P.G. Chacko, Member (J) - (1.)M/s. Continental Coffee Limited (CCL for short) appellants herein, imported capital goods under EPCG Licence No. 1232940 dated 16.5.94 and cleared the same under 17 Bills of Entry. 13 of these consignments were cleared through Chennai Port and the rest through Mumbai Port. The Mumbai Customs clearances were allowed against release advice issued by the Chennai Customs. The total assessable value declared in the 17 Bills of Entry was Rs. 4,22,44,230. The CIF value permitted for import of capital goods was US 14,81,884.50 (Rs. 5,33,47,845) and the export obligation in respect of this value in terms of EPCG Licence was US 77,23,549 The above imports were made from M/s. Brazilian Food Projects, Brazil (BFP for short), with whom M/s. CCL had entered into a Technical Know -how Agreement dated 6.3.94, where under 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. BFP were to be used for the purpose. The appellants step 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)], and Shri C. Rajendra Prasad (Managing Director). It appeared to the DRI from the results of investigations that M/s. CCL were liable to pay customs duty on the technical know -how fee and had suppressed before the department that they had not included the fee of US 2,88,000 in the assessable value of the imported capital goods. The DRI, therefore, issued a show -cause notice [SCN] to M/s. CCL invoking the larger period of limitation under Section 28 (1) of the Customs Act on the basis of alleged suppression and wilful misstatement of facts and demanding duty Rs. 36,23,372 on the value addition of the technical know -how fee. This notice also demanded interest on duty under Section 28 AB, apart from proposing confiscation of the goods under Section 111 (m) and imposition of penalty on M/s. CCL under Section 112 (a)/114A of the Customs Act. M/s. CCL contested the SCN by contending that the capital goods required for installing the instant coffee manufacturing plant and the technical know -how required for the purpose were imported under two independent purchase orders and that there was no nexus between the two. It was submitted that all the capital goods required for installing the manufacturing plant were not imported from M/s. BFP. Only some of them were imported from them under 5 purchase orders while the remaining capital goods were imported from other parties under 4 purchase orders. All the capital goods (equipments) so imported were used for setting up the instant coffee manufacturing plant. The technology purchased by M/s. CCL from M/s. BFP was necessary for the manufacture of instant coffee conforming to international standards. M/s. CCL contended that the import of capital goods from M/s. BFP and that of technical know -how from them were two independent commercial transactions with no inter -relation and, therefore, the know -how fee of US 2,88,000 was not liable to be added to the transaction value of the capital goods imported from M/s. BFP. They contended that neither Rule 9(1)(b)(iv) nor Rule 9(1)(c) of the Customs Valuation Rules, 1988 was applicable to these capital goods. They pleaded that the statements of the Company's executives were not to be relied upon to the extent they were inconsistent with the documentary evidence available in the case. M/s. CCL also raised jurisdictional objection in relation to the four consignments imported through 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 lump sum fee of US 2,88,000 was paid by the appellants to M/s. BFP in terms of CLAUSE X of the Technical know -how agreement dated 6.3.1994, which reads as under:
"10.1. In consideration of purchase of Technical know -how, the firstnamed party, namely, CONTINENTAL COFFEE LIMITED shall pay to BFP a total lump sum know -how fee amounting to US 2,88,000 (United States Dollars Two Lakhs Eighty Thousand only).

"10.2 The lump sum shall be paid in three equal instalments as mutually agreed upon subject to the approval of the Government of India. First 1/3 after the agreement is filed with the Reserve Bank of India, second 1/3 on complete delivery of technical documentation, third 1/3 on commencement of Commercial production of four years after the agreement is filed with the Reserve Bank of India, whichever is earlier."

It is clear from the above that the lump sum fee was paid as consideration for "Technical know -how", an expression defined under CLAUSE II as follows: "2.1 The term 'technical know -how' means extension of detailed drawings with localisation of equipment and specifications of work to be done by CCL's sub -contracted suppliers, detailed drawings for erection of machineries, pipings, power distribution, wiring and instrumentations.

2.2 Mettod (sic) the term 'technical know -how' shall also mean disclosure of the latest of manufacture of soluble coffee and other processes connected therewith, technical advice, plant operation, production planing, maintenance and quality control." The first part (2.1) of the above definition indicates that the technical know -how transferred by M/s. BFP to M/s. CCL under the above agreement included detailed drawings and specifications for erection of the plant. The second part (2.2) of the definition shows that the know -how transferred between the parties included latest process technology for manufacture of soluble coffee. Though "technical information" is not a term employed in the definition of "technical know -how", there is an apparent connection between the second part (2.2) of the said definition and "technical information" defined under Sub -clause (2.3) of CLAUSE II, which reads as under:

"2.3 Technical information means: blue prints, micro films, information/data recorded on audio visual magnetic and other media, secret processes, manufacturing secrets, hand books for production, maintenance, quality control, information regarding special use of the 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 Sh. C. Rajendra Prasad - - one of the signatories to the technical know -how agreement - - stated. In his statement dated 10.9.99 given to the DRI under Section 108 of the Customs Act, Shri Rajendra Prasad - - who had signed the agreement on behalf of the appellant -company - categorically stated that the technical know -how fee paid to M/s. BFP was relatable to the goods imported from them. He also admitted that the goods were imported under the technical know -how agreement, He conceded that the technical know -how fee was includible in the assessable value of the goods. In a letter dated 15.9.99 sent to the DRI, Sh. Prasad retracted some of these statements and wrote that the amount of US 2,88,000 paid as per the agreement was not at all related to the capital goods supplied by M/s. BFP and that the supply of capital goods and the supply of technical know -how were two independent transactions. Ld. Chief Commissioner has not accepted this as a valid retraction of the statement dated 10.9.99. We also do not see any good reason for treating Sh. Prasad's statement dated 10.9.99 as validly retracted. His letter dated 15.9.99 was received by the DRI on 20.9.99 only as evidenced by the dated seal of DRI seen on the top margin of the copy of the letter available on record. There is an unexplained delay of ten days on the part of Sh. Prasad in retracting his statement dated 10.9.99. Moreover, what he stated on 10.9.99 was not contradictory to the terms of the agreement. The relevant statement of his was that the capital goods had been imported under the technical know -how agreement and that the fee paid to M/s. BFP was relatable to the goods so imported. This statement is not inconsistent with the terms of the agreement. We have already examined CLAUSE -II of the agreement and found that technical information was a part of technical know -how. Technical information vide its definition included "information regarding special use of the machines, plant and equipment to achieve production with accurate input -output performance standards". Clause -IV, which dealt with Process Know -How and Assistance, provided for impartation, by M/s. BFP to M/s. CCL, of process know -how, expert advice and "technical information concerning the designing, manufacture, assembly, inspection, testing, use and adaptation of the plant and equipment" vide sub -clause (4.1). It also provided for supply, by M/s. BFP 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 specification 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 certificate to that effect by 'CCL'."

"4.4 'BFP' shall use all endeavor to assist 'CCL' procuring the supply of such spares for achieving the operational capacity of 500 kgs/hr of Instant Coffee production promptly and at preferred customer prices." ****** 6.5 BFP hereby affirms that CCL has given BFP full particulars of all the other machinery, plant and equipment which it intends to procure directly in India or elsewhere and which is required for the Instant Coffee plant with the operational capacity of 500 kgs/hr. complete erection and commissioning of the project. BFP confirms that it has examined the particulars and specifications of such equipment and warrants that such machinery equipment is fully compatible with the equipment. Know -how for the Instant Coffee plant with the operational capacity of 500 kgs/hr. for which know -how is being supplied by "BFP". Under no circumstances would BFP impute non -compatibility as a reason for failure to achieve assured and guaranteed, performance parameters."

The following factual position emerges from the transaction between the parties to the Technical Know -how Agreement: (a) Technical know -how was supplied by BFP to CCL to enable the latter to install in India an Instant Coffee manufacturing plant with production capacity of 500 Kgs/hr. and the same included the latest process technology of manufacture of Instant Coffee.

(b) Some of the capital goods/equipments required for the above purpose were supplied by BFP (These are the goods involved in the present valuation dispute). The remaining equipments required for the purpose were allowed to be procured by CCL from other sources, domestic 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 US 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. First, it has to be found that the know -how fee was related to the imported goods. Secondly, it was 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 the appellants that the know -how fee was related only to the final product (soluble instant coffee) and was not in any way related to the imported equipments. It has also been submitted that the payment of the know -how fee was not directly or indirectly a condition of sale of equipments by M/s. BFP to the appellants. Therefore, according to the Counsel, the know -how fee is not addable to the transaction value for determination of the assessable value. Ld. Counsel has also relied on a line of decisions of the Tribunal, some of which are listed below.
1. M/s. S.D. Technical Services v. CC, New Delhi, 2003 (56) RLT 962 (CEGAT -LB) 2. M/s Polar Marino Agglomerators Ltd. v. CC, 2003 (56) RLT 967 (CEGAT -LB) 3. M/s. Panafa Dongwon India Ltd. v. CC, 2003 (56) RLT 962 (CEGAT -LB)

4. M/s. Hoerbiger India Pvt. Ltd. v. CC, Mumbai, 2003 (56) RLT 965 (CEGAT -LB) Ld. DR has argued that it would appear from Clause -II of the Technical known -how Agreement that there is a connection between the imported goods and the know -how fee in this case. He has also relied on the Supreme Court's judgment rendered in the case of CC. v. Essar Gujarat Ltd., .