The Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) in the case of M/s. Indian Oil Corporation Ltd observed that Charges of Know How agreement are not required to be added to the assessable value of imported goods in terms of Customs Valuation Rules, 1988.
The question in the present appeal revolved around the enhancement of transaction/assessable value, at the time of finalization of provisional assessment by the inclusion of lumpsum payments under know-how agreement, as being related to the imports made, as a condition of sale of equipment, imported under the supply agreement and whether the license fee and designing charges were a part thereof and whether charges of knowhow agreement were required to be added to the assessable value of the imported goods in terms of Customs Valuation Rules, 1988 – Rule 9(1)(c) and Rule 9(1)(e).
The appellant entered into a contract with M/s. Merichem Company, USA for supply of equipments for FCC, LPG and FCC Gasoline Treater unit required for establishing a treating unit at Haldia and Barauni, for treating LPG and gasoline at their refineries.
The appellant had got the contract registered with the department under Project Import Scheme, whereby the Department forwarded the matter to the Special Valuation Branch to examine the feasibility of the inclusion of design and engineering charges, technical knowhow fee and other charges in the invoice value of the imported goods, under the supply agreement for redetermination of transaction value of the imported goods under Section 14 of the Customs Act 1962, read with Rule 4 and Rule 9 of the Customs Valuation Rules 1988.
During the process of enquiry, the assessee submitted complete details and responses to the queries and the questionnaire seeking information as called for by the Special Valuation Branch of the Custom House.
It is informed that the appellant had got the approval of the Secretary of Industrial Assistance (SIA) dated 14.07.1999, whereby the government approved the technology collaboration between the importer and M/s. Merichem Company USA- which stipulates that M/s. Merichem Company USA possesses technical information relating to Fiber – Film T.M Technology, Contractor technology and other technology, useful in petroleum, refining and chemical operations (confidential information) and IOCL will receive the confidential information from time to time from M/s. Merichem, USA or on behalf of M/s. Merichem, USA for design engineering, procurement of equipment and construction of LPG/Gasoline Treating Units for use at the Haldia and Barauni refinery of IOCL.
The confidentiality agreement was signed well before the signing of the other two agreements, perhaps indicative of the fact that the process licensor wanted to ensure that the technology supplied would be kept secret and confidential at the hands of the importer.
Further, Supply of know-how, process package and other services wherein Merichem has been referred as Licensor and M/s. IOCL as the Licensee. The licensed processes required for installation, operation, maintenance and repair of the Plant at the Refinery and to get basic engineering services, including technical assistance and supervision services and guarantees concerning the licensed unit.
A two-member bench comprising of Mr Ashok Jindal Member (Judicial) And Mr Rajeev Tandon Member (Technical) observed that the contract, as entered into by the appellant with their overseas buyers on identical terms. There was no obligation to bind the appellants to any post-import act/activity and thus render it as a condition of sale for procurement of the imported goods. We also note that there are no technical know-how fees attributable towards post import-related/associated acts and activities.
There is nothing in the contract entered into by the two sides, to impute the additional costs as discussed in earlier paras, towards the sale of imported goods or as a condition of sale, the bench set aside the order of the Commissioner (Appeals), is without merits and is therefore liable to be quashed. We therefore set aside the order and allowed the appeal filed by the appellant.
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