Case: Tata Iron &amp; Steel Co. Ltd Vs. Commnr. Of Central Excise &amp; Customs

The Tata Iron & Steel Company Ltd. (TISCO, for short), the appellant before us, has imported certain equipments and drawings and engineering documents from Siderugia National Portugal (hereinafter SNP, for short) for setting up rolling mill project in Portugal. The supplies consisted of equipments for blast furnace, LD converter, steel plant ballet castors, wire rod mills, torpedo ladle cars etc. However, before the equipments could be installed, Portugal decided to join European Economic Community (EEC) consequent whereupon Portugal could not have expanded its steel making capacity, SNP decided to cancel its investment plan and to sell the equipments and materials which were lying unused from 1981 to 1986. On 14th April, 1988 a protocol was signed between the seller and purchaser companies (i.e. SNP and TISCO) which inter alia stated that the total price will be price for the equipment plus price for the engineering FOB Portugal-Lisbon port. The price for the equipment with suitable sea-worthy packing to be provided by SNP will be 13.5 million Deutsche Marks (DM) and the price for engineering will be 12.5 million Deustsche Marks. The protocol also provided that the equipment was being sold without any operation on performance guarantees and in "as is where is" condition. Subsequently, on 11th October, 1989 three contracts were entered into between the parties as underAgreement for supply of technical documentation called MD 301.2. Agreement for sale of equipments and materials (part of equipments of a blast furnace and three torpedo ladle cars) - called MD 302.3. An overall sale contract, being an umbrella contract, covering the abovesaid two agreements for establishing contractual relationship and setting up conditions both for sale of equipment and supply of technical documentation.The over-all sale contract recited on overall price of 26 millions DM and its break-up into two, namely, 12.5 million DM for technical documentation and 13.5 million EM for equipments and materials. The earlier two agreements recited the considerations of 12.5 million DM and 13.5 million DM respectively. Thus the prices as recited in the protocol dated 14.4.88 remained unchanged.The appellant sought for registration of its contract MD 302 under Project Imports Regulations, 1986 with the Customs House, Paradeep which was allowed entitling it to avail the benefit of concessional rate of duty for project imports.3. The consignment consisting of technical documents, engineerings etc. covered by contract MD 301 arrived at Calcutta and was cleared by Calcutta Customs House in the months of April-May, 1990. The consignment was claimed by the appellant to be classifiable under sub-Heading No. 4906.00 of the Customs Tariff Act, 1985 assessable to nilagainst the contract MD 302 the first consignment arrived at Port Paradeep and was cleared under Bill of Entry dated 6.4.90. The value of the goods was shown as D.M. 60,75,000 FOB. The goods were assessed provisionally and allowed clearance on payment of duty on the declared value. The second consignment under this contract also arrived at Paradeep port. Bill of Entry dated 7.7.90 was filed declaring the value to be 6,75,739 D.M. In between the department had gathered intelligence and formed an opinion that the contract MD 302 registered under the Project Import Regulations was actually a sub-contract of another contract of the same date and the value thereof was 26 MDM. The Assistant Collector of Customs, Paradeep, vide communication dated 7th July, 1990, called upon the appellant to submit all the documents including the correspondence with the foreign supplier, copy of the import licence etc. The appellant submitted the required documents including copy of the agreement MD 301. An exchange of correspondence between the Assistant Collector of Customs and the appellant followed. On 16th July, 1990 the Assistant Collector of Customs. Paradeep issued a show cause why the sum of 12.5 MDM being the value of the goods covered by contract MD 301 should not be included in determining the assessable value of the goods imported under the contract MD 302 followed by other consequences following from under-valuation of the goods imported. Vide order dated 10.8.90 the Assistant Collector permitted clearance of the goods upon furnishing of bank guarantees of Rs. 7,44,80,300/- and extra duty deposit of Rs. 2,82,01,636 as also payment of admitted customsappellant filed a writ petition before the Orissa High Court challenging the show cause notice and the demand raised by order dated 10.8.90. On 30.8.1990, the Orissa High Court disposed of the writ petition directing the release of the goods subject to furnishing a bank guarantee of Rs. 8 crores and depositing the extra duty reduced by 1 crore than that demanded, accompanied by payment of admitted customs duty. The appellant complied with the order of the High Court and got the goodsappellant also filed a reply to the show cause notice. Personal hearing was given by the Assistant Collector. On 23.8.1993 the Commissioner of Customs and Central Excise, Bhubaneswar issued a second show cause notice to the appellant and two of its officers and also to the appellants engineering consultant. Replies were filed. On 30th April, 1996 the Commissioner of Customs and Central Excise, Bhubaneswar passed an order assessing the levy of customs duty at Rs. 15,49,09,060/-. A penalty of Rs. 5 crores was also imposed on the appellant under Section 112 of the Customs Act, Penalties were imposed on other noticesappellant and other notices preferred appeals before the Customs, Excise and Gold (Control) Appellate Tribunal, Calcutta which have been disposed of by a common order. The Tribunal had held that the three contracts entered into between the seller, i.e. SNP and the appellant were in fact parts of one package, that is, the three constituted one composite agreement. The technical documentation supplied to the appellant could be divided into three parts : (i) those pertaining to the imported equipment, (ii) those pertaining to the equipment which was yet to be procured or manufactured by appellant, and (iii) those relatable to post-iport activities undertaken by the appellant for assembly, construction, erection, operation and maintenance of the imported equipment. The value of the contract to the extent of (i)( above was liable to be included in the value of equipments and materials imported by the appellant thought the value of the technical documents covered by (ii) and (iii) above could have been excluded for payment of customs duty by reference to Interpretative Note to Rule 4 of Customs Valuation Rules, 1988 (hereinafter Rules for short). However, since separate values have not been shown the benefit of Interpretative Note to Rule 4 abovesaid was not available to the appellant and the entire value of the two contracts was liable to be clubbed together for the purpose of levying customs duty.

Reasoning:
11. A perusal of the order of the Tribunal shows that it has mainly proceeded on two sets of reasoning for holding against the appellant. Firstly, the Tribunal has examined the applicability of Rule 9(1)(b)(iv) and formed an opinion that benefit thereofwas not available tothe appellant. By reference to the Interpretative Note to Rule 4 it has held that to the extent the drawings and technical documents were referable to the manufacture and sale of the imported equipments, their value was liable to be included in the value of the equipments and material imported and inasmuch as separate values thereof have not been shown the entire value of 12.5 million DM of technical documentation covered by contract DM 301 was liable to be included in the value of the equipments. Secondly, the Tribunal has held the provisions of Rule 9(1)(e) being attracted and coming into play for the purpose of determining the valuation of the equipment and materials imported on the reasoning that the drawings and engineerings were compulsorily purchasable by the appellant along with the equipment and materials and hence the value of the two was liable to be clubbed. Shri Ashok Desai, the learned senior counsel for the appellant has vehemently attached the correctness of the reasoning employed by the Tribunal and has submitted that the Tribunal has gone totally amiss in interpreting the rules and judging the case thereunder. It was submitted by Shri Ashok Desai that the interpretation as placed on the rules by the Tribunal is not correct. We will presently test the correctness of the contention so advanced.A bare reading of Rule 9(1)(b) shows that it refers to the value of the four specified goods and services supplied by the buyer free of charge or at a reduced cost for use in connection with the production and sale of imported goods to the seller and to the extent that such value has not been included in the price actually paid or payable. To illustrate, the seller may have manufactured equipments of a design, drawings whereof were made available by the buyer say by engaging an independent expert agency in the country of the seller. Although the seller has not incurred any expenditure on the technical/engineering design of the equipment manufactured by it yet the price paid for securing the engineering designs and drawings will be a component of the value of the equipment manufactured. In spite of the price for the service rendered by the expert agency having been paid by the buyer, the value thereof is liable to be added to the value of the imported goods for determining the transaction value. In the case at hand it is nobodys case that that buyer had supplied any goods or services free of charge or at reduced cost for use in connection with the production and sale for export of imported goods. All the exercise done by the Tribunal in scrutinising the documents forming subject matter of contract DM 301 so as to classify them into three categories stated earlier in this judgment was therefore uncalled for. SNP had purchased the entire steel plant equipment from an Italian supplier more than six years before the transaction in question had taken place with the appellant. Such documents must have accompanied the equipments and materials made available to SNP by the Italian supplier of SNP. It cannot be comprehended and certainly it is not the case of the Revenue that the technical documents were supplied or made available by the Italian supplier to SNP either free of charge at the instance of the appellant or cost thereof was incurred wholly or partially by the appellant.It is nobodys case that the seller had an obligation towards a third party which was required to be satisfied by it and the buyer (i.e. the appellant) had made any payment to the seller or to a third party in order to satisfy such an obligation. The price paid by the appellant for drawings and technical documents forming subject matter of contract DM 301 can by no stretch of imagination fall within the meaning of `an obligation of the seller to a third party. There was also no payment made as a condition of sale of imported goods as such. Rule 9(1)(e) also, therefore, has no applicability.17. So far as Interpretative Note to Rule 4 is concerned it is no doubt true that the Interpretative Notes are part of the Rules and hence statutory. However, the question is one of their applicability. The part of Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of imported goods. To illustrate, if the seller has undertaken to erect or assemble the machinery after its importation into India and levied certain charges of rendering such service the price paid therefor shall not be liable to be included in the value of the goods if it has been paid separately and is clearly distinguishable from the price actually paid or payable for the imported goods. Obviously, this Interpretative Note cannot be pressed into service for calculating the price of any drawings or technical documents though separately paid by including them in the price of imported equipments. Clause (a) in third para of Note to Rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be "charges for construction, erection, assembly etc." of imported goods. Alternatively, even on the view as taken by the Tribunal on this Note, the drawings and documents having been supplied to thefor use during construction, erection, assembly, maintenance etc. of imported goods, they were relatable toactivity to be undertaken by the appellant. Such charges were covered by a separate contract, i.e. contract MD 301. They could not have been included in the value of imported goods merely because the value of documents referable to imported equipments and materials was mixed up with the value of those documents which were referable to equipment which was yet to be procured or imported or manufactured by the appellant : the value of the latter category of documents also being neither dutiable nor clubbable with the value of imported goods. The Tribunal has not doubted the genuineness of the contracts entered into between the appellant and SNP. Rather it has observed vide para 10.2 of its order that entering into two contracts (MD 301 and MD 302) was a legal necessity. The Tribunal has also stated that it was not recording any finding of `skewed split up. Shri Ashok Desai, the learned senior counsel for the appellant has pointed out that under Chapter Heading 49.06 of the Customs Tariff Act, 1975 plans and drawings for engineering and industrial purposes being originals drawn by hand as also their photographic reproductions on sentisized papers and carbon copies thereof are declared free from payment of customs duty.(3) and (4) of Rule 9 clearly provide that additions to the price actually paid or payable is permissible under the Rules if based on objective and quantifiable data and no addition except as provided for by Rule 9 is permissible.18. The abovesaid reasons demolish the edifice on which the order of the Tribunal is based. However, still the only thing that remains to be considered is whether there has been under valuation of blast furnace equipment covered by the contract MD 302. It is a pure and simple case of finding out `the price actually paid or payable for the goodsthe phrase as occurring in Rules 2(f), 4 and 9, so as to find out the transaction value and levy duty thereon under Sections 12 and 14 of the Customs Act. Once of the allegations made in the show cause notice given to the appellant was of the blast furnace equipments (BFE) having been undervalued by transferring a part of the value of the equipments to the value of engineering documents and drawings. In substance the show cause notice alleged the blast furnace equipment having been under valued by artificially excluding therefrom the value of technical documents. According to the Revenue such documents are even otherwise and in ordinary course supplied by the seller to the buyer. Because of the absence of such documents the goods sold being equipments would be of no use at all but the appellant had so manipulated the single transaction by bifurcating the single content into two documents so as to under value the blast furnace equipments by transferring a part of the value of such equipments to the value of engineering documents and drawings. The gist of the allegation is under valuation of blast furnace equipment.Shri Kirit Raval, the learned Additional Solicitor General has submitted that from the stage of the show cause notice till before the Tribunal the Revenue has kept its plea alive. Vide para 7 of its order the Tribunal noted this plea of the Revenue but did not go into it as the Tribunal considered it not necessary in view of other findings arrived at. The learned Additional Solicitor General submitted that if this Court may not sustain the order of the Tribunal then in all fairness the Revenue should be allowed an opportunity of substantiating its plea of under valuation followed by such other relief to which it may be entitled in the event of its succeeding on its plea.We find merit in this submission. In our opinion on the order of the Tribunal being set aside the matter needs to be sent back to the Tribunal for examining on merits the abovesaid plea of the Revenue which was refused to be gone into earlier on account of its having been found to be unnecessary.