[Order per : Gowri Shankar, Member (T)]. - The question for consideration in this appeal by Essar Steel Ltd., formerly Essar Gujarat Ltd., is the inclusion in the value for assessment to Customs duty of the charges paid by it to Met-Chem Canada for supply of technical services required for setting up and commissioning a plant for the manufacturing of hot-rolled steel coils.
2. The appellant had set up in 1990 a plant to manufacture hot briquetted iron. It decided to set up a plant for manufacture of hot-rolled coils and strips from out of the iron, and also to increase the existing capacity of the sponge iron plant. The appellant approached Met-Chem Inc., a Canadian company for this purpose, and negotiations between the two resulted in signing of two agreements between them. On 13-4-91 it signed an agreement with it. The agreement signed on 13-4-1991 provided that in consideration for supply by Met-Chem of engineering and other technical services for setting up the plant, it would be paid DM 78,950,000. By a subsequent amendment this figure was increased to DM 94 million. An order was placed on 21-6-1991 for supply of machinery and equipment initially valued at US $ 163 million and subsequently increased to $ 189.70 million, both for the hot-rolled strip plant, and for the sponge iron plant.
3. Notice was issued to the appellant proposing to include in the assessable value of the goods imported by the appellant from Met-Chem. the sum DM 78.95 million initially contracted to be paid to Met-Chem for technical services on the ground that the sum represented payment for “technical know-how charges undertaken elsewhere than in the country of importation” which were includible in the assessable value of the goods by virtue of the provisions of Rule 9 of the Customs (Valuation) Rules, 1988. The importer resisted the notice, contending in its reply that Rule 9(1)(b) of the Rules provided only for inclusion in the value of goods of services for use in connection with the production and sale for export of the imported goods, and that none of the services for which the amount in question paid was for this purpose. The importer was also heard by the Commissioner. In his order, the Commissioner did not proceed on the basis set out in the notice, but concluded that the technical services for which the amount was payable were necessary for making the plant operational. This, according to him, was the “litmus test”. He also cited in support the judgment of the Supreme Court in CCE (Preventive), Ahmedabad v. Essar Gujarat Ltd., . He, therefore, ordered inclusion of this sum in the assessable value. Hence this appeal.
4. The contention of the Counsel for the appellant is that the services for which the payment had been made were not a condition of sale of the goods imported from Met-Chem. The services consisted of the following; project engineering services to oversee the successful setting up and commissioning of the plant and achieving its stable operation, including the valuation of technical proposals from various suppliers for the supply of plant and machinery including engineering design, etc.; supervision and monitoring of the project; arrangement for training of the appellant employees abroad, assistance in locating some contractor for technology for operation or maintenance of the plant and organisation of transfer of such technology and assistance and procurement of equipment in India. None of these, he says, can be viewed as being a condition of sale of goods imported from Met-Chem. He contends that the reliance upon the Supreme Court’s judgment was misplaced, as in that case there was in fact a specific process licence required from Midrex without which the goods imported by the appellant was setting up the hot briquetted iron plant would have been useless. The departmental representative reiterates what the Commissioner has said.
5. The reason that the Commissioner advances for treating the contracts as one are twofold. The first is that the plant could not have been set up and run without supply of the technical knowledge and the second is that the technical supply agreement was signed prior to the agreement for supply of machinery. Neither of these claims stands scrutiny. The goods have to be assessed to duty in the manner in which it is imported and only those additions which are permissible in the Valuation Rules could be made to their value. Rule 9 of the Valuation Rules does not provide for adding to the value of imported goods charges which are payable in respect of a plant or factory of which they ultimately become a part. This specific question had in fact been before the Supreme Court in CCE (Preventive), Ahmedabad v. Essar Gujarat Ltd., . The Court in that judgment only held includible in the assessable value of the imported goods, the fees payable to Midrex for operating the sponge iron plant, and the charges that were incurred for dismantling the plant from its existing location in Germany so as to have it shifted. It did not approve addition of amounts spent for other purposes. Paragraph 29 of the judgment, which is reproduced below, makes the position clear :
“There are various other clauses relating to civil engineering technical specifications, documentation and also inspection and check sizing of motors, reduction gear and hydraulics of Service Units etc. It is difficult to hold that the entire payment of engineering consultancy fee to V.A. will have to be added to the imported plants. But the plant was sold on “as is where is” basis. So whatever expenditure was needed to be incurred for dismantling the plant and making it ready for delivery has to be added to the value of the plant. The specialist supervision for dismantling of the plant and also engineering and consultancy, services rendered cannot be treated as adding in any way to the value of the plant. Since there is no clear indication as to how the various services have been valued separately. 10% of the amount of DM 23,100,000 should be added to the value of the plant on this account.”
6. Accordingly, out of the sums payable by the appellant to Met-Chem specified in the technical supply agreement, only the amounts payable for obtaining a process licence from Midrex in relation to the proposed sponge iron plant would have been includible in the value of that plant, if imported. However, that plant was not imported. By amendment made on 25-7-1992 to the agreement of the purchase order for supply of sponge iron plant was deleted. This sponge iron plant was therefore not imported.
7. The appeal is accordingly allowed and the impugned order set aside.