S.V. Maruthi, Member (J)

1. The Department is the appellant before us. M/s. Visakhapatnam Steel Project for the purpose of setting up Medium Merchant and Structural Mill entered into an agreement with Skoda Export Foreign Trade Corporation, Czechoslovakia who have provided the basic design and engineering of the plant. M/s. Bharat Heavy Electricals Ltd. are the Indian suppliers Electrics with whom M/s. Visakhapatnam Steel Project entered into an agreement to carry out design and engineering, manufacturing and commissioning of the said plant. M/s. Bharat Heavy Electricals Ltd., since they do not have the technical know-how, agreed for carrying out design and engineering, manufacturing and commissioning of the said plant through M/s. Siemens AG of Federal Republic of Germany who is hereafter called as foreign major supplier electrics. Schedule II of the agreement provides for the Payments Schedule. It is divided into two parts. The first part consists of Terms of Work and Payments to be made in respect of the Indigenous Electrical Equipments and Services to the Indian Supplier viz. Bharat Heavy Electricals Ltd. (B.H.E.L.). This part provides for various items of work to be carried out by B.H.E.L. and the amount to be paid to B.H.E.L., as against each item. The second part deals with the payments to be made to foreign major suppliers (electrics) viz. M/s. Siemens AG for the imported electrical equipments and services. The relevant items are as follows :-

In other words, the payments to foreign major suppliers electrics M/s. Siemens AG consist of two elements :- (1) Payment towards equipment commissioning, spares and special tools and (2) Payments towards engineering fees. The payments towards engineering fee as indicated above is 15,185,240 DM. The respondents namely M/s. Visakhapatnam Steel Project has to pay this amount to M/s. Siemens AG. When the goods were imported the respondents filed 3 bills of entry. The bill of entry No. 225 to 227, dated 27-6-1989 for DM 11,91,900,11,75,000 and 11,15,000 respectively. However, they have not included the amount of 15,185,240 for purpose of making assessment in respect of goods imported. Therefore, a query slip was issued proposing to include the said amount in the assessable value under Rule 9(1)(b)(iv) of the Customs Valuation (Determination of the Price of Imported Goods) Rules, 1988. The representatives of the respondents were heard personally on 5th July 1989. The respondents also filed a written reply. Before the Assistant Collector, the case of the respondents was that the fees paid towards design and engineering charges to M/s. Siemens AG were for the designing of the system for their M&SM electric operation. In other words, it is a fee for general layout and not for the equipment imported. As regards the equipment imported the fee is already earmarked and the amount has already been paid. The Assistant Collector on a consideration of Schedule II of the contract and Annexure XII of the agreement read with Article 2 of the General Conditions of the contract held that the fee under dispute is for designing and manufacture of equipment imported. Hence, it is ineludible in the assessable value of the goods imported. On appeal, the Collector held that Rule 9(1)(b)(iv) authorises addition of engineering fees to the price declared in case the engineering/design work concerns the production/sale of the equipment. In the instant case, he observed that there is no indication in the contract documents to the effect that these design/engineering fees sought to be added were relatable to the production of the equipment supplied by M/s. Siemens AG. The charges/fees paid by the appellants (respondents) is in the nature of compensation for the services rendered by M/s. Siemens AG for designing the entire net work of electrics of the plant of the appellants. Holding as above, he set aside the Order of the Assistant Collector. Hence, the appeal before us.

2. The main ground on which the Departme