TMI Blog2001 (2) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... y of components and technology was assured. ECIL were to undertake operations including manufacture, marketing, etc. on behalf of Joint Venture Company (Article 7). In terms of Article 11, the agreement would come into effect, only on getting required approvals from all the requisite Government agencies. In terms of Article 12.1, the ECIL were to expedite such approvals. Article 11.4(C) is worth being reproduced in its entirety :- 11.4 Effect of Termination and Expiration : "(c) If the joint venture cannot be formed due to the acts of the Government of India or subsequent to the Company being formed, RSPI withdraws from this Agreement due to acts beyond its control, the joint venture goals shall be pursued by ECIL, and RSPI and RSPI shall fulfill its obligations for the duration of the Agreement and shall abide by the non-completion clause set forth in Section 12.2 hereto. ECIL shall thereafter pay OSI a license fee on the sale of every X-ray system sold by ECIL or its affiliates which fee shall be US$ 5000 per X-ray system if such system sells for between US$ 60,000 - $ 63,000; US$ 4,500 per system if such system sells for between US$ 55,000 - $59,999; US$ 4,000 per system if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. These systems were imported by ECIL without including in the value, the components this technical fee. An application was made by M/s. ECIL to the RBI for allotment of US$ 200,000 as "Technical know-how fees". The name of the collaborator as shown in the application was M/s. RSPI. This was in the face of the fact that the agreement dated 4-1-1994 was with OSI. The subsequent two agreements with RSPI were for direct purchase of the kits and the payment was for "Technical fee". On 29-6-1994, in terms of the application, RBI approved Technical Collaboration between RSPI and ECIL and permitted payment of 'know-how fee' of US$ 200,000. 5.We note that the liability of US$ 200,000 as technical fee was from ECIL to RSPI in terms of the interim contracts dated 13-1-1994 and 1-4-1994 which were contracts of mere supply of machines in CKD form and were not collaboration agreements at all. We also note that vide letter dated 7-3-1994, RBI in principle, had approved the proposal dated 4-1-1994. In the face of their prior approval also, RBI released the exchange of US$ 200,000. We will revert to this when examining the plea of limitation made by the appellants. 6.As was observed above, M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged that the ECIL were liable to penalty and so was M/s. ECIL-RSPL having aided and abetted M/s. ECIL. The justification for such inclusion was in terms of Rule 9(1)(c) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 which is extracted below : 9. Cost and Services In(1) determining the transaction value, there shall be added to the price actually paid or payable for the imported goods . . . . . . . . . . (c) "Royalties and licence fees related to the imported goods that the buyer has required to pay, directly or indirectly, as a condition of the sale of the goods being valued to the extent that such Royalties and fees are not included in the price of actually paid or payable". Interpretative note to the subject Rule reads as under - Rule 9(1)(c) 1. The Royalties and licence fees referred to in Rule 9(1)(c) may include among other things, payments in respect to patents, trademarks and copyrights. However, the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value. 2. Payments made by the buyer for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner as also before us considerable time and energy was spent in analysing the various clauses of the agreement to establish that the technology transfer fee payable thereunder did not fall under the purview of Rule 9(1)(c) of the valuation Rules. This J.V. agreement does not provide for any payment to be made either by ECIL or by the J.V. Company to M/s. OSI as cost of Transfer of Technology. What was provided for in terms of article 11.4(c) extracted earlier was payment by ECIL to OSI of a particular fee. Although it was called a "licence fee" it was obviously not a fee for licence to manufacture because that would have required a separate agreement. The interim agreements both dated 13-1-1994 and 1-4-1994 which were entered into because the J.V. Company had not come into existence were not between ECIL and OSI, but were between ECIL and RSPI who were a different entity from M/s. OSI. As we have observed above in the interim agreement dated 13-1-1994, there was no mention at all of anything to be paid over and above of the cost of the kit. In the agreement dated 1-4-1994 'the technical fee' was provided for of US$ 200,000. Thus these two purchase agreements were entirely independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee'. In the first agreement, there was no mention of any fee at all and yet M/s. ECIL continued to harp on the non-applicability of Rule 9(1)(c). 16.Learned Counsel continued to impress upon us that the appellants are a Public Limited undertaking and cannot be accused of suppression or mis-representation. Our observations above would show that at all times the ECIL had continued to mis-represent the facts to the Ministry of Industry, to the RBI and also to the Customs. 17.The JVA was for manufacture of baggage screening machines. This product has a limited market. In fact, once all the airports were equipped with these machines, there would be no further market. In that situation, it would appear that there was little reason to create a separate venture for the production of such machines in India. There also the J.V. was to be a titular company inasmuch as the import of components, assembling and marketing thereof would have been done by ECIL. The haste in which the two interim agreements were entered into might also suggest that neither partner of the JVA had faith in their own words. The J.V. Company was apparently a front and a convenience. We cannot fathom the reason why ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawings, designs, charts etc. on paper or on other media such as photo films, computer discs etc. The compensation for this transfer of knowledge on media at all times formed part of the agreement. In the case of certain agreements (M/s Kirloskar Cummins Ltd. and M/s. TECIL) specific amounts are specially brought out in the agreements themselves and in other agreements it is made clear that a part of the compensation could be earmarked for such transfer of technology on media. Thus when the plans, designs etc. were physically transferred the transfer created an obligation on the receiver to pay an agreed sum or the apportionable sum. A specific value therefore could be and was to be placed on such documents in the form of drawing, designs etc. This knowledge in a physical format in the hands of the knowledgeable was valuable. The value was so attributed because this technology was precious. It is no that the technology could not be used by anyone except by the recipient. A competitor who knew the manufacturing set up could also use this knowledge. We therefore find no substance in Shri Nankani's claim that drawings, designs etc. were intellectual property or that they were service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The fact that this amount is confirmed consciously also comes out in the corrigendum dated 13-12-1999 to the Order-in-Original. The impugned order does not show that the reduction of quantum of license fee was preceded by any discussions warranting such reduction. We would to revert to this aspect later. 24.We have given considerable thought to the imposition of penalty on the two appellants. As far as ECIL-RSPL is concerned, we have held it to be child of convenience of M/s. ECIL. On its behalf certain obligation had been taken by ECIL. In its name certain transactions have been done by the ECIL. It had no place in the entire scheme of things. It had no independent voice. All times it was used as a convenient tool. Section 112 of the Act presumes conscious knowledge on the part of the persons sought to be penalised of the contraventions committed and the resultant liability to confiscation of the goods imported. In the light of our appraisal of the ECIL-RSPL, we find no justification for the levy of penalty. The penalty is remitted in full and their appeal is allowed. 25.M/s. ECIL, however, are differently situated. That they had conspired not to pay the duty correctly leviab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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