P.R. Chandrasekharan, Member (T) - (1.) THE appeal arises from Order -in -Appeal No. 699 -700/MCH/DC/Contract Cell/NCH/2012 dated 07/08/2012 passed by the Commissioner of Customs (Appeals), New Custom House, Mumbai. Vide the impugned order, the ld. Lower appellate authority upheld the Order -in -Original No. 1345/DC/Contract Cell/AKS/10 -11 dated 10/11/2010 passed by the Dy. Commissioner of Customs (Import), Contract Cell of New Custom House, Mumbai, wherein it was held that the amounts of - (i) US $ 2,250,000/ - payable under the Process Licence Agreement; (ii) US $ 16,231,000/ - payable as Basic Engineering Services; and (iii) US $ 3,769,000/ - towards supervisory services - are includible in the assessable value of the capital goods imported by the appellant M/s. Welspun Maxsteel Ltd., Indore under the provisions of Rule 9(1) (c) and 9(1)(e) of the Customs Valuation Rules, 1988 (CVR in short) read with Section 14 of the Customs Act, 1962 and differential customs duty on account of the above inclusions along with interest thereon are liable to recovered from the appellant accordingly while finalising the assessment of the capital goods. Aggrieved of the same, the appellant is before us.
(2.) BRIEF facts relating to the case are as follows. The appellant M/s Welspun Maxsteel Ltd., Indore, imported capital goods, equipment, components, etc. for the initial setting up of a plant to manufacture 'hot briquette sponge iron' in Raigad District of Maharashtra State under the Project Import Regulations, 1986. For this purpose they entered into four agreements, all dated 22/10/1989 with two foreign suppliers/collaborators, namely, M/s. Davy Dravo, Pennsylvania, USA (Davy in short) and M/s. HYLSA, S.A. de CV, Mexico (HYL in short). The agreements pertained to (a) Supply of Equipment Agreement; (b) Basic Engineering Services Agreement; (c) Process Licence Agreement and (d) Supervisory Services Agreement. The suppliers and the appellant are not related. The scope of the agreement are briefly as follows: - There is no dispute about the includibility of the amount paid for equipment supply. The dispute is about the balance 3 agreements relating to basic engineering services, process licence and supervisory services agreement. The department is of the view while the consideration paid for basic engineering services and supervisory services are includible in the assessable value of the goods supplied under Rule 9(1)(e) of CVR, consideration paid for supply of technical know -how under the process Licence Agreement is includible in the assessable value of the goods supplied under Rule 9(1)(c) of CVR read with section 14 of the Customs Act, 1962. Accordingly the department has sought to include these considerations paid in the value of the goods supplied and has demanded differential duty with interest. Hence the appeal before us. The submissions made by the ld. Counsel for the appellant can be summarised as follows: - 3.1 The plant to manufacture sponge iron was set up not only with the capital goods imported from Davy/HYL but also imported from other sources and from indigenously procured capital goods. The break up is as follows: - a) indigenous capital goods: Rs. 252.43 crore b) Imported capital goods from Davy: Rs. 69.90 crore c) Imported from others: Rs. 111.05 crore 3.2 The lower authorities have rejected the transaction value of the imported capital goods on the ground that the appellants have entered into 4 agreements as part of a package deal and has accordingly sought to include the consideration paid in terms of Rule 9(1)(c) and 9(1)(e). 3.3 As regards Process Licence Agreement, Rule 9(1)(c) applies only when royalty paid is related to the imported goods and payment of royalty is a condition for sale of the imported goods. Even if one of the conditions is not satisfied, the rule will not apply. As per clause 6.1 of the said agreement, the appellant is required to pay royalty @ $ 1 per ton of briquettes actually produced at the plant for a period of three contractual years. There is no lumpsum payment of royalty and the amount of US $ 2,250,000/ - has been determined based on the actual production of 2.25 million for 3 years. The royalty is not linked to the imported capital goods at all but to the manufacture of final product with the use of the capital goods and therefore the condition that royalty paid should be relatable to the imported goods is not satisfied. The said agreement also does not stipulate that the capital goods shall not be sold to the appellant in case royalty is not paid and the very fact that the plant has been set up with the help of capital goods imported from others, other than Davy/HYL, is indicative of the fact the payment of royalty is not a condition of sale. The Chartered Accountant's certificate dated 26 -5 -2005 also affirms the submission of the appellant in this regard. Reliance is also placed on the decision of this Tribunal in the case of Ibex Gallagher Ltd. [2005 (191) ELT 967] affirmed by the apex court [2006 (197) ELT A 193]. 3.4 Under the basic engineering service agreement, various drawings relating to the setting up of the plant supplied to the appellants by Davy was supplied. The appellant had also appointed various engineering consultant firms in India to undertake detailed engineering in India based on the basic engineering received from Davy. The scope of the work in basic engineering services is for setting up of the plant and the activities mentioned in the said agreement are post -importation activities and therefore the same are not liable to be included. The imported goods also did not constitute the plant and therefore, the payment made for the drawings cannot be included in the value of the goods imported under Rule 9(1)(e) of the CVR. Under the said rule, all other payments actually made as a condition of sale of the imported goods alone can be added. Interpretative note to rule 4 specifically state that the charges incurred for post importation activities such as assembly, installation and commissioning will not form part of the value of the imported goods. Further the actual consideration paid under this agreement is $ 1,07,12,000/ - as certified by the Chartered Accountant. 3.5 The supervisory charges are for the services rendered in India for the purposes of setting up of the plant in India. As per the interpretative notes to rule 4, the value of imported goods shall not include charges for construction, erection, assembly, maintenance, technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment, the cost of transport after importation and duties and taxes in India. Therefore, since the supervisory charges are for post importation activities, the same cannot be added to the value of the imported goods under Rule 9(1)(e). 3.6 The reliance placed by the Revenue on the decision of Essar Gujarat [ : 1996 (88) ELT 609 (SC)] is of no avail as the facts are different. In that cases an entire plant was imported into India and for operating that plant, licence fee was to be paid. In the present case, the plant has been set up not only out of capital goods imported from Davy/HYL but also from various indigenous manufacturers. The decision in the Andhra Petrochemicals case [1977 (90) ELT 275 (SC)] relied upon by the Revenue is also of no consequence as in the said case inclusion was done under the provisions of Rule 9(1)(b)(iv). In the present case, the adjudicating authority has clearly held that Rule 9(1)(b) has no application and hence, the said decision, is not applicable to the facts of the present case. For the same reason the decision in the case of Mukund Ltd. [ : 1999 (112) ELT 479 (SC)] is also inapplicable. 3.7 Reliance is mainly placed on the following decisions - (a) J.K. Corporation Ltd. [ : 2007 (208) ELT 485 (SC)] (b) Toyota Kirloskar Motor Pvt. Ltd. [ : 2007 (213) ELT 4 (SC)] (c) Indo -Gulf Corporation Ltd. [ : 2005 (182) ELT 77] In the light of the above, it is pleaded that the impugned order is not sustainable in law and the appeal be allowed by setting aside the same.
(3.) THE ld. Additional Commissioner (AR) appearing for the Revenue made the following submissions, while re -iterating the findings of the lower authorities. 4(i) The appellant imported the capital goods to set up a plant for manufacture of hot briquette sponge iron. To make the plant operational, the appellant needed basic engineering services, process licence and supervisory services. Therefore the supply of equipment agreement is closely linked to the other three agreements without which the plant could not have been made operational. From the supply of equipment agreement it can be seen that it incorporated the HYL III direct reduction process and there was a pre -existing arrangement between HYL and Davy in this regard. The production of the end product of the desired quality of output was not possible unless provisions of other agreements were put to service. Thus all the four agreements were interlinked and interdependent. Reliance is placed on the decision of the Tribunal affirmed by the hon'ble apex court in the case of Andhra Petrochemicals (supra) wherein it was held that if different agreements are entered into as a package deal, the payments made under various agreements could be clubbed in the value of the equipment supplied. 4(ii) The hon'ble apex court in the case of Otto India Pvt. Ltd. [2003 (158) ELT A 331 (SC)] had held that if technical know -how supplied is relatable to the equipment supplied, the consideration paid for the same can be included in the assessable value of the equipment. Similarly in the case of Mukund Ltd. [ : 1999 (112) ELT 479], this Tribunal had held that design and engineering charges, supervision charges, erection and commissioning charges and performance guarantee tests can be included in the assessable value of the equipment supplied without these services, the equipment cannot be made operational. As regards the contention of the appellant that as per the Chartered Accountant's certificate, only a part of the contracted amount has been paid and not the whole, as per the provisions of the CVR 'amount paid or payable' are liable to be included and reliance is placed on the decision of the Tribunal in the case of Electronics Corporation of India Ltd. [2001 (137) ELT 1031] affirmed by the hon'ble apex court in the case [2002 (139) ELT A 171 (SC)]. 4(iii) Strong reliance is placed on the decision of the Apex Court in the case of Essar Gujarat Ltd. (supra) where in respect of an import of Direct Reduction Iron Plant, the said firm entered into different agreements for supply of technical/process know -how engineering and consultancy services and theoretical and practical training to the personnel and paid consideration therefor and the hon'ble apex court held that all these payments relate to the equipment imported and therefore, liable to be included in the value of the equipment supplied. It is submitted that the ratio of the above decision applies squarely to the facts of the present appeal. In the light of the above, it is pleaded that the impugned order is eminently sustainable in law.;