TMI Blog2004 (12) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices rendered by the Outokumpu under this agreement are found to be for setting up of the entire plant in India; the fees paid by the appellants under this agreement cannot be said to be a fee for Engineering Services required for the production of the imported goods. The services rendered by Outokumpu under Basic Engineering agreement are found to be for setting up of the plant in India involving installation and integration of various capital goods imported from Outokumpu, imported from others and also procured indigenously. Such services do not relate can be ascribed to the any of the equipments imported by the appellants. Thus it is to be held that the fees paid by the appellants to Outokumpu under the Basic Engineering Agreement is for the purpose of setting up of a copper smelting plant in India and such charges will not form part of the transaction value of the imported capital goods by virtue of Interpretative Note to Rule 4 of Customs Valuation Rules, 1988. It is nobody s case herein, that the appellants, i.e. the buyer i.e. had supplied any engineering, development or art work, etc. to the exporter i.e. Outokumpu. None of the imported goods (imported either from Outokum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C F/CIF CIF Value Rs. 1 2 3 4 5 6 7 8 1. Vishwa Panmal 10516/24-10-95 IGM 2381/23 10-96 Lot Oil burner with accessories, Autoclave, Agitator $ 1597,500 58349711 OEC Finland 2 Vishwa Panmal 3871/9-10-95 IGM2654/7-10-96 Lot Drag Conveyor Parts $ 212,000 8054316 OEC Finland 3 Vishwa Panmal 5772/7-6-96 IGM1493/11-6-96 Lot FSF Main Support Structures, Cooling Elements Flash Tank $ 3055,500 109534453 OEC Finland 4 S/O Andhra Pradesh 3817/8-8-95 IGM 2016/ 7-8-95 Lot FSF Reaction Shaft Uptake Shall FSF Sectrom Platforms FSF Parts, FSF Stell Touch Up Parts $ 1738,000 65853036 OEC Finland 5 Trimbakeshwar 7908/21-8-96 IGM2363/12-8-95 Lot Cooling system, Headers Supports Valves for Cooling systems, Fastening Parts, FSF Parts $ 1662,000 60042518 OEC Finland 6 Salah Al Deen 7233/12-9-96 IGM2363/12-9-96 Lot FSF Springs $ 36,000 1301365 OEC Finland 7 Contship New Zealand 65/1-10-96 IGM330/27-9-96 Lot FSF/Matte Launder Refractories $ 1,150,000 42041171 OEC Finland 8 Contship Asia 2513/23-10-96 IGM357/10-10-96 Lot FSF Refractory/Matte Launder $ 1,001,000 36617054 OEC Finland 9 Rijaz 5064/11-10-96 IGM2738/14-10-96 Lot WHB Support $ 1,230,000 45433096 OEC Finland 10 Ibn Asakir 6679/18-11-96 IGM 3068/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to Outokumpu are not includible in the value of the capital goods so imported by the appellants from Outokumpu. 4.2 No dispute was raised by the department with regard to other payments made to Outokumpu under the Basic Engineering agreement, such as for training, supervision of installation and commissioning fees recovered for carrying out the activities. 5.1 This order dated 8-11-1996 of the Assistant Commissioner of Customs was reviewed by the Commissioner of Customs under Section 129D(2) of the Customs Act, 1962 and an appeal was filed before the Commissioner of Customs (Appeals). The department contending that the payment of Licence Fees and Basic Engineering were a condition of sale of the equipments by Outokumpu and hence the same are to be included in the value of the capital goods. Commissioner of Customs (Appeals), Mumbai vide order-in-appeal dated 29-6-1998 remanded the matter to the Dy Commissioner of Customs for fresh decision in accordance with the law. 5.1. On remand, the Deputy Commissioner of Customs vide order dated 29-9-2001 passed an order-in-original holding that the Licence Fees and Basic Engineering fees are includible in the value of the capital goods im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CEGAT and hence the assessee cannot urge this point before Supreme Court. The Supreme Court held thus : 5. We will first deal with the objection of Shri Divan which is in the nature of a preliminary objection. As noted, he contended that the issue in question is finally decided inter se between the parties in an earlier proceedings which was not challenged by the Department; therefore, so far as the parties to these appeals are concerned, the matter stands concluded and the parties cannot reopen the said issue. It is true that this issue was decided by the Tribunal in the earlier round of litigation primarily relying upon two orders to which we have already made reference; the correctness of that finding was not challenged in this Court because the matter stood remanded to the original Authority. In spite of this finding of the Tribunal, the parties again joined issue before the original Authority on this issue by producing materials like affidavits and made their submissions based on which the original Authority gave a finding against the respondent, who took the matter in appeal before the Appellate Commissioner and having lost before the Appellate Commissioner, the respondent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is entitled to go into the entire matter afresh without being shackled by the findings of the lower appellate authority as recorded in the order of remand..... (c) In view of this settled legal position, non-filing of appeal by the appellants against the order-in-appeal dated 29-6-1998 (passed in the first round) does not debar the appellants from contesting the demand on merits before the CEGAT. This is because, the remand order dated 29-6-1998 passed by the Commissioner (Appeals) has been merged with the impugned order dated 30-1-2002. There is no necessity for the assessee to file an appeal against the very remand order since after remand, the adjudicating authority may pass an order in favour of the assessee. Therefore, by filing of an appeal against the remand order, the assessee not only burdens the higher appellate authorities with unnecessary appeal, he is also burdened with unnecessary litigation work. Where the order passed after remand is against the assessee, he has every right to contest the same by way of filing appeal in the higher forum. In view of this, the Courts have consistently held that the remand order cannot bind the higher appellate authorities. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. (iv) Appellants submitted that for invoking the provisions of Rule 9(1)(c), two conditions should be satisfied. Firstly the licence fees paid by the appellants should be related to the imported goods. Secondly, the licence fees was paid as a condition of sale of the equipments. If any one of the above conditions is not satisfied, then Rule 9(1)(c) cannot be invoked. (v) The department did not challenge the finding of the Assistant Collector that the Licence Fees did not relate to imported goods. Only contention of the department before the Commissioner (Appeals) was that the licence fees was paid as a condition of sale of the equipments by Outokumpu. There is force in submission that by that token only, Rule 9(1)(c) cannot be invoked. 6.5 According to Commissioner (Appeals), the present case is similar to the decision of CEGAT in Himson Textiles. (a) The Commissioner (Appeals) in his remand order dated 29-6-1998 held that the facts of the present case are identical to the decision of the CEGAT in the case of Himson Textile Engg - 1997 (93) E.L.T. 301 (T). This decision of the CEGAT was set aside by the Supreme Court vide judgment reported in 2000 (117) E.L.T. 535 (S.C.) wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant in India. From the Illustrative copies of basic engineering documents received by the appellants from Outokumpu as under this agreement, a number of documents were supplied by Outokumpu to the appellants in order to set up the plant in India. It can be inferred that these documents informed the appellants how and where the various equipments have to be installed in India. Since the services rendered by the Outokumpu under this agreement are found to be for setting up of the entire plant in India; the fees paid by the appellants under this agreement cannot be said to be a fee for Engineering Services required for the production of the imported goods. The services rendered by Outokumpu under Basic Engineering agreement are found to be for setting up of the plant in India involving installation and integration of various capital goods imported from Outokumpu, imported from others and also procured indigenously. Such services do not relate can be ascribed to the any of the equipments imported by the appellants. (e) It is found Interpretative Note to Rule 4 of Customs Valuation Rules 1988 supports the above findings. The relevant portion of the Interpretative Note to Rule 4 is repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not be liable to be included in the value of the 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 third para of Note to Rule 4 is suggestive of charges for services 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. (Emphasis Supplied) Thus decision of the Supreme Court in TISCO (supra) has been followed by this Tribunal in the following cases : (a) 2001 (130) E.L.T. 327 (T) - TISCO v. CC (b) 2001 (129) E.L.T. 245 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes the cost of design also. Hence, the question of adding the basic engineering fees to the value of the capital goods imported from Outokumpu under Rule 9(1)(b)(iv) does not arise. In any case, the learned the Department fairly concedes and confirms that Rule 9(1)(b)(iv) is not applicable in the present case. The Commissioner (Appeals) also in his order did not invoke this rule to for including the basic engineering fees to the value of the capital goods. 6.9 ON INCLUDIBILITY OF LICENCE FEES OF US $ 31,82,000 PAID TO OUTOKUMPU TO THE VALUE OF THE IMPORTED CAPITAL GOODS - (a) Licence fees paid by the appellants to Outokumpu is for obtaining the right to use the technology of manufacture of copper matte by the appellants and not related to capital goods imported from Outokumpu or from others as - (g) The licence fees paid to Outokumpu of USD 31,82,000, was for the purpose of obtaining technical know-how for the manufacture of copper in India by a process known as Outokumpu Flash Smelting Technology. The recital to the licence agreement provides as under : WHEREAS LICENSEE desires to obtain from LICENSOR a licence to practice the Outokumpu Process together with LICENCEOR S tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a precious metals plant, a sulfuric acid plant, and an effluent treatment plant, and having a capacity of 100,000 metric tons of copper cathodes per annum, which capacity can be upgraded to 150,000 metric tons of copper cathodes per annum as per Appendix 2 of the Basic Engineering Agreement. Plant Section shall mean individually the smelter and the sulphuric acid plant, the electrolytic refinery, the precious metals plant, and the effluent treatment plant, each within the battery limits given in Appendix I of he Basic Engineering Documents. Process Equipment shall mean process system or systems and all associated equipment incorporated in the Plant necessary for carrying out the Outokumpu Process . In Article 3 relating to Grant, Article 3.1 provides as under : 3.1 Grant by LICENSOR LICENSOR agrees to grant and hereby does grant to LICENSEE subject to terms and conditions hereinafter set forth, a non-exclusive licence to the technical and commercial information needed for carrying out the Outokumpu Process and to the improvements to use the Outokumpu Process at its Plant up to the Licence Capacity which licence shall be non-transferable except as hereinafter otherwise expressly pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6.11 (a) Reliance was placed on the following decisions in support of the plea that, Licence fees not includible in value of capital goods : (a) Vestas RRB India v. CC - Final Order No. 844/2000-A dt. 3-10-2000 [2004 (178) E.L.T. 636 (T)] (b) Daewoo Motors India v. CC - 2000 (115) E.L.T. 489 (T) (c) CC v. Modi GBC - 1999 (114) E.L.T. 931 (T) Affirmed in 2000 (120) E.L.T. A70 (S.C.) (d) Feroda India Pvt. Ltd. v. CC - 2002 (142) E.L.T. 343 (T) (e) DCM Shriram Consolidated Ltd. v. CC, Mum. - 2003 (153) E.L.T. 317 (T) (f) Hoerbiger India P. Ltd. v. CC, Mum. - 2003 (156) E.L.T. 62 (T) (g) Panalfa Dongwon India Ltd. v. CC, Mum. - 2003 (155) E.L.T. 287 (T). (h) Polar Marmo Agglomerates Ltd. v. CC, Delhi - 2003 (155) E.L.T. 283 (T) (i) S. D. Technical Service v. CC - 2003 (155) E.L.T. 274 (T - LB) = 2003 (56) RLT 970 (T) (j) Associated Cement Companies Ltd. v. CC - 2003 (59) RLT 574 (T) (k) Living Media India Ltd. v. CC - 2002 (148) E.L.T. 441 (T) (l) Mando Brake Systems India Ltd. v. CC - 2004 (163) E.L.T. 333 (T) (m) SRF Ltd. v. CC - 2003 (161) E.L.T. 721 (T) (n) MDS Switchgear Ltd. v. CC - 2003 (151) E.L.T. 421 (T) (o) Final Order No. 444/2004 - NB(A), dated 19-5-2004 [2004 (169) E.L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icence fees for the right to use the patented process. Seller S will receive payment for the equipment and the license fee from the importer, and will then transfer the entire amount of the license fee to the licensor. 2. The Technical Committee on Customs Valuation expressed the following view. The licence fee is for a technology incorporated in rolling mill equipment which enables it to perform the patented process. The rolling mill equipment has been purchased specifically to carry out the patented production process. Thus, since the process of which the 15 million c.u. licence fee is paid is related to the goods being valued and is a condition of the sale, it should be added to the price actually paid or payable for the imported following mill equipment. On consideration of the same, it is to be held that the reason for the above view is duty is payable on the value of the goods imported into India. Where the entity imported incorporates the technology, the only viable use of the goods commercially is with the technology incorporated in it. Without the technology incorporated in the goods, the said entity cannot be put to use. Consequently, for the purpose of customs valuation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) Rule 9(1)(e) has been invoked in the impugned order to include the fees paid under Basic Engineering agreement, to the value of the capital goods imported from Outokumpu as Rule 9(1)(e) does not appear to be invoked or referred to in the original proceedings. Hence, at this stage, the said rule cannot be invoked. (b) It was submitted that Rule 9(1)(e) found in Customs Valuation Rules, 1988 is not found in the GATT Rules on Customs Valuation. However, Annex. Ill to GATT code contains para 7 which is somewhat similar to Rule 9(1)(e) reads as under : The price actually paid or payable includes all payments actually made or to be made as a condition of sale of the imported goods by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller. While Rule 9(1)(e) of Customs Valuation Rules, 1988 reads as under : 9. Costs and services. (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods - (e) all other payments actually made or to be made as a condition of sale of imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 7-3-2002 have clarified that supply of capital goods from them is not a condition for granting the licence. This lays to rest and goes to prove that the payment of licence fees paid to Outokumpu is not a condition for sale of the capital goods. Hence, Rule 9(1)(e) is inapplicable. (b) The Supreme Court in TISCO (supra) 15. Clause (e) of sub-rule (1) of Rule 9 is attracted when the following conditions are satisfied :- There is a (i) payment 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 he 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 them 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 subject matter of contract DM 301 can by no stretch of imagination fall within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment made to TIL for the plant DM 26 million (b) Expenses for dismantling etc. DM 20.75 million Thus, the total value declared for the assessment of the plant was DM 46.75 million. The Customs Department however, proposed to include the following payments made by Essar also to the value of the plant imported by Essar Payment Made for Payment (in DM) Includible as per SC Not includible as per SC Process licence fee payable to MIDREX for the right to use the Midrex process and patents 2 Million 2 Million - Cost of Technical Services provided by VA for para 2.5 10.1 Million 10.1 Million - Payment for engineering and consultancy fee as specified under this agreement 23.1 Million 10% of 23.1 Million to be included 90% of 23.1 Million not to be included Payment for theoretical and practical training outside India 2.2 Million - 2.2. Million The argument of Essar was that the payments made by it to VA as indicated above are not condition of sale of the plant to Essar by TIL. In support, it was argued by Essar that the agreement for purchase of the plant was entered into with TIL on 24-3-1987 itself whereas the agreement with Midrex and VA was entered into only on 4-12-1987. The sale of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was no import of complete plant from Outokumpu. Only few capital goods as listed in Annexure-3 to the paper book alone imported from Outokumpu. This constitute hardly 16% of the total value of the plant. (ii) The equipments imported from Outokumpu are standard equipments which are offered by others also. (iii) The various submissions and propositions now raised in the present case were not raised or considered by the Supreme Court in Essar s case. (iv) It is a settled law that a decision cannot be relied upon in support of a proposition that it did not decide. Considering the submission made, we would agree that the decision in case of Essar Gujarat would not apply in this case Moreover in Essar s case, the imported plant incorporated the Midrex technology whereas in the present case, the entity imported is not the entire plant, but were standard, off-the shelf available items components. Which by their self are not proved to and do not incorporate the flash smelting technology. Reliance placed by Revenue on Essar Gujarat case cannot be upheld in the facts of this case. 6.17 In the present case, no such case as made out in case of Andhra Petrochemical [1997 (90) E.L.T. 275 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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