Page 103 - ELT_15th May 2020_VOL 372_Part 4th

2020 ] COMMISSIONER OF CUS. (PORT), KOLKATA v. STEEL AUTHORITY OF INDIA LTD. 493
overseas owner of that plant in Germany. That owner was Teviot Investments
Limited. The agreement Essar Gujarat had with Teviot for purchase of the plant,
however, was subject to Essar obtaining transfer of operational license from an-
other corporation, Midrex International BV. Question arose as to whether the
license fees paid to Midrex should be included to the value of the plant or not.
The revenue case was that the stipulation of obtaining the license from Midrex
was a condition for sale. If this condition was not fulfilled, the sale would have
had fallen through. Thus, to give effect to the plant sale agreement, there was an
element of necessity or compulsion to enter into the licensing agreement with
Midrex.
21. SAIL had taken specific stand before the authority of the first in-
stance that it was not a condition for them to take design and engineering, which
related to post-importation activities from the supplier only. In terms of the
Schedule of the agreement, the purchaser (that is SAIL) had right to change the
goods to be supplied by the supplier at any time.
22. An importer of equipments of a plant could always choose to obtain
drawings and designs for undertaking post-importation activities from an over-
seas consortium supplying the equipments. This may confer on such arrange-
ments attributes of a turnkey contract, but that fact by itself would not automati-
cally attract the “condition” clause contained in Rule 9(1)(e) of the Valuation
Rules. In the cases of Essar Steel Ltd. (supra) and Tata Iron and Steel Co. Ltd. (su-
pra), the contracts had certain elements of “turnkey” features. The case of Essar
Gujarat (supra) is distinguishable, as the subject of import there carried a condi-
tion for entering into a licensing agreement with a third party.
23. This decision was considered by this Court in Essar Steel (supra)
and Essar Gujarat (supra). It was explained by this Court in the case of Essar Steel
(supra) in paragraphs 17 and 18 of the report :
“17. The Court held that the amount of 20 lakh Deutsche Marks and 101
lakh Deutsche Marks were both payable for the right to use Midrex process
and patents. In short, these amounts were payable for the transfer of tech-
nology under a process licence agreement entered into with Midrex. The
judgment states that without such licence the plant could not be operated at
all by the importer without the technical know-how from Midrex. In any
case, the plant could not be operated or be made functional. This being the
case, since these amounts had to be paid before the plant could at all be set
up, these amounts would be added to the value of the imported plant.
18. However, so far as the sum of 231 Lakh Deutsche Marks is concerned,
since this was payment for engineering and technical consultancy to set up
and commission the plant in India, this amount would have to be excluded.
This Court held that 10% of this amount only should be added to the value
of the plant as the plant had been sold abroad on an as is where is basis and
needed to be dismantled abroad before it was ready for delivery in India.
Obviously, therefore this 10% is attributable to a pre-import stage. Further,
the amount of 22 Lakh Deutsche Marks payable for theoretical and practical
training of personnel outside India again could not be added as this amount
would presumably be attributable to trained personnel who would be used
in the commissioning and operation of the plant, which would, therefore,
be attributable to a post-importation event. Thus, properly read, the judg-
ment in Essar Gujarat case actually supports the respondent in that the
payment for engineering and technical consultancy services in India cannot
be added to the value of the imported plant. Also, in the present case, there
EXCISE LAW TIMES  15th May 2020  103