IMPORTANT POINT
The value to be determined for the imported goods would be the payment required to be made as a condition of sale and if any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of licence or technical knowhow for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose.

Headnote:Customs Act, 1962—Sections 12, 14, 14(1A) and 156—Customs Valuation (Determination of Prices of Imported Goods) Rules, 1988—Rule 9(1)(e) and 12—Levy of and exemption from, customs duty—Value of imported goods has to be determined at the time and place of importation—Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation —A division of respondent Corporation, desirous of undertaking manufacture of Polyester Oriented Yarn and Flat Yarn, entered into a collaboration agreement with Korean company—Agreement is in two parts; Part-A provides for licence, knowhow and technology, while Part-B provides for supply of equipment as a part of necessary plant and machinery and equipment for manufacture of polyester oriented yarn— Part-A stipulates lumpsum payment of US $ 14,00,000 by the respondent to the said companies for supply of licence, knowhow and technology—Under Part-B of the Agreement, price of foreign equipments are said to be US $ 34,86,000/—DM 12,00,000.00 + J. Yen 88,50,00,000.00—Pursuant to and in furtherance of the said collaboration Agreement, respondent imported plant and machinery manufactured by the said companies—Assistant Commissioner of Customs opined that the amount of consideration mentioned in both parts of the Agreement should be added together, having regard to the fact that the same forms part of an integrated contract—Whether customs duty would be payable on the purchase price of the goods by adding the value of licence and technical knowhow, etc. to the value of the imported goods—(No).
       Held : The basic principle of levy of customs duty, in view of the afore-mentioned provisions, is that the value of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of licence or technical knowhow for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14(1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.(Para 9)
       On the Revenue’s own showing, the sum of US $ 14,00,000.00 was required to be paid by way of remuneration towards services to be offered by the companies in respect of matters specified in Part-A of the said Memorandum of Agreement. The said sum represents amount of licence or amount to be paid by the respondent for the licence for the manufacturing process for production of goods which were covered by the patents held by M/s. Samsung as also for technical knowhow.(Para 11)
       No part of the knowhow fee was to be incurred by the respondent herein either for the purpose of fabrication of the plant and machinery or for any design in respect whereof M/s. Samsung held the patent right.(Para 13)
       It may be noticed that the said Memorandum of Agreement specifically contemplates that the plant and machinery to be supplied thereunder may be procured from other independent manufacturers and suppliers who might not have anything to do with the knowhow or licence provided thereunder by Samsung.(Para 14)
       Knowhow, being process knowhow, is covered by the patent held by M/s. Samsung. The payment of US $ 14,00,000.00 also entitles the respondent to sub-licence the knowhow to any other party, subject, of course, to the approval of M/s. Samsung.(Para 15)
       More over, no case has been made out that the sale price of the imported plant and machinery had been under-stated.(Para 20)

JUDGMENT

S.B. Sinha, J.—The Revenue is in appeal before us aggrieved by and dissatisfied with the judgement and final order dated 15th May, 2006, passed by the Customs Excise and Service Tax Appellate Tribunal, Kolkata, in Appeal No. C-259 of 2002. The fact of the matter is not in dispute. M/s. Orissa Synthetics Limited is a division of the respondent herein. It, being desirous of undertaking manufacture of Polyester Oriented Yarn and Flat Yarn, entered into a collaboration agreement with M/s. Samsung Company Limited and M/s. Chiel Synthetics Inc., both of Korea, on 18th November, 1999. M/s. Cheil Synthetics Inc. is said to be an associate company of M/s. Samsung group under the laws of Republic of Korea. The said Agreement is in two parts; Part-A provides for licence, knowhow and technology, while Part-B provides for supply of equipment as a part of necessary plant and machinery and equipment for manufacture of polyester oriented yarn. Part-A stipulates lumpsum payment of US $14,00,000 by the respondent to the said companies for supply of licence, knowhow and technology. Under Part-B of the said Agreement, however, price of foreign equipments are said to be US $34,86,000.00 + DM 12,00,000.00 + J. Yen 88,50,00,000.00.

2. Pursuant to and in furtherance of the said collaboration Agreement, the respondent herein had imported plant and machinery manufactured by the said companies. The Assistant Commissioner of Customs, Special Valuation Branch, in its order dated 28th May, 1999, opined that the amount of consideration mentioned in both parts of the Agreement should be added together, having regard to the fact that the same forms part of an integrated contract, the value of knowhow estimated at US $ 40,00,000.00 must be added to the value of the equipment, on the premise that payment thereof was a pre-condition for sale of the equipments under Part-B. An appeal was preferred thereagainst by the respondent before the Commissioner of Customs. The appellate authority, by reason of its order dated 31st May, 2000, dismissed the said appeal. However, the Customs Excise and Service Tax Appellate Tribunal [CESTAT], on a further appeal preferred by the respondent, allowed the same and remitted the matter to the authority below for a de novo decision in the light of a decision of this Court in Tata Iron and Steel Company Limited vs. Commissioner of Central Excise and Customs Bhubaneswar, Orissa (2000 (3) S.C.C. 472). The Deputy Commissioner of Customs, however, held that the decision of this Court in TISCO (supra) is distinguishable stating that both parts of the Agreement, Part-A and Part-B, are complimentary to each other and one part thereof cannot be implemented without complying with the conditions of the other part of the Agreement. The original authority, therefore, upheld its earlier order. The Commissioner of Customs, however, in the appeal preferred by the respondent herein, set aside the said order dated 24th June, 2002, holding that the decision of this Court in TISCO (supra) is squarely applicable to the facts of the case and that Collector of Customs (Prev.), Ahmedabad vs. Essar Gujarat Limited [(1996) 88 E.L.T. 609 (S.C.)] is not applicable. The Tribunal dismissed the appeal preferred thereagainst by the Revenue.

3. Mr. K. Radhakrishnan, learned senior counsel appearing on behalf of the Appellant, would take us through various clauses of the said Memorandum of Understanding dated 18th November, 1999, entered into by and between M/s. Orissa Synthetics Limited and M/s. Samsung Company Limited and submit that supply of technical knowhow and purchase of licence and supply of equipments was a condition of sale. According to the learned counsel, as the conditions laid down in both parts of the said Agreement are complimentary to each other, Part-B cannot exist without Part-A thereof. Our attention in this behalf has been drawn to Rule 9(1)(e) of the Customs Valuation (Determination of Prices of Imported Goods) Rules, 1988 (for sho

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2007 Supreme(SC) 124

Cases Referred (3)