ESSAR STEEL LTD. Vs. UNION OF INDIA (UOI)

JUDGEMENT

(1.) THE present proceedings is the second bout of litigation between the parties. By the present petition, the petitioners have challenged the validity of the provisions of Sub -section (1A) of Section 14 and Clause (a) of Sub -section (2) of Section 156 of the Customs Act, 1982 (hereinafter referred to as the 'Act' for short) as also Rules 3, 4, 9(c) and 9(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (hereinafter referred to as the 'Rules' for short . The writ petitioners have also sought for a further direction prohibiting the respondents from acting pursuant to the letter of demand dated 28th October, 1997 issued by the respondents.

(2.) THE petitioner No. 1 - Company carries on the business of manufacturing, amongst others, high quality sponge iron, hot rod coils and plates. On 24th March, 1987, the petitioner No. 1 - Company entered into an agreement to purchase a plant for manufacture of sponge iron which was originally installed in 1981 at Emden, Germany, by a firm global tender floated by a Bank acting as the Receiver, the plant was purchased by Teviot Investments Ltd., from which the petitioner No. 1 - Company purchased the plant for a sum of DM 26 million. Immediately thereafter the petitioner No. 1 - Company entered into two separate agreements, both dated 4th December, 1987, one of which was entered into with Midrex International for use of Midrex Process to manufacture sponge iron and agreed to pay license fee of DM 2 million and a further fee of DM 10 million was agreed to be paid towards Transfer of Technology for production of sponge iron whereas, the second agreement was entered into by the petitioner No. 1 - Company with Voest Alpine for services for construction projects and rights to use patents for marketing sale design and construction of the said plant at Hazira. For the aforesaid services, the petitioners were required to pay to Voest Alpine a lump sum of DM 23,100,000. The petitioner No. 1 - Company filed two notices dated 29th September, 1988 and 11th October, 1988 in respect of the goods. The respondent authorities while evaluating the cost of the plant imported by the petitioners, included the payments made by the petitioners to Midrex International and the Voest Alpine in the aforementioned agreements. The said Custom authorities on the basis thereof came to the conclusion that there had been under -invoicing on the part of the petitioners and issued a show cause notice on 24th October, 1988 seeking to enhance the value from DM 46.75 million to DM 84.15 million and directed the petitioners to show cause as to why action should not be taken against the petitioners for violation of the said Act. An adjudication proceeding took place and the representative of the petitioners were also heard. The Collector of Customs (Preventive), Ahmedabad passed an order on 18th October, 1989 holding that the process license fee of DM 2 million paid by the petitioners to M/s. Midrex International for the right to use the Midrex Process and patent should be included in transaction value under Rule 9(1)(c) of the said Rules. The value of the plant for the purpose of transaction value was accepted at DM 26 million. Being aggrieved by the aforementioned order, the petitioners filed an appeal against the said order before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT). The Customs Department also filed an appeal against the said order impugning the order of the Collector insofar as he held certain items not includable in the price of goods imported. After hearing the parties, the Tribunal (CEGAT) by order dated 13th February, 1991 decided the appeal partly in favor of the petitioners.

(3.) BEING aggrieved by the aforesaid order passed by the CEGAT, the Custom authorities filed an appeal to the Supreme Court of India. By Judgment and order dated 19th November, 1996, the Supreme Court allowed the appeal holding that DM 2 million paid to Midrex International, DM 10 million paid as services to Midrex and DM 2.31 million paid to Voest Alpine should be added to the value of the imported plant. Thereafter, the Custom authorities proceeded to serve a demand notice on 28th January, 1997, demanding a sum of Rs. 10,63,39,665/ -, which is annexed as Annexure 'A' to the writ petition, the legality of which was challenged in this writ petition. During the pendency of the writ petition that is or 29th April, 1997, the Revenue enhanced the said demand to Rs. 16,60,35,971.44 by adding interest to the original demand which is also made the subject matter to the present writ petition.