TMI Blog2005 (7) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... hereunder an amount of US $ 2,88,000 was payable to M/s. BFP as consideration for the technical know-how supplied by them. The technical know-how fee was paid by M/s. CCL, with the RBI's (Reserve Bank of India) permission, in two instalments. The imported capital goods were to be used by M/s. CCL in India for setting up a plant for the manufacture of soluble instant coffee and the technical know-how and assistance provided by M/s. BPF were to be used for the purpose. The appellants set up the instant coffee plant out of the above capital goods imported from M/s. BFP and certain equipments imported from other parties, and started manufacturing the product and exporting the same in terms of the EPCG scheme. Within a few years, they fulfilled their export obligation. Later on, in 1999, the Directorate of Revenue Intelligence (DRI), upon receipt of intelligence to the effect that M/s. CCL had evaded payment of Customs duty on the machinery imported from M/s. BFP, launched investigations into the imports. Statements were recorded from three Senior Executives of the appellants' Company viz. Shri J. Victor [Senior Manager (Commercial)], Shri M. Ravindranath [General Manager (Finance)], an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai Port. They submitted that the Commissioner of Customs, Chennai had no jurisdiction to proceed in respect of these four consignments. They also claimed that there was no suppression or misstatement of facts by them and hence there was no reason for invoking the extended period of limitation for demanding duty from them. Ld. Chief Commissioner of Customs, Chennai adjudicated the disputes and held that an amount of US $ 1,30,000 being part of the technical know-how fee was addable to the declared value of the imported equipments under Rule 9(1)(b)(iv) and Rule 9(1)(c) read with Rule 4 of the Customs Valuation Rules, 1988. Accordingly, he demanded duty of Rs. 15,38,062/- from M/s. CCL under the proviso to Section 28(1) of the Act. The adjudicating authority also imposed a penalty of equal amount on the party under Section 114(A) of the Act. It also held the goods to be liable to confiscation under Section 111(m) and imposed a redemption fine of Rs. 1 lakh in lieu of confiscation. The present appeal of M/s. CCL is against this decision of the Chief Commissioner of Customs. 2. Heard both sides and considered their submissions. The lumpsum fee of US $ 2,88,000 was paid by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machines, plant and equipment to achieve production with accurate input output performance standards, sufficient for all matters falling within the scope of this Agreement." 'Technical information' as defined above includes "secrete processes, manufacturing secrets and handbooks for production'', which aspects are also covered by "disclosure of the latest..........processes connected therewith" in the second part of the definition of technical know-how. Thus it would appear that technical know-how fee paid by the appellants had a connection with erection of the plant as well as with the process of manufacture of soluble coffee. The goods to be valued in this case are those imported by M/s. CCL from M/s. BFP only. It was submitted by ld. Counsel that these goods by themselves did not constitute the manufacturing plant inasmuch as the plant was erected not only from these goods but also from equipments imported from other parties. It was therefore argued that the nexus between technical know-how fee and erection of the plant could not be considered as one between the know-how fee and the equipments imported from M/s. BFP. This argument, however, is not consistent with what Shri C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FP to M/s. CCL of "all technical information that may be necessary for the machinery/equipment to achieve the operational capacity of 500 Kgs/hour production of instant coffee" vide sub-clause (4.3). CLAUSE-VI of the agreement governed PERFORMANCE OF PLANT AND EQUIPMENT. Sub-clause (6.1) is significant and the same reads : "BFP shall extend an irrevocable Bank Guarantee in terms acceptable to CCL to the extent of 5% of the contract value of US $ 2,88,000 at US $ 14,400 from a prime first class international bank acceptable to CCL for the assured qualitative and quantitative input-output specifications and yield and capacity structure of the performance of the plant and equipment for Instant Coffee plant with the operational capacity of 500 kgs/hr. for which know-how is supplied by 'BFP'. The input output specifications are provided in Appendix I. Such Guarantee shall be released on satisfactory performance of the plant erected under this know-how on completion of 12 months from the date of full satisfactory erection and commissioning of the plant or 12 months from the date of commercial production, whichever is earlier. Such satisfactory erection would be evidenced by a certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tic or overseas; but BFP was liable to ensure that these equipments were compatible with the know-how supplied by them. (c) The plant was erected under the Technical Know-how Agreement. (d) Qualitative and quantitative input-output specifications and operational capacity of the plant were guaranteed by BFP. In this connection, they furnished bank guarantee for an amount equal to 5% of the know-how fee of USD 2,88,000. Shri Rajendra Prasad's statement dated 10-9-99 is apparently in keeping with the above facts, which indicate that the capital goods in question were imported for erection of the plant under the Technical Know-how Agreement and therefore the know-how fee paid to the supplier was related to the said goods. 3. In order that the technical know-how fee may be held to be includible in the assessable value of the equipments imported from M/s. BFP, two conditions have to be cumulatively satisfied. Firstly, it has to be found that the know-how fee was related to the imported goods. Secondly, it has to be established that the fee was required to be paid, directly or indirectly as a condition of sale of the said goods. It has been argued by ld. Counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and manufacture of Instant Coffee therein : (i) Detailed drawings for erection of machineries, piping, power distribution, instrumentation and utilities requirement. 50,000 USD (ii) Detailed design and drawing for manufacture in India of extractors, Spray drier tower and agglomeration accessories. 50,000 USD (iii) Providing a set of instructions and handbook for production, maintenance and quality control. 30,000 USD Ld. Chief Commissioner accepted these figures and held that know-how fee to the extent of USD 1,30,000 was relatable to the capital goods in question. We are in agreement with this finding of the adjudicating authority. The first condition under Rule 9(1)(c) stood satisfied as far as this amount of USD 1,30,000 was concerned. Coming to the second condition, we find that, though it was not expressly stipulated in the Agreement that sale of capital goods by BFP to CCL was subject to purchase, by CCL from BFP, of technical know-how for erection and operation of Instant Coffee plant, such a condition was implicit in the Agreement, which, as we have already noted, is discernible from CLAUSES IV AND VI read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that without the licence from Midrex, Essar Gujarat will not be able to operate the plant in terms of the agreement of sale between Essar Gujarat and foreign seller M/s. Teviot Investments Ltd. It was therefore held that obtaining a licence from Midrex was a pre-condition of sale. The plant would be of no value if it could not be made functional. To make the plant operational licence and technical know-how had to be obtained. It was under these circumstances the Apex Court took the view that the fee for licence and know-how had to be added to the value of the plant imported." In the instant case, the Instant Coffee plant was erected in terms of the Technical Know-how Agreement. It was erected out of capital equipments imported from M/s. BFP and those procured from other sources. M/s. BFP had an obligation under the above agreement, to ensure that all such equipments were compatible with the know-how supplied by them and also to ensure that the plant was operational to yield 500 Kgs of Instant Coffee per hour as guaranteed under the agreement. Without the know-how, the plant could not have been erected, nor made operational at the guaranteed level. On these facts, the Revenue can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been issued when the assessments were provisional. 8. In view of our observations above, the question of limitation does not arise. We have however dealt with the aspect of addition of US $ 1,30,000 to the assessable value as this amount was paid as a technical know-how fee. We accordingly direct the lower authorities to finalise the assessments keeping our finding that the technical know-how fee is addable to the assessable value under Rule 9 of the Customs Valuation Rules. 9. The issue involved here is whether expenses incurred towards payment of technical know-how fee is addable to the assessable value, in other words, the issue involved is in regard to valuation of goods. The charge of deliberate suppression or misdeclaration of value cannot be pressed when the issue itself is debatable. We, therefore, hold that no suppression or misdeclaration is involved in this case. Consequently, the goods are not liable to confiscation nor the importers are liable to any penalty. We set aside the fine and penalty imposed by the Chief Commissioner. 10. The appeal is thus partly allowed by holding that the technical know-how fee is addable to the assessable value at the time of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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