TMI Blog2024 (1) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus render it as a condition of sale for procurement of the imported goods. It is also noted that there is no technical know-how fees attributable towards post import related/associated acts and activities. Thereby no case arises for scaling up the assessable value with the inclusion of the royalty charges. In fact the preamble clause of the Confidentiality Agreement supra clearly brings to fore its purpose, completely unrelatable to any post import functioning. The order of the Tribunal in the case of TDT. COPPER LTD. VERSUS COMMISSIONER OF CUSTOMS, NEW DELHI [ 2000 (7) TMI 273 - CEGAT, NEW DELHI] relied upon by the adjudicating authority, is completely at variance as far as facts of the present case are concerned as Article 10 of the agreement therein provided for inclusion of various fees, charges and cost of technical services and were clearly a condition of sale. In the said case as relied by the learned Adjudicating Authority, the importer was required to pay US dollars 15 lakh towards engineering and servicing charges unlike in the present case where there is no such condition imposed on the appellant importer, by way of any of the above referred contracts ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engineering charges, technical knowhow fee and other charges in the invoice value of the imported goods, under the supply agreement for redetermination of transaction value of the imported goods under Section 14 of the Customs Act 1962, read with Rule 4 and Rule 9 of the Customs Valuation Rules 1988. During the process of enquiry, the assessee submitted complete details and response to the queries and the questionnaire seeking information as called for by the Special Valuation Branch of the Custom House. It is informed that the appellant had got the approval of the Secretary of Industrial Assistance (SIA) dated 14.07.1999, whereby the government approved the technology collaboration between the importer and M/s. Merichem Company USA- which stipulates that M/s. Merichem Company USA possesses technical information relating to Fiber Film T.M Technology, Contractor technology and other technology, useful in petroleum, refining and chemical operations (confidential information) and IOCL will receive the confidential information from time to time from M/s. Merichem, USA or on behalf of M/s. Merichem, USA for the purpose of design engineering, procurement of equipment and construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered in the invoice value. These charges could not be apportioned towards indigenous supply. The Supply Agreement is inseparable from Know-how Agreement. 18. It is observed that the services under BDEP are to be rendered by the Supplier of the equipments and therefore, it is clear that it is compulsory for the importer to purchase suitable equipments for the patented process form the supplier only. It is also observed that the technical know-how fee and basic engineering fees are includible in the value of the imported equipments. There is a ratio of 40:60 between the imported and indigenous equipments supplied for the contracted plant and the Department has considered this aspect and reasonably apportioned 40% of total payment made towards know-how and design and drawing in the know-how Agreement towards the value of equipments. 8. It is the contention of the appellant that the job had been awarded to M/s. Merichem Company Houston, Texas. U.S.A. under two separate agreements; viz. (a) One Agreement for Know-How, Process Package and Other Services against a consolidated Lump-Sum payment of US $ 262,552.00 comprised of (i) $ 148,000.00 under the head of Basic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawings neither had any contribution in the manufacture of imported equipments nor this agreement imposed any compulsion for the purchase of equipment from the supplier of Knowhow, Process Package and Other Services. They further submitted that well before the import of materials was completed they were required to be put to use as commissioning of production was possible only after more than a year of import when the setting up of the unit could be completed and production commissioned. Therefore, the charges apportioned towards the Knowhow, Process Package factually bear the character of post importation charges. 9.1. The appellant added that there was no material evidence with the department that the supply price of imported equipments is under-valued and not decided at arms length price between the buyer and seller. They categorically stated that the apprehension of the department was without any market analysis study. Moreover, in case of rejection of transaction value onus in law was on the department to prove that the declared price did not reflect the true transaction value and whereby the Department could not adduce any evidence that identical or similar goods importe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere than in India and necessary the production of the imported goods; (c) royalties and licence fees related to the imported goods that the buyers required to pay, directly or indirectly, as a condition of the sale of goods being valued, to the extent that such royalties and fees are included in the price actually paid or payable. (d) the value of any part of the proceeds of any subsequent resale, or use of the imported goods that accrues, directly or indirectly, in seller; (e) all other payments actually made or to be made as a condition of sale the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that a payments are not included in the price actually paid or payable. 10. It has been pointed out that in case of international transaction of purchase of patented technology, it is a standard international practice that the vendor always ensures proper safeguard for patented right on use of such technology and binds the purchaser by an agreement for maintaining confidentiality as well as for use of the technology for the purpose. As for Basic Design aspects it was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 9.2 thereof, whereas the Equipment. Supply Agreement was incorporated vide Article 8, Section 8.2 thereof. All the three agreements were alleged to be a part of an umbrella agreement- Agreement on LPG/Gasoline Treatment Units At Haldia Refinery Between Indian Oil Corporation Limited And Merichem Company, USA . Further, there is nothing on record to suggest that the importer is related to the overseas contractor-supplier under Rule 2(2) of CVR 88. To this effect even the adjudicating authority has recorded an unambiguous finding. 12. As for the nexus between the agreements concluded with Merichem Company, for the project, the Confidentiality Agreement was signed much before (nearly six months) the signing of the other two agreements. This clearly shows that the Process Licensor wanted to ensure that their technology was kept secret and confidential in the hands of the importer. As stipulated in the Confidentiality Agreement, technical information relating to BIBER-FILD TM Contractor technology and other technology useful in petroleum refining and/or chemical operations (Confidential Information) possessed by Merichem would be received by IOCL for or on behalf of Merichem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an overseas consortium supplying the equipments. This may confer on such arrangements attributes of a turnkey contract, but that fact by itself would not automatically attract the condition clause contained in Rule 9(1)(e) of the Valuation Rules. In the cases of Essar Steel Ltd. (supra) and Tata Iron and Steel Co. Ltd. (supra), the contracts had certain elements of turnkey features. The case of Essar Gujarat (supra) is distinguishable, as the subject of import there carried a condition for entering into a licensing agreement with a third party. 15. We find that there is nothing in the contract to show that the payment of royalty charges was a mandatory condition of sale of the imported goods. Thus as held by the Tribunal in the case of Steel Authority of India Ltd. Vs. Commissioner of Customs, Vishakhapatnam 2007 (210) ELT 150 Tribunal, Bangalore, 8. There is yet another contract entered between the appellants and the Indian firm, M/s. Otto Indian Pvt. Ltd., Calcutta which is subsidiary of the foreign firm. This contract for the supply of design, engineering, supply of indigenous plant and equipment, supply of engineering work, erection, testing and commissioning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of commissioner of Customs, New Delhi Vs. Prodelin India (P) Ltd. 2006 (202) E.L.T. 13 (S.C.), wherein it has been held that the technical know-how fee charged in respect of post importation activities is not includible in the assessable value of imported goods. From the scope of the contract for payment of Royalty charges, we do not find that the payment of Royalty is a condition of sale of the imported goods. Therefore, Rule 9(1)(c) of the Customs Valuation Rules will not be applicable. Hence the demand of duty on account of the inclusion of Royalty charges will not be sustainable. Summing up, we hold that the demand on account of inclusion of income tax paid by the appellants on behalf of the foreign currency is barred by limitation of time. The Royalty charges paid in the present case has nothing to do with the imported goods and it is mainly for the post importation activities. In view of the above, the demand is not sustainable. Hence we set aside the impugned order and allow the appeal with consequential relief, if any. The Civil Appeal filed by the department against the said order was dismissed by the Hon ble Apex Court 2008 (225) ELT A130 SC on merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment; (b) The cost of transport after importation; (c) Duties and takes in India. 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 post-importation activities. The said provision, in particular, also apply to any amount paid for post-importation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for the same. On the Revenue s own showing, the sum of US $ 14,00,000.00 was required to be paid by way of remuneration towards services to be offered by the companies in respect of maters specified in Part-A of the said Memorandum of Agreement. The said sum represents amount of licence or amount to be paid by the respondent for the licence for the manufacturing process for production of goods which were covered by the patents held by M/s. Samsung as also for technical knowhow. In the said Memorandum of Agreement, it was provided that; The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent to sub-licence the knowhow to any other party, subject, of course, to the approval of M/s. Samsung. (Emphasis Supplied) 17. The Hon ble Apex Court in para 26 of the said order had clearly dwelt upon what could comply as a condition of sale. To elaborate the said para is reproduced hereunder to clarify the meaning of the term. 26. The expression condition , simply put, conveys the idea that something could be done only if another thing was also done. In the given context, it would imply that import of equipments could be allowed by the other party provided the design features for post-importation activities were also obtained from the same supplier or from a firm as per the overseas supplier s direction. But there is no material before us to suggest that import of equipments was effected with simultaneous obligation of SAIL that the designs relating to post-importation activities should also be obtained from the same entity. The revenue has proceeded with the understanding that since both were obtained from the same vendor, condition of obtaining designs etc., for post-importation activities was implicit in the contract. The Revenue has sought to emphasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Adjudicating Authority, the importer was required to pay US dollars 15 lakh towards engineering and servicing charges unlike in the present case where there is no such condition imposed on the appellant importer, by way of any of the above referred contracts entered into. In so far as the case of Collector of Customs, Gujarat, Preventive Ahmedabad Vs. Essar Gujarat Ltd. 1996 (86) ELT 609 Supreme Court, is concerned, we note that the Hon ble Apex Court had taken cognizance of the said decision rendered, in its case of Commissioner of Customs Port, Kolkata Vs. Steel Authority of India, referred to supra and therefore the said case requires no further elaboration. 20. For reasons aforesaid and our findings that there is nothing in the contract entered into by the two sides, to impute the additional costs as discussed in earlier paras, towards the sale of imported goods or as a condition of sale, we are of the opinion that the order of the learned Commissioner (Appeals), is without merits and is therefore liable to be quashed. We therefore set aside the order under challenge and allow the appeal filed by the appellant with consequential relief if any in law. (Pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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