R.F.NARIMAN, J. - (1.) In this appeal we are concerned with the addition in the value for assessment to customs duty of charges paid by the respondent to Met Chem Canada Inc. for supply of technical services required for setting up and commissioning a plant for the manufacture of Hot Rolled Steel Coils in India. An agreement dated 13.4.1991 was entered into between the respondent and Met Chem Canada Inc. to associate Met Chem Canada Inc. as a technical consultant to render technical services in relation to implementation of a project to set up a plant in India for production of Hot Rolled Steel Coils and Strips. Under clause 1.1.6 'plant' is defined as: "1.1.6 . "Plant" shall mean the integrated steel plant having an estimated annual capacity of Eight Hundred Thousand Tonnes (800,000 M.T.) of hot rolled steel coils and strips or such other enhanced capacity as may be agreed between the parties, to be located at Hazira, Gujarat, India and as described in Annexure 1 "PLANT UNITS' attached hereto and made thereof;" Project is defined as: "1.1.8. "Project" shall mean the design, procurement, construction, erection and start -up of the plant." The most material clause of the agreement relates to the scope of supply which is contained in clause 2, which reads as under: - "2.0. SCOPE OF SUPPLY: 2.1. Technical consultant shall render following engineering and other technical Services from outside India; 2.1.1. Project Engineering Services: Technical Consultant shall act as technical coordinator for the successful setting up, commissioning of all the facilities and achieving established operations of the Plant. Technical Consultant shall coordinate all technical matters such as, but not limited to studying various alternative specifications and processes for the Plant and for manufacturing of Products; making recommendation for the most suitable and economic process, final detailed specifications and processes for the selected route, advising as required regarding technical proposals from various suppliers, and Contractors for the supply of the Plant and equipment, and the erection thereof at the Site, including civil engineering, designs, construction and installation of project utilities necessary for the successful setting up of the plant; carrying out the detailed project engineering including giving approvals for the various construction and Project implementation activities, engineering drawings, methods of construction, etc. 2.1.2. Supervision and Monitoring of the Project: Technical Consultant shall provide advice regarding the activities in connection with the setting up of the plant from the technology, costs and time schedule angle. 2.1.3. Arrangement for Training of ESSAR's Employees - outside India. Technical Consultant shall be responsible for arranging for up to two hundred (200) man months of training of (operating, maintenance and management) ESSAR employees at Steel Plant with proven technical capabilities in appropriate fields, outside India. Specific subjects, duration of training for each subject and numbers of trainees in each group shall be mutually agreed upon in writing. All travelling, living and miscellaneous expenses of ESSAR employees in relation thereto shall be for ESSAR's account. 2.1.4. Assistance in transfer of technology: Technical consultant shall select appropriate subcontractor/contractors depending on the source of technologies and organize transfer to ESSAR of technology necessary for successful operation and maintenance of the Plant. 2.1.5. Procurement support services: Technical Consultant shall provide procurement support Services for procurement of Equipment in India such as assistance in finalization of lists, specifications and sizes and configuration of equipment to be purchased, listing of suitable vendors, floating of inquiries, scrutiny of quotation received, assistance in negotiations with the Suppliers and in finalisation of order, pre -dispatch inspection and witnessing of tests, etc." As a consideration for the above scope of supply to be provided, the technical consultant was to be paid a fee of DM 78,950,000 (Seventy Eight Million Nine Hundred Fifty Thousand Deutsche Marks). Since a large part of the arguments turned on clause 9, it is set out in full hereinbelow: "9.0. PATENTS. 9.1. The Technical Consultant make no representation or warranty that any process, equipment or facilities which may be recommended by the Technical Consultant in respect to the Project can be employed, operated in India or otherwise used without infringing any patent, trademark, or other industrial property right of any third party in respect of the same. ESSAR acknowledges that the Technical Consultant shall not be liable in the event of claims against ESSAR by any other party for such infringement and shall indemnify the Technical Consultant against such liability. The Technical Consultant shall intimate, if however, it knows or becomes aware that any process, equipment or facilities recommended by the Technical Consultant is/are the subject of patents, trademarks, or other industrial property right of any other company, individual or association. 9.2. The Copy right in all documents (including, but not limited to computer data, specifications, drawing and plan supplied by ESSAR, shall remain with ESSAR if originally owned by ESSAR. 9.3. The Technical Consultant may own and possess patents, know - how, copyrights, and other intellectual property rights with respect to the Plant and its operation and maintenance and/or the Products, which will be disclosed by the Technical Consultant to ESSAR, to the extent required as per the Scope of Services for the purpose of this Project, while rendering Services to ESSAR under this Agreement. ESSAR may disclose such information to other parties concerned for the Project only to the minimum extent necessary for implementation secrecy acceptable to all parties concerned prior to disclosure of information. Ownership of any and all the patents, know -how, copyrights and other intellectual property rights shall remain vested in the Technical Consultant or its subcontractors, as applicable, and ESSAR shall secure and otherwise protect such patents, know -how, copyrights and other intellectual properties and keep them secret and confidential. 9.4. Nothing contained in the Agreement shall be construed to mean that such patents, know -how, copyrights and other intellectual properties (referred to as the "Technical Information" in the Agreement) will be granted or transferred to ESSAR, unless otherwise specified in the Agreements. 9.5. ESSAR shall take all reasonable measure to avoid disclosures of the Technical Information to any third party and shall disclose the said Technical Information to third parties only to the extent mentioned in Clause 9.3 above. ESSAR shall use the Technical information only for the purpose of the execution of the Project and similar projects owned by ESSAR and its associate companies in India. For the purpose of this clause, an associate company will mean a company which holds more than 30% of the equity capital of ESSAR or a company in which ESSAR holds more than 30% of the equity capital. 9.6. ESSAR shall be the owner of that portion of all documents, drawings, plans, and specifications originally created by the Technical consultant specifically pursuant to this Agreement. The Technical Consultant may keep copies of all documents, drawings, plans and specifications and use them." By a supplementary agreement, the main agreement of 13.4.1991 was added to, the main difference being that the plant would now be having an estimated capacity of 16,00,000 tonnes instead of 8,00,000 tonnes. Further, the lump sum fee payable was increased by DM 15,0050 Million making the total lump sum fee an amount of DM 94 Million.
(2.) The services agreement is separate from the main agreement for setting up the said plant in India. The main agreement is contained in a purchase order dated 21.6.1991. The material clauses of the said purchase order are that for a plant of a capacity of 8,00,000 tonnes capacity per year, the total CIF price payable would be US$ 163,000,000. A liquidated damages clause contained in clause 13 of the purchase order provides liquidated damages for delay and/or failure to achieve performance. This purchase order was amended by a purchase order dated 28.7.1992 by which the CIF price of the said steel plant was revised to US$ 169,700,000. This was in view of the fact that the plant capacity as stated earlier had been doubled, and a sponge iron manufacturing plant of a capacity of one million tonnes which was originally to be sold was now deleted.
(3.) Vide a show cause notice dated 20.7.1993, Revenue demanded the sum of DM 78.95 Million being technical know -how charges which ought to be added to the sum of US$169,700,000. In their reply to the show cause notice, the respondent stated that none of the provisions of Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules of 1988 would apply as no payment is made for technical services as a condition of sale of imported goods. In any event, the agreement for technical services is to be performed in India post -importation and, therefore, would have to be excluded from the value to be taken into account at the time of import.;