Case: M/S. Associated Cement Companies Ltd Vs. Comnr. Of Customs

not be applicable. In Vazir Sultan and Wallace Flour Mills cases (supra), this Court considered the definition of "exciable 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." 80. 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) baggages; (d) currency and negotiable instruments; and (e) any other kind of movable property." In addition thereto, Section 2(14) define "dutiable goods" as follows : "dutiable goods" means any goods which are chargeable to duty and on which duty has not been paid." 81. 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 moveable property would be `goods but it is only those 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 expressions "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 levaiable, 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. 82. 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 tha 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 Vidoecon has to be allowed. C.A. No. 1493 of 2000. [M/s H&K Rolling Mill Engineers Pvt. Ltd. v. The Commissioner of Customs] 83. 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. 84. 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 Germony 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. 85. 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 imported through courier services were classifiable under heading No. 98.03 and duty and penalty was payable in respect thereof. 86. Unlike other case, 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 agreement 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 hat this amount of DM 60,000 was relatable only to the approval of the said designs and drawings. 87. Be that as it may the value of these drawings which belong to the Indian company were merely approved by the Germony 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 :

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]48. The above view, in our view, appears to be logical and also in consonance with the Customs Act. Similarly in (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" becomes the Code definition includes "specially manufactured goods." 49. 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. 50. 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. 51. In Leela Ventures case the Commissioner must re-determie the transaction value of the drawings etc. imported keeping in view the terms of the agreements and then impose the levy. Re : Limitation : 52. 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 impossible 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 of 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. Payment 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. 53. 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 case of Collector of Central Excise, Hyderabad v. M/s Champhar Drugs and Liniments, Hyderabad, 1989(2) SCC 127, Cosmic Dye Chemical v. Collector of Central Excise, Bombay, 1995(6) SCC 117, M/s Padmini Products v. Collector of Central Excise, Bangalore, 1989(4) SCC 275, Tamil Nadu Housing Board v. Collector of Central Excise, Madras and another, 1995 Supp(1) SCC 50 and Collector of Central Excise v. 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-case notice in the case of non-levy or short-levy to five years from a normal period of six months.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 purpose, being originals drawn by hand; hand-written texts; photographic reproductions on sensitized paper and carbon copies of the foregoing." The rate of duty specified therein Column (4) was "free". According to Section 78 of the Customs Act, the rate of the 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 article 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. 78. While dealing with the provisions of the Excise Act, this Court in Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacoo Co. Ltd., 1996(83) ELT 3 (SC) referring to an earlier decision in the case of Wallace Flour Mills Company v. Collector of Central Excise, 1989(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. 79. 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 "exciable goods" in Section 2(d) ofthe Central Excise Act, 1944 which was as follows : "Excisable goods means goods specified in the [the First Schedule and the Second Schedule] tothe Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt." 80. 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) baggages; (d) currency and negotiable instruments; and (e) any other kind of movable property." In addition thereto, Section 2(14) define "dutiable goods" as follows : "dutiable goods" means any goods which are chargeable to duty and on which duty has not been paid." 81. Underthe 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 moveable property would be `goods but it is only those 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 expressions "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 levaiable, 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. 82. 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 tha 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 Vidoecon has to be allowed. C.A. No. 1493 of 2000. [M/s H&K Rolling Mill Engineers Pvt. Ltd. v. The Commissioner of Customs] 83. 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. 84. 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 Germony 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. 85. 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 imported through courier services were classifiable under heading No. 98.03 and duty and penalty was payable in respect thereof. 86. Unlike other case, 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 agreement 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 hat this amount of DM 60,000 was relatable only to the approval of the said designs and drawings. 87. Be that as it may the value of these drawings which belong to the Indian company were merely approved by the Germony 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.