GUJARAT MINERAL DEVELOPMENT Vs. C.C.E.

JUDGEMENT

(1.) THE issue involved in this appeal filed by M/s. Gujarat Mineral Development Corporation Ltd. is whether the Customs duty is payable in respect of the design and engineering charges paid to the supplier abroad.

(2.) BRIEFLY stated the facts are that the appellants applied for registration of contract on 10 -7 -1986 under Project Import for import of machinery and accessories for their lignite project; that the contract was registered on 25 -7 -1986 under the Project Import Regulation, 1986. The Appellants filed 9 Bills of Entry for import of specialised mining equipments, machineries, etc. which were cleared on payment of customs duty amounting to Rs. 14,80,84,167.50 paise. Subsequently, they claimed refund of duty Rs. 1,71,78,129.21 paise on the ground that customs duty was not payable in respect of design and engineering charges as these were paid for technical assistance and assembling of the plant. The Deputy Collector, Customs, rejected the refund claims under Adjudication order dated 27 -3 -1989 holding that since the transaction was unique and it was difficult to determine the price at which such or like goods were ordinarily sold, the price would be determined as per provisions of Rule 8 of Customs Valuation Rules, 1963; that the nearest ascertainable value would be the cost of importation of the goods, and all the elements of the cost which would be incurred before the importation of the goods would be included in determining the assessable value of the goods; that as the cost of design and engineering had been incurred prior to the importation these would form the element of cost of imported goods, even if such costs had been shown separately in the invoice; that these charges could not be separately classified under Heading 49.06 of the Customs Tariff in view of the fact that the whole import was under Project Import Regulations, 1986 under Heading 98.01 and all items imported under the contract would be assessed under Heading 98.01. On appeal, the Commissioner (Appeals), under the impugned order dated 22 -1 -1997, rejected the appeal holding that the cost of design and engineering was always considered to be an ingredient of the assessable value, even in respect of machinery imported separately under different headings; that this aspect became more relevant when the appellants had opted for import under Project Regulations under Chapter 98 of the Customs Tariff; that drawings, design and engineering charges had also been paid against importation of the project items and, therefore, would be liable for being charged to duty under Chapter 98 of the Customs Tariff.

(3.) SHRI Girish N. Shah, learned Advocate, submitted that for the expansion of Panandhro Lignite Mines Project, the Appellants entered into a contract dated 6 -11 -1984 with a German Company Takraf Export/Import (referred to as Contractor) under which the scope of work comprised of manufacture, supply and transportation of machineries and equipments from GDR, Berlin and also, inter alia, furnishing of drawings of designs for erection and installation of plant; that this is evident from the preamble to the contract that the appellants had selected M/s. Tokraf's offer having agreed upon the technical specification of the equipments and machineries and other terms including erection, testing and commissioning. The learned Counsel referred to the various articles of the contract to show that design and engineering expenses were different from the manufacture and supply of machineries and equipments. He referred to Article 1.11 according to which "Contract Drawings" shall mean the designs, plans, drawings, sketches and details which have been supplied by the contractors for the execution of the contract and shall include the changes effected therein as mutually agreed. The learned Counsel referred to Article 2.1 which defined 'Scope of work' which included "Commissioning, short -term and long term tests of machinery and equipment and providing supervision of erection, short term and long term tests and contended that all these activities were post importation activities; that Article 4 of the Contract, dealing with the 'prices', lays down break up of the total contract price reading as under: -