Civil Appeal No. 2498 of 2018 Indusind Media & Communications Ltd.  vs.  Commissioner of Customs, New  Delhi

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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2498 OF 2018

INDUSIND MEDIA & COMMUNICATIONS LTD. …Appellant

VERSUS

COMMISSIONER OF CUSTOMS, NEW DELHI …Respondent

J  U  D  G  M  E  N  T

Uday Umesh Lalit, J.

1. This  Appeal  under  Section  130E  of  the  Customs  Act,  1962

(hereinafter  referred  to  as  ‘the  Act’)  arises  out  of  Order

No.C/A/57743/2017 dated 09.11.2017 passed by the Customs Excise and

Service  Tax  Appellate  Tribunal  (for  short,  ‘the  Tribunal’)  dismissing

Appeal No.C/51770 of 2016 preferred by the appellant herein.

2. The basic facts leading to the issuance of Show Cause Notice dated

27.06.2014 initiating proceedings against the appellant, as set out in the

Order under appeal are as under:-

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“The  appellant  imported  certain  goods  at  air cargo  complex,  New  Delhi  and  filed  Bill  of Entry 2660085 dated 26.6.2003.  They declared the goods as Multiplexor Satellite Receivers, test and  measurement  equipment  etc.  and  attached six invoices covering 19 items imported.  They indicated individual classification for the various items  under  Chapter  84/85  of  the  Customs Tariff.   The Bill  of  Entry was assessed as  per declaration  and  applicable  customs  duty  was paid.   Subsequently,  information  was  received from  SIIB  Air  Cargo  Complex  Mumbai,  that investigations had been commenced against the appellant for import of similar goods at Mumbai. Accordingly,  Provisional  Assessment was been ordered under Section 18 of the Customs Act.

2. The  investigation  undertaken  at  Mumbai revealed as follows:-

The importer had placed the order at UK for purchase of equipments – one set  for Mumbai and another set for Delhi.  Each set  of  equipment,  taken  together constituted  ‘Head  End’  for  cable  TV operations.   The  ‘Head  End’  was  an equipment  at  a  local  TV  office  that originates the cable TV services and cable TV modem services  to  subscriber  though Conditional  Access  System  (CAS).   All imported  equipments  taken  together contributes  towards  a  clearly  refined function  i.e.  ‘Head  End’  for  cable  TV operations.  The complete set of equipment together  merits  classification  under Customs Tariff Heading (CTH) 8543 8999, in  the  light  of  Note  4  to  Section  XVI. Thus,  it  appeared  that  individual classification  indicated  for  19  imported items  amounts  to  mis-declaration.   The search  operation  carried  by  SIIB,  ACC, Mumbai at the premises of importer further revealed  that  the  importer  had  also  mis-

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declared  the  value  of  the  imported consignments at Delhi and Mumbai.  They had  suppressed  the  value  of  embedded software  as  well  as  value  of  services payable to the foreign supplier for carrying out  integration  of  the  system  prior  to shipment  and  provide  complete commission and installation services at the customers  premises.   Further,  it  was noticed that the purchase order placed by the importer was revised to show as CIF instead of FOB.”

3. In  the  aforesaid  circumstances,  Show  Cause  Notice  dated

27.06.2014 was issued by the Department stating inter alia :-

“18. In view of  the above,  it  appears that  the Importer  had  fabricated  documents  by  way of splitting  of  value  of  the  goods  and  declared lesser value to the Customs Department with the sole  intention  to  evade  payment  of  Customs Duties.  Therefore, it appeared that the Importer had  intentionally  not  declared  the  true  and correct  value  of  the  goods  imported  to  the customs for the purpose of payment of Customs Duty.  Further the cost of services was to be paid separately  by  the  Importer  to  their  supplier. Hence,  the  Importer  failed  to  make  true declarations.   Therefore,  the  goods  imported vide Bill of Entry No.260085 dated 26.06.2003 filed  at  Air  Cargo  Complex,  New  Delhi  also appear  to  be  liable  for  confiscation  under Section 111(m) of the Customs Act, 1962 due to their aforesaid act of omission and commission. It  also  appears  that  they  have  rendered themselves liable for penal action under Section 112(a)  and/or  Section  114AA of  the  Customs Act, 1962.”

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The appellant was thus asked to show cause why:

(a) the  declared  values  should  not  be  rejected under  Rule  10A of  the  erstwhile  Customs Valuation  (Determination  of  Price  of Imported Goods) Rules, 1988 and the same should not be redetermined under Rule 9(1) (e) (adding cost of services) of the erstwhile Custom Valuation (Determination of Price of Imported Goods) Rules, 1988;

(b) the invoice value of imported goods declared in  the  (Bill  of  Entry  as  Rs.1,02,91,463/- should not be enhanced to Rs.1,72,03,243/- (Rupees  One  Crore  Seventy  Two  Lakhs Three  Thousand  Two  Hundred  and  Forty Three  Only)  for  the  purpose of  assessment under Section 14 of the Customs Act, 1962 read  with  Rule  9(1)(e)  of  the  erstwhile Customs  Valuation  (Determination  of  Price of  Imported  Goods)  Rules,  1988  and  the provisional  assessment  made  under  Section 18  of  Customs  Act,  1962  should  not  be finalised accordingly.

4. According  to  the  record,  the  appellant  was  given  several

opportunities but no written submissions, in response to the Show Cause

Notice, were filed.  The facts on record also disclose that the opportunity

of personal hearing was also extended and the matter was adjourned from

time to time but the appellant did not avail the opportunity of personal

hearing1.   After  considering  the  facts  on  record,  the  Principal

1 Paras 16 and 17 of the Order dated 29.12.2015

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Commissioner  of  Customs  (Import)  by  his  order  dated  29.12.2015

rejected the declaration by the appellant vide Bill of Entry No. 260085

dated 26.06.2003.  It was observed that the appellant had intentionally not

declared the true and correct value and correct classification of imported

goods.  The conclusion was drawn as under:- “26.  …  …I  find  that  in  the  instant  case,  the Noticee(s)  made  a  declaration  at  the  time  of filing of  Bill  of  Entry that  goods imported by them  vide  Bill  of  Entry  No.  260085  dated 26.06.2003  were  different  parts  classifiable under different CTHs whereas the goods under import  were  the  complete  equipment  of  head- end classifiable  under  CTH 85438999 and the goods  were  also  declared  undervalued,  as discussed  above.   Brigadier  R  Deshpande (Retd.),  Vice  President,  Technical  of  the importer  had  admitted  his  awareness  in  his statement  dated  10.07.2003  that  software  was embedded  in  the  machine.   He  in  connivance with the supplier of goods fabricated document by  splitting  the  values  between  the  goods imported and the other services rendered by the supplier in connection with the imported goods and as  such,  I  find  that  the  declaration  of  the Noticee(s)  was false  in material  particular.   In view of  above,  I  hold  both  the  Noticee(s)  are liable  to  penalty  under  Section  114AA of  the Customs Act, 1962.”

The Principal Commissioner of Customs (Import) then redetermined

the value of all the goods imported under said Bill of Entry as under:-

“(a)… …The value  of  all  the  goods  imported under  the  said  B/E  taken  together  is redetermined  under  Rule  9(1)(e)  of  the  said

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Rules  as  US $  361633  CIF  and  consequently after  loading 1% towards  landing charges  and applying  the  relevant  exchange  rate,  the assessable  value  is  determined  as Rs.1,72,03,243/-(Rupees  One  Crore  Seventy Two Lakhs Three Thousand Two Hundred and Forty Three Only) for the purpose of Section 14 of the Customs Act, 1962 read with Rule 9(1)(e) of  the  Customs  Valuation  (Determination  of Price of Imported Goods), Rules, 1988.

(b)  The  classification  of  all  the  components imported  under  the  B/E  No.260085  dated 26.06.2003 taken together  is  determined under CTH 85438999 of the Customs Tariff Act, 1975.

(c) The  provisional  assessment  made  in respect of B/E No.260085 dated 26.06.2003 is finalized under Section 18 of the Customs Act, on  the  basis  of  revised  assessable  value  and classification as ordered above.   Consequently, demand  for  differential  duty  amounting  to Rs.54,19,475/-  is  confirmed.   I  order  that  the amount of Rs.54,19,475/- deposited at the time provisional release of the goods be appropriated towards the differential duty.

(d) The goods imported under B/E No.260085 dated  26.06.2003,  which  were  provisionally released  on  execution  of  P.O.  bond  for Rs.1,72,03,242/-, are confiscated under Section 111(m)  of  the  Customs  Act,  1962.   Since  the goods are already released to the party, they are ordered  to  pay  redemption  fine  of Rs.10,00,000/- (Rupees Ten Lakhs only) under Section 125 of the Customs Act, 1962 in lieu of confiscation thereof.”

The  Order  dated  29.12.2015  proceeded  to  impose  penalty  as under:-

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“(e) I  impose  a  penalty  of  Rs.15,00,000/- (Rupees  Fifteen Lakhs only)  on M/s.  Indusind Media  & Communication Ltd.,  Mumbai  under Section 112(a) of the Customs Act, 1962.

(f) I  impose  penalty  of  Rs.15,00,000/- (Rupees  Fifteen Lakhs only)  on M/s.  Indusind Media  & Communication Ltd.,  Mumbai  under Section 114AA of the Customs Act, 1962.  

(g) I  impose  a  penalty  of  Rs.3,00,000/- (Rupees  Three  Lakhs  only)  on  Brigadier  R. Deshpande (Retd.), Vice President, Technical of M/s.  Indusind  Media  &  Communication  Ltd., Mumbai  under  Section  112(a)  of  the  Customs Act, 1962.

(h) I  impose  a  penalty  of  Rs.2,00,000/- (Rupees  Two  Lakhs  only)  on  Brigadier  R. Deshpande (Retd.), Vice President, Technical of M/s.  Indusind  Media  &  Communication  Ltd., Mumbai under Section 114AA of the Customs Act, 1962.

(i) The redemption fine and penalties may be recovered  by  enforcing  the  Bank  Guarantee executed  at  the  time  of  provisional  release  of goods.”

5. The appellant, being aggrieved, filed Customs Appeal Nos.51769-

51770 of 2016 before the Tribunal.  It was submitted that there was no

undervaluation of the goods;  that the department had incorrectly included

the amount towards software and post import services; and that Note 4 to

Section XVI of the First Schedule to Customs Tariff Act, 1975 (“the Act’,

for short) had no application in the matter.  It was alternatively submitted

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that  the  goods  in  question  merited  classification  under  Central  Excise

Tariff Heading (CETH) 8525 2019 as “transmission apparatus” and not

under  8543  as  contended  by  the  Department.   In  response,  it  was

submitted on behalf of the Department that out of 19 items indicated in

the Bill of Entry, only 8 items were physically presented, as several cards

were already assembled in the main unit; that the appellant had not given

proper  description  in  the  Bill  of  Entry  and  the  goods  imported  were

complete  ‘Head  End’ and  not  parts;  that  the  charges  covered  by  the

relevant invoice amounting to US $ 1,00,019 were rightly included since

they pertained to charges where the software covered by the invoice was

already  embedded  in  the  equipment  and  that  the  goods  were  rightly

classified under 8543.   

6. After hearing rival submissions, following issues were framed by

the Tribunal for consideration:-

“1. First  is  the classification of the imported goods  –  whether  8543  as  ordered  by  the adjudicated authority or 8525 as claimed by the appellant.

2.  Second issue is of valuation – whether the value  of  software  already  embedded  in  the equipment  as  well  as  service  charges  are required to be included in the assessable value.”

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7. The Tribunal relied upon Note 4 to Section XVI and found that

though  different  equipments  were  ordered,  they  were  meant  to  be

interconnected in such a way as to perform a common clearly defined

function  which  was  to  be  ‘Head  End’.   However,  according  to  the

Tribunal, the goods would actually be covered by heading 8525 and not

by heading 8543.  For arriving at such conclusion, reliance was placed on

the decisions in  SET India Pvt.  Ltd.  vs.   Commissioner of Customs,

Cochin2 and Commissioner of Customs  vs.  Multi Screen Media Private

Limited3.   

While  considering  the  issue  regarding  valuation,  the  purchase

order  was  relied  upon,  according  to  which,  apart  from  supply  of

equipment,  necessary  software  had  to  be  embedded  in  the  equipment

before the supply was effected.  Relying on Sub-Rule (iii)  of Rule 10 of

the  Customs  Valuation  (Determination  of  Value  of  Imported  Goods)

Rules, 2007 (for short, ‘the 2007 Rules’) it was observed that since the

software was already incorporated in the imported goods, the value of the

same was required to be added to the transaction value.   It was concluded:-

“19. In view of the mis-declaration established in respect of valuation, the imported goods will be liable  for  confiscation  under  section  111  of  the

2 2003 (152) ELT 190 (Tribunal – Mumbai) 3 2015 (322) ELT 421 (SC) = (2015) 16 SCC 263

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Customs Act and the appellant will also be liable for penalty.”

In the premises, by Order under appeal, the matter was remanded

to  the  adjudicating  authority  only  for  the  purpose  of  recomputing  the

differential  duty in the light  of  its  conclusion that  the classification of

imported goods was to  be  under  heading 8525 and not  under  heading

8543.  

8. In this appeal, it has principally been submitted:-

 “A. The  Imported  Goods  have  been  correctly classified by the Appellant.

a. The following major  components  were  imported by the Appellant from Tandberg:

1.  Multiplexers

2.  Satellite receivers

3.  Test and measurement

b. The following are the major components imported from other supplier by the Appellant:

i.   CAM  Modules  –  Aston  and Nagravision

ii.   Encoders

iii   Power Vu receivers – Scientific Atlanta

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iv.    Integrated receiver De-coder’s (IRD’s) –   Purchased  from  the  channels directly

v.   Encryption System -Nagravision

c. The Head End is the physical location in your area where  the  television  signal  is  received  by  the provider, stored, processed and transmitted to their local customers (subscribters).

d. Undisputedly the Appellant being a Multi  System Operator  (“MSO”)  i.e.  a  cable  network  operator, receives  encoded  and  scrambled  signals  from Network  Broadcasters.   The  major  function  of  a Head End is to decode and unscramble, the encoded and  scrambled  signals  received  from  the Broadcasters.  Such function admittedly could not be  achieved  without  Encoders,  IRD’s,  Power  Vu Receivers  and  Encryption  System  which  were imported by the Appellant from other suppliers.

e. Without  these equipments  working in  conjunction network,  the encoded and scrambled signals  from Broadcasters could not be received at the Head End (“Power  Vu  Receivers”)  and  neither  can  they  be decoded  (Encoders  and  IRD’s)  or  unscrambled (“Encryption System”) and thereafter could not be broadcasted to the recipient/subscribers.  Therefore, the intended function of a Head End could not be achieved  without  Encoders,  IRD’s,  Power  Vu Receivers  and  Encryption  System.   These equipments  admittedly  were  not  part  of  the imported  consignment  under  dispute.   Admittedly these  equipment’s  were  imported  separately  from other suppliers.

f.  Therefore,  it  can  be  concluded  that  the  imported consignment  does  not  constitute  a  complete  Head End  and  that  each  component  is  to  be  classified under the relevant Chapter Heading.”

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and following principal question has been raised:-

“A.  Whether  the  CESTAT  has  erred  in  failing  to consider the primary submission of the Appellant, that the 19 different items imported by the Appellant under the  Bill  of  Entry  No.2660085  dated  26.06.2003 (‘BOE’) even if  taken together do not form one co posite ‘Head-end’ and that each item has an individual function, and each item is to be classified under the Chapter Heading it falls mainly CTH 85175010, CTH 85281299, CTH 85438910, CTH 84717010 and CTH 85249112.”

9. Appearing  in  support  of  the  appeal,  Mr.  Tarun  Gulati,  learned

Senior Advocate, also submitted:-

a) The imports and Bill of Entry in the instant case were of the

year 2003 and 2007 Rules would not apply. b) Certain activities like engaging the services for appropriate

software etc. as a result of which cards were embedded in

items of import, were essentially post import activities and

could  not  be  taken  into  account  for  the  purposes  of

valuation.

10. Mr. Aman Lekhi, learned Additional Solicitor General appearing

for  the  respondent  refuted  all  the  contentions  of  the  appellant  and

submitted that:-

a) Though  the  invoices  in  the  case  did  mention  individual

items,  the  dominant  intent  had  to  be  seen  whether  the

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intended  user  was  of  individual  items  or  they  were

supposed to be used collectively as part of one apparatus, in

which  event  Note  4  to  Section  XVI  would  provide

guidance.

b) Rule 9 of the Customs Valuation (Determination of Price of

Imported Goods) Rule, 1988 (“the 1988 Rules”, for short)

being  almost  identical  to  Rule  10  of  2007  Rules,  the

reliance was not misplaced.

c) In any case, Rule 10 of 2007 Rules which seeks to explain

certain matters  is  clarificatory in nature and the meaning

would be consistent with Rule 9 of 1988 Rules.

d) The submission that there were post import charges which

were  getting  included in  the  valuation  was incorrect  and

what was found as a fact was that all those software cards

were embedded in various parts when the import had taken

place.

11. It must be stated that the finding of the Tribunal that the imported

goods would be classifiable under Tariff Item 8525 and not under 8543,

has  not  been challenged by the  respondent.   Thus,  insofar  as  issue  of

classification  is  concerned,  the question is  whether  the items imported

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ought to be considered individually or whether the treatment given by the

Department, with the aid of Note 4 to Section XVI was correct.  Note 4

appears in Section XVI of the First Schedule to the Act.  Said Section XVI

has the heading:-

“Section  XVI- Machinery  and  mechanical appliances;  electrical  equipment;  parts  thereof; sound records and reproducers, television image and sound recorders  and reproducers;  and parts and accessories of such articles”

Note  4  of  Said  Section  XVI  is  to  the  following effect:-

“4. Where  a  machine  (including  a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices,  by electric cables  or  by  other  devices)  intended  to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.”

Tariff  Item  8525  appearing  in  Chapter  85  is  as under:-

“Transmission  apparatus  for  radio  telephony, radio-telegraphy,  radio-broadcasting  or television,  whether  or  not  incorporating reception  apparatus  or  sound  recording  or reproducing apparatus; television, cameras; still image  video  cameras  and  other  video  camera recorders; digital cameras.”

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12. The Appellant is right in its submission that since the Bill of Entry

in the present case was of the year 2003, 2007 Rules would not apply and

that the appropriate Rules would be 1988 Rules.  Rule 9 of 1988 Rules was

set  out  by  this  Court  in  Commissioner  of  Customs (Port),  Chennai v.

Toyota  Kirloskar  Motors  P.  Ltd.4,  while  considering  the  issue  whether

technical assistance fees in terms of Article 4 of the Agreement between

the  parties  had  any  direct  nexus  with  importation  of  goods.   It  was

observed:-

“25. The Central Government in exercise of its power conferred upon it under Section 156 of the Act, made rules  known  as  “the  Customs  Valuation (Determination  of  Price  of  Imported  Goods)  Rules, 1988”.  Rule  3  provides  for  determination  of  the method of valuation, stating:

“3. Determination of the method of valuation.— For the purpose of these Rules,— (i)  the  value  of  imported  goods  shall  be  the transaction value; (ii) if the value cannot be determined under the provisions of clause (i) above, the value shall be determined by proceeding sequentially through Rules 5 to 8 of these Rules.”

26. How the transaction value would be determined has been laid down in Rule 4 of the Rules, stating that the same shall be the price actually paid or payable for the goods when sold for export to India adjusted in accordance with the provisions of Rule 9 of the said Rules. Rule 9 of the Rules provides for determination of transaction value, stating:

4 2007 (213) ELT 4 (SC) = (2007) 5 SCC 371

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“9.  Cost  and  services.—(1)  In  determining  the transaction value, there shall be added to the price actually paid or payable for the imported goods, — (a) the following cost and services, to the extent they  are  incurred  by  the  buyer  but  are  not included in the price actually paid or payable for the imported goods, namely—

(i)  commissions  and  brokerage,  except buying commissions; (ii) the cost of containers which are treated as being  one  for  customs  purposes  with  the goods in question; (iii) the cost of packing whether for labour or materials;

(b) the value, apportioned as appropriate, of the following  goods  and  services  where  supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to  the  extent  that  such  value  has  not  been included  in  the  price  actually  paid  or  payable, namely—

(i)  materials,  components,  parts  and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the imported goods; (iii) materials consumed in the production of the imported goods; (iv)  engineering,  development,  art  work, design  work,  and  plans  and  sketches undertaken  elsewhere  than  in  India  and necessary for the production of the imported goods;

(c)  royalties  and  licence  fees  related  to  the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued,  to the extent that  such royalties  and fees  are  not  included in the  price actually paid or payable;

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(d) the value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that  accrues, directly or indirectly,  to the seller; (e)  all  other  payments  actually  made  or  to  be made  as  a  condition  of  sale  of  the  imported goods, by the buyer to the seller, or by the buyer to  a  third  party  to  satisfy  an  obligation  of  the seller  to  the  extent  that  such payments  are  not included in the price actually paid or payable.”

27. The issue before  us  is  no  longer  res  integra  in view  of  the  decision  of  this  Court  in  Commr.  of Customs  (Port) v.  J.K.  Corpn.  Ltd. wherein  it  is stated: (SCC para 9)

“9. The basic principle of levy of customs duty, in view of the aforementioned 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 know-how 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(1-A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.”

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28. Reliance,  as  noticed hereinbefore,  however,  has been  placed  by  the  learned  Additional  Solicitor

General on Essar Gujarat Ltd.”

Thereafter, the decision of this Court in Essar Gujarat Limited5 was

considered and it was observed:

“36. Therefore, law laid down in Essar Gujarat Ltd. and  J.K. Corpn. Ltd. is absolutely clear and explicit. Apart  from  the  fact  that  Essar  Gujarat  Ltd. was determined on the peculiar facts obtaining therein and furthermore having regard to the fact that the entire plant on “as-is-where-is” basis was transferred subject to  transfer  of  patent  as  also  services  and  technical know-how needed for increase in the capacity of the plant, this Court clearly held that the post-importation service  charges  were  not  to  be  taken  into consideration for determining the transaction value.

37. The  observations  made  by  this  Court  in  Essar

Gujarat Ltd.1 in para 18 must be understood in the factual  matrix  involved  therein.  The  ratio  of  a decision, as is well known, must be culled out from the facts involved in a given case. A decision, as is well known, is an authority for what it decides and not what  can  logically  be  deduced  therefrom.  Even  in

Essar Gujarat Ltd.1 a clear distinction has been made between  the  charges  required  to  be  made  for  pre- importation and post-importation. All charges levied before the capital goods were imported were held to be  considered  for  the  purpose  of  computation  of transaction  value  and  not  the  post-importation  one. The said decision, therefore, in our opinion, is not an authority for the proposition that irrespective of nature of  the  contract,  licence  fee  and  charges  paid  for technical know-how, although the same would have nothing to do with the charges at the pre-importation stage,  would  have  to  be  taken  into  consideration

5 (1997) 9 SCC 738

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towards computation of transaction value in terms of Rule 9(1)(c) of the Rules.

38. The transaction value must be relatable to import of  goods  which  a  fortiori  would  mean  that  the amounts must be payable as a condition of import. A distinction,  therefore,  clearly  exists  between  an amount  payable  as  a  condition  of  import  and  an amount payable in respect of the matters  governing the  manufacturing  activities,  which  may  not  have anything to do with the import of the capital goods.”

13. The  aforesaid  decision  found  that  the  Technical  Assistance  Fee

under Article 4 had direct nexus with post importation activities and not

with importation of goods.  That deduction was arrived at after considering

the individual facts and the scope of Article 4 which was to the following

effect:-

“4. Additional assistance (a) At the licensee’s written request, the licensor

may furnish the licensee with manufacturing, engineering  and  other  know-how  and information relating to the licensed products which  are  not  readily  available  in  the licensor’s  records  but  which  the  licensor  is willing to develop especially for the licensee, and  which  shall  be  furnished  through  such documents and assistance as designated at the discretion of  the licensor from among those stipulated in Appendix D attached hereto and any other documents and assistance from time to time designated by the licensor.

(b) In  the  event  of  the  preceding  para  (a),  the licensee shall pay the licensor all fees, and all

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costs and expenses incurred by the licensor in developing  and  furnishing  such  know-how, information, documents and/or assistance.

(c) If  the  assistance  rendered  under  para  (a) hereof is technical assistance or engineering assistance  concerning  the  licensed products, such  assistance  will  be  provided  in accordance  with  the  procedures  and conditions  set  forth  in  Appendix E attached hereto.”

The  subsequent  decisions  of  this  Court  in  Commissioner  of

Customs,  Ahmedabad vs. Essar  Steel  Ltd.6, and  in  Commissioner  of

Customs (Import), Mumbai vs. Hindalco Industries Ltd.7 have followed

the  same  principle  that  technical  agreements  involved  in  said  cases

pertained to post-importation activity.  To similar effect was the conclusion

by this Court in an earlier decision in  Commissioner of Customs, New

Delhi v.  Prodelin  India  (P)  Ltd.8 that  technical  know how fee  was in

respect of post-importation activities and could not be added to the value

of the imported goods.   

14. It is a matter of record that after considering the purchase order in

the instant case, the Tribunal found that apart from supply of equipment,

necessary software had to be embedded in the equipment before the supply

6 2015 (319) ELT 202 = (2015) 8 SCC 175 7 (2015) 320 ELT 42 (SC) = (2015) 14 SCC 750 8 2006 (202) ELT A130 = (2006) 10 SCC 280

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was effected.  The facts also disclose that out of 19 items indicated in the

Bill of Entry, only 8 items were physically presented while the rest were

already embedded in the main unit.  These facts are not only reflective that

the individual components were intended to contribute together and attain

a clearly defined function as dealt with in Note 4 of Section XVI as stated

above, but also indicate that software that was embedded through cards in

the main unit,  was not  any post-importation activity.   The value of  the

software and the concerned services were therefore rightly included and

taken as part of the importation.   

15. The  facts  on  record  as  stated  above  further  disclose  that  the

Department was therefore right in invoking principle under said Note 4 and

considering the imported items as part of one apparatus or machine to be

classifiable under the heading appropriate to the function.  The submission

advanced by the Appellant in that behalf therefore has to be rejected.  

16. Rule  9(1)(b)  of  1988 Rules  as  quoted  above  in  the  decision  in

Toyota  Kirloskar4,  case  shows  that  the  value  in  respect  of  “materials,

components, parts and similar items incorporated in the imported goods”

has to be added while determining the transaction value. Said Rule 9 is

almost identical to Rule 10 of 2007 Rules.  Thus, even if the governing rule

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is taken to be Rule 9 of 1988 Rules, there would be no difference in the

ultimate analysis.   

17. Consequently,  we  do  not  find  any  merit  in  the  present  appeal.

Affirming the view taken by the Tribunal, we dismiss this appeal, without

any order as to costs.   

……………………….J. [Uday Umesh Lalit]

……………………….J. [Vineet Saran]

New Delhi; September 27, 2019