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SUPREME COURT OF INDIA
A.K. Sikri, R.F. Nariman, JJ.
COMMISSIONER OF CUSTOMS, AHMEDABAD – APPELLANT
VERSUS
M/S. ESSAR STEEL LTD. – RESPONDENT
CIVIL APPEAL NO.3042 OF 2004
Decided On : 13-04-2015
(b) Customs Valuation (Determination of Price of Imported Goods) Rules of 1988 – Rule 9 – Instant technical services – A technical consultancy – No transfer of know-how or patents, trademarks or copyright – Coordination and advice post-importation – Liquidated damages under clause 13 of purchase order applicable only to post importation activities like delay in commissioning of plant – Technical services not pre-condition of sale – Rule 9(1)(e) not attracted – Consequently, consideration for the technical services provided by Met Chem Canada Inc. cannot be added to the value of the equipment imported to set up the plant in India. (Para 9, 10, 11, 18)
(2000) 3 SCC 472; (2007) 9 SCC 401; (2008) 4 SCC 563; (2007) 5 SCC 371 – Relied upon
(1997) 9 SCC 738 – Distinguished
Facts of the case:
An agreement dated 13.4.1991 was entered into between the respondent and Met Chem Canada Inc. to associate Met Chem Canada Inc. as a technical consultant to render technical services in relation to implementation of a project to set up a plant in India for production of Hot Rolled Steel Coils and Strips.
The services agreement is separate from the main agreement for setting up the said plant in India. The main agreement is contained in a purchase order dated 21.6.1991. The material clauses of the said purchase order are that for a plant of a capacity of 8,00,000 tonnes capacity per year, the total CIF price payable would be US$ 163,000,000. A liquidated damages clause contained in clause 13 of the purchase order provides liquidated damages for delay and/or failure to achieve performance. This purchase order was amended by a purchase order dated 28.7.1992 by which the CIF price of the said steel plant was revised to US$ 169,700,000. This was in view of the fact that the plant capacity as stated earlier had been doubled, and a sponge iron manufacturing plant of a capacity of one million tonnes which was originally to be sold was now deleted.
Revenue demanded the sum of DM 78.95 Million being technical knowhow charges which ought to be added to the sum of US$169,700,000. In their reply to the show cause notice, the respondent stated that none of the provisions of Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules of 1988 would apply as no payment is made for technical services as a condition of sale of imported goods. In any event, the agreement for technical services is to be performed in India post-importation and, therefore, would have to be excluded from the value to be taken into account at the time of import.
The Commissioner of Customs by an order dated 31.1.2002 added a sum of DM 78 Million.
An appeal by the respondent to CEGAT succeeded, and CEGAT by its judgment dated 24.6.2003 set aside the order of the Commissioner.
Finding of the Court;
Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules of 1988 is not attracted in the instant case.
Result; Appeal dismissed.
JUDGMENT
R.F. Nariman, J.
1. In this appeal we are concerned with the addition in the value for assessment to customs duty of charges paid by the respondent to Met Chem Canada Inc. for supply of technical services required for setting up and commissioning a plant for the manufacture of Hot Rolled Steel Coils in India. An agreement dated 13.4.1991 was entered into between the respondent and Met Chem Canada Inc. to associate Met Chem Canada Inc. as a technical consultant to render technical services in relation to implementation of a project to set up a plant in India for production of Hot Rolled Steel Coils and Strips. Under clause 1.1.6 `plant’ is defined as:
“1.1.6. “Plant” shall mean the integrated steel plant having an estimated annual capacity of Eight Hundred Thousand Tonnes (800,000 M.T.) of hot rolled steel coils and strips or such other enhanced capacity as may be agreed between the parties, to be located at Hazira, Gujarat, India and as described in Annexure 1 “PLANT UNITS’ attached hereto and made thereof;”
Project is defined as:
“1.1.8. “Project” shall mean the design, procurement, construction, erection and start-up of the plant.”
The most material clause of the agreement relates to the scope of supply which is contained in clause 2, which reads as under:-
“2.0. SCOPE OF SUPPLY:
2.1. Technical consultant shall render following engineering and other technical Services from outside India;
2.1.1. Project Engineering Services:
Technical Consultant shall act as technical coordinator for the successful setting up, commissioning of all the facilities and achieving established operations of the Plant. Technical Consultant shall coordinate all technical matters such as, but not limited to studying various alternative specifications and processes for the Plant and for manufacturing of Products; making recommendation for the most suitable and economic process, final detailed specifications and processes for the selected route, advising as required regarding technical proposals from various suppliers, and Contractors for the supply of the Plant and equipment, and the erection thereof at the Site, including civil engineering, designs, construction and installation of project utilities necessary for the successful setting up of the plant; carrying out the detailed project engineering including giving approvals for the various construction and Project implementation activities, engineering drawings, methods of construction, etc.
2.1.2. Supervision and Monitoring of the Project:
Technical Consultant shall provide advice regarding the activities in connection with the setting up of the plant from the technology, costs and time schedule angle.
2.1.3. Arrangement for Training of ESSAR’s Employees-outside India. Technical Consultant shall be responsible for arranging for up to two hundred (200) man months of training of (operating, maintenance and management) ESSAR employees at Steel Plant with proven technical capabilities in appropriate fields, outside India. Specific subjects, duration of training for each subject and numbers of trainees in each group shall be mutually agreed upon in writing. All travelling, living and miscellaneous expenses of ESSAR employees in relation thereto shall be for ESSAR’s account.
2.1.4. Assistance in transfer of technology: Technical consultant shall select appropriate subcontractor/contractors depending on the source of technologies and organize transfer to ESSAR of technology necessary for successful operation and maintenance of the Plant.
2.1.5. Procurement support services:
Technical Consultant shall provide procurement support Services for procurement of Equipment in India such as assistance in finalization of lists, specifications and sizes and configuration of equipment to be purchased, listing of suitable vendors, floating of inquiries, scrutiny of quotation received, assistance in negotiations with the Suppliers and in finalisation of order, pre-dispatch inspection and witnessing of tests, etc.”
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