INDUSIND MEDIA & COMMUNICATIONS LTDversusCOMMISSIONER OF CUSTOMS, NEW DELHI

1046                     [2019] 12
                SUPREME COURT      S.C.R. 1046
                                REPORTS                    [2019] 12 S.C.R.


 A             INDUSIND MEDIA & COMMUNICATIONS LTD.
                                        v.
                COMMISSIONER OF CUSTOMS, NEW DELHI
                          (Civil Appeal No.2498 of 2018)
 B                           SEPTEMBER 27, 2019
            [UDAY UMESH LALIT AND VINEET SARAN, JJ.]
              Customs Act, 1962 – ss.111, 130E – Customs Tariff Act, 1975
       – s.XVI of the First Schedule – Appellant imported certain goods –
       It was alleged that appellant had intentionally not declared the true
 C
       and correct value and correct classification of imported equipments
       which were meant to be interconnected to perform a function of
       ‘Head End’ – A show cause notice was issued to the appellant –
       The Principal Commissioner of Customs (Import) held that
       declaration made by the appellant was false in material particular
 D     and redetermined the value of all the goods imported – Aggrieved,
       the appellant filed customs appeal before the Tribunal – Appellant
       contended that there was no undervaluation of the goods and Note
       4 to s.XVI of the First Schedule to the Act, 1975 had no application
       in the matter – Appellant also submitted that classification of the
       imported goods was to be under 8525 and not under 8543 –
 E
       Tribunal held goods would be covered by heading 8525 and not
       heading 8543 and further held that there was mis-declaration
       established in respect of valuation, therefore, appellant was liable
       for the penalty – On appeal before the Supreme Court, the
       appellant contended that certain activities like engaging the
 F     services for appropriate software etc. were post-import activities
       and could not be taken into account for the purposes of valuation
       – Held: The facts disclose that out of 19 items indicated in the Bill
       of Entry, only 8 items were physically presented while the rest were
       already embedded in the main unit – These facts reflected that
       individual components were intended to contribute together and
 G
       attain clearly defined functions as dealt with in Note 4 of s.XVI and
       also indicated that software that was embedded through cards in
       the main unit was not any post-importation activity – Therefore, the
       value of the software was rightly included – The Department was
       right in invoking principle under said Note 4 and considering the
 H     imported items as part of one apparatus to be classifiable under
                                        1046
 INDUSIND MEDIA & COMMUNICATIONS LTD.v.                COMMR.        1047
             OF CUSTOMS, NEW DELHI

the heading appropriate to the function – Thus, the view taken by    A
Tribunal affirmed.
      Dismissing the appeal, the Court
      HELD: 1. It must be stated that the finding of the Tribunal
that the imported goods would be classifiable under Tariff Item
8525 and not under 8543, has not been challenged by the              B
respondent. Thus, insofar as the issue of classification is
concerned, the question is whether the items imported ought to
be considered individually or whether the treatment given by
the Department, with the aid of Note 4 to Section XVI was
correct. Note 4 appears in Section XVI of the First Schedule to      C
the Customs Tariff Act, 1975. [Para 11] [1057-D-F]
      2. It is a matter of record that after considering the
purchase order in the instant case, the Tribunal found that apart
from supply of equipment, necessary software had to be
embedded in the equipment before the supply was effected. The        D
facts also disclose that out of 19 items indicated in the Bill of
Entry, only 8 items were physically presented while the rest were
already embedded in the main unit. These facts are not only
reflective that the individual components were intended to
contribute together and attain a clearly defined function as dealt
with in Note 4 of Section XVI as stated above, but also indicate     E
that software that was embedded through cards in the main unit,
was not any post-importation activity. The value of the software
and the concerned services were therefore rightly included and
taken as part of the importation. [Para 14] [1062-E-G]
      3. The facts on record as stated above further disclose that   F
the Department was therefore right in invoking principle under
said Note 4 and considering the imported items as part of one
apparatus or machine to be classifiable under the heading
appropriate to the function. The submission advanced by the
Appellant in that behalf therefore has to be rejected.               G
[Para 15] [1063-A]
      4. Rule 9(1)(b) of Customs Valuation (Determination of
Price of Imported Goods) Rules, 1988 as quoted in the decision
in Toyota Kirloskar case shows that the value in respect of
“materials, components, parts and similar items incorporated in
                                                                     H
1048           SUPREME COURT REPORTS                     [2019] 12 S.C.R.


 A     the imported goods” has to be added while determining the
       transaction value. Said Rule 9 is almost identical to Rule 10 of
       the Customs Valuations (Determination of Value of Imported
       Goods) Rules, 2007. Thus, even if the governing rule is taken to
       be Rule 9 of 1988 Rules, there would be no difference in the
       ultimate analysis. [Para 16] [1063-B-C]
 B
            Commissioner of Customs (Port), Chennai v. Toyota
            Kirloskar Motors P. Ltd. 2007 (213) ELT 4 (SC) :
            (2007) 5 SCC 371 : [2007] 7 SCR 94 ; Essar Gujarat
            Limited (1997) 9 SCC 738 : [1996] 8 Suppl. SCR 757
            – relied on.
 C
            Commissioner of Customs v. Multi Screen Media Pri-
            vate Limited 2015 (322) ELT 421 (SC) : (2015) 16
            SCC 263; Commissioner of Customs, Ahmedabad v.
            Essar Steel Ltd. 2015 (319) ELT 202 : (2015) 8 SCC
            175 : [ 2015] 4 SCR 1062 ; Commissioner of Customs
 D          (Import), Mumbai v. Hindalco Industries Ltd. 2015 (320)
            ELT 42 (SC) : (2015) 14 SCC 750 ; Commissioner of
            Customs, New Delhi v. Prodelin India (P) Ltd. 2006 (202)
            ELT A130 : (2006) 10 SCC 280 : [2006] 5 Suppl. SCR
            678 – referred to.
 E          SET India Pvt. Ltd. v. Commissioner of Customs, Cochin
            2003 (152) ELT 190 (Tribunal – Mumbai)
            – referred to.
                             Case Law Reference

 F     2003 (152) ELT 190            referred to             Para 7
       (2015) 16 SCC 263             referred to             Para 7
       [2007] 7 SCR 94               relied on               Para 12
       [1996] 8 Suppl. SCR 757       relied on               Para 12
 G     [2015] 4 SCR 1062             referred to             Para 13
       (2015) 14 SCC 750             referred to             Para 13
       [2006] 5 Suppl. SCR 678       referred to             Para 13


 H
 INDUSIND MEDIA & COMMUNICATIONS LTD.v.                      COMMR.         1049
             OF CUSTOMS, NEW DELHI

      CIVIL APPELLATE JURISDICTION; Civil Appeal No. 2498                   A
of 2018
      From the Judgment and Order No.C/A/57743/2017 dated
09.11.2017 of the Customs Excise and Service Tax Appellate Tribunal
in Appeal No. C/51770 of 2016
     Tarun Gulati, Sr. Adv., Monish Panda, Mrinal Bharat Ram, Ayush         B
Sharma, Advs. for the Appellant.
      Aman Lekhi, ASG, Ms. Rukmini Bobde, Shekhar Vyas, Nitya Rao,
B. Krishna Prasad, Advs. for the Respondent.
      The Judgment of the Court was delivered by                            C
      UDAY UMESH LALIT, J.
      1. This Appeal under Section 130E of the Customs Act, 1962
(hereinafter referred to as ‘the Act’) arises out of Order No.C/A/57743/
2017 dated 09.11.2017 passed by the Customs Excise and Service Tax
Appellate Tribunal (for short, ‘the Tribunal’) dismissing Appeal No.C/      D
51770 of 2016 preferred by the appellant herein.
       2. The basic facts leading to the issuance of Show Cause Notice
dated 27.06.2014 initiating proceedings against the appellant, as set out
in the Order under appeal are as under:-
      “The appellant imported certain goods at air cargo complex, New       E
      Delhi and filed Bill of Entry 2660085 dated 26.6.2003. They
      declared the goods as Multiplexor Satellite Receivers, test and
      measurement equipment etc. and attached six invoices covering
      19 items imported. They indicated individual classification for the
      various items under Chapter 84/85 of the Customs Tariff. The          F
      Bill of Entry was assessed as per declaration and applicable
      customs duty was paid. Subsequently, information was received
      from SIIB Air Cargo Complex Mumbai, that investigations had
      been commenced against the appellant for import of similar goods
      at Mumbai. Accordingly, Provisional Assessment was been
      ordered under Section 18 of the Customs Act.                          G

      2. The investigation undertaken at Mumbai revealed as follows:-
      The importer had placed the order at UK for purchase of
      equipments – one set for Mumbai and another set for Delhi. Each
                                                                            H
1050           SUPREME COURT REPORTS                       [2019] 12 S.C.R.


 A          set of equipment, taken together constituted ‘Head End’ for cable
            TV operations. The ‘Head End’ was an equipment at a local TV
            office that originates the cable TV services and cable TV modem
            services to subscriber though Conditional Access System (CAS).
            All imported equipments taken together contributes towards a
            clearly refined function i.e. ‘Head End’ for cable TV operations.
 B
            The complete set of equipment together merits classification
            under Customs Tariff Heading (CTH) 8543 8999, in the light of
            Note 4 to Section XVI. Thus, it appeared that individual
            classification indicated for 19 imported items amounts to
            mis-declaration. The search operation carried by SIIB, ACC,
 C          Mumbai at the premises of importer further revealed that the
            importer had also mis-declared the value of the imported
            consignments at Delhi and Mumbai. They had suppressed the
            value of embedded software as well as value of services payable
            to the foreign supplier for carrying out integration of the system
            prior to shipment and provide complete commission and
 D
            installation services at the customers premises. Further, it was
            noticed that the purchase order placed by the importer was
            revised to show as CIF instead of FOB.”
             3. In the aforesaid circumstances, Show Cause Notice dated
       27.06.2014 was issued by the Department stating inter alia :-
 E
            “18. In view of the above, it appears that the Importer had
            fabricated documents by way of splitting of value of the goods
            and declared lesser value to the Customs Department with the
            sole intention to evade payment of Customs Duties. Therefore, it
            appeared that the Importer had intentionally not declared the true
 F          and correct value of the goods imported to the customs for the
            purpose of payment of Customs Duty. Further the cost of
            services was to be paid separately by the Importer to their
            supplier. Hence, the Importer failed to make true declarations.
            Therefore, the goods imported vide Bill of Entry No.260085 dated
 G          26.06.2003 filed at Air Cargo Complex, New Delhi also appear to
            be liable for confiscation under Section 111(m) of the Customs
            Act, 1962 due to their aforesaid act of omission and commission.
            It also appears that they have rendered themselves liable for
            penal action under Section 112(a) and/or Section 114AA of the
            Customs Act, 1962.”
 H
     INDUSIND MEDIA & COMMUNICATIONS LTD.v. COMMR.                           1051
       OF CUSTOMS, NEW DELHI [UDAY UMESH LALIT, J.]

          The appellant was thus asked to show cause why:                    A
         (a) the declared values should not be rejected under Rule 10A of
             the erstwhile Customs Valuation (Determination of Price of
             Imported Goods) Rules, 1988 and the same should not be
             redetermined under Rule 9(1)(e) (adding cost of services) of
             the erstwhile Custom Valuation (Determination of Price of Im-   B
             ported Goods) Rules, 1988;
         (b) the invoice value of imported goods declared in the (Bill of
            Entry as Rs.1,02,91,463/- should not be enhanced to
            Rs.1,72,03,243/- (Rupees One Crore Seventy Two Lakhs Three
            Thousand Two Hundred and Forty Three Only) for the purpose       C
            of assessment under Section 14 of the Customs Act, 1962 read
            with Rule 9(1)(e) of the erstwhile Customs Valuation
            (Determination of Price of Imported Goods) Rules, 1988 and
            the provisional assessment made under Section 18 of Customs
            Act, 1962 should not be finalised accordingly.
                                                                             D
       4. According to the record, the appellant was given several
opportunities but no written submissions, in response to the Show Cause
Notice, were filed. The facts on record also disclose that the
opportunity of personal hearing was also extended and the matter was
adjourned from time to time but the appellant did not avail the
opportunity of personal hearing1. After considering the facts on record,     E
the Principal Commissioner of Customs (Import) by his order dated
29.12.2015 rejected the declaration by the appellant vide Bill of Entry
No. 260085 dated 26.06.2003. It was observed that the appellant had
intentionally not declared the true and correct value and correct
classification of imported goods. The conclusion was drawn as under:-        F
          “26. … …I find that in the instant case, the Noticee(s) made a
          declaration at the time of filing of Bill of Entry that goods
          imported by them vide Bill of Entry No. 260085 dated 26.06.2003
          were different parts classifiable under different CTHs whereas
          the goods under import were the complete equipment of              G
          head-end classifiable under CTH 85438999 and the goods were
          also declared undervalued, as discussed above. Brigadier R
          Deshpande (Retd.), Vice President, Technical of the importer had
          admitted his awareness in his statement dated 10.07.2003 that
1
    Paras 16 and 17 of the Order dated 29.12.2015                            H
1052            SUPREME COURT REPORTS                        [2019] 12 S.C.R.


 A           software was embedded in the machine. He in connivance with
             the supplier of goods fabricated document by splitting the values
             between the goods imported and the other services rendered by
             the supplier in connection with the imported goods and as such, I
             find that the declaration of the Noticee(s) was false in material
             particular. In view of above, I hold both the Noticee(s) are liable
 B
             to penalty under Section 114AA of the Customs Act, 1962.”
             The Principal Commissioner of Customs (Import) then redeter-
       mined the value of all the goods imported under said Bill of Entry as
       under:-
 C           “(a)… …The value of all the goods imported under the said B/E
             taken together is redetermined under Rule 9(1)(e) of the said Rules
             as US $ 361633 CIF and consequently after loading 1% towards
             landing charges and applying the relevant exchange rate, the
             assessable value is determined as Rs.1,72,03,243/-(Rupees One
             Crore Seventy Two Lakhs Three Thousand Two Hundred and
 D           Forty Three Only) for the purpose of Section 14 of the Customs
             Act, 1962 read with Rule 9(1)(e) of the Customs Valuation
             (Determination of Price of Imported Goods), Rules, 1988.
             (b) The classification of all the components imported under the
             B/E No.260085 dated 26.06.2003 taken together is determined
 E           under CTH 85438999 of the Customs Tariff Act, 1975.
             (c) The provisional assessment made in respect of B/E No.260085
             dated 26.06.2003 is finalized under Section 18 of the Customs
             Act, on the basis of revised assessable value and classification as
             ordered above. Consequently, demand for differential duty
 F           amounting to Rs.54,19,475/- is confirmed. I order that the amount
             of Rs.54,19,475/- deposited at the time provisional release of the
             goods be appropriated towards the differential duty.
             (d) The goods imported under B/E No.260085 dated 26.06.2003,
             which were provisionally released on execution of P.O. bond for
 G           Rs.1,72,03,242/-, are confiscated under Section 111(m) of the
             Customs Act, 1962. Since the goods are already released to the
             party, they are ordered to pay redemption fine of Rs.10,00,000/-
             (Rupees Ten Lakhs only) under Section 125 of the Customs Act,
             1962 in lieu of confiscation thereof.”
 H
 INDUSIND MEDIA & COMMUNICATIONS LTD.v. COMMR.                                 1053
   OF CUSTOMS, NEW DELHI [UDAY UMESH LALIT, J.]

      The Order dated 29.12.2015 proceeded to impose penalty as                A
under:-
      “(e) I impose a penalty of Rs.15,00,000/- (Rupees Fifteen Lakhs
      only) on M/s. Indusind Media & Communication Ltd., Mumbai
      under Section 112(a) of the Customs Act, 1962.
      (f) I impose penalty of Rs.15,00,000/- (Rupees Fifteen Lakhs only)       B
      on M/s. Indusind Media & Communication Ltd., Mumbai under
      Section 114AA of the Customs Act, 1962.
      (g) I impose a penalty of Rs.3,00,000/- (Rupees Three Lakhs
      only) on Brigadier R. Deshpande (Retd.), Vice President, Technical
      of M/s. Indusind Media & Communication Ltd., Mumbai under                C
      Section 112(a) of the Customs Act, 1962.
      (h) I impose a penalty of Rs.2,00,000/- (Rupees Two Lakhs only)
      on Brigadier R. Deshpande (Retd.), Vice President, Technical of
      M/s. Indusind Media & Communication Ltd., Mumbai under
      Section 114AA of the Customs Act, 1962.                                  D
      (i) The redemption fine and penalties may be recovered by en-
      forcing the Bank Guarantee executed at the time of provisional
      release of goods.”
       5. The appellant, being aggrieved, filed Customs Appeal
                                                                               E
Nos.51769-51770 of 2016 before the Tribunal. It was submitted that
there was no undervaluation of the goods; that the department had
incorrectly included the amount towards software and post import
services; and that Note 4 to Section XVI of the First Schedule to Customs
Tariff Act, 1975 (“the Act’, for short) had no application in the matter. It
was alternatively submitted that the goods in question merited                 F
classification under Central Excise Tariff Heading (CETH) 8525 2019
as “transmission apparatus” and not under 8543 as contended by the
Department. In response, it was submitted on behalf of the Department
that out of 19 items indicated in the Bill of Entry, only 8 items were
physically presented, as several cards were already assembled in the
                                                                               G
main unit; that the appellant had not given proper description in the Bill
of Entry and the goods imported were complete ‘Head End’ and not
parts; that the charges covered by the relevant invoice amounting to US
$ 1,00,019 were rightly included since they pertained to charges where
the software covered by the invoice was already embedded in the
equipment and that the goods were rightly classified under 8543.               H
1054                SUPREME COURT REPORTS                       [2019] 12 S.C.R.


 A            6. After hearing rival submissions, following issues were framed
       by the Tribunal for consideration:-
                “1. First is the classification of the imported goods – whether
                8543 as ordered by the adjudicated authority or 8525 as claimed
                by the appellant.
 B              2. Second issue is of valuation – whether the value of software
                already embedded in the equipment as well as service charges
                are required to be included in the assessable value.”
              7. The Tribunal relied upon Note 4 to Section XVI and found that
       though different equipments were ordered, they were meant to be
 C     interconnected in such a way as to perform a common clearly defined
       function which was to be ‘Head End’. However, according to the
       Tribunal, the goods would actually be covered by heading 8525 and not
       by heading 8543. For arriving at such conclusion, reliance was placed
       on the decisions in SET India Pvt. Ltd. vs. Commissioner of
 D     Customs, Cochin2and Commissioner of Customs vs. Multi Screen
       Media Private Limited3.
             While considering the issue regarding valuation, the purchase
       order was relied upon, according to which, apart from supply of
       equipment, necessary software had to be embedded in the equipment
 E     before the supply was effected. Relying on Sub-Rule (iii) of Rule 10 of
       the Customs Valuation (Determination of Value of Imported Goods) Rules,
       2007 (for short, ‘the 2007 Rules’) it was observed that since the
       software was already incorporated in the imported goods, the value of
       the same was required to be added to the transaction value.

 F              It was concluded:-
                “19. In view of the mis-declaration established in respect of
                valuation, the imported goods will be liable for confiscation under
                section 111 of the Customs Act and the appellant will also be
                liable for penalty.”
 G            In the premises, by Order under appeal, the matter was remanded
       to the adjudicating authority only for the purpose of recomputing the
       differential duty in the light of its conclusion that the classification of

       2
           2003 (152) ELT 190 (Tribunal – Mumbai)
       3
           2015 (322) ELT 421 (SC) = (2015) 16 SCC 263
 H
 INDUSIND MEDIA & COMMUNICATIONS LTD.v. COMMR.                              1055
   OF CUSTOMS, NEW DELHI [UDAY UMESH LALIT, J.]

imported goods was to be under heading 8525 and not under heading           A
8543.
     8. In this appeal, it has principally been submitted:-
      “A. The Imported Goods have been correctly classified by the
        Appellant.
                                                                            B
     a. The following major components were imported by the
         Appellant from Tandberg:
          1. Multiplexers
          2. Satellite receivers
                                                                            C
          3. Test and measurement
     b. The following are the major components imported from other
     supplier by the Appellant:
            i.     CAM Modules – Aston and Nagravision
            ii.     Encoders                                                D

            iii     Power Vu receivers – Scientific Atlanta
            iv      Integrated receiver De-coder’s (IRD’s) – Purchased
                  from the channels directly
            v. Encryption System -Nagravision                               E
     c. The Head End is the physical location in your area where the
         television signal is received by the provider, stored, processed
         and transmitted to their local customers (subscribters).
     d. Undisputedly the Appellant being a Multi System Operator
                                                                            F
        (“MSO”) i.e. a cable network operator, receives encoded and
        scrambled signals from Network Broadcasters. The major
        function of a Head End is to decode and unscramble, the
        encoded and scrambled signals received from the Broadcast-
        ers. Such function admittedly could not be achieved without
        Encoders, IRD’s, Power Vu Receivers and Encryption                  G
        System which were imported by the Appellant from other
        suppliers.
     e. Without these equipments working in conjunction network, the
        encoded and scrambled signals from Broadcasters could not
                                                                            H
1056             SUPREME COURT REPORTS                        [2019] 12 S.C.R.


 A               be received at the Head End (“Power Vu Receivers”) and
                 neither can they be decoded (Encoders and IRD’s) or
                 unscrambled (“Encryption System”) and thereafter could not
                 be broadcasted to the recipient/subscribers. Therefore, the
                 intended function of a Head End could not be achieved
                 without Encoders, IRD’s, Power Vu Receivers and
 B
                 Encryption System. These equipments admittedly were not part
                 of the imported consignment under dispute. Admittedly these
                 equipment’s were imported separately from other suppliers.
                 f. Therefore, it can be concluded that the imported consignment
                 does not constitute a complete Head End and that each
 C               component is to be classified under the relevant Chapter
                 Heading.”
             and following principal question has been raised:-
                 “A. Whether the CESTAT has erred in failing to consider the
 D               primary submission of the Appellant, that the 19 different items
                 imported by the Appellant under the Bill of Entry No.2660085
                 dated 26.06.2003 (‘BOE’) even if taken together do not form
                 one co posite ‘Head-end’ and that each item has an individual
                 function, and each item is to be classified under the Chapter
                 Heading it falls mainly CTH 85175010, CTH 85281299, CTH
 E               85438910, CTH 84717010 and CTH 85249112.”
             9. Appearing in support of the appeal, Mr. Tarun Gulati, learned
       Senior Advocate, also submitted:-
            a)   The imports and Bill of Entry in the instant case were of the
 F               year 2003 and 2007 Rules would not apply.
            b)   Certain activities like engaging the services for appropriate
                 software etc. as a result of which cards were embedded in
                 items of import, were essentially post import activities and
                 could not be taken into account for the purposes of valuation.
 G           10. Mr. Aman Lekhi, learned Additional Solicitor General
       appearing for the respondent refuted all the contentions of the appellant
       and submitted that:-
            a) Though the invoices in the case did mention individual items, the
                dominant intent had to be seen whether the intended user
 H
 INDUSIND MEDIA & COMMUNICATIONS LTD.v. COMMR.                                1057
   OF CUSTOMS, NEW DELHI [UDAY UMESH LALIT, J.]

         was of individual items or they were supposed to be used             A
         collectively as part of one apparatus, in which event Note 4 to
         Section XVI would provide guidance.
     b) Rule 9 of the Customs Valuation (Determination of Price of
        Imported Goods) Rule, 1988 (“the 1988 Rules”, for short)
        being almost identical to Rule 10 of 2007 Rules, the reliance         B
        was not misplaced.
     c) In any case, Rule 10 of 2007 Rules which seeks to explain
         certain matters is clarificatory in nature and the meaning would
         be consistent with Rule 9 of 1988 Rules.
     d) The submission that there were post import charges which were         C
         getting included in the valuation was incorrect and what was
         found as a fact was that all those software cards were
         embedded in various parts when the import had taken place.
       11. It must be stated that the finding of the Tribunal that the im-
ported goods would be classifiable under Tariff Item 8525 and not under       D
8543, has not been challenged by the respondent. Thus, insofar as issue
of classification is concerned, the question is whether the items imported
ought to be considered individually or whether the treatment given by
the Department, with the aid of Note 4 to Section XVI was correct.
Note 4 appears in Section XVI of the First Schedule to the Act. Said          E
Section XVI has the heading:-
       “Section XVI- Machinery and mechanical appliances; electrical
      equipment; parts thereof; sound records and reproducers, television
      image and sound recorders and reproducers; and parts and
      accessories of such articles”                                           F
      Note 4 of Said Section XVI is to the following effect:-
      “4. Where a machine (including a combination of machines)
      consists of individual components (whether separate or
      interconnected by piping, by transmission devices, by electric cables
      or by other devices) intended to contribute together to a clearly       G
      defined function covered by one of the headings in Chapter 84 or
      Chapter 85, then the whole falls to be classified in the heading
      appropriate to that function.”


                                                                              H
1058                SUPREME COURT REPORTS                         [2019] 12 S.C.R.


 A               Tariff Item 8525 appearing in Chapter 85 is as under:-
                 “Transmission apparatus for radio telephony, radio-telegraphy,
                 radio-broadcasting or television, whether or not incorporating
                 reception apparatus or sound recording or reproducing
                 apparatus; television, cameras; still image video cameras and other
 B               video camera recorders; digital cameras.”
              12. The Appellant is right in its submission that since the Bill of
       Entry in the present case was of the year 2003, 2007 Rules would not
       apply and that the appropriate Rules would be 1988 Rules. Rule 9 of
       1988 Rules was set out by this Court in Commissioner of Customs
 C     (Port), Chennai v. Toyota Kirloskar Motors P. Ltd.4, while considering
       the issue whether technical assistance fees in terms of Article 4 of the
       Agreement between the parties had any direct nexus with importation
       of goods. It was observed:-
                 “25. The Central Government in exercise of its power conferred
 D               upon it under Section 156 of the Act, made rules known as “the
                 Customs Valuation (Determination of Price of Imported Goods)
                 Rules, 1988”. Rule 3 provides for determination of the method of
                 valuation, stating:
                    “3. Determination of the method of valuation.—For the
 E                  purpose of these Rules,—
                    (i) the value of imported goods shall be the transaction value;
                    (ii) if the value cannot be determined under the provisions of
                    clause (i) above, the value shall be determined by proceeding
                    sequentially through Rules 5 to 8 of these Rules.”
 F
                 26. How the transaction value would be determined has been laid
                 down in Rule 4 of the Rules, stating that the same shall be the
                 price actually paid or payable for the goods when sold for export
                 to India adjusted in accordance with the provisions of Rule 9 of
                 the said Rules. Rule 9 of the Rules provides for determination of
 G               transaction value, stating:
                    “9. Cost and services.—(1) In determining the transaction
                    value, there shall be added to the price actually paid or payable
                    for the imported goods,—
       4
           2007 (213) ELT 4 (SC) = (2007) 5 SCC 371
 H
INDUSIND MEDIA & COMMUNICATIONS LTD.v. COMMR.                                1059
  OF CUSTOMS, NEW DELHI [UDAY UMESH LALIT, J.]

      (a) the following cost and services, to the extent they are            A
      incurred by the buyer but are not included in the price actually
      paid or payable for the imported goods, namely—
       (i) commissions and brokerage, except buying commissions;
       (ii) the cost of containers which are treated as being one for
       customs purposes with the goods in question;                          B

     (iii) the cost of packing whether for labour or materials;
      (b) the value, apportioned as appropriate, of the following goods
      and services where supplied directly or indirectly by the buyer
      free of charge or at reduced cost for use in connection with           C
      the production and sale for export of imported goods, to the
      extent that such value has not been included in the price actually
      paid or payable, namely—
       (i) materials, components, parts and similar items incorporated
       in the imported goods;                                                D
       (ii) tools, dies, moulds and similar items used in the production
       of the imported goods;
       (iii) materials consumed in the production of the imported
       goods;
       (iv) engineering, development, art work, design work, and             E
       plans and sketches undertaken elsewhere than in India and
       necessary for the production of the imported goods;
   (c) royalties and licence fees related to the imported goods that
   the buyer is required to pay, directly or indirectly, as a condition of
   the sale of the goods being valued, to the extent that such royalties     F
   and fees are not included in the price actually paid or payable;
   (d) the value of any part of the proceeds of any subsequent resale,
   disposal or use of the imported goods that accrues, directly or
   indirectly, to the seller;
                                                                             G
   (e) all other payments actually made or to be made as a condition
   of sale of the imported goods, by the buyer to the seller, or by the
   buyer to a third party to satisfy an obligation of the seller to the
   extent that such payments are not included in the price actually
   paid or payable.”
                                                                             H
1060                SUPREME COURT REPORTS                         [2019] 12 S.C.R.


 A               27. The issue before us is no longer res integra in view of the
                 decision of this Court in Commr. of Customs (Port) v. J.K. Corpn.
                 Ltd.wherein it is stated: (SCC para 9)
                    “9. The basic principle of levy of customs duty, in view of the
                    aforementioned provisions, is that the value of the imported
 B                  goods has to be determined at the time and place of importation.
                    The value to be determined for the imported goods would be
                    the payment required to be made as a condition of sale.
                    Assessment of customs duty must have a direct nexus with
                    the value of goods which was payable at the time of importation.
                    If any amount is to be paid after the importation of the goods is
 C                  complete, inter alia, by way of transfer of licence or technical
                    know-how for the purpose of setting up of a plant from the
                    machinery imported or running thereof, the same would not be
                    computed for the said purpose. Any amount paid for post-
                    importation service or activity, would not, therefore, come within
 D                  the purview of determination of assessable value of the imported
                    goods so as to enable the authorities to levy customs duty or
                    otherwise. The Rules have been framed for the purpose of
                    carrying out the provisions of the Act. The wordings of Sections
                    14 and 14(1-A) are clear and explicit. The Rules and the Act,
                    therefore, must be construed, having regard to the basic
 E                  principles of interpretation in mind.”
                 28. Reliance, as noticed hereinbefore, however, has been placed
                 by the learned Additional Solicitor General on Essar Gujarat Ltd.”
             Thereafter, the decision of this Court in Essar Gujarat Limited5
 F     was considered and it was observed:
                 “36. Therefore, law laid down in Essar Gujarat Ltd. and J.K.
                 Corpn. Ltd. is absolutely clear and explicit. Apart from the fact
                 that Essar Gujarat Ltd. was determined on the peculiar facts
                 obtaining therein and furthermore having regard to the fact that
 G               the entire plant on “as-is-where-is” basis was transferred subject
                 to transfer of patent as also services and technical know-how
                 needed for increase in the capacity of the plant, this Court clearly
                 held that the post-importation service charges were not to be taken
                 into consideration for determining the transaction value.
       5
 H         (1997) 9 SCC 738
 INDUSIND MEDIA & COMMUNICATIONS LTD.v. COMMR.                                  1061
   OF CUSTOMS, NEW DELHI [UDAY UMESH LALIT, J.]

      37. The observations made by this Court in Essar Gujarat Ltd.1            A
      in para 18 must be understood in the factual matrix involved therein.
      The ratio of a decision, as is well known, must be culled out from
      the facts involved in a given case. A decision, as is well known, is
      an authority for what it decides and not what can logically be
      deduced therefrom. Even in Essar Gujarat Ltd.1 a clear distinction
                                                                                B
      has been made between the charges required to be made for pre-
      importation and post-importation. All charges levied before the
      capital goods were imported were held to be considered for the
      purpose of computation of transaction value and not the post-
      importation one. The said decision, therefore, in our opinion, is not
      an authority for the proposition that irrespective of nature of the       C
      contract, licence fee and charges paid for technical know-how,
      although the same would have nothing to do with the charges at
      the pre-importation stage, would have to be taken into consideration
      towards computation of transaction value in terms of Rule 9(1)(c)
      of the Rules.
                                                                                D
      38. The transaction value must be relatable to import of goods
      which a fortiori would mean that the amounts must be payable as
      a condition of import. A distinction, therefore, clearly exists between
      an amount payable as a condition of import and an amount payable
      in respect of the matters governing the manufacturing activities,
      which may not have anything to do with the import of the capital          E
      goods.”
       13. The aforesaid decision found that the Technical Assistance
Fee under Article 4 had direct nexus with post importation activities and
not with importation of goods. That deduction was arrived at after
considering the individual facts and the scope of Article 4 which was to        F
the following effect:-
      “4. Additional assistance
      (a) At the licensee’s written request, the licensor may furnish the
          licensee with manufacturing, engineering and other know-how           G
          and information relating to the licensed products which are
          not readily available in the licensor’s records but which the
          licensor is willing to develop especially for the licensee, and
          which shall be furnished through such documents and assis-
          tance as designated at the discretion of the licensor from among
                                                                                H
1062             SUPREME COURT REPORTS                          [2019] 12 S.C.R.


 A                those stipulated in Appendix D attached hereto and any other
                  documents and assistance from time to time designated by
                  the licensor.
              (b) In the event of the preceding para (a), the licensee shall pay
                  the licensor all fees, and all costs and expenses incurred by
 B                the licensor in developing and furnishing such know-how,
                  information, documents and/or assistance.
              (c) If the assistance rendered under para (a) hereof is technical
                 assistance or engineering assistance concerning the licensed
                 products, such assistance will be provided in accordance with
 C               the procedures and conditions set forth in Appendix E attached
                 hereto.”
             The subsequent decisions of this Court in Commissioner of
       Customs, Ahmedabadvs.Essar Steel Ltd.6,and in Commissioner of
       Customs (Import), Mumbai vs. Hindalco Industries Ltd. 7 have
 D     followed the same principle that technical agreements involved in said
       cases pertained to post-importation activity. To similar effect was the
       conclusion by this Court in an earlier decision in Commissioner of
       Customs, New Delhi v. Prodelin India (P) Ltd.8that technical know
       how fee was in respect of post-importation activities and could not be
       added to the value of the imported goods.
 E
              14. It is a matter of record that after considering the purchase
       order in the instant case, the Tribunal found that apart from supply of
       equipment, necessary software had to be embedded in the equipment
       before the supply was effected. The facts also disclose that out of 19
       items indicated in the Bill of Entry, only 8 items were physically presented
 F     while the rest were already embedded in the main unit. These facts are
       not only reflective that the individual components were intended to
       contribute together and attain a clearly defined function as dealt with in
       Note 4 of Section XVI as stated above, but also indicate that software
       that was embedded through cards in the main unit, was not any post-
 G     importation activity. The value of the software and the concerned
       services were therefore rightly included and taken as part of the
       importation.
       6
         2015 (319) ELT 202 = (2015) 8 SCC 175
       7
         (2015) 320 ELT 42 (SC) = (2015) 14 SCC 750
       8
         2006 (202) ELT A130 = (2006) 10 SCC 280
 H
 INDUSIND MEDIA & COMMUNICATIONS LTD.v. COMMR.                                1063
   OF CUSTOMS, NEW DELHI [UDAY UMESH LALIT, J.]

       15. The facts on record as stated above further disclose that the      A
Department was therefore right in invoking principle under said Note 4
and considering the imported items as part of one apparatus or machine
to be classifiable under the heading appropriate to the function. The
submission advanced by the Appellant in that behalf therefore has to be
rejected.
                                                                              B
        16. Rule 9(1)(b) of 1988 Rules as quoted above in the decision in
Toyota Kirloskar4, case shows that the value in respect of “materials,
components, parts and similar items incorporated in the imported goods”
has to be added while determining the transaction value. Said Rule 9 is
almost identical to Rule 10 of 2007 Rules. Thus, even if the governing
rule is taken to be Rule 9 of 1988 Rules, there would be no difference in     C
the ultimate analysis.
      17. Consequently, we do not find any merit in the present appeal.
Affirming the view taken by the Tribunal, we dismiss this appeal, without
any order as to costs.
                                                                              D

Ankit Gyan                                                Appeal dismissed.




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