CONTINENTAL COFFEE LTD. Vs. COMMISSIONER OF CUSTOMS

JUDGEMENT

(1.) M/s. Continental Coffee Limited (CCL for short) appellants herein, imported capital goods under EPCG Licence No. 1232940 dated 16.5.94 and cleared the same under 17 Bills of Entry. 13 of these consignments were cleared through Chennai Port and the rest through Mumbai Port. The Mumbai Customs clearances were allowed against release advice issued by the Chennai Customs. The total assessable value declared in the 17 Bills of Entry was Rs. 4,22,44,230. The CIF value permitted for import of capital goods was US 14,81,884.50 (Rs. 5,33,47,845) and the export obligation in respect of this value in terms of EPCG Licence was US 77,23,549 The above imports were made from M/s. Brazilian Food Projects, Brazil (BFP for short), with whom M/s. CCL had entered into a Technical Know -how Agreement dated 6.3.94, where under an amount of US 2,88,000 was payable to M/s. BFP as consideration for the technical know -how supplied by them. The technical know -how fee was paid by M/s. CCL, with the RBI's (Reserve Bank of India) permission, in two instalments. The imported capital goods were to be used by M/s. CCL in India for setting up a plant for the manufacture of soluble instant coffee and the technical know -how and assistance provided by M/s. BFP were to be used for the purpose. The appellants step up the instant coffee plant out of the above capital goods imported from M/s. BFP and certain equipments imported from other parties, and started manufacturing the product and exporting the same in terms of the EPCG scheme. Within a few years, they fulfilled their export obligation. Later on, in 1999, the Directorate of Revenue Intelligence (DRI), upon receipt of intelligence to the effect that M/s. CCL had evaded payment of Customs duty on the machinery imported from M/s. BFP, launched investigations into the imports. Statements were recorded from three Senior Executives of the appellants' Company viz. Shri J. Victor [Senior Manager (Commercial)], Shri M. Ravindranath [General Manager (Finance)], and Shri C. Rajendra Prasad (Managing Director). It appeared to the DRI from the results of investigations that M/s. CCL were liable to pay customs duty on the technical know -how fee and had suppressed before the department that they had not included the fee of US 2,88,000 in the assessable value of the imported capital goods. The DRI, therefore, issued a show -cause notice [SCN] to M/s. CCL invoking the larger period of limitation under Section 28 (1) of the Customs Act on the basis of alleged suppression and wilful misstatement of facts and demanding duty Rs. 36,23,372 on the value addition of the technical know -how fee. This notice also demanded interest on duty under Section 28 AB, apart from proposing confiscation of the goods under Section 111 (m) and imposition of penalty on M/s. CCL under Section 112 (a)/114A of the Customs Act. M/s. CCL contested the SCN by contending that the capital goods required for installing the instant coffee manufacturing plant and the technical know -how required for the purpose were imported under two independent purchase orders and that there was no nexus between the two. It was submitted that all the capital goods required for installing the manufacturing plant were not imported from M/s. BFP. Only some of them were imported from them under 5 purchase orders while the remaining capital goods were imported from other parties under 4 purchase orders. All the capital goods (equipments) so imported were used for setting up the instant coffee manufacturing plant. The technology purchased by M/s. CCL from M/s. BFP was necessary for the manufacture of instant coffee conforming to international standards. M/s. CCL contended that the import of capital goods from M/s. BFP and that of technical know -how from them were two independent commercial transactions with no inter -relation and, therefore, the know -how fee of US 2,88,000 was not liable to be added to the transaction value of the capital goods imported from M/s. BFP. They contended that neither Rule 9(1)(b)(iv) nor Rule 9(1)(c) of the Customs Valuation Rules, 1988 was applicable to these capital goods. They pleaded that the statements of the Company's executives were not to be relied upon to the extent they were inconsistent with the documentary evidence available in the case. M/s. CCL also raised jurisdictional objection in relation to the four consignments imported through Mumbai Port. They submitted that the Commissioner of Customs, Chennai had no jurisdiction to proceed in respect of these four consignments. They also claimed that there was no suppression or misstatement of facts by them and hence there was no reason for invoking the extended period of limitation for demanding duty from them. Ld. Chief Commissioner of Customs, Chennai adjudicated the disputes and held that an amount of US 1,30,000 being part of the technical know -how fee was addable to the declared value of the imported equipments under Rule 9(1)(b)(iv) and Rule 9(1)(c) read with Rule 4 of the Customs Valuation Rules, 1988. Accordingly, he demanded duty of Rs. 15,38,062 from M/s. CCL under the proviso to Section 28 (1) of the Act. The adjudicating authority also imposed a penalty of equal amount on the party under Section 114 (A) of the Act. It also held the goods to be liable to confiscation under Section 111 (m) and imposed a redemption fine of Rs. 1 lakh in lieu of confiscation. The present appeal of M/s. CCL is against this decision of the Chief Commissioner of Customs.

(2.) Heard both sides and considered their submissions. The lump sum fee of US 2,88,000 was paid by the appellants to M/s. BFP in terms of CLAUSE X of the Technical know -how agreement dated 6.3.1994, which reads as under:

(3.) In order that the technical know -how fee may be held to be includible in the assessable value of the equipments imported from M/s. BFP, two conditions have to be cumulatively satisfied. First, it has to be found that the know -how fee was related to the imported goods. Secondly, it was to be established that the fee was required to be paid, directly or indirectly, as a condition of sale of the said goods. It has been argued by Ld. Counsel for the appellants that the know -how fee was related only to the final product (soluble instant coffee) and was not in any way related to the imported equipments. It has also been submitted that the payment of the know -how fee was not directly or indirectly a condition of sale of equipments by M/s. BFP to the appellants. Therefore, according to the Counsel, the know -how fee is not addable to the transaction value for determination of the assessable value. Ld. Counsel has also relied on a line of decisions of the Tribunal, some of which are listed below.