Court 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 Essa .....

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