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2015 (11) TMI 1025 - CESTAT CHENNAI

2015 (11) TMI 1025 - CESTAT CHENNAI - TMI - Valuation of goods - Inclusion of amount paid towards design / engineering charges used for manufacture of imported equipment and technical know-how fees - loading of charges paid by the assessee towards basic engineering, design, drawing and technical know-how paid to CCI on the imported equipments i.e. ID sterilizer doors, Screw Press P5 and centrifuge imported under two Bills of Entry - Held that:- As per original agreement the Indian entity SCI agr .....

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m SCI. Due to RBI restrictions of opening of LC, SCI requested the appellant to place order directly with TSDN Malaysia 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 er .....

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ate 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 ₹ 50 lakhs, the detail engineering of ₹ 27.32 lakhs.

There is nothing on record to establish any payments made between CCI and TSDN towards the design fees etc .....

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find that this is not the case of a related transaction between the supplier i.e. TSDN and GAVL. The appellant directly placed purchase order with TSDN for supply of impugned goods covered in the Bill of Entry. No doubt this import has been made as per the recommendations of the SCI/CCI and this cannot be construed that GAVL and TSDN are related unless it is established with clear evidence. There is no agreement between GAVL and TSDN for transfer of know-how or supply of goods or payment of roya .....

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e not includible in the assessable value. - engineering fees of ₹ 27.38 lakhs paid by the appellants to CCI is not includible in the imported goods. Accordingly, the demand of differential duty confirmed in the impugned order is liable to be set aside. Consequently, the confiscation and penalty are also set aside.

As rightly held by the adjudicating authority, Rule 9(1)(c) is not applicable to the present case. In this regard, this Tribunal in the case of Saint Gobain Glass Indi .....

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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 bri .....

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, for short) entered into an agreement with Sun Consultant India Pvt. Ltd. (SCI for short) for setting up of palm oil plant in India. Initially, as per the agreement, SCI was to undertake supply of equipments, machineries both imported and indigenous for the Palm Oil Extraction Plant. Subsequently, GAVL placed purchase orders for supply of spares for a total value of ₹ 1,67,660/- as the unit price for the twin screw press (P5) c/w hydraulic system at RM 98000 and stock type centrifuge at R .....

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erection and commissioning of palm oil plant. The appellants have quoted payments in the purchase order in the following manner:- 1. Design/engineering charges used for manufacture of imported equipments Rs.27,32,000/- 2. Technical know-how fees Rs.50,00,000/- 3. Cost for unloading on site storage and erection Rs.30,00,000/- 4. a. b. Cost for supply of equipment Cost of imported equipment Spares for imported equipment Rs.162.68 lakhs RM1,54,000 RM13,660 3. Show-cause notice dated 30.9.2001 issue .....

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igenous equipment and CCL will provide both imported 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 .....

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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 covered by both Bills of Entry under Rule 9(1)(b)(iv) read with Rule 9(1)(c) of Rule 4 of Customs Valuation Rules, 1988 under Section 14 of Custom Act, 1962. The adjudicating authority had also held that ₹ 50 lakhs towards technical know-how documentation fe .....

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so ordered for enhancement of bank guarantee executed by the appellant towards differential duty, fine and penalty. 6. Hence the appellant preferred appeal No. C/167/2011 against the impugned order pertaining to loading of ₹ 27.32 lakhs and demand of differential customs duty, fine and penalty. Revenue preferred appeal No. C/48/2004 against dropping / non-inclusion of ₹ 50 lakhs in the transaction value relating to technical know-how and documentation fees, drawings, designs and erec .....

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lant in India for which they have entered into an agreement with SCI for supply of items both imported as well as indigenous, technical services and installation, erection of palm oil plant. He further submitted that SCI is a sister concern of CCL. Due to certain regulatory requirements i.e. RBI regulations, Sales Tax Registration etc. SCI had assigned the said contract to CCL. CCL had signed MOU with TSDN in the year 1994 for the basic engineering for manufacture and procurement of equipments a .....

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n 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 .....

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tted by TSDN for manufacture of equipment indigenously. He further submits that the definition of technical documentation clearly relates to information required for assembling of a plant and structures, pipelines etc. and not related to the imported machinery. 10. He also drew our attention to Appendix I at page 155 of the paper book and referred to clause 1.1 to 1.4 wherein the scope of basic engineering has been spelt out and it relates to only technical description of the plant and component .....

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e equipment indigenously based on the drawings and also procure the equipment. The basic engineering and design charges relate to indigenous design of plant and also relates to workshop design developed by CCL. Further, he submits that the GAVL has never entered with any agreement with TSDN. They have placed purchase orders directly with TSDN for import of only these two machineries i.e. sterilizer door and twin pins. Thee drawing and design charges paid by CCL to TSDN is not relatable to the im .....

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he imported goods. He stated that workshop drawings developed by CCL which is approved by TSDN is not related to the imported goods but only related to manufacture of equipments in India therefore that Rule 9(1)(b)(iv) is 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 takin .....

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eir 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 machineries. The learned counsel submitted that the adjudicating authority has rightly no .....

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003 (155) ELT 287 (Tri. LB) (g) Polar Marmo Agglomerates Ltd. Vs. Commissioner of Customs - 2003 (155) ELT 283 (Tri. LB) (h) Hoerbiger India Pvt. Ltd. Vs. Commissioner of Customs 2003 (156) ELT 62 (Tri. LB) (i) Collector of Customs Vs. Essar Gujarat Ltd. - 1996 (88) ELT 609 (SC) (j) Saint Gobain Glass India Ltd. Vs. Commissioner of Customs, Chennai 2014-TIOL-1406-CESTAT-MAD1995 (76) ELT 481 (SC) (k) BPL Display Device Ltd. Vs. CC Civil Appeal No. 1729/2001 (l) Union of India Vs. Mahindra & M .....

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f sale of goods. He drew attention to the definition 1.2, 1.4, 1.5, 1.6, 1.7 and 1.9 of the MOU between CCI and TSDN. He submits that from the definitions it is very clear that the entire agreement is only to set up a complete palm oil mills in India to the potential buyer of the plant from CCI. He also drew attention to clause 2.1.1 of the MOU which clearly stipulates the sale of basic engineering for manufacture and procurement of equipments, palm oil mills plant, delivery of assembly, documen .....

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s 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 .....

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I and subsequently it was signed by CCI and therefore CCI becomes part of the main contract. There is a nexus between GAVL and CCI and the technology is transferred to GAVL. SCI disappeared from the scene after assigning the contract to CCI. He also relied on RBI letter at page 158 and 159 wherein the beneficiary is GAVL and the amounts paid by GAVL is towards engineering fees and technical know-how and is ultimately for TSDN. He also referred to letter dated 8.9.1998 between TSDN and GAVL where .....

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1) ELT 349 (b) Welspun Maxsteel Ltd. Vs. Commissioner of Customs (Import), Mumbai - 2015 (317) ELT 514 (c) Elmrad Hydro Drive Inc. Vs. Commissioner of Customs - 2008 (228) ELT 461 (d) Commissioner of Customs Vs. Mahendra Suiting Ltd. 2008 (226) ELT 747 (e) Uptron Colour Picture Tube Ltd. Vs. Commissioner of Customs, Mumbai - 2001 (130) ELT 156 (f) Collector of Customs Vs. Essar Gujarat Ltd. 1996 (88) ELT 609 (SC) Therefore, he submits that both basic engineering and design charges and technical .....

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SCI/CCI part of which is only ₹ 26 lakhs assumed to have been paid to TSDN by CCI. The cost of the imported equipment is only ₹ 30.78 lakhs. He submits that there is no evidence of any payment made by SCI/CCI to TSDN. Even assuming, as per MoU between CCI and TSDN, CCI may have 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 propo .....

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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 of plant, layo .....

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ere the facts are directly related to the imported goods by a package deal. He further submits that para 57 of the Andhra Petrochemicals (supra) cannot be read in isolation. Similarly, Essar Gujarat (supra) relied by Revenue has no application to the facts of the present case. He relied on the decision of the Hon ble Supreme Court dated 3.5.2006 in C.A. No. 1729/2001 in the case of BPL Display Device. Similarly, the Honble Supreme Court has reversed the decision of Uptron. Learned counsel also .....

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oth sides in the form of paper book and the drawings and designs. The basic issue in the present case relates to loading of charges paid by the assessee towards basic engineering, design, drawing and technical know-how paid to CCI on the imported equipments i.e. ID sterilizer doors, Screw Press P5 and centrifuge imported under two Bills of Entry. The adjudicating authority, in the impugned order, loaded the value of ₹ 27.32 lakhs paid towards engineering and design fees to the transaction .....

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derstanding, 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/C .....

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original agreement the Indian entity SCI agreed to set up the palm oil plant to the appellant and it includes imported as well as indigenous machinery and equipments installation and erection of palm oil plant. Thereafter the SCI assigned the said contract to CCI another Indian entity who signed MoU with TSDN, Malaysia for technology transfer as well as for setting up of palm oil plant in India to any potential buyer in India only through CCI. On perusal of the records, we find that the appellan .....

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eering and design or for installation and erection of the palm oil plant. 22. We have carefully seen the copy of relevant agreements entered into between GAVL with SCI and agreement by SCI with CCI and the MoU dated 2.9.1994 signed between CCI with TSDN. The original MoU was signed in 1994 whereas the present import was made in 1997 98. The value of goods declared as per the invoice for both the Bills of Entry is ₹ 30,78,552/- whereas Revenue proposed to add supply of engineering and desig .....

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h 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 .....

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ies in which the equipment will be or is manufacture for inspection of the quality of the manufactured equipment. 3.2.5 Manufacture and / or procure all the equipment and components from goods materials, according to THAS specification or closest equivalent. 25. We reproduce the relevant clauses i.e. 1.2, 1.4, 1.5., 1.6, 1.7, 1.8 and 1.9 relating to the Terms of the agreement as under:- 1.2 Purchaser The potential buyer of plants from CCI 1.4 Contract The future contracts which will be concluded .....

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ed out by CCI on the ground of basic engineering for manufacture of equipment of the plants 1.8 Technical documentation Documentary informations necessary for assembling of plants 1.9 Know-how Technical informations and knowledge in written and / or oral form to construct, assemble and operate palm oil mills 26. As seen from the above clauses, the definition of basic engineering has two components (a) TSDN will provide necessary drawings and specification at the tendering (b) they will submit de .....

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tion materials specification structural staging supports and foundation loads of plant and equipment 2. KNOW-HOW SHALL INCLUDE 2.1 General description of the technology for palm oil mills 2.2 Operating instruction 2.3 Service instruction 2.4 Safety and fire 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 .....

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ing 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 9.3.199 .....

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of engineering which is reproduced under:- EQUIPMENT 20) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions. 21) As built single line diagram of all fabricated equipment with nozzle orientation and dimensions. 22) Weights and foundation details for supporting equipments of for additional steel structure 23) Shop test certificate of each functional equipment PLANT LAYOUT AND PIPING 24) Final equipment layout with exact position with reference points f .....

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ical collaboration with TSDN. From the above purchase order 1182 and letter of intent dated 9.3.1998, established that the basic engineering charges is not exclusively related to designs supplied by TSDN for setting up of palm oil plant but includes the designs prepared by CCI in India which is termed as workshop designs which based on the basic engineering design supplied by TSDN. 30. We also find that the entire designing of palm oil plant and lay out consist of both indigenous as well as impo .....

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gns, 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 i .....

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this is not the case of a related transaction between the supplier i.e. TSDN and GAVL. The appellant directly placed purchase order with TSDN for supply of impugned goods covered in the Bill of Entry. No doubt this import has been made as per the recommendations of the SCI/CCI and this cannot be construed that GAVL and TSDN are related unless it is established with clear evidence. There is no agreement between GAVL and TSDN for transfer of know-how or supply of goods or payment of royalty. The a .....

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e 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) materials consumed in the production of the imported goods; (iv) engineering, development, art work, design work and plans and sketches underta .....

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d above, the basic engineering and design charges paid are clearly related to setting up of plant and not related to manufacture or production of the imported goods. Revenue contended that TSDN Malaysia is not the actual manufacturer of the said equipments and they in turn got the 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 equi .....

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her 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 Vs. CCE (supra) w .....

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t. By reference to the Interpretative Note to Rule 4 it has held that to the extent the drawings and technical documents were referable to the manufacture and sale of the imported equipments, their value was liable to be included in the value of the equipments and material imported and inasmuch as separate values thereof have not been shown the entire value of 12.5 million DM of technical documentation covered by contract DM 301 was liable to be included in the value of the equipments. Secondly, .....

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by the Tribunal and has submitted that the Tribunal has gone totally amiss in interpreting the rules and judging the case thereunder. It was submitted by Shri Ashok Desai that the interpretation as placed on the rules by the Tribunal is not correct. We will presently test the correctness of the contention so advanced. 12. Section 12 of the Customs Act is the charging section. Section 14 provides for the duty of customs being chargeable on any goods by reference to their value. In exercise of the .....

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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 v .....

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n the production of the imported goods; (ii) tools, dies, moulds and similar items used in the production of the imported goods; (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; xxx xxx xxx (e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, .....

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xx 14. A bare reading of Rule 9(1)(b) shows that it refers to the value of the four specified goods and services supplied by the buyer free of charge or at a reduced cost for use in connection with the production and sale of imported goods to the seller and to the extent that such value has not been included in the price actually paid or payable. To illustrate, the seller may have manufactured equipments of a design, drawings whereof were made available by the buyer say by engaging an independen .....

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ransaction value. In the case at hand it is nobodys case that the buyer had supplied any goods or services free of charge or at reduced cost for use in connection with the production and sale for export of imported goods. All the exercise done by the Tribunal in scrutinizing the documents forming subject matter of contract DM 301 so as to classify them into three categories stated earlier in this judgment was therefore uncalled for. SNP had purchased the entire steel plant equipment from an Ita .....

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e 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 .....

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uch. Rule 9(1) (e) also, therefore, has no applicability. 17. So far as Interpretative Note to Rule 4 is concerned it is 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 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 .....

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charges for rendering such service the price paid therefore shall 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 .....

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t-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 dut .....

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Tariff Act, 1975 plans and drawings for engineering and industrial purposes being originals drawn by hand as also their photographic reproductions on sensitized papers and carbon copies thereof are declared free from payment of customs duty. Sub-rules (3) and (4) of Rule 9 clearly provide that additions to the price actually paid or payable is permissible under the Rules if based on objective and quantifiable data and no addition except as provided for by Rule 9 is permissible. 18. The abovesai .....

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legations made in the show cause notice given to the appellant was of the blast furnace equipments (BFE) having been undervalued by transferring a part of the value of the equipments to the value of engineering documents and drawings. In substance the show cause notice alleged the blast furnace equipment having been under valued by artificially excluding therefrom the value of technical documents. According to the Revenue such documents are even otherwise and in ordinary course supplied by the s .....

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nal Solicitor General has submitted that from the stage of the show cause notice till before the Tribunal the Revenue has kept its plea alive. Vide para 7 of its order the Tribunal noted this plea of the Revenue but did not go into it as the Tribunal considered it not necessary in view of other findings arrived at. The learned Additional Solicitor General submitted that if this Court may not sustain the order of the Tribunal then in all fairness the Revenue should be allowed an opportunity of su .....

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nal 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 dep .....

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ustoms, Mumbai (supra) and the decision of the Special Bench of the Tribunal in the case of Collector of Customs Vs. Vishakapatnam Steel Plant (supra), on an identical case, the Tribunal held that cost of engineering and design are not includible in the value of imported goods. Further, we find that the adjudicating authority proposing to load the entire engineering fees of ₹ 27.32 lakhs to the imported equipment, in this regard, we find that the cost of the imported equipment is only S .....

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e demand of differential duty confirmed in the impugned order is liable to be set aside. Consequently, the confiscation and penalty are also set aside. 36. As regards Revenues appeal, we find that Revenue contended that technical know-how fee of ₹ 50 lakhs paid to CCI should be added to the transaction value of the imported goods whereas the adjudicating authority has dropped the proceeding in respect of technical know-how fees. On perusal of paragraph 29.1 and 29.2 of the impugned order, .....

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efore, as rightly held by the adjudicating authority, Rule 9(1)(c) is not applicable to the present case. In this regard, this Tribunal in the case 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 th .....

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se, 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 import of goods, there is nothing indicating that royalty payment is a condition of the sale of imported goods. It is observed that as regards royalty which goes .....

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al parts, for production preparation of licensed products etc. What is important that none of assistance is in relation to the goods under import. 10. For the purpose of the proper appreciation of the case, the relevant portion, in the case of Toyota Kirloskar Motors Pvt. Ltd. (supra) are reproduced below :- The transactional value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of import. A distinction, therefore, clearly exists b .....

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now-how were required to be given not as a condition precedent, but as and when the respondent makes a request there for and not otherwise. Appendix C of the agreement relates to manufacture of local parts which evidently has nothing to do with the import of the capital goods. Appendix D again is attributable to construction of plant; production preparation; and pilot production and production model, wherewith the import of capital goods did not have any nexus. We may furthermore notice that Int .....

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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 im .....

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he 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. The said rule clearly states that the charges or costs. envisaged there under were not to be included in the value of the imported goods subject to satisfying the requirement of the proviso that charges were distinguishable from the price actually paid or payable for the imported goods. Interpretation of the said ru .....

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into India and levied certain charges for rendering such service the price paid there for shall 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) i .....

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rted goods, they were relatable to post-import activity to be undertaken by the appellant. Yet again a three-Judge Bench of this Court in. Union of India and Others v. Mahindra and Mahindra Ltd., Bombay [(1995) Supp. (2) SCC 372], opined : Ordinarily 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 .....

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at 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 with the respondents to order the parts as per their requireme .....

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ons; in other words, there existed no nexus between the lump sum payment under the agreement for the technical know-how and the determination of the price for supply of CKD packs or spares. It is by highlighting the above aspects that the learned Single Judge and the Division Bench concluded that the contention that the price quoted in the invoices tendered by Mahindra & Mahindra (respondents) does not reflect the correct price because a part of the value of imported packs and components was .....

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r the purpose of assessing the customs duty. It may be true, as has been contended by the learned. Additional Solicitor General, that Rule 9(1)(c) of the Rules had not been taken into consideration therein, but the same does not make much difference. For the views we have taken, we are of the opinion that the. CESTAT cannot be said to have committed any error in arriving at its decision in the impugned judgment. There is, thus, no merit in this appeal, which is dismissed accordingly. In the fact .....

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