Full Judgment
2. The appellant, a Government of India Undertaking was appointed as Project Management Consultants for construction of hanger for aircraft, namely, Boeing 747-400 by Air India at Bombay. The contract, inter alia, included providing facilities of (a) Under Carriage Lifting Platforms and (b) Suspended Docking System for attending to the maintenance of the Aircrafts. The appellant invited tenders for supply and erection of the aforesaid facilities. Later they entered into a contract with M/s. Syncro Air Corporation Ltd. for design, supply, erection, installation and commission of under carriage lifting platforms. The contract with M/s. Syncro Air Corporation Ltd. consisted of three components which are as follows:- (i) Application engineering, site planning, travel, technical data and drawings, shop drawings, specifications etc.
(ii) Material, steel, screw jack assemblies, mechanical equipment, electric drive system.
(iii) Fabrication, labour for mechanical drive assemblies, service platform system, electric drive system, etc.
(iv) Installation, erection and commissioning of the entire system including Indian subcontractor services for quality control and supervision.
Similarly the appellant entered into a contract with M/s. Clyde Carruthers, Australia in respect of the Suspended Docking. The above also contained 3 components as below :- (i) Detailed Design and Drawings documentation for entire docking system; (ii) Supply, Installation and commissioning of suspended docks for Nose, Fuselage and Tail (iii) Erection and supervision charges including project management, site supervision, contract administration, insurance and other project cost.
(iii) Cost of Indian equipment including cost of fabrication in India for suspended docks of Nose, Fuselage and Tail, (iv) Cost of installation and commissioning including local expenses, 3. Pursuant to the above contract, the appellant imported three consignments covered by Bills of Entry dated 4.11.96, 10.9.96 and 25.2.96. These goods were cleared after assessment of duty on the declared value. Subsequently, the appellant imported two more consignments covered by Bills of Entry dated 11.2.97 and 21.2.97. While assessing the above two Bills of Entry, the adjudicating authority took the view that costs, namely, (a) Application Engineering, (b) Technical data and drawings, (c) Shop drawings and specification, (d) Assemble, Pretest etc., (e) Quality and supervision (in USA), (f) detailed design and seasoning and (g) Erection, supervision, etc. are includible in the assessable value in respect of the supplies made from M/s. Syncro and M/s. Clyde. According to the Commissioner, the payments which are proposed to be added to the transaction value are covered by the provisions contained under Rule 9(1)(e) of the Customs Valuation Rules, 1988. In coming to the above conclusion the Commissioner placed reliance on the decision of the Supreme Court in CC(Prev.), Ahmedabad Vs/Essar Gujarat 1997(68) ECR 386(SC) and Andhra Petrochemicals Vs. CC Madras 1997(90) ELT 275 (SC). Decision of this tribunal in Mukund Ltd. Vs. CC Mumbai 1998(75) ECR 886(Trib.) was also relied.
4. The contention raised by the appellant on the issue of limitation was also not accepted.
5. It is submitted on behalf of the appellant that the Commissioner has erred in coming to the conclusion that the payment in respect of the services referred above, is a condition of the sale of imported goods.
No such view could have been arrived by interpreting the relevant provisions in the contracts between the parties. According to the appellant, its case is covered by the ratio of the decision in Tata Iron & Steel Co. Ltd. Vs. Commr. Of C. Excise & Customs, Bhubaneswar 2000(116) ELT 422 (SC) and therefore, addition of the cost of service etc. referred above to the value of the goods, cannot be sustained. The learned DR, on the other hand, contended that the Commissioner has correctly applied the ratio of the decisions relied on by him and therefore, the loading made to the value of the goods imported is to be sustained.
6. After hearing both side and examining the terms of the contracts between the parties, we are inclined to take the view that the appellant's challenge against the order impugned is to be sustained. We find that the ratio of the decisions of the Supreme Court in CC Ahmedabad Vs. Essar Gujrat will have no application to the facts of the present case. The facts in that case are entirely different. A direct reduction iron plant at Emden, Germany which belonged to M/s. Midtex International was purchased by M/s. TIL which in turn was purchased by Essar Gujarat. Under the agreement between the parties there was a stipulation that Essar Gujarat Ltd. should obtain Transfer of Operation Licence from M/s. Midred. Essar Gujarat Ltd. entered into an agreement with M/s. Midrex and obtained the Transfer of Operation Licence by paying licence fee. The question that came up for consideration was whether this licence fee is includible in the invoice value of the plant. Essar Gujarat Ltd. had entered into a collaboration agreement with M/s. Voest Alpine AG(V.A.) for Technical and Engineering services including specialist supervision of the dismantling of the plant in Germany and relocation of the same in India by using Midrex process.
The second issue involved in the above case was whether payment to V.A.for these services can be added to the value of the plant.
7. Supreme Court took the view that obtaining the licence from Midrex was a pre-condition of sale as it was essential for Essar Gujarat to operate this plant and use Midrex technology for producing sponge iron in India. Licence conferred on Essar Gujarat the right to use Midrex patents, know-how and confidential information for the operation of the plant. According to the the terms of the agreement, the title in the plant could be transferred to Essar Gujarat only on its obtaining licence from Midrex. Without this licence the plant would be of no use to Essar Gujarat. It was in view of the above terms in the agreement between the parties, the Apex Court came to the conclusion that the process licence fee and also the fee paid for transfer of technology under the agreement are includible in the value of the plant. On the second issue it was held that the fee paid to V.A. for theoretical and practical training cannot be added to the value of the plant. So also the entire payment made for engineering consultancy and other services undertaken by V.A. were held not includible. On the other hand, the fee paid for specialist supervision of dismantling the plant including the engineering and consultancy services for this purpose was found to be added in the value of the plant. In Andhra Petrochemicals Vs. CC, Madras the question that came up for consideration was whether design and engineering charges are loadable when goods imported are specially manufactured on the basis of design and engineering specifications provided by the foreign suppliers to the third party who had actually manufactured the goods. Supreme Court took the view that there were three agreements combining into single transaction between Andhra Petrochemicals and Davy Mckee Ltd. (U.K.). All the equipments which were imported pursuant to the agreement was specially manufactured on the basis of design and engineering specifications provided by Davi Mckee. Therefore, it was held that the design and engineering charges are to be added to the assessable value of the goods imported. In Mukund Ltd. Vs. CC Mumbai the Tribunal followed the decision of the Supreme Court in CC Ahmedabad Vs. Essar Gujarat.
8. On going through the terms of the contract, we do not find any reason to hold that the sale of the goods imported are in any way subject to the condition of payment of the fee, as mentioned earlier.
Under these circumstances, we find that the ratio of the decision of the Supreme Court in Tata Iron & Steel Co. Ltd. Vs. CC is applicable to the facts of the case. After referring to the provisions contained under Rule 9(1)(e) of the Customs Valuation Rules, Supreme Court observed that rule would be attracted only when the following conditions are satisfied.
(i) There is payment actually paid or is 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.
The supreme Court into the details of the terms of the contracts between the parties. It was then observed as follows: "It is nobody's case that the seller had an obligation towards a third party which was required to be satisfied by it and the buyer (i.e. the appellant) had made any payment to the seller or to a third party in order to satisfy such on obligation. The price paid by the appellant for drawings and technical documents forming subject matter of contract DM 301 can by no stretch of imagination fall within the meaning of an obligation of the seller' to a third party. There was also no payment made as a condition of sale of imported goods as such. Rule 9(1)(e) also, therefore, has no application." 9. Similar view had been taken by us in Ferodo India (P) Ltd. Vs. CC Mumbai 2002(142) ELT 343. In DCM Shriram consolidated Ltd. Vs. CC, Mumbai 2003 (153) ELT 317 we had taken the view that the agreement of sale of plant and collaboration are not dependant on each other and it is not a condition of the sale of the second hand plant that its buyer should obtain a licence from or pay a royalty to a third party. The provisions or Rule 9(1)(e) have no application and the licence fee etc.
cannot be added to the value of the goods imported. Even though, the learned DR took us in detail through the terms of the agreement between the parties, we find no provision therein making the payment of charges, as mentioned above, as a condition for import of the goods. In the result, we set aside the order impugned to the extent it has affirmed inclusion of the cost regarding. Application Engineering etc.
in the assessable value of the goods imported from M/s. Syncro Airlift Corporation and M/s. Clyde Carruthers. The appeal stands allowed as above.
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