Case: COMMISSIONER OF CUSTOMS (PORT) KOLKATA Vs. M/S. STEEL AUTHORITY OF INDIA LTD


Decision reasoning: 0[ds]10. The Tribunal did not accept this plea of revenue. The Tribunal in the impugned order accepted SAILs plea for segregating the value of equipments and the other fees on services covered by the same contracts, the latter charges meant for post-importation phase of the arrangement between the contracting parties. It found that the designs and drawings and engineering/technical services were for plant direction and overall project implementation for manufacturing iron and steel to be commissioned in India and charges were collected by the consortium when the design and drawings and engineering services in relation to the components were to be imported. It is also not the revenues case before us that these designs and drawings and the services were in relation to the imported equipments and goodsBut ratio of that authority would not be applicable in the facts of this case, as the disputed amount involved payment made by the importer to their overseas associate towards engineering, design work, plant, sketches etc. which were necessary for production of imported goods. This was a case attracting Rule 9(1)(b)(iv) of the 1988 Rules. Factually, this authority is distinguishableThe only factual similarity in both these cases is that the case of ABB Limited (supra) also related to turnkey project. But import under that statute and the charging section in the Customs Act for imposing duty (under Section 12) are not the same. The mechanism for arriving at transaction value or assessable value under the two statutes are different and distinct. This authority can have no impact on the subject-controversyWe have earlier referred to this authority in this judgment. This case involved importation of a plant, which was originally installed in Germany. The Indian importer, Essar Gujrat, had entered into an agreement with the overseas owner of that plant in Germany. That owner was Teviot Investments Limited. The agreement Essar Gujarat had with Teviot for purchase of the plant, however, was subject to Essar obtaining transfer of operational license from another corporation, Midrex International BV. Question arose as to whether the license fees paid to Midrex should be included to the value of the plant or not. The revenue case was that the stipulation of obtaining the license from Midrex was a condition for sale. If this condition was not fulfilled, the sale would have had fallen through. Thus, to give effect to the plant sale agreement, there was an element of necessity or compulsion to enter into the licensing agreement with Midrex21. SAIL had taken specific stand before the authority of the first instance that it was not a condition for them to take design and engineering, which related to post importation activities from the supplier only. In terms of the schedule of the agreement, the purchaser (that is SAIL) had right to change the goods to be supplied by the supplier at any time22. An importer of equipments of a plant could always choose to obtain drawings and designs for undertaking post importation activities from an overseas consortium supplying the equipments. This may confer on such arrangements attributes of a turnkey contract, but that fact by itself would not automatically attract the condition clause contained in Rule 9(1) (e) of the Valuation Rules. In the cases of Essar Steel Ltd.(supra) and Tata Iron and Steel Co. Ltd.(supra), the contracts had certain elements of turnkey features. The case of Essar Gujarat (supra) is distinguishable, as the subject of import there carried a condition for entering into a licensing agreement with a third party24. We have already summarised the respondents case that the disputed items on which the customs authorities intended to impose duty all related to post importation activities and could not be included in the assessable value25. Revenue has not made out a case that the disputed items of contract do not relate to post-importation activities. The statutory provision relied upon by the Revenue to bring the subject-items within the duty net is Rule 9 (1) (e) of the 1988 Rules26. The expression condition, simply put, conveys the idea that something could be done only if another thing was also done. In the given context, it would imply that import of equipments could be allowed by the other party provided the design features for post- importation activities were also obtained from the same supplier or from a firm as per the overseas suppliers direction. But there is no material before us to suggest that import of equipments was effected with simultaneous obligation of SAIL that the designs relating to post- importation activities should also be obtained from the same entity. The revenue has proceeded with the understanding that since both were obtained from the same vendor, condition of obtaining designs etc., for post-importation activities was implicit in the contract. The Revenue has sought to emphasise their case on the basis that as it was a turnkey project, importation of equipments and post-importation project implementation exercise were mutually dependant. In our opinion, reading such implied condition into the contracts would be impermissible in the absence of any other material to demonstrate subsistence of such condition. No part of the contract has been shown to us from which such condition could be inferred. Necessity of subsistence such condition has been laid down in the case of Ferodo India (P) Ltd. for invoking rule 9 (1) (e). In our opinion, the provisions of Rule 9 (1) (e) cannot be automatically applied to every import which has surface features of a turnkey contract. Just because different components of a contract or multiple contracts give the shape of turnkey project to the imported items, without specific finding on existence of condition as contemplated in clause 9 (1) (e), value of all these components could not be added to arrive at the assessable value. Such an exercise would go against the provisions of Interpretativewhich is part of the Valuation Rules in view of the provisions of Rule 12 thereof28. In the present appeal, involving two import consignments, the authorities of First Instance and the Appellate Authority proceeded on the basis that since all the scheduled items formed part of the same contract and were linked with activities at post-import stage with the imported equipments, the provisions of Section 9 (1) (e) could be invoked. Such reasoning infers subsistence of conditions for awarding post-importation work to the overseas consortia or makes import of both sets of items otherwise interdependent. We find from the orders in original that the stand of SAIL was consistent that the subject drawings and specifications did not relate to the equipments imported and was meant for post importation activities and there was no condition laid down that the import of the equipments were to be supplemented by post-importation work.