M/S. J.K. Corpn. Ltd. Vs. Cc, Kolkata - Court Judgment

Excerpt:
1. the appellants before us have imported certain equipments for manufacture of polyester partially oriented yarn and flat yarn and drawings and engg. documents along with knowhow and technology by entering into two collaboration agreements with m/s. samsung co.ltd., korea and m/s. cheil synthetic inc, korea, and associate company being a part of the samsung group. agreement 'a' was for providing licence, knowhow and technology by the seller to the appellants for the manufacture of the product in the plant to be set up in india with the equipments to be supplied under agreement 'b'. under agreement 'b' the seller was to supply to the appellant equipments as listed in the said agreement for a total consideration of f.o.b. us dollars 3486000 plus dm 12,00,000 plus jy 885000000. the fees for the licence, knowhow and technology under agreement 'a' was of a lumpsum amount of us dollars 14 lakhs. the appellant states that the two agreements were totally independent agreements for which separate considerations were payable by the appellant. there was no condition attached to either of the agreements that one was a condition of sale of the other as such.2. the equipments arrived at calcutta port during the period june 1991 to august 1992 and bills of entry for home consumptions were filed by the appellant and the goods were allowed to be cleared subject to imposition of certain conditions, which were fulfilled by the appellants. thereafter certain queries were made by the revenue and clarifications were sought from the appellant.3. the asstt.commissioner vide his impugned order held that the value of us dollars 14 lakhs paid by the appellant towards the cost of technical knowhow should be added to the value of the imported equipments. he further held that his addition is to be done proportionately against all the bills of entry and the extra duty to be realised accordingly on merits, disallowing the project duty benefit on the value exceeding the project limit. on an appeal against the above order of the asstt.commissioner did not succeed before the commissioner(appeals). hence the present appeal.4. dr.samir chakraborty, ld.adv. appearing for the appellants submits that the reasoning adopted by the commissioner(appeals) is that unless and untill the equipments were purchased by the appellant, they would not be able to get the technical knowhow from the supplier and as such both the parts of the agreements were closely related, the technical knowhow fees had directly or indirectly become a condition of the sale of the equipments and as such the price of the same has to be added to the assessable value of the equipments. it is the contention of the appellant that the provisions of rule 9(1)(e) of the customs valuation rules 1988 are not applicable inasmuch as no payment was made by the appellant to the seller as a condition of sale of imported goods and further seller of the goods had no obligation towards any third party for which any payment was made by the appellant to satisfy such an obligation. the price paid for the drawings and technical documents forming subject matter of a different contract can by no stretch of imagination fall within the meaning of the provisions of rule 9(1)(e).he submits that the findings of the authorities below that licence, knowhow and technology fees totally related to the imported goods is absolutely baseless and does not flow from the terms and conditions of the contract. as such the ld.adv. submits that the asstt.commissioner should have accepted the transaction value of the imported equipments to be the price thereof as declared by the appellant and accordingly determined the assessable value. the two agreements were distinct and different agreements and were not inter-related or interconnected. in fact the knowhow process supplied by the seller was purely for production of yarn indigenously with the required specifications and for subsequent marketing in india and aborad. the technical documentation means the technical information, specifications, data, drawings and documents including documents required for the battery limit of the plant as provided by the seller for the manufacture of product based on process in commercial use and which are sufficient in detail to enable the appellant to design, erect, set up and further to test, operate and to maintain the plant efficiently with a competent engineering organisation. the training charges referred to in the agreement were mainly for imparting adequate expertise to the appellants' engineers and technical hands so as to enable them work expertly for the production of the yarn. as such he submits that it is evidently clear that the lumpsum payment made to the collaborator in respect of the above charges were completely related to the processing and production and inspection of the standard yarn indigenously. some of the clauses of the agreement were proving that technical knowhow and assistance was for making of chips, which was already being produced in the existing plant.5. he further submitted that it was clear from the agreement that the same gave an option to procure the equipments from vendors other than the seller subject to compliance with their specification. it would also be seen from the agreement part 'b', particularly article 5, i.e., supply of the equipment, that it was agreed to get the equipments manufactured by different manufacturers of different countries and the said agreement in article 8 kept provisions for inspection of the equipments by the appellant at the premises of different manufacturers.in fact, the equipments and machineries, as accepted by the ao in the said order, were manufactured by different renowned firms at japan, germany, switzerland etc. from whom the goods were physically imported.it would be seen that these manufacturers are internationally reputed and the produce standard machinery/equipments with their own specifications and datas with distinct models for which they do not/did no require specifications, technical datas from m/s. samsung ltd. and/or from any others. this is also evidently clear from para 5.4 of the agreement 'b' as for each machinery the manufacturer would supply and has supplied instruction manual for installation/working of the equipment/machinery. thus in both the agreements there was no indication and/or suggesting that the price of any imported equipment was influenced at all by the agreement made with the appellant's collaborator separately for the supply of technical knowhow etc.6. he further submitted that in terms of rule 9(1)(b)(iv) of the valuation rules, 1988, in determining the transaction value the value apportioned as appropriate of, inter alia, engineering, design and plans and sketches undertaken elsewhere than in india and "necessary for the production of the imported goods" which were supplied directly or indirectly by the buyer free of charge or at a reduced cost to the supplier or imported goods for use in producing the imported goods being value are to be included. this is because such supply of free of charge or at a reduced cost would result in a lower price for the imported goods than the price that the supplier would have charged if such goods/services were to be paid for in full. this rule is also inapplicable in the instant case as there has been no supply or any engineering or drawings by the appellant to the foreign seller.moreover, there was no supply free of charge or at reduced cost.7. further and in any event the commissioner erred in holding that the entire lumpsum payment towards technical documentation fee had to be added to the invoice value of the imported equipments without making any apportionment. the finding of the asstt.commissioner in this regard upheld by the commissioner is arbitrary, perverse and contrary to the provisions of rule 9 of the valuation rules. on such apportionment the percentage of the technical documentation fee that could be added, assuming though denying, that such condition was warranted in the facts and circumstances of the instant case, would be to be extent of 4.74% thereof.8. at the end the ld.adv. strongly relied upon the recent decision of the hon'ble supreme court in the case of tisco v. cce & c, bhubaneswar-2000(37) rtl 239(sc) wherein the tribunals' decision holding inclusion of the cost of the technical documents imported along with the equipments, but under different agreements was reversed by the hon'ble supreme court.9. shri a.k.chattopadhyay, ld.jdr appears for the revenue and reiterates the reasoning of the authorities below. he further draws our attention to article 14 of contract 'a' under sl.no.14.1 which is to the effect that - "the agreement shall come into force only wit the execution of the agreement part 'b', equipment supply agreement". this clearly means that the supply of the equipment is very much conditional and related with the supply of knowhow and design and drawing etc. as shown in the agreement part 'a'. accordingly he submits that transaction value has to be the total cost paid by the appellant to its seller in terms of agreement 'a' and agreement 'b' as per rule 9(1)(e) of the customs valuation rules, 1988.10. we have considered the submissions made from both the sides. the appellants have placed strong reliance upon the hon'ble supreme court's decision in the case of tisco-2000(37) rlt 239(sc) wherein the provisions of customs valuation rules, particular rule 9(1)(b), 9(1)(e) and the interpretative notes to the valuation rules were before their lordships. we find that in that case the tribunal has held that the value of the two agreements, one for supply of technical documentation and the other for sale of equipments and materials entered into by m/s.tisco with the foreign sellers have to be treated as the assessable value. paras 15, 16 & 17 of the above judgements of the hon'ble tribunal deals with the interpretation of rule 9 and its applicabilities to the facts of the case before their lordships.inasmuch as the applicability of the said decision of the hon'ble supreme court is to be adjudged in the facts and circumstances of the case and in respect to the various clauses of the agreements, we think it fit to set asite the impugned and order and remand the matter to the asstt.commissioner for de novo decision in the light of the hon'ble supreme court's judgment in the case of tisco. accordingly the impugned orders are set aside and appeal is allowed by way of remand.

Judgment:
1. The appellants before us have imported certain equipments for manufacture of polyester partially oriented yarn and flat yarn and drawings and engg. documents along with knowhow and technology by entering into two collaboration agreements with M/s. Samsung Co.Ltd., Korea and M/s. Cheil Synthetic Inc, Korea, and associate company being a part of the Samsung group. Agreement 'A' was for providing licence, knowhow and technology by the seller to the appellants for the manufacture of the product in the plant to be set up in India with the equipments to be supplied under agreement 'B'. Under agreement 'B' the seller was to supply to the appellant equipments as listed in the said agreement for a total consideration of F.O.B. US dollars 3486000 plus DM 12,00,000 plus JY 885000000. The fees for the licence, knowhow and technology under agreement 'A' was of a lumpsum amount of US Dollars 14 lakhs. The appellant states that the two agreements were totally independent agreements for which separate considerations were payable by the appellant. There was no condition attached to either of the agreements that one was a condition of sale of the other as such.

2. The equipments arrived at Calcutta port during the period June 1991 to August 1992 and bills of entry for home consumptions were filed by the appellant and the goods were allowed to be cleared subject to imposition of certain conditions, which were fulfilled by the appellants. Thereafter certain queries were made by the Revenue and clarifications were sought from the appellant.

3. The Asstt.Commissioner vide his impugned order held that the value of US Dollars 14 lakhs paid by the appellant towards the cost of technical knowhow should be added to the value of the imported equipments. He further held that his addition is to be done proportionately against all the bills of entry and the extra duty to be realised accordingly on merits, disallowing the project duty benefit on the value exceeding the project limit. On an appeal against the above order of the Asstt.Commissioner did not succeed before the Commissioner(Appeals). Hence the present appeal.

4. Dr.Samir Chakraborty, ld.adv. appearing for the appellants submits that the reasoning adopted by the Commissioner(Appeals) is that unless and untill the equipments were purchased by the appellant, they would not be able to get the technical knowhow from the supplier and as such both the parts of the agreements were closely related, the technical knowhow fees had directly or indirectly become a condition of the sale of the equipments and as such the price of the same has to be added to the assessable value of the equipments. It is the contention of the appellant that the provisions of rule 9(1)(e) of the Customs Valuation Rules 1988 are not applicable inasmuch as no payment was made by the appellant to the seller as a condition of sale of imported goods and further seller of the goods had no obligation towards any third party for which any payment was made by the appellant to satisfy such an obligation. The price paid for the drawings and technical documents forming subject matter of a different contract can by no stretch of imagination fall within the meaning of the provisions of rule 9(1)(e).

He submits that the findings of the authorities below that licence, knowhow and technology fees totally related to the imported goods is absolutely baseless and does not flow from the terms and conditions of the contract. As such the ld.adv. submits that the Asstt.Commissioner should have accepted the transaction value of the imported equipments to be the price thereof as declared by the appellant and accordingly determined the assessable value. The two agreements were distinct and different agreements and were not inter-related or interconnected. In fact the knowhow process supplied by the seller was purely for production of yarn indigenously with the required specifications and for subsequent marketing in India and aborad. The technical documentation means the technical information, specifications, data, drawings and documents including documents required for the battery limit of the plant as provided by the seller for the manufacture of product based on process in commercial use and which are sufficient in detail to enable the appellant to design, erect, set up and further to test, operate and to maintain the plant efficiently with a competent engineering organisation. The training charges referred to in the agreement were mainly for imparting adequate expertise to the appellants' engineers and technical hands so as to enable them work expertly for the production of the yarn. As such he submits that it is evidently clear that the lumpsum payment made to the collaborator in respect of the above charges were completely related to the processing and production and inspection of the standard yarn indigenously. Some of the clauses of the agreement were proving that technical knowhow and assistance was for making of chips, which was already being produced in the existing plant.

5. He further submitted that it was clear from the agreement that the same gave an option to procure the equipments from vendors other than the seller subject to compliance with their specification. It would also be seen from the agreement part 'B', particularly article 5, i.e., supply of the equipment, that it was agreed to get the equipments manufactured by different manufacturers of different countries and the said agreement in article 8 kept provisions for inspection of the equipments by the appellant at the premises of different manufacturers.

In fact, the equipments and machineries, as accepted by the AO in the said order, were manufactured by different renowned firms at Japan, Germany, Switzerland etc. from whom the goods were physically imported.

It would be seen that these manufacturers are internationally reputed and the produce standard machinery/equipments with their own specifications and datas with distinct models for which they do not/did no require specifications, technical datas from M/s. Samsung Ltd. and/or from any others. This is also evidently clear from para 5.4 of the agreement 'B' as for each machinery the manufacturer would supply and has supplied instruction manual for installation/working of the equipment/machinery. Thus in both the agreements there was no indication and/or suggesting that the price of any imported equipment was influenced at all by the agreement made with the appellant's collaborator separately for the supply of technical knowhow etc.

6. He further submitted that in terms of rule 9(1)(b)(iv) of the Valuation Rules, 1988, in determining the transaction value the value apportioned as appropriate of, inter alia, engineering, design and plans and sketches undertaken elsewhere than in India and "necessary for the production of the imported goods" which were supplied directly or indirectly by the buyer free of charge or at a reduced cost to the supplier or imported goods for use in producing the imported goods being value are to be included. This is because such supply of free of charge or at a reduced cost would result in a lower price for the imported goods than the price that the supplier would have charged if such goods/services were to be paid for in full. This rule is also inapplicable in the instant case as there has been no supply or any engineering or drawings by the appellant to the foreign seller.

Moreover, there was no supply free of charge or at reduced cost.

7. Further and in any event the Commissioner erred in holding that the entire lumpsum payment towards technical documentation fee had to be added to the invoice value of the imported equipments without making any apportionment. The finding of the Asstt.Commissioner in this regard upheld by the Commissioner is arbitrary, perverse and contrary to the provisions of Rule 9 of the Valuation Rules. On such apportionment the percentage of the technical documentation fee that could be added, assuming though denying, that such condition was warranted in the facts and circumstances of the instant case, would be to be extent of 4.74% thereof.

8. At the end the ld.adv. strongly relied upon the recent decision of the Hon'ble Supreme Court in the case of TISCO v. CCE & C, Bhubaneswar-2000(37) RTL 239(SC) wherein the Tribunals' decision holding inclusion of the cost of the technical documents imported along with the equipments, but under different agreements was reversed by the Hon'ble Supreme Court.

9. Shri A.K.Chattopadhyay, ld.JDR appears for the Revenue and reiterates the reasoning of the authorities below. He further draws our attention to article 14 of contract 'A' under sl.no.14.1 which is to the effect that - "the Agreement shall come into force only wit the execution of the agreement part 'B', equipment supply agreement". This clearly means that the supply of the equipment is very much conditional and related with the supply of knowhow and design and drawing etc. as shown in the agreement part 'A'. Accordingly he submits that transaction value has to be the total cost paid by the appellant to its seller in terms of agreement 'A' and agreement 'B' as per rule 9(1)(e) of the Customs Valuation Rules, 1988.

10. We have considered the submissions made from both the sides. The appellants have placed strong reliance upon the Hon'ble Supreme Court's decision in the case of TISCO-2000(37) RLT 239(SC) wherein the provisions of Customs Valuation Rules, particular Rule 9(1)(b), 9(1)(e) and the interpretative notes to the Valuation Rules were before their Lordships. We find that in that case the Tribunal has held that the value of the two agreements, one for supply of technical documentation and the other for sale of equipments and materials entered into by M/s.

TISCO with the foreign sellers have to be treated as the assessable value. Paras 15, 16 & 17 of the above judgements of the Hon'ble Tribunal deals with the interpretation of rule 9 and its applicabilities to the facts of the case before their Lordships.

Inasmuch as the applicability of the said decision of the Hon'ble Supreme Court is to be adjudged in the facts and circumstances of the case and in respect to the various clauses of the agreements, we think it fit to set asite the impugned and order and remand the matter to the Asstt.Commissioner for de novo decision in the light of the Hon'ble Supreme Court's judgment in the case of TISCO. Accordingly the impugned orders are set aside and appeal is allowed by way of remand.