TMI Blog2015 (11) TMI 1025X X X X Extracts X X X X X X X X Extracts X X X X ..... aysia only for three equipments i.e. ID sterilizer doors, screw press P5 and Centrifuge. By virtue of this understanding, the appellants placed purchase order with TSDN for import of these three equipments. There is no direct agreement entered into between the appellant with TSDN for any transfer of technical know-how or for supply of engineering and design or for installation and erection of the palm oil plant. Basic engineering and design supplied by TSDN to CCI relates to lay out drawings of the palm oil plant, assembling and drawing of palm oil plant. Clause 3 of Appendix I provides a complete list of documentation, specifications, piping, valve, instrumentation for the entire setting up of the palm oil plant. Nowhere in the MoU there is any mention that the design, basic engineering designs are related to the imported goods in question. It is pertinent to state that the appellant GAVL has entered into contract with SCI vide No.1182 dated 28.11.1997. As per this contract, they placed revised purchase order dated 9.3.1998. As per this contract between GAVL and SCI, the supply of equipment to be made in India for an amount of ₹ 1.92 crores, technical know-how fee of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both engineering & design charges and technical know-how fees are not includible in the assessable value and Rule 9(1)(b)(iv), 9(1)(c) and 9(1)(e) are not applicable and we hold that the invoice price is to be accepted as the actual transaction value. - Decided against Revenue. - C/46/2004 And C/167/2011 - Final Order No. 41538-41539 / 2015 - Dated:- 17-7-2015 - Shri R. Periasami, Technical Member And Shri P. K. Choudhary, Judicial Member For the Respondent : Shri M. Rammohan Rao, JC (AR) For the Petitioner : Shri R. Parthasarathy, Advocate ORDER Per R. Periasami Both the assessee s appeal and Revenue s appeal are taken up together as the issue is arising out of a common adjudication order passed by Commissioner of Customs, Chennai. 2. The brief facts of the case are that the appellants filed Bills of Entry No. 38635 dated 16.7.1998 and No. 51857 dated 11.9.1998 for clearance of ID sterilizer doors with matching flanges and twin screw press (P5) excluding motor, gear and coupling C/W Hydraulic System as machinery for palm oil extraction. The machineries are classifiable under Headings 8479.20 and 8479.90. The investigation carried out by the Specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported and indigenous equipment and will ask GAVL to place order directly and open LC on TSDN, Malaysia and import equipments as per CCL recommendation. The equipment imported was manufactured using the design provided by TSDN on behalf of CCL. TSDN only designs the required imported equipment and the equipments are manufactured by other companies in Malaysia and supplied to GAVL on the recommendations of CCL. The cost of designs and drawing provided by TSDN would be remitted by CCL to TSDN and CCL in turn will bill from GAVL. 4. CCL will use the technical documentation support of plant. TSDN supplied know-how to CCL for process of manufacture of final product using the assembled equipment. CCL reimbursed TSDN for the design, engineering carried out by TSDN for manufacture of import part of the equipment. CCL also reimburses for technical documentation assembling chemical of the plant. CCL also reimburses for TSDN for technical now how. 5. Commissioner of Customs, in the impugned order dropped the demand of RS.91,801/- in respect of Bill of Entry No. 51857 and he held that ₹ 27.32 lakhs paid by GAVL to TSDN through CCL is includible in the assessable value of goods cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the year 1994. Three years before the import took place and the said MOU is not restricted to GAVL. The appellants have rights and know-how are clearly stipulated in the said MOU. He drew attention to MOU agreements dated 2.9.1994 at pages 149 to 157. He explained in detail with reference to the scope of MOU contained in clause 1.5, 1.6, 1.7 where the definition of plant, basic engineering, the workshop, drawing, technical documentation has been spelt out. He submits that MOU is for the complete setting up of palm oil plant in India. He submits that as per the definition of basic engineering, it covers to two components Part (a) and (b). Part (a) relates to providing necessary drawings and specifications, data at the tendering stage and Part (b) covers at project execution stage, after CCL being awarded the project, where TSDN shall provide all detail drawings and specifications for execution of palm oil project in India. As per the specific clause in MOU on basic engineering, he submits that goods relates to cover all execution of the palm oil mill project in India and the said basic engineering nowhere relates to the engineering, designs of imported machinery covered unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not applicable. Rule 9(1)(c) is applicable only if the agreement stipulates as conditional sale of goods. In the present case, there is no direct agreement with GAVL and TSDN. There is no payment made on these charges whereas the Department has invoked Rule 9(1)(b)(iv) by taking into third party payments. The payments made by GAVL to CCL are not payments to third party. Department failed to prove with any evidence whether such payments are directly linked to the present import. He drew our attention to the invoice at page 101, 116 where the description of goods has been clearly spelt out. He also drew our attention to engineering drawings exhibited at A1 to A19 of the paper book which all relates to basic drawing of the plant, layout and location of machineries and their floor diagram. These engineering drawings are not related to equipments which are covered under the present Bills of Entry. 12. Regarding the Revenue appeal on technical know-how, he submits that the adjudicating authority has rightly excluded. He drew our attention to MOU agreement at clause 1.9 at page 150 the technical know-how relates to the entire payment of oil mill and not related to the imported machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to clause 3.30 and 3.31 which stipulates the basic fee for supply of basic engineering, know-how and other technical documentation. He further submits that as per clause 4.1.1 of the MoU wherein TSDN gave the exclusive right to CCI to set up palm oil project mills India and as per clause 6.1.2 the element of secrecy has been built in which is binding on the CCI not to disclose or transfer the information to third parties and submits that the payment towards drawing and engineering is also related to supply of goods by TSDN. 14. He further relied on the agreement signed by SCI with CCI for the referred clause 2, 3, 7, 12 and 13. He also relied on letter dated 27.10.1997 at page 142 of paper book of SCI to GAVL wherein paragraphs 3 to 6 are relevant where SCI is confirming technology and the designs of TSDN and the equipment imported from Malaysia from TSDN. As per paragraph 6 of the letter, SCI has clearly intimated the complete break-up of the cost of each piece of equipment. He also relied on letter of indent dated 29.10.1997 at page 166. He also drew attention to the reply to the show-cause notice by the assessee at page 154 of the assessees paper book. In paragraph 2.8 it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid RM2,60,000 = ₹ 26 lakhs in Indian Rupees. When the total cost of the equipment is only ₹ 30.78 lakhs, the department proposing to add ₹ 27.32 lakhs to ₹ 30.78 lakhs, and also proposing to add ₹ 50 lakhs paid by GAVL to CCI towards imported goods under Rule 9(1)(c) is not correct. 16. He drew attention to the purchase order placed with SCI which is in Annexure VIII at pages 59 to 61. Items 1 to 19 are neither imported nor related to any of the items that are imported. He submits that they have categorically brought out the various clauses and detailed break-up of technical know-how and detail engineering as per Annexure VIII of the purchase order. They have explained in detail the technical know-how and engineering wherein it is specifically mentioned through diagrams and manuals and the category equipment details clearly shows the list of fabricated equipment in India. He further submits that as per Annexure the basic engineering will consist of the equipment which is fabricated at site. Nowhere it is specified that the design and engineering are also for the import of equipments. Pages 61 to 63 of paper book all relates to basic engineering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sides, we find that the appellant have entered into agreement with SCI for setting up of palm oil plant in India. For easy understanding, we reproduce the schematic flow diagram: GAVL Appellant SCI/CC Indian Intermediary I TSDN Overseas supplier Direct Input 1. The purchase Order placed by GAVL to SCI/CCI consists of the following:- i. Supply of equipment made in India Rs.192.68 lacs ii. Technical know-how fee Rs.50.00 lacs iii. Detail Engineering Rs.27.32 lacs iv. Imported Equipment Rs.30.78 lacs Total Rs.300.78 lacs (Rs. 270 lacs excluding value of imported goods) 2. There is no evidence of any payment made by SCI/CCI to TSDN. However, as per the MoU between CCI and TSDN, CCI may have paid Malaysian Ringgit 2,60,000/- (about ₹ 26,00,000/-). The SCN and order state without an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee with CCI and concluded that even though the amount was paid to the Indian counterpart i.e. CCI towards engineering charges which is nothing but payment to TSDN for supply of engineering and design. 24. On perusal of the MoU dated 2.9.1994 between CCI and TSDN, we find that the scope of the MoU at clause 2.1.1, 3.1.2 and 3.2 are relevant and the same are reproduced as under:- 2.1.1 The sale basic engineering for manufacture and procure equipment palm oil mills plants, delivery of assembly documentation as well as granting to CCI the right for using this know-how, experience and knowledge in construction of such plants in India. 3.1.2 For such contracts furnish CCI with Basic Engineering, Know-how and other technical documentation specified in Appendix I for palm oil mills of 3T to 10T FFB per hour to this MOU. 3.2 CCI undertakes to: 3.2.1 Detailing of workshop drawings for plant units on the basis of Basic Engineering received by them from THAS 3.2.2 Present to THAS the workshop drawings for checking 3.2.3 Manufacture the equipment according to the checked workshop drawings 3.2.4 Enable THAS to visit the factories in which the equip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e safety instruction 2.5 Pre-start-up tests instruction 2.6 Process start-up instruction 2.7 Equipment testing instruction 3. TECHNICAL DOCUMENTATION SHALL INCLUDE 3.1 Complete list of technical description of all component plant equipment 3.2 Protection against corrosion 3.3 Complete specification of all pumping and handling equipments 3.4 Complete specification of pipings 3.5 Complete specification of valves 3.6 Complete specification of instrumentation 3.7 Requirement of utilities for the process 3.8 Effluent specifications and treatment and disposal 3.9 List of spares 28. From the above it is evident that the basic engineering and design supplied by TSDN to CCI relates to lay out drawings of the palm oil plant, assembling and drawing of palm oil plant. Clause 3 of Appendix I provides a complete list of documentation, specifications, piping, valve, instrumentation for the entire setting up of the palm oil plant. Nowhere in the MoU there is any mention that the design, basic engineering designs are related to the imported goods in question. It is pertinent to state that the appellant GAVL has entered into cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... built indigenously. Therefore, it is apparent that the fee paid towards basic engineering is not related to TSDN but it includes for the designing done by CCI. We also perused the designs, drawings which is appended to the appeal memorandum. On a perusal of the drawings and designs, we find that the designs are related to complete construction and layout of palm oil plant with flow diagrams, flow chart and layout of each plant and machinery in the palm oil plant. Therefore, we hold that basic engineering designs charges paid by the appellant to CCI cannot be construed that the entire design fees has been in-turn paid back to TSDN by CCI. 31. We find that there is nothing on record to establish any payments made between CCI and TSDN towards the design fees etc. except it is provided in the clause 3.1.2 of the MOU. Further, it is seen from the contract between appellant and SCI/now CCI that nowhere it is shown or agreed that the appellant has to pay the engineering charges towards the imported equipment or it is a condition of sale. In the absence of any evidence Revenue cannot assume that amount paid by the appellant to CCI an Indian counterpart was directly related to engineeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods from others based on the design supplied by TSDN. On perusal of the letter dated 8.9.1998 (Ref. page 187) written by TSDN to the appellant, it is evident that the supplier clearly confirmed that the imported equipments are tailor made for the appellant plant based on their design and engineering. The value of the equipment is as per the invoice. TSDN also confirmed that the original manufacturer invoice from whom the TSDN procured the said equipment are not applicable. From this it is evident that even if TSDN has provided the design for manufacture of the imported equipment to original manufacturer at Malaysia, the invoice price of TSDN is inclusive of all cost and designs etc. In the absence of any other vital corroborative evidence that the appellants have paid separately to the supplier towards the design charges for manufacture of the said imported equipment at Malaysia, the invoice price is to be accepted as transaction value for the purpose of assessment. We have already held that the basic engineering fee charges paid by the appellant to CCI are not related to the imported goods. In this regard, we rely on the decision of the Honble Supreme Court in the case of TISCO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined then the same shall be determined by proceeding sequentially through Rules 5 to 8. Rule 4 provides 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. Under Rule 9, the value or price of certain cost and services is liable to be added to the transaction value while determining the value of the imported goods. Rule 9, insofar as relevant and to the extent referred to by the Tribunal is extracted and reproduced hereunder:- 9. Cost and services. - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - xxx xxx xxx (b) the value, apportioned as appropriate, 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 used in the production of the imported goods; (ii) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment was therefore uncalled for. SNP had purchased the entire steel plant equipment from an Italian supplier more than six years before the transaction in question had taken place with the appellant. Such documents must have accompanied the equipments and materials made available to SNP by the Italian supplier of SNP. It cannot be comprehended and certainly it is not the case of the Revenue that the technical documents were supplied or made available by the Italian supplier to SNP either free of charge at the instance of the appellant or cost thereof was incurred wholly or partially by the appellant. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 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 Tariff Act, 1975 plans and drawings for engineering and industrial purposes being originals drawn by hand as also their photographic reproductions on sensitized papers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief to which it may be entitled in the event of its succeeding on its plea. We find merit in this submission. In our opinion on the order of the Tribunal being set aside the matter needs to be sent back to the Tribunal for examining on merits the above said plea of the Revenue which was refused to be gone into earlier on account of its having been found to be unnecessary. 19. The appeal is allowed. The impugned order of the Tribunal is set aside. The case is sent back to the Tribunal to entertain and examine the plea of the Revenue if the contract DM 302 is undervalued on the basis of the material already available on record. The Tribunal shall consistently with the observations made and findings recorded in this judgment hear and dispose of the appeal before it within a period of six months from the date of communication of this order. The bank guarantee furnished by the appellant shall be kept alive and the amount deposited shall also continue to remain in deposit till the date of decision by the Tribunal whereafter the bank guarantee and the deposit shall be dealt with consistently with the order of the Tribunal. 33. The ratio of the above Apex Court s decision is sq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Saint Gobain Glass India Ltd. Vs. Commissioner of Customs, Chennai - 2014-TIOL-1406-CESTAT-MAD = 2014 (310) ELT 757 (Tri. - Chennai), on identical issue held that design fees, transfer of technology know-how for manufacture of goods are not relatable to the imported goods and allowed the appeal. While allowing the appeal, the Tribunal relied on the Hon ble Supreme Court s decision in the case of Toyota Kirloskar Motor Pvt. Ltd. The relevant paragraphs are reproduced as under:- 9. We find that the Hon ble Supreme Court in the case of Toyota Kirloskar Motors Pvt. Ltd., (supra) held that 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 import and the Honble Court dismissed the appeal filed by the Revenue and upheld the order of the Tribunal. In that case, Revenue contended royalty and know-how fees were to be added in the invoice value of the capital goods in terms of Rule 9(1)(c) of the Customs Valuation Rules, 1988 as it had a direct nexus to the imported goods as the same go into the manufacture of licensed vehicles and spare parts. The Tribunal held that in the agreement to the impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of a transfer of money. Payment may be made by way of letters of credit or negotiable instruments. Payment may be made directly or indirectly. An example of an indirect payment would be the settlement by the buyer, whether in whole or in part, of a debt owed by the seller. Activities undertaken by the buyer on his own account, other than those for which an adjustment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Court should proceed on the basis that the apparent tenor of the agreements reflect the real State of affairs. It is, no doubt, open to the Revenue to allege and prove that the apparent is not the real and that the price for the sale of the CKD packs is not the true price, and the price was determined by reckoning or taking into consideration the lump sum payment made under the collaboration agreement in the sum of 15 million French Francs. It was furthermore held : On an evaluation of the relevant clauses in the. collaboration agreements and the attendant circumstances, we are of the view that the concurrent judgments of the High Court at Bombay do not merit interference in this appeal. The crucial aspects appearing in the case are that the parties were dealing at arms length, that the seller and the buyer have no interest in the business of each other, that, ordinarily, the technical know-how of the machine can take in the assembly thereof, that the CKD packs and spares were supplied to the respondents by the collaborator not at a concessional price but at the price at which they were sold to others, that, as agreed to by the respondents, the option was entirely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 3 provides transfer of technology relating to Float Process. It has no relation to import of capital goods. In fact, the agreement relates to process, know-how, techniques of manufacturing of Float Glass. In terms of Rule 9(1)(C) of the CVR, 1988, the royalty fee and licence fee must be related to the sale of capital goods as a condition of importation of goods, which the appellant is required to pay directly or indirectly as addition of importation of goods. In the absence of any such condition in the agreement and also considering the fact that the royalty and the licence fee are related to the manufacture of Float Glass by the appellants for which the technology know-how is supplied by M/s. SGV, France, inclusion of royalty on the assessable value of the imported capital goods does not arise. Rule 9(1)(C) is not applicable in the appellants case as the said licence fee and royalty is nothing to do with the imported capital goods nor it is a condition for sale of imported capital goods. 37. Therefore, following the decision of the Honble Apex Court, we do not find any infirmity in the order passed by the adjudicating authority insofar as for not adding the technica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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