of Customs (Preventive), Ahmedabad Vs. M/S. Essar Gujarat Ltd., Surat  INSC 1457 (19 November 1996)
Jeevan Reddy, Suhas C. Sen, K.S. Paripooran Sen, J.
first dispute in this case relates to the question whether the licence fees
paid to M/s. Midrex International B.V., Zurich, (Midrex) should be added to the invoice value of the plant bought by
M/s. Essar Gujarat Limited (EGL). The plant was originally installed at Emden Germany, in 1981 by a firm which went into liquidation. NORD/LB, a Bank, was
appointed receive of the plant. The bank floated a global tender for the sale
of the plant on "as is where is" basis, EGL made an offer of DM 26
million for the plant, but could not obtain clearance of Government of India for
payment within the stipulated period. The deal, therefore, fell through, The
Bank sold the plant to M/s. Teviot Investments Limited (TIL) On 24th March,
1987, EGL entered into a contract with TIL for purchase of the Direct Reduction
Iron Plant on certain terms and conditions. The entire agreement was subject to
two conditions –
of Government of India within 30th April, 1987
transfer of the operation licence from m/s.Midrex of Charlotte, USA.
contention before this Court, on behalf of the appellant, Collector of Customs,
has been that these clearly were the conditions which had to be fulfilled
before the sale could take place. As a matter of fact, EGL obtained transfer of
the operation licence from Midrex before proceeding with the dismantling of the
plant and exporting the plant in semi-knocked-down condition to India. On the other hand, it has been
contended on behalf of EGL that the overriding stipulation of obtaining
transfer of the operation licence from M/s.Midrex only kept an exit door open
for EGL to back out of the contract. If for any reason, Government of India did
not grant permission to go through the deal or the requisite licence from Midrex
could not be obtained, it would be permissible for EGL not to go ahead with the
contract. These two stipulations were not conditions of sale of the plant but
were overriding conditions attached to the contract to enable EGL to back out
of the contract in certain contingencies.
going into the merits of the rival contentions, it will be necessary to notice
the facts relating to import of the plant and also the three agreements. The
agreement between EGL and TIL was entered into on 24.3.1987. The agreement with
M/s.Voest Alpine AG (V.A.) and with Midrex International B.V. were both entered
into on 4th December, 1987. But the plant in semi-knocked-down condition was
imported only in September/October, 1988. The first bill of entry in respect of
468 packages was dated 29.9.1988 and the second bill of entry in respect of 317
packages was dated 11.10.1982. In other words, even though the agreement to
purchase the plant was formally executed by and between EGL and TIL on
24.3.1987, actual importation took place nearly 1 1/2 years thereafter and only
after the two agreements with V.A. and Midrex were signed on 4.4.1987. These
facts go to show that it was essential for EGL to have a licence from Midrex
for working of plant. Mr. Salve has argued that it may have been essential for
the EGL to have this licence in order to make the plant fully and effectively
operational but it was not a condition of sale of the plant. It was quite an
independent contract. From a plain reading of the agreement with TIL, it
appears that the overriding clause may have been inserted to protect EGL but
nonetheless it was a condition of sale. If this condition an was not fulfilled,
the sale would have fallen through. Moreover, it appears that the plant without
Midrex licence would have been of no value at all. EGL had purchased the plant
on "as is where is basis. But in order to operate the plant, it was
essential to have a licence from Midrex.
agreement with V.A. starts with the recital that- "EGL will set up at Hazira,
Gujarat, a gas based Direct Reduction (DR) Plant which is to be re-engineered for
a rated capacity of 8,80,000 tpy of Hot Briquetted Iron (HBI) and for this
purpose decided to buy the existing gas based DR plant of NOHDDEUTSCHE
FERROWERKE (MORD FERRD) located at Emden, West Germany, which had a rated
capacity of 8,00,000 tpy DRI under the prevailing operating conditions at Emden
based the Midrex Process and to incorporate Hot Discharge and Hot Briquetting
facilities." It was further recited in the agreement that the Collaborator
(V.A.) was holding construction licence and rights to use patents form Midrex
International B.V. for marketing, sale, design and construction of the Midrex
plants at Hazira, lndia.
agreements with V.A. and Midrex go to show that the plant located at Emden was described as a Midrex plant.
Its rated capacity was calculated under the prevalling operating conditions at Emden based on the Midrex process. V.A.
to incorporate Hot Discharge and Hot Briquetting facility and for this purpose
carried out refurbishing, replacement and modification of the plant. This would
enhance the usefulness and value of the plant. It was noted that EGL had
entered into an agreement with Midrex for the processing licence which was
annexed to the agreement with V.A, V.A, was holding construction licence and
the right to use patents from Midrex for marketing, sale, design and
construction of the Midrex plant at Hazira in India. V.A.
to render necessary engineering services and did whatever was needed for
incorporating Hot Discharge Briquetting facility and to make use of Midrex
construction and process licence for this purpose.
agreement with Midrex was annexed to the agreement with V.A. and it was time
and again emphasised in the agreement that the plant was a Midrex plant and the
various processes that had to be employed to make the plant operational in the
manner it was intended could be done only on the basis of Midrex process, It
was recited in the agreement that "the Collaborator (V.A.) is capable of
providing process know-how, engineering and construction of Midrex gas based DR
plants including Hot Discharge and Hot Briquetting facilities and has offered
to provide the services to Essar as stated hereinafter." In Article 3 of
the agreement under the heading "Midrex Process Licence and Technical
Services" it was provided that in addition to the services being provided
by V.A., Midrex will provide certain technical services to V.A, or to EGL in
connection with transfer of technology covered under the process licence
agreement attached to in Annexure 12 of the agreement. The services included:
engineering package for the hot discharge and hot briquetting system;
to Essar on optimum utilisation of iron oxide lump ore and iron oxide pellets;
information and documentation to allow Essar to implement improvements in plant
design and/or operating procedures which have been developed by Midrex or other
Midrex Process Licensees.
continuing information to Essar on operating results from other Midrex Plants
to assist Essar in optimizing plant operating efficiency including operating
reports, operation bulletins and operation seminars.
10 of the agreement is as under:
10: CONTRACT DHILL:-
consideration of fulfilment by Collaborator of its obligations under this
Agreement, Essar shall pay to COLLABORATOR as below:- SERVICES TO BE PROVIDED
DM (German Marks) licenseand and allied technical services 10.1.1Process licens
DM 2,000,000 fee payable to MIDREX Corporation for the right to use the Midrex
process and patents 10.1.1.2 Costof Technical DM 10,100,000 services provided
lump sum under Article 3 in connection with Midrex process Technical Services.
Payment for DM 23,100,000 engineering and lump sum consultancy fee as specified
under this agreement 10.1.2.2 Payment for DM 2,200,000 theoretical and lump Sum
practical training outside India Total ------------ DM 37,400,000 lump sum
------------- The agreement signed by EGL with Midrex International B.V.,
recorded that the licensee, EGL, had entered into an agreement for purchase of
a Midrex Direct Reduction Plant installed at Emden, West Germany and intended
to have the same dismantled, refurbished, adapted for production of Midrex Hot Briquetted
Iron (HBI) and re-installed in India.
licensee had approached Midrex for an appropriate process licence for the
operation of the plant utilising the Midrex Direct Reduction Process, and Midrex
desired to grant such licence to licensee upon the terms and conditions stated
in the agreement. It was further recorded that the licensee had entered into an
agreement dated 4th
December, 1987 with
V.A. and it was agreed that Midrex would render various services as mentioned
in the agreement, which would be annexed to the Collaboration Agreement with
clearly stated that the agreement with Midrex meant Process Licence Agreement
including all the appendices, attachments and amendments thereto". It was
further clarified that Midrex Direct Reduction Plant" shall mean any facility
for reducing iron oxides into Product or direct reduced iron (DRI) which had
been heretobefore, was being currently, or would be in the future constructed
or operated under a licence from Midrex. Midrex Direct Reduction Process"
was defined to mean the process used in the plant or other Midrex Plants for
the direct reduction of iron bearing oxide (including iron ore, iron oxide
pellets or other iron bearing materials it any form) in a shaft furnace to
produce Product or direct reduced iron (DRI) using a gaseous reductant
irrespective of the reductant source; the solids flow system beginning at the
iron oxide distribution system at the top of the shaft furnace and ending at
the Product discharge from the HBI quench system or the DRI discharge device at
the bottom of the shaft furnace and the gaseous flow system beginning at the
spent gas offtake of the shaft furnace, leading through the gas processing
system and ending at the reducing gas inlet of the shaft furnace.
was granted a licence to use the plant on the following terms:
of Licence (a) Subject to the provisions of this Agreement, Midrex grants and
agrees to grant to Licensee for the term of this Agreement:
The right to use all Patents and Confidential information the operation of the
The right to produce in the Plant and use and sell worldwide, Product produced
by the Plant or DRI which may be produced by the Plant from time to time.
Licensee should be free to sub- license the rights granted under the clause 2.1
of this Agreement to another Indian party should it become necessary. The terms
of such sub-licensing will, however, be as mutually agreed to by all the
parties concerned including Midrex and will be subject to the approval of
Government of India and Midrex.
agreements with Midrex and also V.A. bring out the real nature of the agreement
with TIL, which had been made subject to obtaining a licence from Midrex. This
agreement with V.A. recites that the plant, when it was bought, had a rated
capacity of 8,00,000 tpy DRI under the prevailing operating conditions based on
the Midrex Process. It was recited that the Collaborator (V.A ) was holding
construction licence and rights to use patents from Midrex for marketing, sale,
design and construction of the Midrex plants at Hazira, India. The services that were to be
rendered by V.A. would also include technical services in connection with the Midrex
Process and engineering services necessary for this purpose. The Collaborator
agreed use construction and process licence for this project at Hazira, India. It was recorded that EGL's contract with Midrex sad been
annexed to the contract with the Collaborator.
all these agreements together, it is not possible to uphold the contention of
Mr. Salve that the pre- condition of obtaining a licence from Midrex was not a
condition of sale, but a clause inserted to protect EGL.
a licence from Midrex, the plant would be of no use to EGL. That is why this
overriding clause was inserted.
overriding clause was clearly a condition of sale. It was essential for EGL to
have this licence from Midrex to operate this plant and use Midrex technology
for producing sponge iron in India.
Therefore, in our view, obtaining licence from Midrex was a pre-condition of sale.
In fact, as was recorded in the agreement, the sale of the plant had not taken
place even at the time when the contract with Midrex was being signed on
4.12.87, although the agreement with TIL for purchase of the plant was executed
on 24th March, 1987.
we are of the view that the Tribunal was in error in holding that the payments
to be made to Midrex by way of licence fees could not be added to the price
actually paid to TIL for purchase of the plant.
of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988
is to the following effect:- "9. Cost and services.-
determining the transaction value, there shall be added to the price actually
aid or payable for the for the imported goods,-
and licence fees related to the imported goods that the buyer is required to
pay, directly or indirectly, as a condition of the sale of the goods being
valued, to the extent that such royalties and fees are not included in the
price actually paid or payable;
value of any part of the proceeds of any subsequent resale, disposal or use of
the imported goods that accrues, directly or indirectly, to the seller:
other payments actually made or to be made as a condition of sale of the
imported goods. by the buyer to the seller, or by the buyer to a third party to
satisfy an obligation of the seller to the extent that such payments are not
included in the price actually paid or payable."
Tribunal has referred to the Interpretative Notes given in the Schedule by
which Rule 9 has been explained in the following words: - "Rule 9(1)(c)
royalties and licence fees referred to in rule 9(1)(c) may include among other
things payments in respect to patents, trademarks and copyrights. However, the
charges for the right to reproduce the imported goods in the country of
importation shall not be added to the price actually paid or payable for the
imported goods in determining the customs value.
Payments made by the buyer for the right to distribute or resell the imported
goods shall not be added to the price actually paid or payable for the imported
goods if such payments are not condition of the sale for export to the country
of importation of the imported goods." It is difficult to see how these
Interpretative Notes come to the aid of the importer in this case. Midrex has
granted licence to EGL not only for the right to produce in the Midrex Direct
Reduction Process Plant and sell the products produced by the plant worldwide,
but has also given the licensee (EGL) the right to use all patents,
confidential information for the operation of the plant.
has undertaken to supply all confidential information and patents updated from
time to time during the period of the agreement. Therefore, we are of the view
that licence fees Paid to Midrex will have to be added to the price of the
plant to arrive at the transaction value of the plant.
is another way of looking at the problem. Section 14 of the Customs Act
Valuation of goods for purposes of assessment.(1) For the purposes of the
Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in
force whereunder a duty of customs is chargeable on any goods by reference to
their value the value of such goods shall be deemed to be-
the price at which such or like goods are ordinarily sold, or offered for sale,
for delivery at the time and place of importation or exportation, as the case
may be, in the course of international trade, where the seller and the buyer
have no interest, in the business of each other and the price is the sole
consideration for the sale or offer for sale:
that such price shall be calculated with reference to the rate of exchange as
in force on the date on which a bill of entry is presented under Sec.46, or a
shipping bill or bill of export; as the case may be, is presented under Sec.50;
Where such price is not ascertainable, the nearest ascertainable equivalent
thereof determined in accordance with the rules made in this behalf.
Notwithstanding anything contained in sub-section (1), if the Central
Government is satisfied that it is necessary or expedient to do it may, by
notification in the official Gazette, fix tariff values for any class of
imported goods or export goods, having regard to the trend of value of such or
like goods and where any such tariff values are fixed, the duty shall be
chargeable with reference to such tariff value.
For the purposes of this section-
"rate of exchange" means the rate of exchange-
by the Central Government, or
in such manner as the Central Government may direct, for the conversion of
Indian currency into foreign currency or foreign currency into Indian currency;
"foreign currency" and Indian currency" have the meanings
respectively assigned to them in the Foreign Exchange Regulation Act, 1973 (46
entire purpose of Section 14 is to find out the value of the goods which are
being imported. The EGL in this case was purchasing a Midrex Reduction Plant in
order a produce sponge iron. In order to produce sponge iron it was essential
to have technical know-how from Midrex. It was also essential to have an
operating licence from them.
theses the plant would be of no value. That is why the pre-condition of a
process licence of Midrex was placed in the agreement with TIL. It will not be
proper to view that agreement with TIL in isolation in this case. The plant
would be of no value if it could not be made functional. EGL wanted to buy the
plant in working condition. This could only achieved by paying not only the
price of the plant, but also the fees for the licence and the technical
know-how for making the plant operational. Therefore, the value of the plant
will comprise of not only the price paid for the plant but also the price
payable for the operation licence and the technical know-how. Rule 9 should be
construed bearing this in mind.
Salve, appearing on behalf of the EGL has laid great stress on the various
clauses of the agreement between Essar and TIL to show that the title to the
plant had passed to the purchaser without any precondition after payment was
made in terms of clause 2 of the agreement. The delivery was also deemed to
have taken place at the time and on the date of payment in full, in accordance
with clause 2.
2 merely states that the purchaser shall purchase the property from the seller
at an inclusive purchase price of 26 million German Marks. 10 per cent of the
purchase price had to be paid within fifteen days of the declaration of the
buyer that the Government of India has given approval under clause 11 of the
agreement and the balance 20 per cent, within 60 days of the approval given by
the Government of India. There is no mention of the other condition in clause
11 that the agreement would be subject to "the purchaser obtaining the
transfer of the operation licence from Messrs Midrex of Charlotte, USA". It appears from the agreements with V.A. and Midrex that unless
and until the requisite licence and know-how was obtained from Midrex and also
V.A., it would be impossible to shift the plant from Emden, West Germany and install it at Hazira, India and produce sponge iron from that
plant. It appears that if Midrex did not grant operation licence for running
the plant, the usefulness and value of the plant will considerably diminish if
not evaporate altogether.
are also several curious aspects of the three agreements. The agreement with
TIL starts with a recital that "the Purchaser and Seller have today
respectively purchased and sold a Direct Reduction Iron Plant on the following
terms and conditions". This indicates that the purchase and sale of the
plant had place on 24.3.1987 fut in clause 2 it is stated that the Purchaser
shall purchase the Property from the Seller" at the stated price.
Thereafter, it is stated that the price shall become due and payable only after
the buyer declaring that the Government of India has given approval as per
clause 11 of the agreement. The delivery was also postponed till full payment
was made in accordance with clause 2. The risk of accidental destruction, loss
or damage to the property "shall devolve upon the Purchaser with the
expiry of the day following that upon which the plant is delivered...".
Clause 5 makes it clear that title to the property shall devolve upon the
purchaser after complete, unconditional and irrevocable payment of the purchase
these clauses go to show that though the agreement starts with the recital the
"the Purchaser and the Seller have today respectively purchased and sold a
Direct Reduction Iron Plane, on the following terms and conditions", but
as a matter of fact no sale had taken place on that date, i.e. 24.3.87. The
delivery was posted till full payment was made. The question of payment did not
arise till Government of India gave its approval to the agreement.
to the property would devolve upon the purchaser only after complete,
unconditional and irrevocable payment of the purchaser price. The risk of
destruction, loss or damage to the plant remain with the Seller till after the
date of delivery of the plant. Therefore title to the plant was not to pass to
the purchaser unless and until full payment was made. The entire contract was
subject to the condition of the purchaser obtaining the necessary licence from Midrex
to operate the plant. This clause may have been inserted to protect the
interest of the purchaser but it was pre-condition of sale of the plant.
the agreement with TIL does not describe the plant as Midrex Direct Reduction
Plant, the agreement with Midrex leaves no room for doubt that what the assessee
had purchased was a Midrex Direct Reduction Plant at Emden.
the plant was described in the agreement with TIL merely as a Direct Reduction
Plant end the name of Midrex was carefully kept out, the agreement with Midrex
cakes it abundantly clear the assessee had entered into an agreement to
purchase Midrex plant for which it was essential to have operational and Midrex
technology to make the plant functional. That is why the overriding clause of
having prior licence of Midrex was inserted in the purchase agreement with TIL.
Without this licence and various other technical information to be provided by Midrex,
it might not have been possible to operate the plant at all. It was only after
this agreement with Midrex t the purchase of the plant was completed. Bearing
in mind the terms and conditions of all the three agreements, we are of the
view that it was essential for EGL to have the Midrex licence to operate the
plant and the pre-condition imposed in clause 11 of the purchase agreement
about the operation licence from Midrex was to ensure that EGL got a plant
which could be made operational with Midrex technology.
the process licence fees of DM 2,000,000 was rightly added to the purchase
price by the Collector of Customs. The order of CEGAT on this question is set
second question relates to the cost of technical services in connection with
the Midrex Process provided under Article 3 of the agreement between Essar and
their Technical Collaborators M/s. Voest Alpine of Austria (V.A.). In order to
appreciate the scope of the controversy, it has to be remembered that an
agreement with V.A. was entered into on 4th December, 1987. On this very day, Essar entered
into another agreement with Midrex. In fact, the Midrex agreement was annexed
to the agreement of V.A. and was thereby made a part of the agreement with V.A.
two agreements have to be read together to find out the real intention of the
parties. Essar had purchased a Midrex Reduction Plant on "as is where
is" basis from TIL. It was recited in the agreement with V.A. that Essar
intended to set up at Hazira, Gujarat, a gas based Direct Reduction (DR) Plant
which was to be re-engineered for a rated capacity of 880,000 tpy of Hot Briquetted
Iron (HBI). For this purpose Essar decided to buy the existing gas based DR
Plant located at Emden, West Germany, which had a rated capacity of 800,000 tpy
DRI under the prevailing operating conditions at Emden based on the Midrex
Process and to incorporate Hot Discharge and Hot Briquetting facilities. V.A.
had inspected the Plant at Emdem and was satisfied as to the technical
suitability for dismantling of the plant and its recreation at Hazira after
necessary refurbishing, replacement and/or modifications. It was also recorded
in the agreement that Essar had entered into an agreement with Midrex for
process licence, which was annexed to the agareement and V.A. was holding
construction licence and rights to use patents from Midrex for marketing, sale,
design and construction of the Midrex Plants at Hazira, India.
it appears from the two agreements that the plant was a gas based Midrex Direct
Reduction Plant. Its rated capacity based on Midrex Process was 800,000 tpy.
had acquired the operating licence by virtue of an agreement with Midrex
International, which was annexed to the agreement with V.A. V.A. had a
construction licence and rights to use patents for marketing, sale, design and
construction of the Midrex Plants. One of the stated objects for appointing
V.A. to raise the existing rated capacity of plant of 800,000 tpy to 880,000 tpy
and also to incorporate Hot Discharge and Hot Briquetting facilities. The
agreement also recorded:- "WHEREAS Essar is desirous of engaging the
COLLABORATOR under this agreement for providing the services for the project,
as generally detailed below, together with such modifications and additions as
may be required and shall also include technical services in connection with
the Midrex Process and engineering services necessary for the incorporation of
Hot Discharge and Hot Briquetting facilities, Which are obviously and fairly
intended and which may not have been specifically referred to but are essential
for proper functioning of the plant and further shall be deemed to include and
cover but not limited to the following except for services specifically
Midrex construction and process licence for this project at Hazira, India.
basic engineering and re- engineering for re-location of the existing plant to Hazira,
India and basis and detailed engineering work for hot discharge and hot briquetting
facilities and also prepare necessary technical documents in Europe and
handover the same to the representative of Essar in Austria.
and Consultancy services and specialist supervision by equipment suppliers and
support services during the stay of COLLABORATOR/other specialists at Emden
such as accommodation logistic and transport. Any other technical assistance
needed by COLLABORATOR/Equipment Suppliers at Emden.
supervision of dismantling of the plant at Emden.
training engineers for training of ESSAR Personnel in a similar plant/training
and at equipment suppliers works.
of plant scale tests and preparation of the test report." Although Article
3 has been included in the agreement of Essar with V.A. it records that
"in addition to the services to be provided by Collaborator, the following
technical services will be provided by Midrex International B.V. to either
Collaborator or Essar. Under Article 3, the following services were to be
3 - MIDREX PROCESS LICENSE TECHNICAL SERVICE:
addition to the services to be provided by COLLABORATOR, the following
technical services will be provided by Midrex International B.V. to either
Collaborator or Essar in connection with the transfer of technology covered
under the Process License Agreement attached in Annexure XII to this
Basic engineering package for the hot discharge and hot briquetting system
including :- (a) Preparation of the Cere Plant Mass Balance for Gases and
Solids including preliminary water data for the Hot Briquetting System;
Development of the Basic Process and Instrument Diagrams for the Hot Briquetting,
Gas and Solid system.
Development of the guide drawing for furnace modification required for Hot
Development of the Overall general arrangement drawing for Hot Discharge
Furnace and Briquetting Facility.
Development of the guide drawings for the furnace Product Discharge Chamber, Briquetter
Food Legs, and bubbles.
Development of the guide drawings for the Bottom seal Gas System Scrubber and
Development of general arrangement drawings for the Briquetting System
including Brakers, Quench system, Hot Finers Recycle System, Dust Collection,
and Vapour Removal.
of duty specifications for the Briquetting System Equipment.
Preparation of duty specifications for the Bottom seal Gas system compressors,
Nitrogen Generator, and Bottom Seal Gas Dryer." Therefore, the payment of
DM 10,100,000 was being made for the transfer of technology under the Process Licence
Agreement entered into with Midrex. The service mentioned hereinabove are to be
part of Licencing. Agreement with Midrex. This agreement was a pre-requisite
for finalisation of the contract with TIL to purchase the plant at Emden. The licence
is not merely a permission to use the plant, but also to provide technical
know-how to make the plant functional and also to improve the capacity of the
plant by incorporating Hot Briquetting system. As all these services were to be
rendered under the Process Licence Agreement with Midrex, the amount payable to
Midrex as part of the Process Licence fee has to be included in the Value of
the plant. It has also to be borne in mind that the services were being rendered
in order to improved capacity of the plant by incorporating Hot Briquetting
as payment of DM 23,100,000 is concerned, this sum is to be paid for Technical
Services". A sum of DM 2.200,000 was payable for theoretical and practical
training. This sum cannot be added to the value of the plant in any way. The
sum of DM 23,100,000 payable for engineering and consultancy fee as specified
in the agreement includes services like basic engineering and re-engineering
for relocation of the existing plant at Hazira, India and basic engineering
package for Hot Discharge and Hot Briquetting System and preparation of
necessary technical documents and hand over the same to the representatives of Essar
in Austria. V.A. was also to provide specialist supervision of dismantling of
the plant at Emden and also supervision of the plant, preparation of test
report etc. Along with this, V.A. undertook to supply support services such as
accommodation, logistics and transport and any other technical assistance
needed by the collaborator and also training the engineers and personnel in
similar plant. It also agreed to render various services in India. The
technical services will cover, inter alia, - "2.3 Technical services
related to the relation of the plant from Emden to Hazira and simultaneously
considering the incoporation of Hot Discharge and Hot Briguetting facilities.
Assisting ESSAR in the arrangement of laboratory and plant scale tests on
Indian raw materials (terms and conditions for the plant scale test are to be
agreed directly between ESSAR and the owner of the plant where the test 's
intended to be carried out;
of the test and interpretation of the test results.
Auditing of all the documentation available at Emden to determine the nature and extent of missing
documents/information (if any) as described in Annexure I.
will mean, without exception, all the drawings, manuals. diagrams, calculations
and records, etc. available at Emden. ESSAR
will make available the documents to the extent available at Emden.
Assessment of Process Related Units and facilities (equipment, machinery,
piping instrumentation, electrics and control system related wear and spare
parts) as available at Emden, jointly with ESSAR AND MECON and confirm the
suitability of these facilities for refuse as such as evidenced at Emden or
alternatively establish the extent of revamping/replacement/debottle- becking
between dismantling and re-installation. Details of plant and equipment audit
are described in Annexure. II.
Engineering services for Process Related Units, For the Hazira DR Plant, the
basic process design parameters and ambient conditions will be different from
that originally applicable and used for the design of the modules at EMDEN. For electrical and instrumentation
equipments the basic concept of the control system of the existing DR plant
will be retained. The EMDEN Design Criteria and the Hazira Design Criteria are
stipulated in Annexure III of this Agreement.
will perform all process calculations on the basis of the design criteria
applicable, or Hazira and per-form the re- engineering work to the extent
required simultaneously considering the incorporation of Hot Discharge and Hot Briquetting
Prepare complete list of all new, missing equipment, machinery, electrics
instrumentation refractories, insulation, lubricants, chemicals, catalyst to be
procured modified, erected and commissioned as well as list of wear and spare
parts for the first two years of operation, all with engineering specifications
sufficient to enable ESSAR to arrange timely procurement.
will assist ESSAR in providing technical clarifications during evaluation and
negotiations with vendors.
Prepare a list of items requiring reconditioning, along with relevant
specifications for these items. Nature and extent of re-conditioning will also
be specified by COLLABORATOR which will be further discussed and agreed with
ESSAR and MECON in accordance with Art.3.3.2.
Establish jointly with ESSAR and MECON, a division list identifying those
equipments, machinery, material and parts which can be procured in India or
have to be imported. COLLABORATOR will provide a list of Vendors/manufacturers
for refurbishing or procurement of all import items and MECON will provide a
list of indigenous items.
Preparation and issue of new and re-engineered
drawings/documents/calculations/man uals for Process Related Units as necessary
with sufficient details to enable ESSAR to procure equipment, prepare
fabrication drawings and fabricate structures, erect, test, start up and
commission the Process Related Units. The details of such drawings and
documents are given in Annexure IV." There are various other clauses
relating to civil engineering technical specifications, documentation and also
inspection and check sizing of motors, reduction gear and hydraulics of Service
Units etc. It is difficult to hold that the entire payment of engineering
consultancy fee to V.A. will have to be added to the imported plants. But the
plant was sold on "as is where is basis. So whatever expenditure was
needed to be incurred for dismantling the plant and making it ready for
delivery has to be added to the value of the plant. The specialist supervision
for dismantling of the plant and also engineering and consultancy services for
this purpose will have to be added to the value of the imported plant. But this
apart, other services rendered cannot be treated as adding in any way to the
value of the plant. Since there is no clear indication as to how the various
services have been vaelued separately of the amount of DM 23,100,000 should be
added to the value of the plant on this account.
we are of the view that DM 2,000,000 being the process licence fee paid to Midrex
Corporation, DM 10,100,000 being the cost of technical services provided by Midrex
and a sum of DM 2,310,000 being payment on account of engineering and
consultancy fee payable to V.A., should be added to the value of the imported
appeals are disposed of as above. There will be no order as to costs.