SRF LTD. Vs. CC

JUDGEMENT

(1.) In 1990, the appellant M/s. SRF Co. Ltd. entered into a collaboration agreement with Atochem for the production of Chloromethanes plant to be set up in India by the appellant. The agreement provided for payment of licence and know -how fee of 8.1 Million French Franc (F.F.) and engineering fee of 6.3 million FF by the appellant to M/s. Atochem.

(2.) The machinery required for setting up of the plant was partly imported and partly procured indigenously in India. Under the impugned orders, the lower authorities have held that the licence and know -how fee and engineering fee are required to be added to the value of imported machinery, in the ratio between the cost of indigenously procured and imported machinery. This appeal challenges such inclusion.

(3.) The contention of the appellants is that the licence and know -how fee and engineering fee had no connection to the imported goods and, therefore, those fees did not merit inclusion in the assessable value of the imported goods. It is pointed out that the imports were from parties other than M/s. Atochem. In regard to the licence and know -how fee, it is pointed out that this fee is entirely towards the licence and know -how transferred for enabling the appellants to undertake the production of chloromethane according to their patented know -how. They submit that such know -how has nothing to do with the individual items of machinery imported for setting up of the plant from third parties. With regard to the engineering fee, appellants point out that Rule 9(1) (c) of the Customs Valuation Rules is attracted only to engineering design work etc. "undertaken elsewhere than in India and necessary for the production of imported goods." The appellants contend that the findings in the impugned orders fail the criteria of "undertaken elsewhere than India" and "necessary for the production of imported goods". It is pointed out that the Revenue has no case that the Engineering drawings etc. were necessary for the production of the imported goods and that their suppliers produced the goods according to the engineering drawings undertaken elsewhere than in India, Further, whatever engineering drawings were undertaken in India by M/s. Dalai Consultants and Engineers Ltd. (DCEL). During the hearing of the case, learned Advocate of the appellants took us through the various Clauses of the Collaboration Agreement and the general design supplied by M/s Atochem. Clause 3.2, which relates to supply of basic engineering design package states that Atochem shall provide in France to SRF with the basic engineering design package the contents of which shall include the details as per Annexure 2 of the agreement. The Clauses in the agreement also makes it clear that the basic engineering design package made available does not contain the engineering drawing for the equipment to be imported from various parties. Clause 3.4.1 states that Atochem shall review from a process point of view and shall comment for conformity with the Basic Engineering Design Package, detailed design drawings and specifications of the main critical equipment etc. Thus, the learned Counsel pointed out that these detailed engineering drawings were made by the appellant's Indian Consultants and M/s, Atochem was only to review it. The learned Counsel also pointed out that the basic engineering design made available by the foreign consultant only contained specification requirements and not the engineering drawing. To illustrate this point, the basic engineering specification in annexure 4 to the agreement in the case of "Hydrochlorination reactor" was taken up. The learned Counsel explained that what was supplied was only basic engineering specifications like design conditions, materials, operating conditions etc. He further explained that these were further converted into detailed engineering drawings by M/s. Dalai Consultants and Engineers Ltd. The learned Counsel has submitted that it is clear from this that the detailed engineering drawings were made in India and for that, reason remained excluded from the scope of Rule 9(1) (c) of the Valuation Rules. The learned Counsel for the appellant has also submitted that this issue remains covered in favour of assessees by the decisions of this Tribunal in the case of Panalfa Dongwon India Ltd. v. C.C. Mumbai [Final Order No. 278/2003 NB(A) dated 6.6.2003 in Appeal No. C/599/2002/NB (A), Final Order No. 280/03 -NB(A) in Appeal No. C/86/2003 NB(A) in the case of M/s. Hoerbiger India Pvt. Ltd. v. C.C. Mumbai and the decision of this Tribunal in the case of Birla Tyres v. Commissioner of Customs, Calcutta [2001 (138) ELT 628 (Tri -Kolkata].