Lajja Ram, Member (T)

1. This is an appeal filed by M/s. Andhra Petro Chemicals Ltd., Tanuku, Andhra Pradesh (hereinafter referred to as 'APL'), against the Order No. S/50/3/90-SVB, dated 16-4-1992, passed by the Additional Collector of Customs, Customs House, Madras.

2. APL had entered into agreements with M/s. Davy Mekee (London) Ltd., UK (hereinafter referred to as 'DML')/for supply of equipment and materials, for technical know-how and for servicing of the plant proposed to be erected by them at Vizag in Andhra Pradesh, for the manufacture of Oxo-alcohols.

3. Under F. No. S/50/8/90/SVB, dated 10-1-1992, it was proposed to load/adjust the invoice value of imports of capital goods, by APL, from DML, by 35.28% on CIF value, under Rule 9(1)(b)(iv) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (hereinafter referred to as the 'Valuation Rules'). A working sheet showing the basis of arriving at the said loading factor was enclosed.

4. Under letter dated 7-2-1992, the facts, reasons and evidence on record, which established payment of design and drawing charges/fees to the foreign collaborators, on whose basis it was proposed to load/adjust the invoice values of imports of capital equipment by 35.28% on the CIF value under Rule 4 read with Rule 9(1)(b)(iv) of the Valuation Rules, were given.

5. It was mentioned that under agreement dated 14-10-1988, APL had entered into an agreement with DML for the supply of equipment and materials needed for the erection and commissioning of the Oxo-alcohols plant for the production of 2-Ethyl hexanol and butanol. It was provided that certain critical/complex items of equipment of a proprietary nature which were required for the said plant were not readily/satisfactorily available in India and that such items had to be properly designed and fabricated to ensure safe and reliable operation of the said plant. DML were obligated to undertake supply of the equipment.

6. Equipment was explained as all of the listed items or equipment and materials to be supplied by DML. In addition to the design and engineering charges to be paid separately, DML undertook the obligation to supply the said equipment at a contract price.

7. APL imported capital equipment from DML under cover of the equipment and materials supply agreement dated 14-10-1988.

8. DML had developed design and engineering and got the capital equipment manufactured by other manufacturers. DML developed design and engineering and they were not the manufacturer. The manufacturers based in UK, Italy and West Germany manufactured the equipment as per the design/engineering developed by DML, and they sent the finished products to DML, who in turn invoiced them to APL. In these invoices the manufacturing cost and the profit margin of the manufacturers and the procurement/handling charges of DML were included.

9. The invoice price did not, however, include the design and engineering charges paid separately apart from the contract price.

10. Towards design and engineering charges developed by DML, payment of Pound 11,50,000 was made.

11. Approval for this payment of Pound 11,50,000 towards designs and engineering charges, in addition to a lump sum know-how fee of US dollars 81.50 lakhs, was accorded by the Government of India under their communication dated 8-3-1988.

12. Under the licence know-how and engineering agreement dated 30-10-1986, DML had undertaken the obligation, among others, of technical documentation.

13. The case was adjudicated by the Additional Collector of Customs, Customs House, Madras.

14. The Additional Collector, Customs observed that "Under the supply of equipment and materials agreement dated-14-10-1988, M/s. DML has supplied the equipment under a contract price of Pound 33,80,498. The equipment supplied by DML is not manufactured by DML. DML has only developed the design and engineering for and on behalf of M/s. APL for an amount of Pound 11,50,000/- as design and engineering charge. These design, en