Full Judgment
(b) technical documentations including technical data, process, details, specifications of equipment, raw materials required to be purchased, layout of factory, detailed drawings, designs, plants and data to the extent necessary for the manufacture of the commercial quality of the products, details of the tools, jigs, fixtures, etc.
methods of testing and details about manufacture, quality assurance and quality control of the products in the English language.
2. The importer being a wholly owned subsidiary of the German company, the matter went to the special valuation branch of the Custom House for determining whether, at what extent these charges for know-how were to be included in the value of the goods to be imported by the respondent.
The order first passed by the Deputy Commissioner having been set aside by the appellate authority on accepting failure of the natural justice, the Deputy Commissioner once again passed a fresh order on 28.3.2001.
In this order, he noted that the agreement provided that one third of the know-how fee was to be paid after the agreement was filed with the Reserve Bank of India, second one third on delivery of technical documentation and the last part on commencement of commercial production or four years after the agreement was filed with the Reserve Bank of India, whichever is earlier. The Know-how was supplied not in relation to the imported goods but in order to enable commercial production of finished goods (plastic bonded magnet). He said that the second instalment of the payment was to be paid on the supply of designs etc. and that without these drawings, sketches and plans etc.
the Indian company could not be able to manufacture or produce these magnets. He ordered this instalment to be included with the value of imported goods in terms of Rule 9(1)(b)(iv) of the Valuation Rules, 1998.
3. The importer appealed this order. The Commissioner (Appeals) found that the technical know-how related only to local manufacture of products in India and "are no way related to impugned goods." He therefore allowed the appeal and set aside the order. Hence this appeal by the Commissioner.
4. The departmental representative's attempt to support the applicability of Rule 9(1)(b)(iv) is not succeeded. Sub clause (b) of Rule 9(1) relates to value of goods and services specified below: 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...
The respondent before us had not supplied the know-how to the German company for use in connection with the production abroad of the goods, which were imported into India. This rule will clearly not apply. He then falls back upon Rule 9(1)(a). This does not apply, as it was includible in the value element supplied by the buyer for use in connection with the production and sale of the exported goods. No such element has been made available by the buyer i.e. the importer. We must point out that the appeal itself does not set out any specific ground except to say that the Commissioner (Appeals)' order in error, nor justifying the order of the Deputy Commissioner which was set aside by the Tribunal in its order dated 15.11.1999 (this order was the subject matter of an appeal before the Supreme Court's case in Associated Cement Companies Ltd. v. CC . We shall deal with this contention separately. The appeal otherwise generally finds fault with the order of the Commissioner (Appeals).
5. The know-how agreement as we have noted, is for supply of know-how by the German company to the respondent. It does not in any of its clause deal with supply of equipment. It is not possible to find anything in it, which makes purchase of know-how for manufacture of finished product from the German supplier a condition for sale by it of machinery to the respondent. Neither the order-in-original nor the order-in-appeal or the department's appeal refers to any other condition in the agreement between the German company and the respondent. Therefore, it cannot be said that it was a condition for supply of the machinery that the know-how in question must be purchased.
6. The Deputy Commissioner had found support in the decision of the Tribunal (which we referred to earlier) for his view that 1/3rd of the value of the contract must form part of the assessable value. The Tribunal, in that case, had ordered that the cost of the drawings imported through courier by each of the appellant before it were liable to excise duty and in determining the value in the case of one of the appeal (Videocon International) found 1/3rd of the payment to be made to the foreign supplier for know-how to represent the cost of the drawings. We do not see how this is of any relevance to the facts of the case before us. The Commissioner (Appeals) was therefore right in saying that this decision was not relevant to the facts before him.