M/S
Associated Cement Companies Ltd. Vs. Commissioner of Customs [2001] Insc 40 (25 January 2001)
K.G.Balakrishna,
Doraswami Raju Kirpal, J.
Appeal (civil) 1021 of 2000 Appeal (civil) 1023 of 2000
Appeal (civil) 1027 of 2000 Appeal (civil) 1028 of 2000 Appeal (civil) 1029 of
2000 Appeal (civil) 1030 of 2000 Appeal (civil) 1031 of 2000 Appeal (civil)
1032 of 2000 Appeal (civil) 1033 of 2000 Appeal (civil) 1423 of 2000 Appeal
(civil) 1493 of 2000 Appeal (civil) 1494 of 2000 Appeal (civil) 3250-3251 of
2000 Appeal (civil) 3632 of 2000
1033,
1423, 1493, 1494, 3250-3251 and 3632 of 2000
L.J
These
appeals have been filed against the common order dated 15th November, 1999 of
the Customs, Excise and Gold (Control) Appellate Tribunal which, while
confirming the order of the Commissioner of Customs held that drawings, designs
etc. relating to machinery or industrial technology were goods which were leviable
to duty of customs on their transaction value at the time of their import. As
principal arguments on behalf of the appellants were addressed in the case of
M/s Hotel Leela Ventures Limited by Mr. Ashok H. Desai, learned senior counsel,
for the sake of convenience we will refer to the relevant facts in that case in
greater detail.
Leela
Ventures are engaged in the business of setting up, operating and maintaining
Hotels and Resorts. For designing the Hotels and Resorts, it engaged a foreign
company M/s Wimberly Allison Tong & Goo, USA (WAT for short) for providing
architectural services including design development drawings. Leela Ventures
had entered into four agreements with the said foreign company in respect of
four different ventures in India. Apart
from preparing the designs and drawings the scope of work under the said
agreements included site visits and on site consultations with architects.
Leela
Ventures paid WAT under the said agreements for the services rendered and the
amount was remitted through bank by following the procedure of remittance under
Form A-2 prescribed by the Reserve Bank of India which form is meant for foreign exchange remittances, other than for
import of foreign goods, pursuant to the permission given by the Reserve Bank.
In
terms of the said agreements entered into with WAT, the appellants received
drawings and diskettes through couriers during the period 30th October, 1995 and 12th May, 1996. The drawings so received were part of technical
collaboration and/or technical know-how and were accompanied by an airway bill
and an invoice issued by the consignor.
The
courier, in all the cases, declared the drawings with various descriptions such
as drawings, architectural designs etc. The value of these drawings and designs
was declared at a nominal value of one dollar. According to Leela Ventures one
dollar was the correct value because drawings by themselves have no value,
since if the drawings are lost they could be replaced and the loss would merely
be of the cost of paper. The value declared by the courier was bonafide and was
based on the invoice carried by it. As per the appellants, the declaration by
the courier was in accordance with the accepted practice at that time. At the
time of the imports these designs and the diskettes were cleared at the nominal
value declared.
The
other appellants in these appeals are also public corporations engaged in the
manufacture of excisable goods.
Like Leela
Ventures the other appellants also entered into technical collaboration with
leading manufacturers in their own fields abroad. The agreements provided for
exchange of technology in the form of supply of know-how, drawings and designs
on media training by personnel staff and similar other activities. As a part of
fulfillment of the contracts, the contracting parties abroad, from time to
time, sent drawings, designs etc. In the case of M/s Videocon these drawings
etc. were imported by hand through one Mr. Kato. In all other cases the
drawings etc. were imported through Professional Courier or by post parcels.
In
each case only a nominal value was declared at the time of its importation.
According
to the respondents, intelligence gathered by the Directorate of Revenue
Intelligence and Special Valuation Branch, Bombay revealed that the appellants had imported drawings, designs and plans
through couriers on remitting the consideration for the same but these had been
cleared without proper declaration and without payment of correct amount of
duty. In view of the omission on the part of the appellants to declare the
correct transaction value, show-cause notices under Section 28(1) read with
Section 24 of the Customs Act, 1962 were issued asking the appellants as to why
(a)
the sum remitted or declared during investigation as consideration for
drawings, designs and plans supplied by their collaborators should not be taken
as transaction value under Section 14 of the Customs Act read with the Customs
Valuation Rules, 1988 as the basis for assessment of goods to customs duty;
(b)
Customs duty should not be demanded under the provisions to Section 28 (1) of the
Customs Act, 1962 and the amount deposited towards customs duty should not be
adjusted against the duty demanded;
(c)
The goods, i.e., drawings, designs and plans should not be held liable to
confiscation under Section 111(m) of the Customs Act, 1962; and
(d)
Penalty should not be imposed under Section 112 (a) and 114A of the Customs
Act, 1962.
In the
case of Leela Ventures the show-cause notice dated 21st January, 1998/18th
February 1998 valued the drawings and designs at Rs. 2,66,87,100/- being the transaction
value and on that value the amount demanded under Section 28(1) of the said Act
was Rs. 26,68,310/-.
In
response to the show-cause notice, the appellants sent their replies, inter-alia,
submitting that what was imported were not goods and there could be no excise
duty on services since the remittances were in Form A-2 and tax at source under
the Income-Tax Act was paid in respect of the said contracts. It was also the
case of the appellants that the demand was barred by limitation since there was
no suppression or wilful mis- statement as the appellants bonafide believed
that no customs duty was payable in the case of contracted services represented
by drawings, designs, etc. which were imported.
After
giving an opportunity of representation being filed and hearing the learned
counsel the Commissioner passed a consolidated order dated 26th March, 1999. The Commissioner demanded duty and
imposed penalty. The appellants then filed appeal before the Tribunal but
without success. During the course of pendency of the appeal barring three all
other importers voluntarily deposited the duty as per the classification then
suggested.
In
these appeals, the learned counsel for the appellants urged four contentions
which had been unsuccessfully raised before the Tribunal. These contentions
were
(i)
Excise duty cannot be levied on the value of ideas as they are not goods;
(ii)
Even if what was imported were goods, the valuation of the same has to be
nominal;
(iii) the
show-cause notices which were issued were barred by time inasmuch as the
extended period of limitation of five years would not be available on the facts
of the present case;
(iv) the
imports through the courier could not be governed by heading No. 98.03 of the
Customs Tariff Act.
The
learned Additional Solicitor General, in his able manner, supported the
Tribunals decision. Whether drawings, diskettes, manual etc. imported are goods
on@@ JJJJJJJJJJJJJJ which excise duty could be levied.@@
JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ The learned counsel submitted that in all
these cases the transactions between the appellants and the foreign
collaborators were for transfer of technology. The knowledge or know-how which
is supplied, though valuable, was intangible. The media is only the vehicle of
transmission and is only incidental to the main transaction, even if Government
authorities regard this to be a contract for services and not for sale of
goods. In support of this, reliance was placed on the fact that the Reserve
Bank of India had required application for
remission of foreign exchange on Form - A2 which is meant for foreign exchange
remittance otherwise than for import of goods. On the remittances so made the
appellants had deducted the income-tax at source. It was contended that if it
was a case of sale of goods to the appellants then the question of deducting
any income tax and paying the same would not have arisen and, on the contrary,
the amount of excise duty which would have been payable would have been less
than the income tax which was deducted.
In the
alternative it was contended that even if the transactions are composite the
court has to determine whether these relate to contract for service or goods.
In this connection, it was submitted that when price is paid for photograph,
the payment is not for paper which is developed but is for the skill of the
photographer and the price of developing. Contract for architectural services
was stated to be like a contract by a solicitor to give a legal opinion or for
a doctor to give a medical diagnosis since the essence of the contract is the experts
skill.
The
learned counsel contended that the transaction between the appellants and their
respective foreign collaborators was one for transfer of technology. This
knowledge or know-how though valuable was intangible. The technology when
transmitted to India on some media does not get
converted from an intangible thing to tangible thing or chattel. Media is only
vehicle for transmission and is wholly incidental to the main transaction. By
way of analogy it was submitted that legal opinions or judgments of Courts when
communicated on legal briefs or as certified copies do not constitute transfer
of goods by the counsel to his clients or by a Court to a litigant. Reliance
was placed on the decision of U.S. 9th Circuit
Court of Appeals in Wilhelm Winter; Cynthia Zheng vs. G.P.Putnams Sons, 938
F.2nd 1033 (9th Cir. 1991). In that case, the plaintiffs had bought an encyclopaedia
on mushroom, a book published by the defendants. On the basis of the
information contained therein the plaintiffs became severely ill from cooking
and eating mushrooms after relying on the information obtained from the said encyclopaedia.
The plaintiffs sued the publishers and sought damages based on products
liability, breach of warranty etc. The trial Court held that the information
contained in a book is not a product for the purposes of strict liability under
products liability law. Affirming the trial Court, the Circuit Court of appeals
came to the conclusion that the products liability law reflects its focus on
tangible items and does not take into consideration the unique characteristics
of ideas and expressions. In other words, the quality of information contained
in a book would not be regarded as a product for the purposes of product liability
law. This would not detract from the fact that the encyclopaedia of mushroom
would be regarded as goods containing information supplied by the author and
published by the defendants. As we shall presently see this case can be of
little assistance for deciding the point in issue.
Before
we deal with the aforesaid contentions raised on behalf of the appellants, it
is appropriate to first consider the relevant provisions applicable in the
present case. Section 2(22) of the Customs Act contains the definition of the
word goods which is as follows:
(a) vessels,
aircrafts and vehicles;
(b) stores;
(c) baggage;
(d) currency
and negotiable instruments; and
(e) any
other kind of movable property;
Section
156 of the Customs Act gives the Central Govt. power to make rules consistent
with the Act and sub-section 2(a) thereof enables the framing of rules to
provide for the manner of determining the price of imported goods under
sub-section (1A) of Section 14. In exercise of the powers conferred by the
aforesaid Section 156 of the Customs Act, the Central Govt. has framed Customs
Valuation (Determination of Price of Imported Goods) Rules, 1988. For the
purpose of this case, two Rules which are important are Rules 3 and 4 which
read as follows:
3.
Determination of the method of valuation.- For the purpose of these rules,- (i)
the value of imported goods shall be the transaction value; (ii) if the value
cannot be determined under the provisions of clause (i) above, the value shall
be determined by proceeding sequentially through Rules 5 to 8 of these rules.
4.
Transaction value.- (1) 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 of these rules.
(2)
The transaction value of imported goods under sub-rule (1) above shall be
accepted:
Provided
that- (a) there are no restrictions as to the disposition or use of the goods
by the buyer other than restrictions which-
(i) are
imposed or required by law or by the public authorities in India; or
(ii) limit
the geographical area in which the goods may be resold; or
(iii)
do not substantially affect the value of the goods;
(b) the
sale or price is not subject to same condition or consideration for which a
value cannot be determined in respect of the goods being valued;
(c) no
part of the proceeds of any subsequent resale, disposal or use of the goods by
the buyer will accrue directly or indirectly to the seller, unless an
appropriate adjustment can be made in accordance with the provisions of Rule 9
of these rules; and
(d) the
buyer and seller are not related, or where the buyer and seller are related,
that transaction value is acceptable for customs purposes under the provisions
of sub-rule (3) below.
(3) (a)
Where the buyer and seller are related, the transaction value shall be accepted
provided that the examination of the circumstances of the sale of the imported
goods indicate that the relationship did not influence the price. (b) In a sale
between related persons, the transaction value shall be accepted, whenever the
importer demonstrates that the declared value of the goods being valued,
closely approximates to one of the following values ascertained at or about the
same time-
(i) the
transaction value of identical goods, or of similar goods, in sales to
unrelated buyers in India;
(ii) the
deductive value for identical goods or similar goods;
(iii) the
computed value for identical goods or similar goods. Provided that in applying
the values used for comparison, due account shall be taken of demonstrated
difference in commercial levels, quantity levels, adjustments in accordance
with the provisions of Rule 9 of these rules and cost incurred by the seller in
sales in which he and the buyer are not related;
(c) substitute
values shall not be established under the provisions of clause (b) of this
sub-rule.
Rule
10 provides for declaration by the importer and is as follows: 10. Declaration
by the importer.- (1) The importer or his agent shall furnish (a) a declaration
disclosing full and accurate details relating to the value of imported goods;
and (b) any other statement, information or document including an invoice of
the manufacturer or producer of the imported goods where the goods are imported
from or through a person other than the manufacturer or producer, as considered
necessary by the proper officer for determination of the value of imported
goods under these rules.
(2)
Nothing contained in these rules shall be construed as restricting or calling
into question the right of the proper officer of customs to satisfy himself as
to the truth or accuracy of any statement, information, document or declaration
presented for valuation purposes.
(3)
The provisions of the Customs Act, 1962 (52 of 1962) relating to confiscation,
penalty and prosecution shall apply to cases where wrong declaration,
information, statement or documents are furnished under these rules.
Section
2 of the Customs Tariff Act provides for the rates at which the customs duty is
levied under the Customs Act, 1962. As specified in First and the Second
Schedule, Chapter 98 inter alia applies to passengers baggage and heading No.
98.03 states that on all dutiable articles, imported by a passenger or a member
of a crew in his baggage, customs duty will be paid at the standard rate of
duty of 150%.
Reliance
was placed by Mr. Desai on a number of decisions of this Court, relating to
levy of sales tax, in support of his contention that in contract by supply of
services there is no sale of goods and, as such, no customs duty could be
imposed on the intellectual property which was obtained. We will first refer to
the decisions so cited.
This
Court in The Assistant Sales Tax Officer and Others vs. B.C. Kame, Proprietor Kame
Photo Studio (1977) 1 SCC 634 was called upon to decide the question that when
a photographer undertakes a photograph and thereafter supplies prints to his
clients whether it could be said that he had entered into a contract for sale
of goods. The question which this Court posed was whether the contract is a
contract of work and labour or a contract for sale. It held that a contract for
sale is one whose main object is the transfer of property in, and the delivery
of the possession of, a chattel as a chattel to the buyer where, however, the
principle object of work undertaken by the payee of the price is not the
transfer of a chattel qua chattel, the contract is one of work and labour.
After referring to the earlier decisions of this Court in the case of State of Himachal Pradesh vs. Associated Hotels of India Ltd.
(1972) 29 STC 474 and the State of Madras vs. Gannon Dunkerley & Co.
(Madras) Ltd. (1958) 9 STC 353, in which case the Constitution Bench had held
that in a building contract the property materials do not pass to the other
party as in a contract for sale of movable property, it was concluded that when
a photographer takes a photograph, develops the negative or does some other
photographic work and thereafter supplies the prints to his clients then it
could not be said that he had entered into a contract for sale of goods. The
question of levy of sales-tax, therefore, did not arise.
In
Kames case (supra) reference was made to the decision of Robinson vs. Graves
(1935) KB 579 where it was held that a contract by an artist to paint a
portrait of a lady was a contract for work and labour and not for the sale of
goods as the substance of the contract was that skill and labour should be
exercised upon the production of the portrait and that it was only ancillary to
the contract that there would pass from the artist to his customer some
material. In Robinsons case an earlier decision of Lee vs. Griffin (1861) 1 B & S 272 was
attempted to be distinguished. Lee vs. Griffin was a case where the plaintiff had contracted to make a set of
artificial denture to fit them into his patients mouth. The patient died after
the denture was made without having accepted the denture though he had an
opportunity of doing so. The plaintiff sued executor for the goods bargained
and sold.
It was
held in that case that wherever a contract is entered into for the manufacture
of chattel there the subject-matter of the contract is a sale and delivery of
the chattel.
Blackburn
J, specifically observed as follows: If the contract be such that, when carried
out, it would result in the sale of a chattel, the party cannot sue for work
and labour but, if the result of the contract is that they party has done work
and labour which ends in nothing that become the subject of a sale, the party
cannot sue for goods sold and delivered. The case of an attorney employed to
prepare a deed is an illustration of this latter proposition, it cannot be said
that the paper and ink he uses in the preparation of the deed are goods sold
and delivered I do not think that the test to apply these cases is whether the
value of the work exceeds that of the material used in its execution for, if a
sculptor were employed to execute a work of art, greatly as his skill and labour,
supposing it to be of the highest description, might exceed the value of the
marble in which he worked, the contract would in my opinion nevertheless be a
contract for the sale of chattel.
Referring
to the case of Robinson vs. Graves and Lee vs. Griffin in Contract for Sale of
Goods, Benjamins Third Edition states at pages 39- 40 as follows: In Robinson
v. Graves however, the Court of Appeal reintroduced, purportedly as a
qualification to this rule, what is in effect the criterion of relative
importance as between work and materials which had been rejected in Lee v.
Griffin, although the court professed to be considering what was the substance
of the contract rather than the more substantial component in the product
ultimately delivered. In Robinson v. Graves, Greer L.J. said: If you find that the substance of the contract was
the production of something to be sold... then that is a sale of goods. But if
the substance of the contract, on the other hand, is that skill and labour have
to be exercised for the production of the article and that it is only ancillary
to that that there will pass from the artist to his client or customer some
materials in addition to the skill involved in the production of the portrait,
that does not make any difference to the result, because the substance of the
contract is the skill and experience of the artist in producing the picture.
This statement, with respect, overlooks the fact that what passes to the client
is not the materials but the finished picture, of which both the work and the
materials are components. Lee v. Griffin and Robinson vs. Graves cannot be reconciled: the reasoning
in each case could have been applied to the facts of the other.
It has
yet to be appreciated that a decision of this problem can be reached only by
adopting one or the other of these equally arbitrary rules. (Emphasis added)
The test laid down in Lee vs. Griffin had
been preferred by the Australian Courts. In Deta Nominees Pty. Ltd. vs. Viscount
Plastic Products Pty. Ltd. 1979 VR 167 the Supreme Court of Victoria, Australia
described Robinson vs. Graves as a hard case and rejected its
test as illogical and unsatisfactory wrong in principle and too erratic to be
useful.
The
principle enunciated in Kames case was followed by this Court in State of Tamil Nadu vs. Anandam Viswanathan (1989) 1
SCC 613. In this case, this Court held that a contract for printing of question
paper for educational institutions constituted a works contract and, therefore,
exempted from tax. In Everest Copiers vs. State of Tamil Nadu (1996) 5 SCC 390
in respect of the Assessment Year 1978-79, this Court has held that making photostat
copies on paper with xerox machine and delivering the same to the customer for
payment was a contract for work or service and not a contract of sale. The
transfer of paper was only incidental and hence such transaction was not exigible
to sales tax.
In
Hindustan Shipyard Ltd. vs. State of A.P. (2000) 6 SCC 579, this Court was
called upon to decide whether the transaction of building of a ship after an
order had been placed amounted to sale as defined under the A.P. General Sales
Tax Act or was it a works contract. While coming to the conclusion that the
transaction in question had amounted to a sale this Court observed that in
order to decide whether such a transaction is a contract of sale or contract for
works or service the same had to be culled out from the term of the contract.
All
the aforesaid decisions related to the period prior to the Forty- sixth
Amendment of the Constitution when Article 366 (29A) was inserted. At that time
in the case of a works contract it was held that the same could not be split
and State Legislature had no legislative right to seek to levy sales tax on a
transaction which was not a sale of M.P. and Others (2000) 2 SCC 385 was,
however, a case relating to the definition of the word sale in the M.P. General
Sales Tax Act, 1958 after its amendment consequent to the insertion of Article
366 (29A). The question there was whether the job rendered by a photographer in
taking photographs, developing and printing films would amount to works
contract for the purpose of levy of sales tax. This Court held that the work
done by the photographer was only a service contract and there was no element
of sale involved.
After
referring to earlier decisions of this Court, it was observed at page 391 as
follows:
15.
Thus, it is clear that unless there is sale and purchase of goods, either in
fact or deemed, and which sale is primarily intended and not incidental to the
contract, the State cannot impose sales tax on a works contract simpliciter in
the guise of the expanded definition found in Article 366(29-A)(b) read with
Section 2(n) of the State Act. On facts as we have noticed that the work done
by the photographer which as held by this Court in Kame case is only in the
nature of a service contract not involving any sale of goods, we are of the
opinion that the stand taken by the respondent State cannot be sustained.
Even
though in our opinion the decisions relating to levy of sales tax would have,
for reasons to which we shall presently mention, no application to the case of
levy of customs duty, the decision in Rainbow Colour Lab case (supra) requires
consideration. As a result of the Forty- sixth Amendment, sub-article 29A of
Article 366 was inserted as a result whereof tax on the sale or purchase of
goods was to include a tax on the transfer of property in goods (whether as
goods or in some other form) involved in the execution of a works contract.
Taking note of this amendment this Court in Rainbow Colour Lab at page 388-389
observed as follows:
11.
Prior to the amendment of Article 366, in view of the judgment of this Court in
State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. the States could not levy sales tax on sale of goods
involved in a works contract because the contract was indivisible. All that has
happened in law after the 46th Amendment and the judgment of this Court in
Builders case is that it is now open to the States to divide the works contract
into two separate contracts by a legal fiction:
(i) contract
for sale of goods involved in the said works contract, and
(ii) for
supply of labour and service.
This
division of contract under the amended law can be made only if the works
contract involved a dominant intention to transfer the property in goods and
not in contracts where the transfer in property takes place as an incident of
contract of service. The amendment, referred to above, has not empowered the
State to indulge in a microscopic division of contracts involving the value of
materials used incidentally in such contracts. What is pertinent to ascertain
in this connection is what was the dominant intention of the contract. Every
contract, be it a service contract or otherwise, may involve the use of some
material or the other in execution of the said contract.
The
State is not empowered by the amended law to impose sales tax on such
incidental materials used in such contracts In arriving at the aforesaid
conclusion the Court referred to the decision of this Court in Hindustan
Aeronautics Ltd. vs. State of Karnataka (1984) 1 SCC 706 and Everest Copier
(supra). But both these cases related to pre-Forty-sixth Amendment era where in
a works contract the State had no jurisdiction to bifurcate the contract and
impose sales tax on the transfer of property in goods involved in the execution
of a works contract. The Forty-sixth Amendment was made precisely with a view
to empower the State to bifurcate the contract and to levy sales tax on the
value of the material involved in the execution of the works contract,
notwithstanding that the value may represent a small percentage of the amount
paid for the execution of the works contract. Even if the dominant intention of
the contract is the rendering of a service, which will amount to a works
contract, after the Forty-sixth Amendment the State would now be empowered to
levy sales tax on the material used in such contract. The conclusion arrived at
in Rainbow Colour Lab case, in our opinion, runs counter to the express
provision contained in Article 366 (29A) as also of the Constitution Bench
decision of this Court in Builders Association of India and Others vs. Union of
India and Others (1989) 2 SCC 645.
According
to Section 12 of the Customs Act, duty is payable on goods imported into India. The word goods has been defined in
Section 2(22) of the Customs Act and it includes in sub-clause (c) baggage and
sub-clause (e) any other kind of movable property. It is clear from mere
reading of the said provision that any immovable article brought into India by a passenger as part of his
baggage can make him liable to pay customs duty as per the Customs Tariff Act.
An item which does not fall within sub-clauses (a), (b), (c) or (d) of Section
2(22) will be regarded as coming under Section 2(22) (e). Even though the
definition of the goods purports to be an exclusive one, in effect it is so
worded that all tangible movable articles will be the goods for the purposes of
the Act by residuary clause 2(22) (e). Whether movable article comes as a part
of a baggage, or is imported into the country by any other manner, for the
purpose of the Customs Act, the provision of Section 12 would be attracted. Any
media whether in the form of books or computer disks or cassettes which contain
information technology or ideas would necessarily be regarded as goods under
the aforesaid provisions of the Customs Act. These items are moveable goods and
would be covered by Section 2(22)(e) of the Customs Act.
The
rate at which the customs duty is to be imposed has to be such as may be
specified in the Customs Tariff Act. This is stipulated by Section 12 of the
Customs Act.
Thus
the two Acts have to be read in conjunction with each other.
Section
2 of the Tariff Act states that the rate at which duties of customs shall be
levied under the Customs Act are specified in the First and Second Schedule to
the said Act. Chapter 49 of the First Schedule relates to printed books,
newspapers, pictures and other products of the printing industry; manuscripts,
typescripts and plans.
Note 2
in Chapter 49 states that the term printed also means reproduced by means of a
duplicating machine, produced under the control of a computer, embossed,
photographed, photocopied, thermocopied or typewritten. Heading 49.05 pertains
to maps and hydrographic or similar charts of all kinds, including atlases,
wall maps, topographic plans and globes. Heading No. 49.06 specifies plans and
drawings for architectural, engineering, industrial, commercial, topographical
or similar purposes, being originals drawn by hand; handwritten texts;
photographic reproductions on sensitised paper and carbon copies of the
foregoing. The residuary heading No. 49.11 reads as follows:
Other
printed matter, including printed pictures and photographs Rate of duty
Standard Preferential Areas 4911.10 Trade advertising 25% material, commercial
catalogues and the like - Other:
4911.91
Pictures, designs 25% and photographs 4911.99 Other 25% Drawings, plans,
manuals etc. specified in Chapter 49 of the Tariff Act are thus statutorily
regarded as goods attracting a specified rate of customs duty on their import
into India. There is no challenge to any of
the statutory provisions and reading the two Acts together there can be no
manner of doubt that what has been imported into India by the appellants, through the courier or otherwise, from
their technical collaborators were goods even though the tangible articles so
imported contained information or knowledge for use by the appellants.
In
view of the clear provisions of the Customs Act and the Tariff Act, which have
been referred to herein above, whenever any goods or moveables or tangible
articles are imported into this country customs duty is payable. For the
purpose of attracting levy it would be immaterial as to what are the types of
goods imported or what is contained in them or recorded thereon. The contents
will be relevant for the purpose of valuation. Therefore the decisions of this
Court relating to the levy of sales tax in cases of works contracts will have
no application here. In the sales tax cases referred to hereinabove no doubt the
question which arose was whether, in a works contract, where there was a supply
of materials and services in a indivisible contract, but there the question had
arisen because the States power prior to the Forty-sixth Amendment to the
Constitution, were not entitled to bifurcate or split up the contract for the
purpose of levying sales tax on the element of moveable goods involved in the
contract. Apart from the decision in Rainbow Colour Labs case, which does not
appear to be correct, the other decisions cited related to pre-Forty-sixth
Amendment period. Furthermore the provisions of the Customs Act and the Tariff
Act are clear and unambiguous. Any moveable articles, irrespective of what they
may be or may contain would be goods as defined in Section 2(22) of the Customs
Act. It is true that what the appellants had wanted was technical advice or
information technology. Payment was to be made for this intangible asset. But
the moment the information or advice is put on a media, whether paper or
diskettes or any other thing, that what is supplied becomes chattel. It is in
respect of the drawings, designs etc. which are received that payment is made
to the foreign collaborators. It is these papers or diskettes etc. containing
the technological advice, which are paid for and used. The foreign
collaborators part with them in lieu of money. It is, therefore, sold by them
as chattel for use by the Indian importer. The drawings, designs, manuals etc.
so received are goods on which customs duty could be levied. The decision of Winter
vs. Putnams case (supra) is also of no help to the appellants as in that case,
it was the quality of information regarding mushrooms which was not regarded as
a product event though the encyclopaedia containing the information was
regarded as goods. Here we are not concerned with the quality of information
given to the appellants. The question is whether the papers or diskettes etc.
containing advice and/or information are goods for the purpose of Customs Act.
The
answer, in our view, is in the affirmative. With regard to the submission on
behalf of the appellants that the contracts in these cases were for services
and it is on that basis that permission from Reserve Bank of India was obtained for release of foreign
exchange. The submission of Mr. Rohatgi, in reply, was that the Reserve Bank
does not adjudicate on the question whether the technical material being
imported are goods or not for the purpose of imposition of customs duty. We
agree with this submission.
The
appellants had represented to the Reserve Bank that the collaborators were
rendering service and on this representation remittances were allowed. The
Reserve Bank must have examined the applications from the point of view of
release of foreign exchange. It was not an adjudicating authority under the
Customs Act. Had there been any doubt about the question whether what was
imported were goods or not then, perhaps, the grant of permission to remit
money for services rendered and payment of taxes in respect thereof may have
been relevant. But here, on the examination of the law applicable to the levy
of customs duty the position is free from any ambiguity. As has already been
observed hereinabove the drawings, designs, manuals etc. imported through
couriers were goods on which customs duty was payable. The action of the
Reserve Bank cannot result in negating the statutory provisions of the Customs
Act and the Tariff Act applicable in the instant cases. The belief of the
appellants that what was imported were not goods, as the Reserve Bank had also
regarded the payment was being made for services and not goods, was clearly
erroneous and misplaced.
Re:
Valuation In support of the contention that even if what was imported were
goods on which customs duty was payable the value thereof should be nominal, it
was contended that the levy could only be on the media on which transfer was
made and not on the whole of the intellectual content. While referring to
Builders Association of India case (supra) it was submitted that there this
Court had held that in the case of works contract levy of sales tax was
permitted only on that component of the works contract which was relatable to
goods. Similarly, in the case of M/s Gannon Dunkerley and Co. and Others vs.
State of Rajasthan and Others (1993) 1 SCC 364 it was held that tax on sale of
goods in works contract was based upon the value of goods as they relate to the
entire project and charges for planning, designing and architect fee could be
excluded. It was, therefore, argued that in the present cases only the media on
which the know-how was transmitted could be subjected to duty and its value was
only nominal.
In the
case of Hotel Leela Ventures the Commissioner had taken the whole of the value
of the contract for the purpose of levy of duty while in the case of Sterlite
Industries, as also in some other cases, an adhoc percentage of about one-third
of the total contract value was taken as the basis for levy of the tax. At the
time of importation the couriers had, however, given the value of dollar one in
respect of the media on which the information was stored.
Section
14 of the Customs Act deals with valuation of goods for purposes of assessment.
The said section is as follows:
14.
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:
Provided
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 section 46, or
a shipping bill or bill of export, as the case may be, is presented under
section 50;
(1A)
Subject to the provisions of sub-section (1), the price referred to in that
sub-section in respect of imported goods shall be determined in accordance with
the rules made in this behalf.
(2)
Notwithstanding anything contained in sub-section (1) [or sub-section (1A)], if
the Central Government is satisfied that it is necessary or expedient so 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.
(3)
For the purposes of this section (a) rate of exchange means the rate of
exchange (i) determined by the Central Government, or (ii) ascertained in such
manner as the Central Government may direct, for the conversion of Indian
currency into foreign currency or foreign currency into Indian currency;
(b) foreign
currency and Indian currency have the meanings respectively assigned to them in
the Foreign Exchange Regulation Act, 1973 (46 of 1973)."
In
exercise of this power under the Customs Act, the Central Government
promulgated Customs Valuation (Determination of Price of Imported Goods) Rules,
1988.
Three
Rules which are relevant are Rules 3,4 and 9. While Rules 3 and 4 have been
quoted hereinabove Rule 9 reads as follows:
9.
Cost and services.-
(1) In
determining the transaction value, there shall be added to the price actually
paid or payable for the imported goods,-
(a)
the following cost and services, to the extent they are incurred by the buyer
but are not included in the price actually paid or payable for the imported
goods, namely:-
(i) commissions
and brokerage, except buying commissions;
(ii) the
cost of containers which are treated as being one for customs purposes with the
goods in question;
(iii) the
cost of packing whether for labour or materials;
(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 items incorporated in the imported goods;
(ii) tools,
dies, moulds and similar items used in the production of the imported goods;
(iii) materials
consumed in the production of the imported goods;
(iv) engineering,
development, art work, design work, and plans and sketches undertaken elsewhere
than in India and necessary for the production of the imported goods;
(c) royalties
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.
(d)
The 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;
(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.
(2)
For the purposes of sub-section (1) and sub-section (1A) of Section 14 of the
Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods
shall be the value of such goods, for delivery at the time and place of
importation and shall include- (a) the cost of transport of the imported goods
to the place of importation;
(b)
loading, unloading and handling charges associated with the delivery of the
imported goods at the place of importation; and (c) the cost of insurance:
Provided that (i) where the cost of transport referred to in clause (a) is not
ascertainable, such cost shall be twenty per cent of the free on board value of
the goods; (ii) the charges referred to in clause (b) shall be one per cent of
the free on board value of the goods plus the cost of transport referred to in
clause (a) plus the cost of insurance referred to in clause (c); (iii) where
the cost referred to in clause (c) is not ascertainable, such cost shall be
1.125% of free on board value of the goods;
Provided
further that in the case of goods imported by air, where the cost referred to
in clause (a) is ascertainable, such cost shall not exceed twenty per cent of
free on board value of the goods :
Provided
also that where the free on board value of the goods is not ascertainable, the
costs referred to in clause (a) shall be twenty per cent of the free on board
value of the goods plus cost of insurance for clause (i) above and the cost
referred to in clause (c) shall be 1.125% of the free on board value of the
goods plus cost of transport for clause (iii) above.
(3)
Additions to the price actually paid or payable shall be made under this rule
on the basis of objective and quantifiable data.
(4) No
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.
As is
evident from the perusal of the aforesaid provisions, namely, Sections 12 and
14 of the Customs Act and Rules 3,4 and 9 the value of the goods which are
imported is deemed to be the price at which they are ordinarily sold.
Sub-section (1A) provides that the price referred to in sub- section (1) of
Section 14 shall be determined in accordance with the rules made in this
behalf.
As per
Rules 3 and 4 the transaction value of the imported goods, subject to
adjustment under Rule 9, is to be the price actually paid or payable for the
goods when sold for export to India. Rule 9
(1) (b) (iv) is important for that shows that engineering, development,
artwork, design work and plans and sketches would form part of the price of
goods for the purpose of determining its value for levy of duty.
In
this connection, it will be useful to refer to the following passage from a
decision of this Court in the case of Collector of Customs (Prev.), Ahmedabad
vs. Essar Gujarat Ltd. 1996 (88) E.L.T. 609 (S.C.) at page 616 para 17:
The
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 to 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.
Without
these, 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 be 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. added) (Emphasis
Significantly Chapter 49 also includes items which have substantial
intellectual value as opposed to the value of the paper on which it is put.
Newspapers, periodicals, journals, dictionaries etc. are to be found in Chapter
49 wherein maps, plans and other similar items are also included, while Chapter
97 talks about original engravings.
It is
clear that intellectual property when put on a media would be regarded as an
article on the total value of which customs duty is payable.
To put
it differently, the legislative intent can easily be gathered by reference to
the Customs Valuation Rules and the specific entries in the Customs Tariff Act.
The
value of an encyclopaedia or a dictionary or a magazine is not only the value
of the paper. The value of the paper is in fact negligible as compared to the
value or price of an encyclopaedia. Therefore, the intellectual input in such
items greatly enhance the value of the papers and ink in the aforesaid
examples. This means that the charge of a duty is on the final product whether
it be the encyclopaedia or the engineering or architectural drawings or any
manual.
Similar
would be the position in the case of a programme of any kind loaded on a disc
or a floppy. For example in the case of music the value of a popular music
cassette is several times more than the value of the blank cassette. However,
if a pre-recorded music cassette or a popular film or a musical score is
imported into India duty will necessarily have to be charged on the value of the
final product. In this behalf we may note that in State Bank of India vs.
Collector of Customs, Bombay 2000 (1) Scale 72, the Bank had, under an
agreement with the foreign company, imported a computer software and manuals,
the total value of which was US $ 4,084,475. The bank filed an application for
refund of customs duty on the ground that the basic cost of software was US $
401.047. While the rest of the amount of US $ 3,683,428 was payable only as a licence
fee for its right to use the software for the bank countrywide. The claim for
the refund of the customs duty paid on the aforesaid amount of US $ 3,683,428
was not accepted by this Court as in its opinion, on a correct interpretation
of Section 14 read with the rules, duty was payable on the transaction value
determined therein and as per Rule 9 in determining the transaction value there
has to be added to the price actually paid or payable for the imported goods,
royalties and the licence fee for which the buyer is required to pay, directly
or indirectly as a condition of sale of goods to the extent that such royalties
and fees are not included in the price actually paid or payable. This clearly
goes to show that when technical material is supplied whether in the form of
drawings or manuals the same are goods liable to customs duty on the
transaction value in respect thereof.
It is
misconception to contend that what is being taxed is intellectual input. What
is being taxed under the Customs Act read with Customs Tariff Act and the
Customs Valuation Rules is not the input alone but goods whose value has been
enhanced by the said inputs. The final product at the time of import is either
the magazine or the encyclopaedia or the engineering drawings as the case may
be. There is no scope for splitting the engineering drawing or the encyclopaedia
into intellectual input on the one hand and the paper on which it is scribed on
the other. For example, paintings are also to be taxed. Valuable paintings are
worth millions. A painting or a portrait may be specially commissioned or an
article may be tailor made.
This
aspect is irrelevant since what is taxed is the final product as defined and it
will be an absurdity to contend that the value for the purposes of duty ought
to be the cost of the canvas and the oil paint even though the composite
product, i.e., the painting is worth millions.
It
will be appropriate to note that the Customs Valuation Rules, 1988 are framed
keeping in view the GATT protocol and the WTO agreement. In fact our Rules
appear to be an exact copy of the GATT and WTO. For the purpose of valuation
under the 1988 Rules the concept of transaction value which was introduced was
based on the aforesaid GATT protocol and WTO agreement. The shift from the
concept of price of goods, as was classically understood, is clearly
discernible in the new principles. Transaction value may be entirely different
from the classic concept of price of goods. Full meaning has to be given to the
rules and the transaction value may include many items which may not classically
have been understood to be part of the sale price.
The
concept that it is only chattel sold as chattel, which can be regarded as goods
has no role to play in the present statutory scheme as we have already observed
that the words goods as defined under the Customs Act has an inclusive
definition taking within its ambit an immovable property. The list of goods as
prescribed by the law are different items mentioned in various chapters under
the Customs Tariff Act, 1997 or 1999. Some of these items are clearly items
containing intellectual property like designs, plans etc.
In the
case of St Albans City and District Council vs. International Computers Ltd.
(1996) 4 All ER 481 Sir Iain Glidewell in relation to whether computer programme
on a disc would be regarded as goods observed at page 493 as follows:
Suppose
I buy an instruction manual on the maintenance and repair of a particular make
of car. The instructions are wrong in an important respect. Anybody who follows
them is likely to cause serious damage to the engine of his car. In my view,
the instructions are an integral part of the manual. The manual including the
instructions, whether in a book or a video cassette, would in my opinion be
goods within the meaning of the 1979 Act, and the defective instructions would
result in a breach of the implied terms in s 14.
If
this is correct, I can see no logical reason why it should not also be correct
in relation to a computer disk onto which a program designed and intended to
instruct or enable a computer to achieve particular functions has been encoded.
If the disk is sold or hired by the computer manufacturer, but the program is
defective, in my opinion there would be prima facie be a breach of the terms as
to quality and fitness for purpose implied by the 1979 Act or the 1982 Act.
The
above view, in our view, appears to be logical and also in consonance with the
Customs Act. Similarly in Advent Systems Limited vs. UNISYS Corporation 925 F
2d 670 (3d Cir 1991) it was contended before the Court in United States that
software referred to in the agreement between the parties was a product and not
a good but intellectual property outside the ambit of Uniform Commercial Code.
In the said Code, goods were defined as all things (including specially
manufactured goods) which are moveable at the time of the identification for
sale.
Holding
that computer software was a good the court held as follows:
Computer
programs are the product of an intellectual process, but once implanted in a
medium are widely distributed to computer owners. An analogy can be drawn to a
compact disc recording of an orchestral rendition. The music is produced by the
artistry of musicians and in itself is not a good, but when transferred to a
laser-readable disc becomes a readily merchantable commodity. Similarly, when a
professor delivers a lecture, it is not a good, but, when transcribed as a
book, it becomes a good.
That a
computer program may be copyrightable as intellectual property does not alter
the fact that once in the form of a floppy disc or other medium, the program is
tangible, moveable and available in the marketplace. The fact that some
programs may be tailored for specific purposes need not alter their status as
goods because the Code definition includes specially manufactured goods.
We are
in agreement with the aforesaid observations and hold that the value of the
goods imported would depend upon the quality of the same and would be
represented by the transaction value in respect of the goods imported.
It
would not be correct, as was done in Leela Ventures case, to take the entire
contract value as being the value of the imported goods. What is the
transaction value in respect thereof has to be ascertained. In most of the
other cases this has been done by adopting about one-third of the contract
value as being the transaction value of the imported goods for the purpose of
levy of customs duty.
In Leela
Ventures case the Commissioner must re-determine the transaction value of the
drawings etc. imported keeping in view the terms of the agreements and then
impose the levy.
Re:
Limitation:
The
next submission on behalf of the appellants was that in the case of short levy
or non-levy of duty the normal period for issuing a notice seeking to realise
the difference in the duty levied and imposable is that of six months. This
period is extendable to five years only if the proviso to Section 28 (1) can be
validly invoked. It was the case of the appellants that there was never an
intention on their part to evade duty. Agreements entered into with foreign
collaborators had been disclosed to the Government of India who had approved
the remittances as fees for technical services rendered. Payments had been made
as directed by the Reserve Bank of India by resorting to Form A-2 and deducting
tax at source on the remittances so made.
Service
tax which was payable was also deposited and this clearly shows that the
appellants bonafide believed that the value of the drawings and other technical
material imported was only nominal.
While
relying on various decisions of this Court, it was submitted that the proviso
to Section 28 (1) of the Customs Act can only apply if there is a positive
inaction or deliberate attempt to mislead the revenue. On the facts of the
present case, it was submitted that none of the ingredients of the proviso
would enable the enlargement of the limitation from six months to five years
was present.
Our
attention was drawn to the cases of Collector of Central Excise, Hyderabad vs.
M/s Chemphar Drugs and Liniments, Hyderabad (1989) 2 SCC 127 , Cosmic Dye
Chemical vs. Collector of Central Excise, Bombay (1995) 6 SCC 117, M/s Padmini
Products vs. Collector of Central Excise, Bangalore (1989) 4 SCC 275, Tamil Nadu
Housing Board vs. Collector of Central Excise, Madras and Another 1995 Supp (1)
SCC 50 and Collector of Central Excise vs. H.M.M. Limited 1995 (76) ELT 497. In
all these cases the Court was concerned with the applicability of the proviso
to Section 11-A of the Central Excise Act which, like in the case of Customs
Act, contemplated the increase in period of limitation for issuing a show-
cause notice in the case of non-levy or short-levy to five years from a normal
period of six months.
The
said Section 11A along with the proviso reads as under:
Section
11A. Recovery of duties not levied or not paid or short-levied or short-paid or
erroneously refunded.- (1) When any duty of excise has not been levied or paid
or has been short-levied or short-paid or erroneously refunded, a Central
Excise Officer may, within six months from the relevant date, serve notice on
the person chargeable with the duty which has not been levied or paid or which
has been short-levied or short-paid or to whom the refund has erroneously been
made, requiring him to show cause why he should not pay the amount specified in
the notice:
Provided
that where any duty of excise has not been levied or paid or has been
short-levied or short-paid or erroneously refunded by reason of fraud,
collusion or any wilful mis-statement or suppression of facts, or contravention
of any of the provisions of this Act or of the rules made thereunder with
intent to evade payment of duty, by such person or his agent, the provisions of
this sub-section shall have effect, as if, for the words six months, the words
five years were substituted.
Explanation.- Where the service of the notice
is stayed by an order of a court, the period of such stay shall be excluded in
computing the aforesaid period of six months or five years, as the case may be.
(2)
The Central Excise Officer shall, after considering the representation, if any
, made by the person on whom notice is served under sub-section (1), determine
the amount of duty of excise due from such person (not being in excess of the
amount specified in the notice) and thereupon such person shall pay the amount
so determined.
(3)
For the purposes of this section,-
(i) refund
includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in
the manufacture of goods which are exported out of India;
(ii) relevant
date means,-
(a) in
the case of excisable goods on which duty of excise has not been levied or paid
or has been short-levied or short-paid
(A)
where under the rules made under this Act a periodical return, showing
particulars of the duty paid on the excisable goods removed during the period
to which the said return relates, is to be filed by a manufacturer or a
producer or a licensee of a warehouse, as the case may be, the date on which
such return is so filed;
(B) where
no periodical return as aforesaid is filed, the last date on which such return
is to be filed under the said rules;
(C) in
any other case, the date on which the duty is to be paid under this Act or the
rules made thereunder;
(b) in
a case where duty of excise is provisionally assessed under this Act or the
rules made thereunder, the date of adjustment of duty after the final
assessment thereof;
(c) in
the case of excisable goods on which duty of excise has been erroneously
refunded, the date of such refund.
While
interpreting the said provision in each of the aforesaid cases, it was observed
by this Court that for proviso to Section 11A can be invoked, the intention to
evade payment of duty must be shown. This has been clearly brought out in
Cosmic Dye Chemical case (supra) where the Tribunal had held that so far as
fraud, suppression or mis-statement of facts was concerned the question of
intent was immaterial. While dis- agreeing with the aforesaid interpretation
this Court at page 119 observed as follows:
6. Now
so far as fraud and collusion are concerned, it is evident that the requisite
intent, i.e., intent to evade duty is built into these very words. So far as
misstatement or suppression of facts are concerned, they are clearly qualified
by the word wilful preceding the words misstatement or suppression of facts
which means with intent to evade duty. The next set of words contravention of
any of the provisions of this Act or rules are again qualified by the
immediately following words with intent to evade payment of duty. It is,
therefore, not correct to say that there can be a suppression or misstatement
of fact, which is not wilful and yet constitutes a permissible ground for the
purpose of the proviso to Section 11-A.
Misstatement
or suppression of fact must be wilful.
The
aforesaid observations show that the words with intent to evade payment of duty
were of utmost relevance while construing the earlier expression regarding the mis-statement
or suppression of facts contained in the proviso. Reading the proviso as a
whole the Court held that intent to evade duty was essentially before the
proviso could be invoked.
Though
it was sought to be contended that Section 28 of the Customs Act is in pari materia
with Section 11A of the Excise Act, we find there is one material difference in
the language of the two provisions and that is the words with intent to evade
payment of duty occurring in proviso to Section 11A of the Excise Act are
missing in Section 28 (1) of the Customs Act and the proviso in particular. The
said sub-section 28(1) of the Customs Act reads as follows:-
28.
Notice for payment of duties, interest etc.-
(1)
When any duty has not been levied or has been short-levied or erroneously
refunded, or when any interest payable has not been paid, part paid or
erroneously refunded, the proper officer may,-
(a) in
the case of any import made by any individual for his personal use or by
Government or by any educational, research or charitable institution or
hospital, within one year;
(b) in
any other case, within six months, from the relevant date, serve notice on the
person chargeable with the duty or interest which has not been levied or
charged or which has been so short-levied or part paid or to whom the refund
has erroneously been made, requiring him to show cause why he should not pay
the amount specified in the notice.
Provided
that where any duty has not been levied or has been short- levied or the
interest has not been charged or has been part paid or the duty or interest has
been erroneously refunded by reason of collusion or any wilful mis-statement or
suppression of facts by the importer or the exporter or the agent or employee
of the importer or exporter, the provisions of this sub-section shall have
effect as if for the words one year and six months, the words five years were substituted.
Explanation.- Where the service of the notice
is stayed by an order of a court, the period of such stay shall be excluded in
computing the aforesaid period of one year or six months or five years, as the
case may be.
The
proviso to Section 28 can inter alia be invoked when any duty has not been
levied or has been short-levied by reason of collusion or any wilful mis-statement
or suppression of facts by the importer or the exporter, his agent or employee.
Even if both the expressions mis- statement and suppression of facts are to be
qualified by the word wilful, as was done in the Cosmic Dye Chemical case while
construing the proviso to Section 11A, the making of such a wilful mis-statement
or suppression of facts would attract the provisions of Section 28 of the
Customs Act. In each of these appeals it will have to be seen as a fact whether
there has been a non-levy or short-levy and whether that has been by reason of
collusion or any wilful mis-statement or suppression of facts by the importer
or his agent or employee.
In the
present cases, the technical literature, drawings, manuals etc. were imported
through courier and in one case through Mr. Kato. In each of these cases it is
only a nominal value which was disclosed at the time of importation. All this
technical literature, drawings etc.were brought and cleared as personal
baggage. In our opinion, to examine whether the proviso to Section 28A (1) was
validly invoked it is necessary to see the provisions relating to the clearance
of the personal baggage.
Chapter
XI contains special provisions regarding baggage, goods imported or exported by
post, and stores.
Section
77 of the Customs Act provides that the owner of any baggage shall, for the
purpose of clearing it, make a declaration of its contents to the proper
officer. Section 81 enables the Central Board of Excise and Customs to make
regulations in respect of baggage and the said Section 81 reads as follows:
Section
81. Regulations in respect of baggage.- The Board may make regulations,
(a) providing
for the manner of declaring the contents of any baggage;
(b) providing
for the custody, examination, assessment to duty and clearance of baggage;
(c) providing
for the transit or transhipment of baggage from one customs station to another
or to a place outside India.
Under
Rule 10 of the Customs Valuation (Determination of Price of Imported Goods)
Rules 1988, the importers are required to furnish, inter alia, a declaration
disclosing full and accurate details relating to the value of the imported goods
and any other statement, any information or document etc. as considered
necessary for determination of the value of imported goods.
Under
the said Section baggage declaration forms have been prescribed which inter alia
require the owner of the baggage to disclose the description of the goods as
well as the value in respect thereof. It is as owner of the baggage containing
the drawings and other technical literature and manual etc. that the couriers
cleared the goods. They may not be the owners of the drawings etc. but for the
purpose of clearance of the baggage, containing the said articles, the courier
was the owner of the baggage. The Tribunal has held, and in our opinion
correctly, that the sender as well as the receiver were aware of the value of the
goods. The courier acted as the conduit or the agent and would only have
declared such value in respect of the goods imported as must have been
instructed by the sender and or receiver.
The
declaration by the courier of the value of the drawings in the Leela Ventures
case and other technical material in the case of other appellants must have
been done by the courier either at the behest of the sender or the receiver or
at his own behest. In either case the declaration of the value of the drawings
as being very nominal was clearly a mis-statement or a mis-representation of
facts. According to the baggage declaration forms it is for the passenger to
give value of the goods being brought in by him. When the value of the goods
which were dutiable in the present cases was shown as only nominal, while in
actual fact the correct value was much more, there was clearly an attempt on
the part of the passenger, namely, the courier, to have the goods cleared
through customs authorities by grossly undervaluing the value thereof. The
courier gave a specific value of one dollar in respect of the drawings when
both the sender and the appellants knew fully well as to how important and
valuable these goods were. In the case of Leela Ventures it was on the basis of
the architectural drawings that the renovation etc. was to take place whereas
the technical material made available to the other appellants was necessary for
their purpose. We have already held that the value of the goods so imported was
not merely the cost of the price of the media but also the intellectual input
on the media as represented by architectural drawings or users manuals etc. The
value of architectural drawings was not merely the cost of the paper and the
ink but would be much more. In some of the cases we were informed that the
appellants had themselves volunteered that about one-third of the total amount
payable to the collaborators should be taken as a figure representing the
transaction value of the technical material so imported.
The
Tribunal as well as the Commissioner were right in coming to the conclusion
that there was a wilful suppression or mis-statement of the value of the goods
imported and, therefore, the respondents were entitled to invoke the provisions
of the proviso to Section 28 (1) of the Customs Act and issue show-cause notice
even if period of six months importation had expired but before the expiry of
five years thereof in the case of all the appellants except in the cases of M/s
H&R Rolling Mill Engineers Pvt. Ltd. (C.A. No.1493 of 2000) and M/s Videocon
VCR Ltd. (C.A. No.3632 of 2000).
Re:
Whether heading No. 98.03 appliable Prior to 26th January, 1995 goods which were imported by the appellants through
couriers were taxed under Chapter 98 of the Customs Tariff Act. Heading No.
98.03 provides that all dutiable articles, imported by a passenger or a member
of a crew in his baggage was taxable at the standard rate of 150 per cent. This
rate of duty was, of course, subject to such exemptions which were issued from
time to time.
With
effect from 26th May, 1995, when the President gave his assent to the Finance
Bill, 1995, the Customs Tariff Act stood amended as a result whereof goods
imported through courier services were exempted from the operation of Chapter
98. A circular dated 30th May, 1995 issued by the Ministry of Finance, Govt. Of
India specifically provided that henceforth imports by couriers shall not be
classified as baggage under heading No. 98.03. The practice of charging a
uniform duty at the rate of 80 per cent ad valorem on articles imported through
couriers in terms of exemption notification dated 1st March, 1994 was to be
discontinued with immediate effect. Couriers Imports (Clearance) Regulations,
1995 were framed and notified on 26th May, 1995 as a result of which the imports
through courier were to be classified as imports falling under the respective
customs tariffs and headings. One of the results of the framing of the said
Regulations was that the goods imported by couriers were to be divided into
three categories which are
(a) documents
(b) samples
and free gifts and
(c) dutiable
goods.
In
connection with the imports made, prior to the promulgation of the Couriers
Regulation, the learned counsel submitted that the respondents had erred in
assuming that the disputed material had been brought into the country as
passenger baggage. It was contended that the appellants had not specified the
manner in which the material was to be sent by the foreign collaborators. It
was submitted that Entry 98.03 was a special provision providing for special
procedure and an omnibus rate of duty applicable to all goods imported by
passengers or a crew member as their baggage. This provision, it was contended,
was wholly inapplicable to corporate entities. The appellants were not natural
persons and they were quite incapable of being treated as passengers. In any
event, it was submitted, after clearance of the disputed items there was no
scope for the respondents to initiate proceedings against the appellants or in
respect of the material alleged to have been imported and the said proceedings,
if any, could have been initiated only against the passenger from whom less
duty than what was legitimate was recovered, namely, from the courier.
We are
unable to agree with the aforesaid contentions.
Heading
of Chapter 98 clearly shows that the same is applicable to passengers baggage.
As a matter of fact, in each of the present cases, the technical material which
was received was cleared as part of passenger baggage. Whether the courier or
the person bringing the technical material was a person nominated by the
collaborator or by the appellants is of no consequence because the levy under
Section 12 of the Customs Act is on the goods imported into India. In other words, the subject matter
of the tax is not the person importing or exporting but the subject matter of
the tax is the goods imported. If such goods are imported as a part of the
baggage then by virtue of heading No. 98.03 rate of duty prescribed therein has
to be paid. The underlying principle prior to May, 1995 in relation to taxing
the passengers baggage was that the said baggage which contained dutiable
articles was not to be taxed separately as articles but the baggage as a
composite unit was to be taxed in its entirety, after giving a credit for the
free allowance which was available to the passenger.
It
cannot be denied that the imports were made by the appellants. The courier or
any other passenger may be the mode or the manner of physical importation of
the goods, just as the said goods may have been imported by post.
Section
28 of the Customs Act, however, enables the Government to issue notice to the
persons importing the articles into India. It is by reason of the collaborators agreements that the drawings,
manuals, technical material etc. were sent by the foreign collaborators to the
appellants and it is the appellants who were the importers who alone could be
made liable in case of non-levy or short-levy of customs duty. The word importer
in Section 2 (26) of the Customs Act includes the owner and as the appellants
were the owners of the goods, certainly after these were received by them, it
is only from them that the short-fall in duty levied could have been recovered.
The parties took a chance in importing the articles through the courier.
Initially they were successful in having the goods cleared by declaring a
nominal value in respect thereof.
They
may not have been able to do this if the technical material and goods had been
imported, not as a part of passengers baggage, but in the ordinary course of
import either through post or by filing bill of entry.
We,
therefore, concur with the conclusion of the Tribunal and the Commissioner that
the provisions of Chapter 98 were rightly applied on the facts of these cases.
CIVIL
APPEAL NO. 3632 OF 2000 [M/s. Videocon VCR Ltd. vs. Commissioner of Customs]
The appellant had entered into a technical collaboration agreement with M/s.
Toshiba Corporation, Japan on 13th October, 1989. The total contract value was
hundred million Japanese Yen as fees which was settled at seventy million
Japanese Yen. Apart from providing technical information, M/s. Toshiba
Corporation was also to render consulting and training services and had
permitted made use of Toshiba patent.
With
the approval of Reserve Bank of India, remittance was made in Form A-2 and
service tax paid.On 29th June, 1992 Mr.
Kato, presumably a representative of M/s. Toshiba, brought with him to India
drawings and designs as part of his personal baggage. This was cleared without
payment of duty.
On 26th May 1997, a show cause notice was issued to
M/s. Videocon alleging that duty was payable under Chapter 98 heading No. 98.03
and the appellant was charged with mis-declaration and suppression which
entitled the invocation of extended period of limitation of five years.
Reply
to show cause notice was filed in which it was, inter alia, stated that there
was no mis-declaration or suppression and that the drawings and designs were
classifiable under heading No. 49.06 of Chapter 49 and in 1992-93 tariff,
import of such drawings and designs was free.
On 26th March, 1999, an order was passed against the
appellant classifying the drawings and designs under sub-heading No. 4911.99
and diagrams and films under sub-heading 3705.90. No reason was given as to why
these drawings and designs were not classifiable under heading No.49.06. The
entire contract value was taken as a valuation of technical information
received and duty and penalty was imposed.
On
appeal to the Tribunal, the appellant met with partial success to the extent
that the valuation was determined at one-third of the contract value of hundred
million Yen, even though the settled value was seventy million Yen. The case of
the appellant that import in 1992-93 was free was not considered as the
Tribunal proceeded on the basis that all imports were during the period 1993-96
when under Chapter 49, import was dutiable but by notification the tariff rate
was less or nil.
It was
contended by Mr. Bulchandani on behalf of appellant that at the time when the
drawings were imported into India, the import of the same was free and even if
the drawings were to be regarded as part of the baggage of Mr. Kato, thereby
applying the provisions of heading No. 98.03, even then no duty could be
imposed.
It was
further contended that in any case the extended period of limitation of five
years could not be attracted in the present case.
We
find force in the contention of the appellant.
Heading
No. 98.03 of Chapter 98 of the Schedule in the Tariff Act imposes a prescribed
duty of 150 per cent on dutiable articles imported by a passenger or a member
of a crew in his baggage. What is, therefore, to be seen is whether the
drawings and designs were dutiable articles.
Heading
No. 49.06 under Chapter 49 of the Customs Tariff for the year 1992-93 provides
as follows:
Plans
and drawings for architectural, engineering, industrial, commercial,
topographical or similar purposes, being originals drawn by hand; hand-written
texts;
photographic
reproductions on sensitised paper and carbon copies of the foregoing The rate
of duty specified therein in Column (4) was free. According to Section 78 of
the Customs Act, the rate of duty and tariff value applicable to baggage shall
be the rate and valuation in force on the date on which a declaration is made
for clearing the baggage. It was the contention of the learned counsel for the
appellant that as articles in question would fall under heading No. 49.06 they
were free of duty. Therefore, they could not be regarded as dutiable articles
and its value could not be included in the baggage of the passenger for the
purpose of levy of customs duty.
While
dealing with the provisions of the Excise Act, Vazir Sultan Tobacco Co. Ltd.
1996(83) ELT 3 (SC) referring to an earlier decision in the case of Wallace
(44) ELT 598 had observed that if by virtue of an exemption notification the
rate of duty was reduced to nil, the goods specified in the Tariff Act would
still be regarded as excisable goods on which nil rate of duty was payable.
It
appears to us that the aforesaid decisions, which were sought to be invoked by
the respondent in an effort to submit that the drawings and designs, which came
as a part of passenger baggage were dutiable goods, would not be applicable. In
Vazir Sultan and Wallace Flour Mills cases (supra), this Court considered the
definition of excisable goods in Section 2(d) of the Central Excise Act, 1944
which was as follows:
'Excisable
goods' means goods specified in the [the First Schedule and the Second Schedule]
to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty
of excise and includes salt".
Under
the Customs Act, there are two definitions which are relevant. Section 2(22)
defines goods as follows:Goods includes-
(a) vessels,
aircrafts and vehicles;
(b) stores;
(c) baggage;
(d) currency
and negotiable instruments; and
(e) any
other kind of movable property.
In
addition thereto, Section 2(14) defines dutiable goods as follows:
dutiable
goods means any goods which are chargeable to duty and on which duty has not
been paid.
Under
the Central Excise Act, 1944 in definition of words excisable goods under
Section 2(d), the very specification or inclusion of goods in the First and
Second Schedule of the Central Excise Tariff Act would make them excisable
goods subject to duty. Under the Customs Act, the provisions seem to be
somewhat different. While by virtue of Section 2(22) all kinds of movable
property would be goods but it is only those goods which would be regarded as
dutiable goods under Section 2(14) which are chargeable to duty and on which
duty has not been paid. The expression chargeable to duty on which duty has not
been paid indicates that goods on which duty has been paid or on which no duty
is leviable, and therefore no duty is payable, will not be regarded as dutiable
goods. It is only if payment of duty is outstanding or leviable that goods will
be regarded as dutiable goods.
Section
12 of Customs Act provides that the duties of customs shall be levied at such
rates as may be specified under the Customs Tariff Act. When the Customs Tariff
Act itself provides that the import of drawings and designs under heading No.
49.06 is free, it must follow that these drawings and designs, though goods,
were not chargeable to duty. In view of the difference in the language of the
Excise and Customs Acts, the decisions in the cases of Vazir Sultan and Wallace
Flour Mills (supra) may not be very apposite and if no customs duty is chargeable
either by reason of tariff not providing for it or because of the exemption
notification, those goods will not be regarded as dutiable goods on which duty
has not been paid. It is sufficient in the present case to observe that the
drawings and designs which were imported by the appellant were correctly
classifiable under heading No.49.06 and the tariff itself providing that the
import of the same is free, the said drawings and designs were not dutiable
articles and, therefore, no customs duty was leviable thereon even as a part of
the passenger baggage.
On
this short ground alone the appeal of Videocon has to be allowed.
C.A. No. 1493 of 2000 [M/s H & K
Rolling Mill The appellant is a joint venture company. Sixty per cent of its
shareholders are Indians while forty per cent of the shares are held by H &
K, Germany. The appellant supplies technology
to Bhilai Steel Plant and it is required to pay to the German company licence
fee of DM 2,40,000 and engineering fee of DM 60,000.
The
appellant prepared designs and drawings which were sent to H & K, Germany for the limited purpose of getting
it checked and approved. It is stated that the appellant received a fax message
from the German company approving the designs and drawings. Copy of the designs
and drawings which had been prepared and sent by the appellant came back to India through courier containing the
stamp and approval of the German company. Like in the case of M/s Leela
Ventures income tax was deducted at source for the payments made to the German
company after permission of the Reserve Bank of India had been obtained.
In the
show cause notice which was issued it was proposed to regard the drawings which
had come through the courier at DM 60,000 equivalent to Rs. 11,03,800/- as
being subject to levy of duty. In the show cause notice it was stated that
these technical drawings were supplied by the German company and being goods
imported through courier services were classifiable under heading No. 98.03 and
duty and penalty was payable in respect thereof.
Unlike
other cases, we find that these drawings in respect of which customs duty had
been levied were not something which had originated from Germany. These drawings were prepared by
the Indian company of which the German company was a shareholder. These
drawings were no doubt sent to Germany for
approval but the agreement between the parties does not show that the payment
of DM 60,000 was directly relatable or attributable to the approval and despatch
of the said drawings to India. Under the agreements between the
parties apart from the licence fee payable by the Indian company, for the use
of the name of the German company and engineering fee, money was payable in
terms of the agreement. As we have already observed there is nothing to show
that this amount of DM 60,000 was relatable only to the approval of the said
designs and drawings.
Be
that as it may the value of these drawings which belong to the Indian company
were merely approved by the German company could only be nominal and under no
circumstances the said value could be regarded as DM 60,000.
The
nominal value disclosed by the courier, on the facts and circumstances of this
case, could not, therefore, be said to be incorrect. The order passed against
the appellant levying the customs duty and penalty is, therefore, to be set
aside. Ordered accordingly.
Conclusion:
As a
result of the aforesaid discussion, Civil Appeal No. 1493 of 2000 of M/s H
& K Rolling Mill Engineers Pvt. Ltd. and Civil Appeal No. 3632 of 2000 of
M/s Videocon VCR Ltd. are allowed and the orders of the Commissioner and
Customs, Excise & Gold (Control) Appellate Tribunal in their cases are set
aside. The other appeals are dismissed but in the case of Leela Ventures, out
of the total contract value, the Commissioner will determine the transaction
value of the drawings, designs, etc. imported through the courier and then impose
the levy thereon. There will be no order as to costs.
Back
