Iron & Steel Company Ltd. Vs. Commissioner of Central Excise & Customs,
Bhubaneswar, Oris  INSC 70 (16 February 2000)
The Tata Iron & Steel Company Ltd. (TISCO, for short), the appellant before
us, has imported certain equipments and drawings and engineering documents from
Siderugia National of Portugal - a Government of Portugal Undertaking. It
appears that some time in the year 1981 Italimpianti, Genevo, Italy supplied
materials, designs and engineering drawings etc. to Siderugia National Portugal
(hereinafter SNP, for short) for setting up rolling mill project in Portugal.
The supplies consisted of equipments for blast furnace, LD converter, steel
plant bellet castors, wire rod mills, torpedo ladle cars etc.. However, before
the equipments could be installed, Portugal decided to join European Economic Community (EEC) consequent whereupon Portugal could not have expanded its steel
decided to cancel its investment plan and to sell the equipments and materials
which were lying unused from 1981 to 1986. On 14th April, 1988 a protocol was signed between the seller and purchaser
and TISCO) which inter alia stated that the total price will be price for the
equipment plus price for the engineering FOB Portugal-Lisbon port. The price
for the equipment with suitable sea-worthy packing to be provided by SNP will
be 13.5 million Deutsche Marks (DM) and the price for engineering will be 12.5
million Deutsche Marks. The protocol also provided that the equipment was being
sold without any operation on performance guarantees and in "as is where
is" condition. Subsequently on 11th October, 1989 three contracts were entered into
between the parties as under:-
Agreement for supply of technical documentation - called MD 301.
Agreement for sale of equipments and materials (part of equipments of a blast
furnace and three torpedo ladle cars) - called MD 302.
overall sale contract, being an umbrella contract, covering the abovesaid two
agreements for establishing contractual relationship and setting up conditions
both for sale of equipment and supply of technical documentation.
over-all sale contract recited an overall price of 26 million DM and its
break-up into two, namely, 12.5 million DM for technical documentation and
million DM for equipments and materials. The earlier two agreements recited the
considerations of 12.5 million DM and 13.5 million DM respectively.
the prices as recited in the protocol dated 14.4.88 remained unchanged.
appellant sought for registration of its contract MD 302 under Project Imports
Regulations, 1986 with the Customs House, Paradeep which was allowed entitling
it to avail the benefit of concessional rate of duty for project imports.
consignment consisting of technical documents, engineerings etc. covered by
contract MD 301 arrived at Calcutta and was
cleared by Calcutta Customs House in the months of April-May, 1990. The
consignment was claimed by the appellant to be classifiable under sub- Heading
No.4906.00 of the Customs Tariff Act, 1985 assessable to nil duty.
against the contract MD 302 the first consignment arrived at Port Paradeep and
was cleared under Bill of Entry dated 6.4.90. The value of the goods was shown
as D.M. 60,75,000 FOB. The goods were assessed provisionally and allowed
clearance on payment of duty on the declared value. The second consignment
under this contract also arrived at Paradeep port.
of Entry dated 7.7.90 was filed declaring the value to be 6,75,739 D.M.. In
between the department had gathered intelligence and formed an opinion that the
contract MD 302 registered under the Project Import Regulations was actually a
sub-contract of another contract of the same date and the value thereof was 26
MDM. The Assistant Collector of Customs, Paradeep, vide communication dated 7th
July, 1990, called upon the appellant to submit all the documents including the
correspondence with the foreign supplier, copy of the import licence etc.. The
appellant submitted the required documents including copy of the agreement MD
301. An exchange of correspondence between the Assistant Collector of Customs
and the appellant followed. On 16th July, 1990 the Assistant Collector of
Customs, Paradeep issued a show cause notice to the appellant calling upon it
to show cause why the sum of
MDM being the value of the goods covered by contract MD 301 should not be
included in determining the assessable value of the goods imported under the
contract MD 302 followed by other consequences flowing from under-valuation of
the goods imported. Vide order dated 10.8.90 the Assistant Collector permitted
clearance of the goods upon furnishing of bank guarantees of Rs.7,44,80,300/-
and extra duty deposit of Rs.2,82,01,636 as also payment of admitted customs
appellant filed a writ petition before the Orissa High Court challenging the
show cause notice and the demand raised by order dated 10.8.90. On 30.8.1990,
the Orissa High Court disposed of the writ petition directing the release of
the goods subject to furnishing a bank guarantee of Rs.8 crores and depositing
the extra duty reduced by 1 crore than that demanded, accompanied by payment of
admitted customs duty. The appellant complied with the order of the High Court
and got the goods cleared.
appellant also filed a reply to the show cause notice. Personal hearing was
given by the Assistant Collector. On 23.8.1993 the Commissioner of Customs and
Central Excise, Bhubaneswar issued a second show cause notice
to the appellant and two of its officers and also to the appellant's
engineering consultant. Replies were filed. On 30th April, 1996 the
Commissioner of Customs and Central Excise, Bhubaneswar passed an order assessing
the levy of customs duty at Rs.15,49,09,060/-.
penalty of Rs.5 crores was also imposed on the appellant under Section 112 of
the Customs Act.
were imposed on other noticees also.
appellant and other noticees preferred appeals before the Customs, Excise and
Gold (Control) Appellate Tribunal, Calcutta which have been disposed of by a common order. The Tribunal has held
that the three contracts entered into between the seller, i.e., SNP and the
appellant were in fact parts of one package, that is, the three constituted one
technical documentation supplied to the appellant could be divided into three
parts: (i) those pertaining to the imported equipment, (ii) those pertaining to
the equipment which was yet to be procured or manufactured by appellant, and
(iii) those relatable to post-import activities undertaken by the appellant for
assembly, construction, erection, operation and maintenance of the imported
equipment. The value of the contract to the extent of (i) above was liable to
be included in the value of equipments and materials imported by the appellant
though the value of the technical documents covered by (ii) and (iii) above
could have been excluded for payment of customs duty by reference to Interpretative
Note to Rule 4 of Customs Valuation Rules, 1988 (hereinafter Rules, for short).
However, since separate values have not been shown, the benefit of
Interpretative Note to Rule 4 abovesaid was not available to the appellant and
the entire value of the two contracts was liable to be clubbed together for the
purpose of levying customs duty.
will be useful to extract and reproduce verbatim a few findings from the order
of the tribunal as under :- "It is pertinent to mention, on first
appellant's own admission that where an item has been partly supplied and
partly not supplied by S.N., technical documents for the latter have been
supplied. These technical documents will serve the purpose for the whole items
as such, technical documents being common to an item. In this manner, the first
appellant has got technical documents for manufacture of substantial number of
import items. It is therefore obvious that the technical documents supplied to
the appellants pertain both to (i) the imported equipment and (ii) the
equipment which was yet to be procured or manufactured by the appellants. It
may also contain (iii) technical documents which are related to
post-importation activities undertaken by the appellants for assembly,
construction, erection, operation and maintenance of the imported equipment.
Value of two categories of documents at (ii) and (iii) above could be excluded,
had these values been separately shown in the contract, MD-301 or invoices.
separate values have not been shown, support from Interpretative Note to rule 4
of the Valuation Rule, proposed by the ld. Advocate Dr. Chakraborty cannot be
taken. Hence the entire value of 12.5 million DM of technical documentation
will have to be included in value (13.5 million DM) of the equipment of B.E.
and T.L.Cs." [Para 6.2.II] "Claim of the
appellant's Counsel that these are separate contract is not tenable. Article 2
relating to `Price" and Clause 1 thereof makes it abundantly clear that
"over-all price of the sale scope of the present contract is fixed and not
subject to any revision and amounts to DM-26 million" giving a break-up of
the same in 13.5 million and
million DMS. It is thus the over- all price of 26 million DM which is material
in the Contract. Article 3 makes it binding on both the contracting parties
that neither of them shall transfer totally or partially its contractual
position, either gratuitously or onerously, without previous written consent of
the other party. It is thus apparent that the appellants cannot back out of
contract for supply of technical documents, even if they wished, without the
written consent of the other party i.e.
Portugal. These facts brings out the element of compulsion in purchase of the
technical documents of whatever nature alongwith the purchase of equipments and
materials. That being the factual position, provisions of rule 9 (1)(e) of the
Valuation Rules 1988 come into play.
(e) of Sub-rule (1) of Rule 9 envisages addition of "all other payments
actually made or to be made as a condition of the sale of the imported goods,
by the buyer to the seller.........". Therefore, entire 26 million DM will
have to be taken as value of the equipments and materials." [Para 6.3.III] In spite of the findings as abovesaid
having been arrived at vide para 10.4, the Tribunal has stated that though in
its opinion the value of equipments would be entire contract price of 26
million DM as against 21.2747826086 million DM computed by the adjudicating
officer as detailed in Annexure 1 appended to his order, since only TISCO had
appealed to it and the Revenue had chosen not to file any appeal, the appellant
could not be put in a situation worse than if it had not filed an appeal and
therefore duty liability of the appellant shall have to remain confined to the
value of the equipment at 21.2747826086 million DM as found by the adjudicating
officer. The quantum of penalty imposed on the appellant was reduced by the
Tribunal from Rs.5 crores to Rs. 4 crores. The penalties on other noticees were
set aside. The appellant has come up to this Court by filing this appeal under
Section 130 E of the Customs Act, 1962.
have heard Shri Ashok Desai, the learned senior counsel for the appellant and Shri
Kirit Raval, the learned Additional Solicitor General for the respondents. We
are satisfied that the impugned order of the Tribunal cannot be sustained and
therefore has to be set aside followed by a remand so as to assess the value of
the goods liable to payment of customs duty and thereupon determine the quantum
of duty and penalty, if any, for the reasons stated hereinafter.
perusal of the order of the Tribunal shows that it has mainly proceeded on two
sets of reasoning for holding against the appellant. Firstly, the Tribunal has
examined the applicability of Rule 9(1)(b)(iv) and formed an opinion that
benefit thereof was not available to the appellant. By reference to the
Interpretative Note to Rule 4 it has held that to the extent the drawings and
technical documents were referable to the manufacture and sale of the imported
equipments, their value was liable to be included in the value of the
equipments and material imported and inasmuch as separate values thereof have
not been shown the entire value of 12.5 million DM of technical documentation
covered by contract DM 301 was liable to be included in the value of the
equipments. Secondly, the Tribunal has held the provisions of Rule 9(1)(e)
being attracted and coming into play for the purpose of determining the
valuation of the equipment and materials imported on the reasoning that the
drawings and engineerings were compulsorily purchasable by the appellant along
with the equipment and materials and hence the value of the two was liable to
be clubbed. Shri Ashok Desai, the learned senior counsel for the appellant has
vehemently attacked the correctness of the reasoning employed by the Tribunal
and has submitted that the Tribunal has gone totally amiss in interpreting the
rules and judging the case thereunder. It was submitted by Shri Ashok Desai
that the interpretation as placed on the rules by the Tribunal is not correct.
We will presently test the correctness of the contention so advanced.
12 of the Customs Act is the charging section. Section 14 provides for the duty
of customs being chargeable on any goods by reference to their value. In
exercise of the powers conferred by Section 156 of the Customs Act, 1962 the
Central Government has framed Customs Valuation (Determination of Price of
Imported Goods) Rules, 1988. Clause (f) of Rule 2 defines "transaction
value" to mean the value determined in accordance with Rule 4. Under Rule
3 either the value of imported goods shall be the transaction value or if it
cannot be determined then the same shall be determined by proceeding
sequentially through Rules 5 to
Rule 4 provides that the transaction value of imported goods shall be the price
actually paid or payable for the goods when sold for export to India adjusted in accordance with the
provisions of Rule 9.
Rule 9, the value or price of certain cost and services is liable to be added
to the transaction value while determining the value of the imported goods.
9, insofar as relevant and to the extent referred to by the Tribunal is
extracted and reproduced hereunder:-
Cost and services. (1) In determining the transaction value, there shall be
added to the price actually paid or payable for the imported goods, - xxx xxx xxx
(b) the value, apportioned as appropriate, of the following goods and services
where supplied directly or indirectly by the buyer free of charge or at reduced
cost for use in connection with the production and sale for export of imported
goods, to the extent that such value has not been included in the price
actually paid or payable, namely:- (i) materials, components, parts and similar
used in the production of the imported goods;
dies, moulds and similar items used in the production of the imported goods;
(iii) materials consumed in the production of the imported goods;
engineering, development, art work, design work, and plans and sketches
undertaken elsewhere than in India and necessary for the production of the
imported goods; xxx xxx xxx (e) all 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.
xxx (3) Additions to the price actually paid or payable shall be made under
this rule on the basis of objective and quantifiable data.
addition shall be made to the price actually paid or payable in determining the
value of the imported goods except as provided for in this rule. [emphasis
supplied] Reference has also been made by the Tribunal to the Interpretative
Notes. Rule 12 provides that the Interpretative Notes specified in the Schedule
to these rules shall apply for the interpretation of these rules.
to Rule 4 reads as under:- "Note to Rule 4 Price actually paid or payable
The price actually paid or payable is the total payment made or to be made by
the buyer to or for the benefit of the seller for the imported goods. The
payment need not necessarily take the form of a transfer of money.
may be made by way of letters of credit or negotiable instruments. Payment may
be made directly or indirectly. An example of an indirect payment would be the
settlement by the buyer, whether in whole or in part, of a debt owed by the
undertaken by the buyer on his own account, other than those for which an
adjustment is provided in Rule 9, are not considered to be an indirect payment
to the seller, even though they might be regarded as of benefit to the seller.
The costs of such activities shall not, therefore, be added to the price actually
paid or payable in determining the value of imported goods.
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 :
Charges for construction, erection, assembly, maintenance or technical
assistance, undertaken after importation on imported goods such as industrial
plant, machinery or equipment;
The cost of transport after importation;
Duties and taxes in India.
price actually paid or payable refers to the price for the imported goods. Thus
the flow of dividents or other payments from the buyer to the seller that do
not relate to the imported goods are not part of the customs value.
supplied] A bare reading of Rule 9(1)(b) shows that it refers to the value of
the four specified goods and services supplied by the buyer free of charge or
at a reduced cost for use in connection with the production and sale of
imported goods to the seller and to the extent that such value has not been
included in the price actually paid or payable. To illustrate, the seller may
have manufactured equipments of a design, drawings whereof were made available
by the buyer say by engaging an independent expert agency in the country of the
seller. Although the seller has not incurred any expenditure on the
technical/engineering design of the equipment manufactured by it yet the price
paid for securing the engineering designs and drawings will be a component of
the value of the equipment manufactured.
spite of the price for the services rendered by the expert agency having been
paid by the buyer, the value thereof is liable to be added to the value of the
imported goods for determining the transaction value.
case at hand it is nobody's case that the buyer had supplied any goods or
services free of charge or at reduced cost for use in connection with the
production and sale for export of imported goods. All the exercise done by the
Tribunal in scrutinising the documents forming subject matter of contract DM
301 so as to classify them into three categories stated earlier in this
judgment was therefore uncalled for. SNP had purchased the entire steel plant
equipment from an Italian supplier more than six years before the transaction
in question had taken place with the appellant. Such documents must have
accompanied the equipments and materials made available to SNP by the Italian
supplier of SNP. It cannot be comprehended and certainly it is not the case of
the Revenue that the technical documents were supplied or made available by the
Italian supplier to SNP either free of charge at the instance of the appellant
or cost thereof was incurred wholly or partially by the appellant.
(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;
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.
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 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.
as Interpretative Note to Rule 4 is concerned it is no doubt true that the
Interpretative Notes are part of the Rules and hence statutory.
the question is one of their applicability.
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) and (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.
(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.
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.
charges were covered by a separate contract, i.e.
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. The Tribunal has not
doubted the genuineness of the contracts entered into between the appellant and
SNP. Rather it has observed vide para 10.2 of its order that entering into two
contracts (MD 301 and MD 302) was a legal necessity. The Tribunal has also
stated that it was not recording any finding of `skewed split up'. Shri Ashok
Desai, the learned senior counsel for the appellant has pointed out that under
Chapter Heading 49.06 of the Customs Tariff Act, 1975 plans and drawings for
engineering and industrial purposes being originals drawn by hand as also their
photographic reproductions on sentisized papers and carbon copies thereof are
declared free from payment of customs duty. Sub-rules (3) and (4) of Rule 9
clearly provide that additions to the price actually paid or payable is
permissible under the Rules if based on objective and quantifiable data and no addition
except as provided for by Rule 9 is permissible.
reasons demolish the edifice on which the order of the Tribunal is based.
However, still the only thing that remains to be considered is whether there
has been under valuation of blast furnace equipment covered by the contract MD
302. It is a pure and simple case of finding out `the price actually paid or
payable for the goods' - the phrase as occuring in Rules 2(f), 4 and 9, so as
to find out the transaction value and levy duty thereon under Sections 12 and
14 of the Customs Act. One of the allegations made in the show cause notice
given to the appellant was of the blast furnace equipments(BFE) having been
undervalued by transferring a part of the value of the equipments to the value
of engineering documents and drawings. In substance the show cause notice
alleged the blast furnace equipment having been under valued by artificially
excluding therefrom the value of technical documents. According to the Revenue
such documents are even otherwise and in ordinary course supplied by the seller
to the buyer. Because of the absence of such documents the goods sold being
equipments would be of no use at all but the appellant had so manipulated the
single transaction by bifurcating the single content into two documents so as
to under value the blast furnace equipments by transferring a part of the value
of such equipments to the value of engineering documents and drawings. The gist
of the allegation is under valuation of blast furnace equipment. Shri Kirit Raval,
the learned Additional Solicitor General has submitted that from the stage of
the show cause notice till before the Tribunal the Revenue has kept its plea
7 of its order the Tribunal noted this plea of the Revenue but did not go into
it as the Tribunal considered it not necessary in view of other findings
arrived at. The learned Additional Solicitor General submitted that if this
Court may not sustain the order of the Tribunal then in all fairness the
Revenue should be allowed an opportunity of substantiating its plea of under valuation
followed by such other relief to which it may be entitled in the event of its
succeeding on its plea. We find merit in this submission. In our opinion on the
order of the Tribunal being set aside the matter needs to be sent back to the
Tribunal for examining on merits the abovesaid plea of the Revenue which was
refused to be gone into earlier on account of its having been found to be
appeal is allowed. The impugned order of the Tribunal is set aside. The case is
sent back to the Tribunal to entertain and examine the plea of the Revenue if
the contract DM 302 is undervalued on the basis of the material already
available on record.
Tribunal shall consistently with the observations made and findings recorded in
this judgment hear and dispose of the appeal before it within a period of six
months from the date of communication of this order. The bank guarantee
furnished by the appellant shall be kept alive and the amount deposited shall
also continue to remain in deposit till the date of decision by the Tribunal whereafter
the bank guarantee and the deposit shall be dealt with consistently with the
order of the Tribunal.
we have set aside the order of the Tribunal and made a remand we would like to
clarify a few points.
from the appellant, two officers of the company namely Dr.J.J. Irani and Shri
S.L. Shrivastava and an engineering consultant of the appellant, namely, M/s
M.M. Dastur & Co. were also proceeded against and penalties were imposed on
them. They were exonerated by the Tribunal. The Revenue has not come up in
appeal against the order of the Tribunal exonerating the abovesaid three. This
order of remand would not reopen the proceedings against those three. Similarly,
the Tribunal has held that the duty liability of the appellant in spite of a
finding of under valuation could not be re-determined by pegging the value of
the equipment at an amount over and above 21.2747826086 million DM as this was
the figure found by the adjudicating officer and not challenged by the Revenue.
amount of penalty levied on the appellant was reduced by the Tribunal to Rs.4 crores
which too has not been challenged by the Revenue. On hearing the case after
remand if the plea of the Revenue may find favour with the Tribunal, the
dutiable value of the equipment and materials shall not exceed 21.2747826086
million DM and the amount of penalty shall not exceed Rs.4 crores.
Desai, the learned senior counsel for the appellant submitted that the Tribunal
has also held, vide para 9 of its order, that the liability of the goods to
confiscation did not arise and that part of the order should also be held to
have achieved a finality.
this submission we do not agree. If the Tribunal may find the equipments
forming the subject matter of contract DM 302 to be under valued the legal
consequences flowing from such finding may follow.
appeal stands disposed of accordingly. No order as to the costs.