2001(01)LCX0290

IN THE CEGAT, EASTERN BENCH, KOLKATA

Smt. Archana Wadhwa, Member (J) and Dr. S.N. Busi, Member (T)

BIRLA TYRES

Versus

COMMISSIONER OF CUSTOMS, CALCUTTA

Order No. A-112/CAL/2001, dated 25-1-2001 in Appeal No. CRV-47/2000

Cases Quoted

Mukund Ltd. v. Commissioner — 1997(10)LCX0183 Eq 1999 (112) ELT 0479 (Tribunal) — Referred .......... [Paras 6, 7]

Mukund Ltd. v. Commissioner — 1999(12)LCX0114 Eq 2000 (120) ELT 0030 (S.C.) — Referred.......................... [Para 6]

TISCO Ltd. v. Commissioner — 2000(02)LCX0091 Eq 2000 (116) ELT 0422 (S.C.) — Followed..................... [Paras 5, 9]

TISCO Ltd. v. Commissioner — 2000(05)LCX0035 Eq 2001 (130) ELT 0327 (Tribunal) — Followed............ [Paras 4, 12]

Advocated By :   Shri S.K. Bagaria, Advocate, for the Appellant.

Shri V.K. Chaturvedi, SDR, for the Respondent.

[Order per : Archana Wadhwa, Member (J)]. - Briefly stated the facts of the case are as under :-

1.1 The appellants entered into a contract on 15-11-1996 with M/s. Pirelli Co-Ordinamento-Pneumatici S.P.A., Italy (hereinafter referred to as Pirelli) for Import of various machinery and spare parts at the price of Italian Lira 4233,000,000. This was required by the appellants for setting up the facilities for manufacture of radial tyres. Apart from the machinery and equipments to be imported from Pirelli and other foreign suppliers, various casting machinery and equipments at the appellants’ factory were also to be utilised. Some of the machinery and equipments were to be procured from indigenous sources. Annexure III to the said contract, gives the details of the items of machinery, equipments and spares along with their respective prices. Pirelli was also required to supply to the appellants technical documentation of each machinery for planning and preparation of the drawings for civil works and for erection and setting up of the machinery including instruction manuals etc. The cost of such documents supplied by Pirelli was included in the agreed upon selling price of the machinery and no amount has been paid by the appellants over and above the agreed selling price.

1.2 In the said contract entered into by the appellant with Pirelli, various knowhow documentation and basic design documentation was also to be provided by them at a separate lumpsum price of Italian Lira 5,40,000,000. Annexure (V) to the said contract gives the price of the documentation and the details of the same.

1.3 The appellants filed bills of entries for home consumption in respect of the consignment containing basic engineering documentation at a declared price and claimed the classification of the same under Chapter 49 of the Customs Tariff attracting nil rate of duty.

1.4 The Assistant Commissioner of Customs, Air-cargo Complex, Calcutta by his order dated 14-6-1999 held that the price of Italian Lira 540,000,000 for the said knowhow documentation and basic engineering documentation was liable to be treated as a part of the value of the machinery/equipments imported or to be imported under the said contract and that the said documentations are to be assessed with reference to the classification of the corresponding machinery i.e., under Chapter 84. The said order was upheld by the Commissioner (Appeals) by the impugned order-in-appeal dated 31-8-1999.

2. Shri S.K. Bagaria, ld. Adv. has appeared on behalf of the appellant and Shri V.K. Chaturvedi, ld. SDR appeared for the Revenue.

3. It has been argued on behalf of the appellants that the transaction relating to importation of machinery, equipments and spares was an independent transaction from the one relating to import of knowhow documents and basic design documents. The agreed price for the machinery and equipments was inclusive of all costs and charges for supply of technical documentation of each machines for planning and preparation of drawings for civil works and for erection, start up and setting into production. Over and above the agreed price for the machine, no other amount whatsoever was payable by the appellants. On the other hand the details of the contract for imporation of knowhow documentation and basic engineering documentation would show that the said documentation related to various activities in India and were in no way connected to importation of machinery and equipments, nor the price of the same was paid/payable towards any fees or other amounts payable to Pirelli for purchase of the imported machinery and equipments. The same was not paid as a condition of sale of the imported machinery and equipments. The appellants have strongly contended that it was not even the entire project imported by them from Pirelli, but only some of the items of the same, the details of which are given in the list No. 2 of Annexure III to the said contract. Many excluded items were to be procured from other indigenous manufacturers or were to be imported from other countries. In these circumstances it cannot, by any stretch of imagination be inferred that the purchase of the said basic design documentation in question was a pre-condition for sale of the machinery and equipments. No such thing was mentioned anywhere in the contract nor was there any scope to derive any such conclusion from any part of the said contract. The know-how and basic engineering documents related to the appellants activities in India such as procurement of raw materials, details of manufacturing processes, civil works, developing in India, detailed engineering for various activities etc. This fact has also been admitted in the Asstt. Commissioner’s order. In these circumstances the appellants contend that there is no scope to include the charges paid for such documentation in the assessable value of the imported machinery and equipments.

4. Shri Bagaria further argues that the reliance placed by the authorities below on another contract with Pirelli is totally mis-conceived inasmuch as it is the terms and conditions of the present contract, which should be considered for the purposes of arriving at a finding as to whether the technical knowhow and basic engineering documents are a part and parcel of the imported machinery by the appellants or not. He submits that the said documents cannot be classified as machinery under Chapter 84 of the Customs Act, as has been done by the authorities below. The same properly fall under sub-heading No. 4906.00 of the Customs Tariff and attract nil rate of duty. In this connection he refers to the Tribunal’s Order No. A-602/Cal/2000 dated 12-5-2000 [2000(05)LCX0035 Eq 2001 (130) ELT 0327 (T)] in the case of TISCO Ltd. v. CC, Calcutta wherein in identical set of facts and circumstances and the identical reasons given by the authorities below, by the same Asstt. Commissioner were not accepted by the Tribunal and it was held that the documents would be covered under Chapter 49. As such he submits that the issue is fully and directly covered in favour of the appellants by the aforesaid decision of the Tribunal.

5. As regards his submissions against inclusion of the value of documents in the value of the machinery, he strongly relies upon the Hon’ble Supreme Court’s decision in the case of TISCO Ltd. v. CCE & C - 2000(02)LCX0091 Eq 2000 (116) ELT 0422 (S.C.) = 2000 (037) RLT 239. He submits that in an identical set of facts, where the Customs authorities were entertaining a view that the price for supply of technical documents was liable to be included in the assessable value of the equipments and materials, the Hon’ble Supreme Court, after referring to Rule 9 was pleased to reject the Revenue’s contention.

6. Shri V.K. Chaturvedi, ld. SDR appears for the Revenue and reiterates the findings of the authorities below. Strong reliance has been placed by the Revenue on the Tribunal’s decision in the case of Mukund Ltd. v. CC, Mumbai - 1997(10)LCX0183 Eq 1999 (112) ELT 0479 (T) as confirmed by the Hon’ble Supreme Court reported in 2000 (120) ELT 30.

7. In his rejoinder Shri Bagaria has differentiated the said decision of Mukund Ltd. and submitted that the facts as present in that case are not available in the present appeal and as such the judgment is not relevant. In the Mukund’s case there was no import of machinery or equipments and the only question was as regards valuation of designs and engineering documents.

8. We have carefully considered the submissions made by both the sides. On going through the terms and conditions of the contract relatable to importation of technical knowhow and basic engineering documents it is seen that the same is relatable to and covers all the information like use of specified raw materials and consumption, manufacturing processes and procedural specification, calendering, tyre manufacture etc. The Asstt. Commissioner has also admitted the above position, but has reasoned that since the seller is giving technical assistance to the appellants for manufacture of radial tyres, who is also importing the tyre manufacturing plant from them, it becomes clear that purchase of knowhow and basic engineering documentation is a pre-condition in the contract for sale of the tyre manufacturing plant. The Commissioner (Appeals) has also accepted that the technical knowhow is for the manufacture of the radial car and light truck tyres in the appellants’ factory, but has concluded against the appellants on the ground that they have purchased vital machineries for the manufacture of tyres along with the documents and as such the value of the documents is required to be added in the value of the machineries.

9. We find that an identical question was before their Lordships of the Hon’ble Supreme Court in the case of TISCO Ltd. v. CCE & C - 2000(02)LCX0091 Eq 2000 (116) ELT 0422 (S.C.) = 2000 (037) RLT 239. In that case also M/s. TISCO had imported from Protugal several machineries and equipments as well as technical documentation. The overall price was 26 million DM and it consisted of 12.5 million DM for technical documentation and 13.5 million DM for equipments and materials. The assessee claimed clearance of technical documentations at nil rate of duty under SH 4906.00. The Customs authorities were contending that the price for supply of technical documentation was liable to be included in the assessable value of equipments and materials. It was held by the lower authorities that the drawings and engineerings were compulsorily purchasable by the assessee along with the equipments and materials and hence Rule 9(1)(e) got attracted and value of the two was liable to be clubbed. The above view of the Revenue was confirmed by the Tribunal.

The Hon’ble Supreme Court referred to Rule 9(1)(b) of the Valuation rules and held that a bare reading of the said rule shows that the same refers to the value of clearances supplied by the buyer free of charge or at a reduced cost for use in connection with production and sale of the imported goods and to the extent of such value has not been included in the price actually paid or payable. The applicability of the same was ruled out in respect of the basic technical knowhow documents imported under a separate contract.

Referring to Rule 9(1)(e) of the Valuation Rules the Hon’ble Supreme Court in para 16 of the judgment observed as under : -

“It is nobody’s case that the seller had no 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 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. “

10. By referring to interpretative note rule 4 the Hon’ble Supreme Court was pleased to hold as under :-

“The part of interpretative note to rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) & (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the interpretative note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of imported goods. To illustrate, 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. Clause (a) in third para of note to rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be “charges for construction, erection, assembly etc.” of imported goods. Alternatively, even on the view as taken by the Tribunal on this note, the drawings and documents having 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. Such charges were covered by a separate contract, i.e. contract MD 301. They could not have been included in the value of imported goods merely because the value of 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 appellant; the value of the latter category of documents also being neither dutiable nor clubbable with the value of imported goods.”

11. By applying the ratio of the above decision of the Hon’ble Supreme Court to the facts and circumstances of the present case and after looking into the various terms and conditions of the contract, we find that the price paid by the appellant for import of knowhow documentation and basic design documentation was not to be included in the assessable value of the imported machinery and equipment when there is no dispute that the said knowhow documentation related to the activities of manufacture of tyres in the appellants’ factory. As such by following the Hon’ble Supreme Court’s decision we hold that the value of the knowhow documentation and basic design documentation is not to be included in the value of the imported machinery and equipments.

12. As regards the assessments of the said documents, the appellants have referred to the Tribunal’s order No. A-602/Cal/2000, dated 12-5-2000 [2000(05)LCX0035 Eq 2001 (130) ELT 0327 (T)] in the case of TISCO v. CC. Para 4 of the said order is reproduced below :-

“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 are continued to be goods classifiable under chapter 49 of the Customs Tariff and duty therein 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. When we are setting aside the order on classification of the drawings and designs as machinery & we find that the issue of valuation is covered by the Supreme Court decision in the appellant’s own case we cannot uphold the order regarding the valuation also.”

The above observation made by the Tribunal supports the appellants’ stand that the documents in question have to be classified under chapter 49. We hold accordingly inasmuch as we do not find any reason to hold differently.

13. In view of the foregoing we set aside the impugned order and allow the appeal with consequential relief in accordance with law.

Equivalent 2001 (138) ELT 0628 (Tri. - Kolkata)

Equivalent 2001 (045) RLT 0582