2000(12)LCX0096
IN THE CEGAT, EASTERN BENCH, CALCUTTA
Smt. Archana Wadhwa, Member (J) and Dr. S.N. Busi, Member (T)
COMMISSIONER OF CUSTOMS, CALCUTTA
Order No. A-2030/CAL/2000, dated 14-12-2000 in Appeal No. C/RV-61/97
Cases Quoted
Collector v. Essar Gujarat — 1996(11)LCX0031 Eq 1996 (088) ELT 0609 (S.C.) — Referred ...................... [Paras 2.2, 2.7]
Mirah Exports Pvt. Ltd. v. Collector — 1998(02)LCX0061 Eq 1998 (098) ELT 0003 (S.C.) — Referred................... [Para 2.3]
Tata Iron & Steel Co. Ltd. v. Commissioner — 2000(02)LCX0091 Eq 2000 (116) ELT 0422 (S.C.) — Followed [Paras 2.6, 7]
TISCO Ltd. v. Commissioner — 2000 (040) RLT 0706 (CEGAT) — Followed .............. [Paras 2.1, 11]
U.O.I. v. Mahindra & Mahindra — 1995(03)LCX0152 Eq 1995 (076) ELT 0481 (S.C.) — Referred...................... [Para 2.3]
Advocated By : S/Shri P.P. Jinwala, Sr. Advocate, A. Choudhury, L.P. Asthana and S. Khaitan, Advocates, for the Appellants.
Shri V.K. Chaturvedi, SDR, for the Respondent.
[Order per : Archana Wadhwa, Member (J)]. - The brief facts necessary for the purpose of disposal of the present appeal are as under :-
1.1 The appellants, M/s. Hindalco Industries Ltd., being desirous of setting up two 74 MW Nominal Rating Steam Turbine Generator Sets for its power plant expansion at Renusagar, entered into two contracts with M/s. ABB Kraftwerke Berlin GmbH., Germany.
1.2 Under the first contract, ABB undertook to supply Hindalco two 74 MW Nominal Rating Turbine Generator Sets. Some components of the turbine generator sets and auxiliaries were to be imported from Germany and some portion was to be manufactured and delivered in India.
1.3 The erection and commissioning of the Generator sets was to be done by Hindalco under the supervision of ABB. For this purpose, ABB was to supply technical services in the form of documents and manuals. The documents were to contain designs and drawings showing the outline of the sets to be installed, the layout, pipework, etc. so as to enable Hindalco to do the civil work necessary for the purpose of erection of the sets at site.
1.4 The amounts payable by Hindalco to ABB under the contract were as follows :-
| For imported equipment and spares | DM 21 million |
| For indigenous equipment and spares | Rs. 119.7 million |
| For the technical service documents | DM 11.7 million |
1.5 Under the second agreement, ABB was to supply the supervision manpower necessary for supervising the erection and commissioning by Hindalco. The agreement specified the types of experts ABB was to supply for supervision purposes and the expenses to be paid in respect of such personnel.
1.6 The technical service documents were imported in two consignments. The first consignment was for 7 books of drawings and designs under invoice dated 8-12-1995 for c.i.f. value of DM 877,500 and covered by Bill of Entry dated 26-12-1995. The second consignment was of 30 books of drawings and designs under invoice dated 21-12-1995 for c.i.f. value of DM 10,828,500 and covered by Bill of Entry dated 21-1-1996. In the Bills of Entry the classification was claimed under Chapter 49 read with Notification No. 25/95-Cus., dated 16-3-1995.
1.7 Under the contract, certain machinery was also imported in different consignments, which were cleared at Bombay and Calcutta.
1.8 By an Order dated 22-5-1996, the Assistant Commissioner of Customs held that the amount of DM 11.7 million representing the value of the designs, drawings etc. on the two consignments was to be included in the value of 74 MW Steam Turbine Generator Sets imported at different times and at different ports under Rule 9(1)(b)(iv) and Rule 9(1)(e) of the Customs Valuation Rules, 1988. It was also held that the goods should be assessed at the rate, which is applicable to the Steam Turbine Generator Sets.
1.9 Aggrieved with the aforesaid Order, the appellants filed an appeal before the Commissioner of Customs (Appeals). The Commissioner (Appeals) dismissed the appeal holding that Rule 9(1)(b)(iv) had no application but Rule 9(1)(e) applied to the case and the said Order of the Commissioner (Appeals) is impugned before us.
2. Shri P.P. Jinwala, learned Senior Advocate alongwith the Advocates, S/Shri A. Choudhury, L.P. Asthana and Shri S. Khaitan appeared for the appellants. In the subsequent Written Submissions filed, the appellants raised the following points :-
2.1 The imported goods are documents falling under Chapter 49 of the Schedule to the Customs Tariff. These documents attract nil rate of duty, therefore no demand of duty can be raised in respect of these goods. There is no provision under Customs Act, 1962 or Customs Tariff Act, 1975, or the Valuation Rules for classifying drawings as Turbine Generator Sets and applying the rate of duty as applicable to turbines. The issue under consideration is the dutiability of drawings, designs falling under Chapter 49 and not the valuation of turbine sets. In this context, reliance is placed on the decision in the case of M/s. TISCO v. C.C., Calcutta which is reported in 2000 (040) RLT 706. The findings of the Honourable C.E.G.A.T. in paragraph 4 of the Order are as follows :-
“We have considered the matter and find that designs and drawings are classifiable under Chapter 49 of the Customs Tariff whereas machinery are classifiable under Chapter 84 thereof. Neither the Section Notes of Section XVI whereunder Chapter 84 of the Customs Tariff falls, nor the Chapter Notes of Chapter 84 provide that designs and drawings which are imported as a condition of sale of machinery under another contract and because of which the value of such designs and drawings have to be loaded to the value of the machinery and equipments to be imported under the said separate contract have to be and/or can be classified or assessed with reference to the Tariff Heading of the corresponding machinery. There is no Tariff sub-heading contained in Chapter 84 of the Customs Tariff, which provides for such assessment or classification. Similar is the case under Section X in which Chapter 49 is contained and under Chapter 49 of the Customs Tariff there is no provision therein or in the Section Notes and Chapter Notes thereof which provides that designs and drawings imported as above can be or are to be classified or assessed with reference to the Tariff Heading of the corresponding machinery. Designs and drawings continue to be goods classifiable under Chapter 49 or the Customs Tariff and duty thereon has to be assessed and levied accordingly. The subject imports cannot be considered to be classified under Accessory (Condition) Rules, 1963 as machinery, since they have not been imported along with that article of machinery in the present case. Therefore, the order classifying the drawings and designs as machinery cannot be upheld by us. The same is, therefore, required to be set aside and ordered accordingly.”
The aforesaid decision is fully applicable to the facts of the present case.
2.2 Without prejudice to the aforesaid submission, the appellants submit that Rule 9(1)(e) has no application because it refers to a payment that has to be made as a condition of the sale, which has been interpreted by the Hon’ble Supreme Court in the case of Essar Gujarat case reported in 1996(11)LCX0031 Eq 1996 (088) ELT 0609 (S.C.) to mean a pre-condition. That is to say a payment which the seller insists should be made or otherwise he will not enter into the contract of sale at all. In the present case, the technical service documents are not such as the seller insisted should be paid for as a condition of entering into the contract of sale. This appears clearly from the terms and conditions of the contract. The documents were to be delivered first and payment was to be made for them by various instalments. Therefore, the payment was not a precondition of the seller entering into the contract of sale at all.
2.3 The contract itself indicates the value of the impugned components. There is no specific clause in the contract, which provides that payment for technical documentation is a condition of sale of the imported components of turbine generator set. As has been held by the Hon’ble Supreme Court in the case of Mirah Exports reported in 1998(02)LCX0061 Eq 1998 (098) ELT 0003 (S.C.) - “Ordinarily the Court should proceed on the basis that the apparent tenor of the agreement reflect the real state of affairs” and what is to be examined, is - “whether revenue has succeeded in showing that the apparent is not the real and that the price shown in the invoices does not reflect the true sale price” [vide Union of India v. Mahindra & Mahindra (supra) 1995(03)LCX0152 Eq 1995 (076) ELT 0481 (S.C.) at page 487]. Therefore, a condition, which does not exist in the contract, cannot be read into the contract as is sought to be done in the Order of Commissioner (Appeals).
2.4 The Commissioner has relied upon Article 6.1 of the Agreement for holding that the payment of DM 11.7 million is a precondition for supply of two turbine generator sets along with spares. The learned Commissioner has held in paragraph 3.3 that in the absence of these designs and drawings, the imported components with spares will be of no value to the appellants. Secondly, the payment for the technical service charges is to be made under Article 7.6 of the Contract in the same ratio as main equipment. He has further held that it was essential for the appellant company to pay the technical service charges for “Two Steam Turbine Generator Sets” imported into India and to operate the same and this payment was to ensure that the appellant company got the Generator Sets which can be made operational and functional only with the help of these designs and drawings. It is submitted that the entire reasoning of the learned Commissioner is based on the assumption that complete Turbine Generator Sets are being imported. This is not the case. The true position is that the payment of technical service charges is not a condition of sale for supply of either imported equipment or indigenous equipment. The appellants undertook the responsibility for erection and commissioning of the Turbine Generator Sets and for this purpose they needed certain technical documentation to enable them to erect the steam turbine generator sets in India. The activities relating to erection and commissioning were to be done at site at Renusagar and the technical documentation which were procured by the appellants from the suppliers (as specified in Annexure ‘D’ of the Contract) was required for the activities carried out in India. The documents were to contain designs and drawings showing the outline of the sets to be installed, the layout, pipework, etc. so as to enable Hindalco to do the civil work necessary for the purpose of erection of the sets at site. Therefore, the payment for the technical documentation cannot be regarded as a condition or pre-condition for the sale of the imported components of the turbine generator sets.
2.5 The appellants submit that the Commissioner has not considered the Interpretative Note to Rule 4 of the Valuation Rules, which clearly prohibits the addition of such charges. Interpretative Note to Rule 4 reads as follows :-
“The value of imported goods shall not include the following charges or costs, provided that they are distinguished from the price actually paid or payable for the imported goods :-
(a) Charges for construction, erection, assembly, maintenance or technical assistance, undertaken after importation on imported goods such as industrial plant, machinery or equipment......”
The designs and drawings provided are merely in the nature of technical assistance for the construction, erection and assembly of the turbine generator sets from imported goods and the goods manufactured indigenously. They are post-importation activities and cannot be included in the value of the imported goods.
2.6 The appellants also rely upon the decision in the case of Tata Iron & Steel Co. Ltd. v. Commissioner of Central Excise, Bhubaneswar reported in 2000(02)LCX0091 Eq 2000 (116) ELT 0422 (S.C.) = 2000 (037) RLT 0239 (S.C.) wherein the Honourable Supreme Court has held in paragraph 17 of the judgment that drawings and documents supplied to the buyer/importer for use during construction, erection assemblying, maintenance etc. of imported goods are relatable to post-importation activity to be undertaken by the appellants and cannot be included in the value of imported goods. It was held that -
“They could not have been included in the value of imported goods merely because the value of the documents referable to imported equipments and materials was mixed up with the value of those documents which were referable to equipment which was yet to be procured or imported or manufactured by the appellants; the value of the latter category of documents also being neither dutiable nor clubbable with the value of the imported goods.”
The aforesaid decision fully covers the facts of the present case.
2.7 The payment terms for technical documentation were synchronised with the payment for imported equipments only because erection and commissioning in India require certain civil work and other activities which had to be done prior to the procurement of imported and indigenous equipments. This was done in order to avoid delay in the setting up of the plant. Such synchronisation cannot be considered as a condition of sale of the imported equipments.
2.8 The learned Commissioner, in paragraph 3.4 of his Order, came to an erroneous conclusion that DM 11.7 million to be paid by the appellants to the supplier to technical documentation in terms of the first contract has got nothing to do with the erection cost which was to be borne by the appellants on their own separately in terms of the second contract. The second contract related only to the supervision activities to be undertaken by the exporter for setting up the plant in India. The actual technical documentation required for setting up the plant in India was supplied in terms of the first contract only.
2.9 The decision of the Hon’ble Suprenre Court in the case of Collector of Customs v. Essar Gujarat Ltd. reported in 1996(11)LCX0031 Eq 1996 (088) ELT 0609 (S.C.) lays down that for the application of 9(1)(e) the payment must be a pre-condition for the sale of imported goods. This principle is applicable to the appellants’ case as well. However, on facts the decision in Essar Gujarat case is not applicable to the case of the appellants. In that case, M/s. Essar Gujarat had imported an entire second-hand plant based on Midrex Process from TIL. The sale of the plant was subject to obtaining of a licence from Midrex for the technical know-how. In the present case, the appellants have not imported a complete turbine generating sets; therefore the said payment cannot be said to be a condition of the sale of the imported goods. Moreover, the Designs and Drawings are related to post-importation activities to be done in India and have no relation to the imported machinery required for the setting up of the Turbo Generator Sets. Moreover, in the present case, no such process is involved and the technical documentation is not related in any manner to the imported components of the turbine generator sets.
3. Shri V.K. Chaturvedi, learned SDR appeared on behalf of the Revenue and reiterated the reasoning of the authorities below.
4. Our attention was also drawn to the various clauses of the Contract entered into between the appellants and their foreign suppliers, as discussed in the Order passed by the authorities.
5. We have given our careful consideration to the submissions made from both sides. Vide their impugned Orders, the Revenue has concluded that the supply of Designs and Drawings to the appellants by their foreign suppliers with whom they entered into two different contracts, was a precondition of the sale of the Generating Sets in question and as such, the provisions of Rule 9(1)(e) of the Customs Valuation (Determination - Price of Imported Goods) Rules, 1988, were straightaway required to be invoked. It is seen that the Commissioner (Appeals) while disposing of the appeal before him, has observed in 3.13 that there was no ground and justification for applicability of Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988 and as such, dropped the same. There is no appeal by the Revenue against the above portion of the impugned Order of the Commissioner (Appeals). As such, we are only concerned in the present appeal to decide as to whether the provisions of Rule 9(1)(e) of the Customs (Valuation) Rules, 1988 are applicable to the facts and circumstances of the case.
6. Undisputedly, the appellants had entered into two contracts with their foreign supplier on 23-6-1994 - one for supply of two Generator Sets along with components and spares etc. and other for technical designs and drawings. The second contract was for supply of technical services in the form of documents and manuals showing the outline of the Sets to be installed and the lay-out and pipework etc. so as to enable the appellants to do the civil work necessary for the purpose of erection of the Sets at site and the manuals were to contain instructions for operating the said Sets. As such, as strongly argued by the appellants, the second contract was purely for supply of supervision-manpower necessary for supervising the erection and commissioning by the appellants. These technical service documents were imported under two consignments between 8-12-1995 to 21-1-1996 and consisted of seven books or drawings and designs in the first consignment and thirty books of drawings and designs in the second consignment. The total value of the two consignment’s was DM 11.700 milIion. The appellants contention is that the said drawings and designs are classifiable under Chapter 49 and there is no justification for inclusion of the value of the same in the value of the Generator Sets, by applying Rule 9(1)(e) of the Customs Valuation Rules, 1988, inasmuch as the two contracts were independent of each other. The various portions of the equipments of the Generator Sets were imported by the appellants through Bombay and Calcutta Ports on various dates.
7. Though we find that the appellants have referred to a number of decision of the Honourable Supreme Court and C.E.G.A.T, the latest decision of the Supreme Court in the case of TISCO Ltd. v. Commissioner of Central Excise and Customs, Bhubaneswar reported in 2000(02)LCX0091 Eq 2000 (116) ELT 0422 (S.C.) = 2000 (037) RLT 0239 (S.C.) involving the same set of facts and circumstances, is fully applicable. In that case also, M/s. TISCO had entered into two contracts with their foreign suppliers for supply of equipments and materials as also for supply of technical documentation. Equipments and materials were cleared from different ports during different periods and technical/engineering designs and drawings were imported at Calcutta Customs House. The Revenue in that case entertained a view that the value of the technical drawings and designs is required to be added into the value of the equipments imported by M/s. TISCO in terms of Rule 9(1)(e) of the Customs Valuation Rules, 1988. The Hon’ble Supreme Court in para 15 of the judgment observed that clause (e) of sub-rule (1) of Rule 9 is attracted when the following conditions are satisfied :
(i) There is a payment actually made or to be made as a condition of sale of the imported goods by the buyer to the seller or to a third party;
(ii) such payment, if made to a third party, has been made or has to be made to satisfy an obligation of the seller, and
(iii) such payments are not included in the price actually paid or payable.
The Hon’ble Supreme Court, further in para 16, observed - It is nobody’s case that the seller had an obligation towards a third party, which was required to be satisfied by it and the buyer (i.e. the appellant) had made any payment to the seller or to a third party in order to satisfy such an obligation. The price paid by the appellant for drawings and technical documents forming subject matter of contract of DM-301, can by no stretch of imagination fall within the meaning of ‘an obligation of the seller’ to a third party. There was also no payment made as a condition of sale of imported goods as such. Rule 9(1)(e) also, therefore, has no applicability.
8. By applying the law laid down by the Hon’ble Supreme Court to the facts and circumstances of the case, we note that neither of the conditions as detailed in the above judgment for applicability of Rule 9(1)(e) are satisfied in the present case. Admittedly, the second contract entered into between the buyer and the seller, is for the purposes of commissioning and installation of the plant. The Commissioner (Appeals) has referred to Article 2 of the contract wherein sub-clause (c) defines the nature of technical services provided. He has observed that the said technical services include drawings and the details of drawings had been provided in Annexure-D of the contract. Annexure-D in turns contains the drawings of the civil work to be carried out at the site plus drawings for foundation, then mechanical and electrical fitting drawings for maintenance, operation commissioning and installation of the plant. He has, further, observed that without these drawings and technology, there can be no installation, operation and maintenance of the equipments at the site since the design work, maintenance, operation instruction are project specific. Accordingly, he has concluded that the sale of two T.G. Sets cannot be considered in isolation of the technical services and vice-versa.
9. Further, we find in para 17 of the TISCO judgment, the Hon’ble Supreme Court has observed that if the seller has undertaken to erect or assemble the machinery after its importation into India and levied certain charges for rendering such service the price paid therefor shall not be liable to be included in the value of the goods if it has been paid separately and is clearly distinguishable from the price actually paid or payable for the imported goods. Obviously, this Interpretative Note cannot be pressed into service for calculating the price of any drawings or technical documents though separately paid by including them in the price of imported equipments. By referring to Rule 4, which is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods, the Hon’ble Supreme Court has observed that the value of the documents and drawings etc. cannot be “charges for construction, erection, assembly etc.” It is further, noted in the said Order that even if the drawings and documents have been supplied to the buyer-importer for use during construction, erection, assembly, maintenance etc. of imported goods, they were relatable to post-import activity to be undertaken by the appellant and were covered by a separate contract.
10. As discussed above, we find that the above decision of the Hon’ble Supreme Court is fully applicable to the facts and circumstances of the instant case and there is no justification for taking a different view.
11. We would also take note of the Tribunal’s decision in the case of TISCO Ltd. v. C.C., Calcutta reported in 2000 (040) RLT 0706 (CEGAT) wherein under similar set of facts and circumstances and following the Supreme Court’s decision discussed supra, the Tribunal has held that designs and drawings for machinery imported, under a separate contract would be properly classifiable under Chapter 49 of the Customs Tariff and the value of such designs and drawings is not required to be loaded in the value of the machinery imported under a separate contract.
As the above two decisions are fully applicable to the facts and circumstances of the present case covering the legal issue involved, we do not find it necessary to discuss the other decisions relied upon by the appellants.
12. Following the ratio of the above decisions, we hold that the designs and drawings imported by the appellants are classifiable under Chapter 49 and have to be assessed separately under the said Chapter and the duty thereon, has to be assessed and levied accordingly. Therefore, the Orders passed by the authorities below are set aside and appeal allowed with consequential relief.