Holding

Drawings, designs and technical literature imported on a tangible medium are goods liable to customs duty, the transaction value must reflect their full value unless the tariff expressly provides free entry, wilful undervaluation triggers Section 28(1) proviso, and heading 98.03 applies to baggage imports, but where the tariff classifies the item as free, no duty is payable.

Summary

The appellants, Indian public corporations engaged in manufacturing, imported technical drawings, designs and manuals from foreign collaborators on media such as paper and diskettes under technical collaboration agreements. The Customs Commissioner issued show‑cause notices under Section 28(1) of the Customs Act alleging under‑valuation and demanded customs duty and penalties. The appellants contended that the imported items were not "goods" but services/intellectual property, that valuation should be based only on the media, that the notices were barred by limitation, and that heading 98.03 for passenger baggage did not apply. The Supreme Court held that once intellectual content is placed on a tangible medium it becomes a movable article and therefore a "good" liable to customs duty; the transaction value must include the full value of the intellectual input unless the tariff classifies the item as free. Wilful undervaluation attracted the proviso to Section 28(1), extending the limitation period. Heading 98.03 applies to baggage imports, but where the tariff (heading 49.06) provides free entry, no duty is payable. Consequently, the Court allowed the appeals of Mis Videocon VCR Ltd. and Mis H & K Rolling Mill Engineers Pvt. Ltd., set aside the orders against them, dismissed the other appeals, and directed a fresh valuation for Leela Ventures.

Issues considered

The nature of drawings, designs and manuals imported on media: whether they constitute "goods" under the Customs Act and are liable to customs duty.
The appropriate basis of valuation: whether duty should be levied on the full transaction value including intellectual content or only on the nominal value of the media.
The applicability of the proviso to Section 28(1) of the Customs Act to extend the limitation period in cases of wilful mis‑statement or suppression of value.
The relevance of heading 98.03 of Chapter 98 of the Customs Tariff Act to imports cleared as passenger baggage via couriers.
The effect of tariff classification under heading 49.06 (free entry) on duty liability.
The impact of the Reserve Bank of India's classification of payments as services on customs duty liability.

Legislation cited

Central Excise Act, 1944s. 2(d)
Customs Act, 1962s. 12, s. 14, s. 2(14), s. 2(22), s. 24, s. 28(1)
Customs Tariff Act, 1995s. 78, s. Chapter 49, s. Heading 49.06, s. Heading 98.03
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988s. Rule 10, s. Rule 3, s. Rule 4, s. Rule 9
Foreign Exchange Regulation Act, 1973

Subjects

customs dutygoods definitionvaluation of imported goodsSection 28(1) provisoheading 98.03technical drawingsintellectual propertycourier importspassenger baggagetransfer of technologylimitation period

Judgment

A MIS ASSOCIATED CEMENT COMPANIES LTD.
v.
COMMISSIONER OF CUSTOMS
--"(. -
JANUARY 25, 2001

B [B.N. KIRPAL, DORAISWAMY RAJU AND
K.G. BALAKRISHNAN, JJ.]

Customs Act, 1962--Section 2(22) (c) and (e) 12, 24 & 28(1)--Customs
mluation (Determination of Price of Imported Goods) Rules, 1988-Rules
C 3&4-Customs duty-Levy of-On import of drall'ings, designs etc.-ln the
course of transfer of technology ll'ith foreign collaborators-Held, customs
duty can be levied, since they are goods-Customs Tariff Act, 1995-Chapler
49.

Sections 12 & 14-Rules 3, 4, & 9-Customs duty--On the imported
D drawings and designs, etc.-Valuation of-Plea that duty can be levied only
on the media-Held, intellectual property when put an a media would be
regarded as an article and hence duty is payable on its total value.

Section 28(!) proviso-Rule 10-Customs duty-Non-payment of-
E Issuance of notice-After limitation period-Plea that notice barred by
limitation, in the absence of intention to evade duty-Willfiil suppression or
miss-statement of value of the imported goods, proved-Held, notice not
barred hy limitation.

Sections 2 {14) , 2(22) & 12-Customs d1:ty-levy of-Import of _.
F drawings and designs etc.-Without payment of duty--Duty levied on entire
contract value-Tariff provided that import on the goods was free of duty-
Held, drawings and designs were not dutiable articles-Central Excise Act,
1944-Section 2(d)--Customs Tariff Act, 1995-Heading No. 49.06

Section 28( !)-Customs duty-levy of-On the import of drawings and
G designs etc.--Drawings originally sent ji-om India, later imported after .,,...___
approval of the same from the foreign collaborator-Held, duty not /eviable.

Customs Tariff Act, 1995--Heading No. 9R.03--Customs duty-levy
of-Import of technical material hy courier--Clearance of-A part of
passenger haggage-Held, duty has to be paid on such goods by virtue of
H 608
ASSO CEMENT CO. LTD v. COM MR. OF CUSTOMS 609
the Heading A
Appellants, public corporations engaged in the manufacture of excisable
goods, entered into technical collaboration with foreign companies. As part
of the fulfilment of the contract, the contracting parties abroad, sent drawings
designs etc. to India through professional couriers or by post parcels. In
Civil Appeal No. 3632 of 2000 these were imported by hand through a B
passenger. In Civil Appeal No. 1493 of 2000, the drawings sent from India
were approved by the foreign com pally and then sent to India. At the time of
importation only the nominal value of the drawings etc., were declared. It
came to the notice of the respondent that the appellants had imported drawings,
designs, etc., on remitting the consideration for the same, and they had been C
cleared without proper declaration and without payment of correct amount of
duty

The respondents issued show cause notices under Section 28(1) r/w
Section 24 of the Customs Act, 1962, for levying customs duty on the drawings,
designs, etc. Appellants replied that since the imported materials were not D
'goods', there could not be any excise duty on service since the remittance
were in form A-2 and tax at source under the Income Tax Act was paid in
respect of the contracts; and that the demand was barred by limitation. The
Commissioner demanded duty and imposed penalty on the appellants. Appeal
of the appellants before the Tribunal was dismissed.
E
In appeal to this Court it was contended that the transaction between
the appellants and their respective foreign collaborators was one of transfer
of technology and hence excise duty cannot be levied on the value of ideas
which are not goods; and that the contracts in these cases were for services
on the basis of which permission for release of foreign exchange was obtained
from Reserve Bank of India; and that even if what was imported were goods, F
valuation of the same had to be nominal only on the media; and that the show
cause notices which were issued were barred by time inasmuch as the
extended period of limitation could not be availed as the appellants had never
intended to evade duty; and that the imports through the courier could not be
governed by heading No. 98.03 of the Customs Tariff Act. In Civil Appeal No. G
3632 of2000 appellant contended that at the time when the drawings were
imported, the import of the same was free of duty and duty could not be levied
even as part of the passenger baggage.

Allowing Civil Appeal Nos. 3632 of 2000 and 1493 of 2000 and
dismissing the other appeals, the Court. H
610 SUPREME COURT REPORTS 12001] I S.C.R.

A HELO: I.I. Drawings, plans, manuals etc., specified in Chapter 49 of
the Custom Tariff Act, 1995 arc statutorilv" rcaarded as goods , attractina0 a
~

specified rate of customs duty on their import into India. There is no challenge
to any of the statutory provisions and reading the two Acts i.e., Customs Act,
1962 and Customs Tariff Act together, there is no doubt that what has been
B imported into India by the appellant collaborators were goods even though
the tangible articles so imported contained information or knowledge for use
by the appellants. 1627-01

1.2. In view of the clear provisions of the Customs Act and the Customs
Tariff Act. whenever any goods of movables of tangible articles are imported
C into this country, customs duty is payable. For the purpose of attracting levy
it would be immaterial as to what are the types of goods imported or what is
contained in them or recorded thereon . The contents will be relevant for the
purpose of valuation. 1627-Fl

1.3. The moment the information or advice is put on a media, whether
D papers of diskettes or any other thing, that what is supplied becomes chattel.
It is in respect of the drawings, designs etc., which are received that payment
is made to the foreign collaborators. It is these papers or diskettes etc.,

E
containing the technological advice, which are paid for and used. The foreign
collaborators part with them in lieu of money. It is, therefore, sold by them as
chattel for use by the Indian importer. The drawings, designs, manuals etc.,
)--
. --
-

so received are goods on which customs duty could be levied. 1628-q

1.4. The beliefofthe appellants that what was imported were not 'goods',
as the Reserve Bank had also regarded the payment was being made for
services and not goods, was clearly erroneous and misplaced. The appellants
F had represented to the Reserve Bank that the collaborators were rendering
service and no this representation remittances were allowed. The Reserve
Bank must han examined the applications from the point of view of release
of foreign exchange. It was not an adjudicating authority under the Customs
Act. Had there been any doubt about the question whether what was imported

--
G were goods or not then, perhaps the grant of permission to remit money for
services rendered and payment of taxes in respect thereof may have been
relevant. But here, on the examination of the law applicable to the levy of
customs duty the position is free from any ambiguity. As the drawings,
designs, manuals etc., imported through couriers were 'goods' on which
customs duty was payable. The action of the Reserve Bank cannot result in
H negating the statutory provisions of the Customs Act and the Tariff Act
ASSO. CEMENT CO. LTD v. COM MR. OF CUSTOMS 611

_applicable in the instant cases. 1628-G-H; 629-AI A
':he Assis/an/ Sales Tax Officer and Others v. B.C. Kame, Proprietor
Kmne, Proprietor Kame Photo Studio, 1197711 SCC 634 and Everest Copiers
v. Siate a/Tamil Nadu, 1199615 SCC 390, distinguished.

State of Himachal Pradesh v. Associated Hotels of India ltd., (1972) 29 B
STC 474; Stale of Madras v. Gannon Dunkerley and Co. (Madras) ltd.,
(1958) 9 STC 353; Stale of Tamil Nadu v. Anandan1 Viswanathan, 1198911
SCC 613; Hindustan Shipyard ltd. v, State of UP., 120001 6 SCC 579;
Rainbow Colour lab & Anr v. State of MP. and Others, 120001 2 SCC 385;
Hindustan Aeronautics ltd v. State of Karnataka, 119841 I SCC 706 and
Builder's Association of India and Others v. Union of India & Others, 119891
c
2 sec 645, referred to

Dela Nominees Pty. lit. v. Viscount Plastic Products Pty. ltd., (1979)
VR 167; Wilhelm Winter; Cynthia Zheng v. G.P. Putnam's Sons, 938 F'. 2nd
1033 9th Cir. (1991); Robinson v. Graves (1935) KB 579 and lee v. Griffin, D
(1861) I B & S 272, referred to.

'Contract of Sale of Goods', by Benjamin, Third Edition, referred to.

2.1. Intellectual property, when put on a media, would be regarded as
an article on the total value of which customs duty is payable. The legislative · E
intent can easily be gathered by reference to the Cus_toms Valuation Rules
and the specific entries in the Customs Tariff Act. The value of an
encyclopaedia or a dictionary or a magazine is not only the value of the paper.
The value of the paper is in fact negligible as compared to the value or_ price
of an encyclopaedia. Therefore, the intellectual input in such items greatly
enhance the value of the papers and ink. The charge of a duty is on the final F
product whether it be the encyclopaedia or the engineering or architectural
drawing or any manual. 1634-B-CI

2.2. It is misconception to contend that what is being taxed is intellectual
input. What is being taxed under the Customs Act read with Customs Tariff G
Act and the Customs Valuation Rules is not the input alone but goods whose
value has been enhanced by the said inputs. The final product at the time of
import is either the magasine or the encyclopaedia or the engineering
drawings as the case may be. There is no scope for splitting the engineering·
drawing or the encyclopaedia into intellectual input on the one hand and the
paper, on which it is scribed on the other. For example, paintings are also to H
612 SUPREME COURT REPORTS [2001] 1 S.C.R.

A be taxed. Valuable paintings are worth millions. A painting or a portrait may
be specially commissioned or an article may be tailor-made. This aspect is
irrelevant since what is taxed is the final product as defined. [635-A-CI '
2.3. The shift from the concept of price of goods, as was classically
understood, is clearly discernible in the new principles. Transaction value
B may be entirely different from the classic concept of price of goods. Full
meaning has to be given to the rules and the transaction value may include
many items which may not classically have been understood to be part of the
sale price. It would not be correct, to take the entire contract value as being
the value of the imported goods.1635-E[
c Mis Gannon Dunkerley and Co. and Others \'. State of Rajasthan and
Others, IJ 993[ l SCC 364; Collector of Customs (Prev.) Ahmedabad v.
Essar Gujarat ltd., (l 996) 88 EL T 609 S.C. and State Bank of India v.
Collector of Customs, Bombay, 120001 I SCALE 72, referred to.

D St. Albans City and District Council v. International Computers Ltd.,
(1996) 4 all ER 481 and Advent Systems ltd. v. UNISYS Corporation, (925) F
2nd 670 3rd Cir (1991 ), referred to.

3. I. There was a wilful suppression or mis-statement of the value of tJte
goods imported and, therefore, the respondents were entitled to invoke the
E provisions of the proviso to Section 28 (l) of the Customs Act and issue
show-cause notice even it period of six months importation had expired but
before the expiry of five years thereof. 1643-BI

3.2. The proviso to Section 28 can inter a/ia be invoked when any duty
has not been levied or has been short-levied by reason of collusion or any
F wilful mis-statement or suppression of facts by the importer or the exporter,
his agent or employee. Even if both the expressions 'mis-statement' and
'suppression of facts' are to be qualified by the word 'wilful', the making of
such a wilful mis-statement or suppression of facts would attract the provisions
of Section 28 of the Customs Act.1641-B-CI
G
Collector uf Central Excise, Hyderabad v. Mis Chemphar Drugs and
linime111s, Hyderabad, 1198912 SCC 127; Cosmic Dye Chemical v. Collector . ..,___
()/ Central Excise, Bombay, [19951 6 SCC 117; Mis Padmini Products v.
Collector ()f Central Excise, Bangalore, [19891 4 SCC 275; Tamil Nadu
Housing Board v. Collector of Central Excise. Madras and Another. [ 1995[
H suppl. I SCC 50 and Collector Central Excise v. H.M.M. ltd., (1995) 76 ELT
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS 613
497, referred to. A
4. In the present cases, the technical. material which was received was
cleared as part of passenger baggage. Whether the courier or the person
bringing the technical material was a person nominated by the collaborator
or by the appellants is of no consequence.because the levy under Section 12
of the Customs Act is on the goods imported into India. In other words, the B
subject matter of the tax is not the person importing or exporting but the
subject matter of the tax is the goods imported. If such goods are i~ported as
a part of the baggage then by virtue of heading No. 98.03 r~te of duty
prescribed therein has to be paid. The underlying principle prior to May,
1995 in relation to taxing the passengers' baggage was that the said baggage C
which contained dutiable articles was not to be taxed separately as articles
but the baggage as a composite unit was to be taxed in its entirety, after
giving credit for the free allowance which was available to the passenger.
1644-D-FI

5.1. In Civil Appeal No. 3632 of2000, the drawings and designs which D
were imported by the appellant were correctly classifiable under heading No.
49.06 and the tariff itself providing that the import of the same is free, the
said drawings and designs were not dutiable articles and, therefore, no customs
duty was leviable thereon even as a part of the passenger. (648-E(

5.2. Under the Central Excise Act, 1944 in definition of words "excisable E
goods" under Section 2(d), the very specification or inclusion of goods in the
First and Second Schedule of the Central Excise Tariff Act would make them
excisable goods subject to duty. Under the Customs Act, the provisions seem
to be somewhat different. While by virtue of Section 2(22) all kinds of movable
property would be 'goods' but it is only those goods which would be regarded F
as 'dutiable goods' under Section 2(14) which are chargeable to duty and on
which duty has not been paid. The expression "chargeable to duty on which
duty ha.snot been paid' indicates that goods on which duty has been paid or on
which on duty is leviable, and therefore no duty is payable, will not be regarded
as 'dutiable goods' . It is only if payment of duty is outstanding or leviable
that goods will be regarded as dutiable goods. (647-H; 648-A-Bf G
Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Co.
ltd., (1996) 83 ELT 3 SC and Wallace Flour Mills Company v. Collector
Central Excise, (1989) 44 EL T 598, referred to.

6. The value of drawings in Civil Appeal No. 1493 of 2000, which H
614 SUPREME COURT REPORTS [2001) I S.C.R.

A belong to the Indian company were 1nerely approved by the German company
could only be nominal and under no circumstances the said value could be
regarded as DM 60,000. The nominal value disclosed by the courier, on the
facts and circumstances of the case, could not, therefore, be said to be
incorrect. 1649-F]

B CIVIL APPELLATE JURISDICTION: Civil Appeal No. 821 of2000.

From the Judgment and Order dated 15 .11. 99 of the Central Excise -,.... ·
Customs and Gold (Control) Appellate Tribunal, West Zone, Mumbai in A.No.
C. 445-R/99in 0. No. C-11/3169/WZB/ 1999.

c With

C.A. Nos. 1021, 1023, 1027, 1028, 1029, 1030,1031, 1032, 1033, 1423, 1493,
1494, 3250-51 and 3632 of 2000.

Harish N. Salve, Solicitor General, Mukul Rohtagi, Additional Solicitor
D General, Ashok H. Desai, A. N. Haksar, Joseph Vellapally Anant Haksar, Jay
Savla, V. Lakshmikumaran, V.S. Nankani, N. Menon, Ms. Reena Bagga, Ms. M.
Ogra, Ms. Hemantika Wahi, Ms. Sumita Hazarika, Kamal Bulchandani, Uday
Kumar, Vikram Malik, Rajiv Dutta, Ravinder Narain, F. Sorabjee, Yashmin
Godrej, Sanjiv Sen, Rajan Narain, Agni Pushp Singh, Ms. Bhawna Gupta,
E U.A. Rana, Rajesh Nair, Ms. Shally Maggon, Gaurishankar Murthy, Ms. Nisha
Bagchi, Ms. Rekha Pandey, P. Parmeswaran, Prakash Shah, Naresh Thakar,
Kap ii Sharma, Om Prakash and Ms. Meenakshi Ogra for the appearing parties.

The Judgment of the Court was delivered by

F KIRPAL, J. These appeals have been filed against the common order
dated 15th November, 1999 of the Customs, Excise and Gold (Control) Appellate
Tribunal which, while confirming the order of the Commissioner of Customs
held that drawings, designs etc., relating to machinery or industrial technology
were goods which were leviable to duty of customs on their transaction value
at the time of their import.
G
As principal arguments on behalf <1f the appellants were addressed in ,. ~
the case of M/s Hotel Leela Ventures Limited by Mr. Ashok H. Desai, learned
senior counsel, for the sake of convenience we wil! refer to the relevant facts
in that case in greater detail.

H Leela Ventures are engaged in the business of setting up, operating and
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J] 615
maintaining Hotels and Resorts. For designing the Hotels and Resorts, it A
engaged a foreign company Mis Wimberly Allison Tong & Goo, USA ("WAT'
for short) for providing architectural services including design development
drawings. Leela Ventures had entered into four agreements with the said
foreign company in respect of four different ventures in India. Apart from
preparing the designs and drawings the scope of work under the said
agreements included site visits and on site consultations with architects.
B

Leela Ventures paid WAT under the said agreements for the services
rendered and the amount was remitted through bank by following the
procedure of remittance under Form A-2 prescribed by the Reserve Bani< of
India which form is meant for foreign exchange remittances, other than for C ,
import of foreign goods, pursuant to the permission given by the Reserve
Bank.

In terms of the said agreements entered into with WAT, the appellants
received drawings and diskettes through couriers during the period 30th
October, 1995 and 12th May, 1996: The drawings so received were part of D
technical collaboration and/or technical know-how and wen~ accompanied by
an airway bill and an invoice issued by the consignor. The courier, in all the
cases, declared the drawings with various descriptions such as "drawings",
"architectural designs" etc. The value of these drawings and designs was
declared at a nominal value of one dollar. According to Leela Ventures one E
dollar was the correct value because drawings by themselves have no value,
since if the drawings are lost they could be replaced and the loss would
merely be of the cost of paper. The value declared by the courier was bona
fide and was based on the invoice carried by it. As per the appellants, the
. --jt., declaration by the courier was in accordance with the accepted practice at
that time. At the time of the imports these designs and the diskettes were. F
cleared at the nominal value declared.

The other appellants in these appeals are also public corporations
e~gaged in the manufacture of excisable goods. Like Leela Ventures the other
ap!Jellants also entered into technical collaboration with leading manufacturers G
in their own fields abroad. The agreements provided for exchange of technology
in the form of supply of know-how, drawings and designs on media training
by personnel staff and similar other activities. As a part of fulfillment of the
contracts, the contracting parties abroad, from time to time, sent drawings,
designs etc. In the case of Mis Videocon these drawings etc., were imported
by hand through one Mr. Kato. In all other cases the drawings etc., were H
616 SUPREME COURT REPORTS [2001) l S.C.R.

A imported through Professional Courier or by post parcels. In each case only
a nominal value was declared at the time of its importation.

According to the respondents, intelligence gathered by the Directorate
of Revenue Intelligence and Special Valuation Branch, Bombay revealed that
the appellants had imported drawings, designs and plans through couriers on
B remitting the consideration for the same but these had been cleared without
proper declaration and without payment of correct amount of duty. In view
of the omission on the part of the appellants to declare the correct transaction
value, show-cause notices under Section 28( I) read with Section 14 of the
Customs Act, 1962 were issued asking the appellants as to why (a) the sum
C remitted or declared during investigation as consideration for drawings, designs
and plans supplied by their collaborators should not be taken as transaction
value under Section 14 of the Customs Act read with the Customs Valuation
Rules, 1988 as the basis for assessment of goods to customs duty; (b)
Customs duty should not be demanded under the provisions to Section 28
(I) of the Customs Act, 1962 and the amount deposited towards customs duty
D should not be adjusted against the duty demanded; (c) The goods, i.e.,
drawings, designs and plans should not be held liable to confiscation under
Section 111 (m) of the Customs Act, 1962; and (d) Penalty should not be
imposed under Section 112 (a) and I I 4A of the Customs Act, I 962.

In the case of Leela Ventures the show-cause notice dated 21st January,
E 1998/18th February, 1998 valued the drawings and designs at Rs. 2,66,87,100
being the transaction value and on that value the amount demanded under
Section 28( I) of the said Act was Rs. 26,68,310.

In response to the show-cause notice, the appellants sent their replies,
inter-alia, submitting that what was imported were not goods and there could
F be no excise duty on services since the remittances were in Form A-2 and tax
at source under the Income-Tax Act was paid in respect of the said contracts.
It was also the case of the appellants that the demand was barred by limitation
since there was no suppression or wilful mis- statement as the appellants
bona fide believed that no customs duty was payable in the case of contracted
G services represented by drawings, designs, etc., which were imported.

After giving an opportunity of representation being filed and hearing
the learned counsel the Commissioner passed a consolidated order dated 26th
March, 1999. The Commissioner demanded duty and imposed penalty. The
appellants then filed appeal before the Tribunal but without success. During
H the course of pendcncy of the appeal barring three all other importers
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J] 617
voluntarily deposited ihe duty as per the classification then suggested. A
In these appeals, the learned counsel for the appellants urged four
contentions which had been unsuccessfully raised before the Tribunal. These
contentions were (i) Excise duty cannot be levied on the value of ideas as
they are not goods; (ii) Even if what was imported were goods, the valuation
of the same has to be nominal; (iii) the show-cause notices which were issued B
were barred by time inasmuch as the extended period of limitation of five
. --r-· years would not be available on the facts of the present case; (iv) the imports
through the courier could not be governed by heading No. 98.03 of the
Customs Tariff Act. The learned Additional Solicitor General, in his able
manner, supported the Tribunal's decision.
c
Whether drawings, diskettes, manual etc., imported are goods on which
excise duty could be levied.

The learned counsel submitted that in all these cases the transactions
between the appellants and the foreign collaborators were for transfer of D
technology. The knowledge or know-how which is supplied, though valuable,
was intangible. The media is only the vehicle of transmission and is only
incidental to the main transaction, even if Government authorities regard
this to be l! contract for services and not for sale of goods. In support of this,
reliance was placed on the fact that the Reserve Bank of India had required
application for remission of foreign exchange on Form - A2 which is meant E
for foreign exchange remittance otherwise than for import of goods. On the
remittances so made the appellants had deducted the income-tax at source.
It was contended that if it was a case of sale of goods to the appellants then
the question of deducting any income tax and paying the same would not
have arisen and, on the contrary, the amount of excise duty which would have F
been payable would have been less than the income tax which was deducted.

In the alternative it was contended that even if the transactions are
composite the court has to determine whether these relate to contract for
service or goods. In this connection, it was submitted that when price is paid
for photograph, the payment is not for paper which is developed but is for G
the skill of the photographer and the price of developing. Contract for
architectural services was stated to be like a contract by a solicitor to give
a legal opinion or for a doctor to give a medical diagnosis since the essence
of the contract is the expert's skill.

The learned counsel contended that the transaction between the H
618 SUPREME COURT REPORTS [2001] I S.C.R.

A appellants and their respective foreign collaborators was one for transfer ·or
technology. This knowledge or know-how though valuable was intangible.
Th~ technology when transmitted to India on some media does not get
converted from an intangible thing to tangible thing or chattel. Media is only
vehicle for transmission and is wholly incidental to the main transaction. By
B way of analogy it was submitted that legal opinions or judgments of Courts
when communicated on legal briefs or as certified copies do not constitute
transfer of goods by the counsel to his clients or by a Court to a litigant.
Reliance was placed on the decision of U.S. 9th Circuit Court of Appeals in
Wilhelm Winter; Cynthia Zheng v. G.P.Putnam 's Sons, 938 F.2nd I 033 (9th Cir.
1991 ). In that case, the plaintiffs had bought an encyclopaedia on mushroom,
C a book published by the defendants. On the basis of the information contained
therein the plaintiffs became severely ill from cooking and eating mushrooms
after relying on the information obtained from the said encyclopaedia. The
plaintiffs sued the publishers and sought damages based on products liability,
breach of warranty etc. The trial Court held that the information contained in
a book is not a product for the purposes of strict liability under products
D liability law. Affirming the trial Court, the Circuit Court of appeals came to the
conclusion that the products liability law reflects its focus on tangible items
and does not take into consideration the unique characteristics of ideas and
expressions. In other words, the quality of information contained in a book
would not be regarded as a product for the purposes of product liability law. -~
E This would not detract from the fact that the encyclopaedia of mushroom
would be regarded as goods containing information supplied by the author
and published by the defendants. As we shall presently see this case can be
of little assistance for deciding the point in issue.

Before we deal with the aforesaid contentions raised on behalf of the
F appellants, it is appropriate to first consider the relevant provisions applicable
in the present case. Section 2(22) of the Customs Act contains the definition
of the word "goods" which is as follows:

"(a) vessels, aircrafts and vehicles;

G (b) stores;

(c) baggage;

(d) currency and negotiable instruments; and

H (e) any other kind of movable property;"
-- ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.] 619

Section 156 of the Customs Act gives the Central Govt. power to make A
rules consistent with the Act and sub-section 2(a) thereof enables the framing
of rules to provide for the manner of determining the price of imported goods
under sub-section (IA) of Section 14. In exercise of the powers conferred by
the aforesaid Section 156 of the Customs Act, the Central Govt. has framed
Customs Valuation (Determination of Price oflmported Goods) Rules, 1988. B
For the purpose of this· case, two Rules which are important are Rules 3 and
4 which read as follows:

"J Determination of the method of valuation.- For the purpose of
these rules,-

(i) the value of imported goods shall be the transaction value; C
(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.

4. Transaction value.-( I) The transaction value of imported goods D
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 these rules. ·

(2) The transaction value of imported goods under sub-rule (I) above
shall be accepted: E
Provided that-

(a) there are no restrictions as to the disposition or use of the
goods by the buyer other than restrictions which-

(i) are imposed or required by law or by the public authorities F
in India; or

(ii) limit the geographical area in which the goods may be
resold; or

(iii) do not substantially affect the value of the goods;
G
(b) the sale or price is not subject to same condition or consideration
for which a value cannot be determined in respect of the goods
being valued;

(c) no part of the proceeds of any subsequent resale, disposal or
use of the goods by the buyer will accrue directly or indirectly H
620 SUPREME COURT REPORTS [2001] I S.C.R.

A to the seller, unless an appropriate adjustment can be made in
accordance with the provisions of Rule 9 of these rules; and

(d) the buyer and seller are not related, or where the buyer and seller
are related, that transaction value is acceptable for customs
purposes under the provisions of sub-rule (3) below.
B (3) (a) Where the buyer and seller are related, the transaction value
shall be accepted provided that the examination of the circumstances
of the sale of the imported goods indicate that the relationship did -,....
not influence the price.

(b) In a sale between related persons, the transaction value shall be
c accepted, whenever the importer demonstrates that the declared value
of the goods being valued, closely approximates to one of the
following values ascertained at or about the same time-

(i) the transaction value of identical goods, or of similar goods, in
sales to unrelated buyers in India;
D
(ii) the deductive value for identical goods or similar goods;

(iii) the computed value for identical goods or similar goods.
Provided that in applying the values used for comparison, due
account shall be taken of demonstrated difference in commercial .~
E levels, quantity levels, adjustments in accordance with the
provisions of Rule 9 of these rules and cost incurred by the
seller in sales in which he and the buyer are not related:

(c) substitute values shall not be established under the provisions of
clause (b) of this sub-rule."
F Rule 10 provides for declaration by the importer and is as follows:

"10. Declaration by the importer.-( I) The importer or his agent shall
furnish-

(a) a declaration disclosing full and accurate details relating to the
G value of imported goods; and

(b) any other statement, information or document including an
invoice of the manufacturer or producer of the imported goods
where the goods are imported from or through a person other
than the manufacturer or producer, as considered necessary by
H the proper officer for determination of the value of imported
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [K!RPAL, J.] 621
goods under these rules. A
r' (2) Nothing contained in these rules shall be construed as restricting
,.
or calling into question the right of the proper officer of customs to
satisfy himself as to the truth or accuracy of any statement,
infonnation; document or declaration presented for valuation purposes.
B
(3) The provisions of the Customs Act, 1962 (52 of 1962) relating to
confiscation, penalty and prosecution shall apply to cases where
wrong declaration, information, statement or documents are furnished
under these rules."

Section 2 of the Customs Tariff Act provides for the rates at which the C
customs duty is levied under the Customs Act, 1962. As specified in First and
the Second Schedule, Chapter 98 inter alia applies to passengers' baggage
and heading No. 98.03 states that on "all dutiable articles, imported by a
passenger or a member of a crew in his baggage", customs duty will be paid
at the standard rate of duty of 150 per cent.
D
Reliance was placed by Mr. Desai on a number of decisions of this
Court, relating to levy of sales tax, in support of his contention that in
contract by supply of services there is no sale of goods and, as such, no
· .~ customs duty could be imposed on the intellectual property which was
obtained. We will first refer to the decisions so cited. E
This Court in The Assistant Sales Tax Officer and Others v. B.C. Kame,
Proprietor Kame Photo Studio, [ 1977] I SCC 634, was called upon to decide
the question that when a photographer undertakes a photograph and thereafter
supplies prints to his clients whether it could be said that he had entered into
a contract for sale of goods. The question which this Court posed was F
whether the contract is a contract of work and labour or a contract for sale.
It held that a contract for sale is one whose main object is the transfer of
property in, and the delivery of the possession of, a chattel as a chattel to
the buyer where, however, the principal object of work undertaken by the
payee of the price is not the transfer of a chattel qua chattel, the contract is G
one of work and labour. After referring to the earlier decisions of this Court
in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd.,
(1972) 29 STC 474 and the Stale of Madras v: Gannon Dunkerley & Co.
(Madras) Ltd., (1958) 9 STC 353, in which case the Constitution Bench had
held that in a building contract the property materials do not pass to the other
party as in a contract for sale of movable property, it was concluded that H
622 SUPREME COURT REPORTS [2001] I S.C.R.

A when a photographer takes a photograph, develops the negative or does
some other photographic work and thereafter supplies the prints to his clients ·-"<
then it could not be said that he had entered into a contract for sale of goods.
The question of levy of sales-tax, therefore, did not arise.

In Kame 's case (supra) reference was made to the decision of Robinson
B v. Graves, (1935) KB 579, where it was held that a contract by an artist to paint
a portrait of a lady was a contract for work and labour and not for the sale
of goods as the substance of the contract was that skill and labour should ~-
be exercised upon the production of the portrait and that it was only ancillary
to the contract that there would pass from the artist to his customer some
C material. In Robinson's case an earlier decision of lee v. Griffin,, (1861) I B
& S 272 was attempted to be distinguished. lee v. Griffin was a case where
the plaintiff had contracted to make a set of artificial denture to fit them into
his patient's mouth. The patient died after the denture was made without
having accepted the denture though he had an opportunity of doing so. The
plaintiff sued executor for the goods bargained and sold. It was held in that
D case that wherever a contract is entered into for the manufacture of chattel
there the subject-matter of the contract is a sale and delivery of the chattel.
Blackburn J, specifically observed as follows:

"If the contract be such that, when carried out, it would result in the
sale of a chattel, the party cannot sue .for work and labour but, if the
E result of the contract is that they party has done work and labour
which ends in nothing that become the subject of a sale, the party
cannot sue .for goods sold and delivered The case of an attorney
employed to prepare a deed is an illustration of this latter
proposition, it cannot be said that the paper and ink he uses in the
F preparation of the deed are goods sold and delivered I do not think
that the test to apply these cases is whether the value of the work
exceeds that of the material used in its execution for, if a sculptor
were employed to execute a work of art, greatly as his skill and
labour, supposing it to be of the highest description, might exceed
the value of the marble in which he worked, the contract would in
G my opinion nevertheless be a contract for the sale of chattel. "

Referring to the case of Robinson v. Graves and lee v. Griffin in Contract for
Sale of Goods, Benjamin's Third Edition states at pages 39- 40 as follows:
-----
"In Robinson v. Graves however, the Court of Appeal reintroduced,
· H purportedly as a qualification to this rule, what is in effect the
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.] 623
criterion of relative importance as between work and· materials A
which had been rejected in Lee v. Griffin, although the court professed
to be considering what was the substance of the contract rather thc.n
the more substantial component in the product ultimately delivered
Jn Robinson v. Graves, Greer L.J said: "Ifyou find .. that the substance
of the contract was the production of something to be sold .. then B
that is a sale of goods. But if the substance of the contract, on the
other hand, is that skill and labour have to be exercised for the
--r··
production of the article and that it is only ancillary to that that
there will pass from the artist to his client or customer some materials
in addition to the skill involved in the production of the portrait,
that does not make any difference to the result, because the substance C
of the contract is the skill and experience of the artist in producing
the picture. " This statement, with respect, overlooks the fact that
what passes to the client is not the materials but the finished picture,
of which both the work and the materials are components. Lee v.
Griffin and Robinson v. Graves cannot be reconciled: the reasoning D
in each case could have been applied to the facts of the other. It has
yet to be appreciated that a decision of this problem can be reached
only by adopting one or the other of these equally arbitrary rules. "
(Emphasis added)
--~
The test laid down in Lee v. Griffin had been preferred by the Australian
Courts'. In Dela Nominees Pty. Ltd v. Viscount Plastic Products Pty. Ltd., E
(1979) VR 167 the Supreme Court of Victoria, Australia described Robinson
v. Graves as a hard case and rejected its test as "illogical and unsatisfactory"
"wrong in principle" and "too erratic" to be useful.

The principle enunciated in Kame 's case was followed by this Court in F
State a/Tamil Nadu v. Anandam Viswanathan, (1989] 1 SCC 613. In this case,
this Court held that a contract for printing of question paper for educational
institutions constituted a works contract and, therefore, exempted from tax. In
Everest Copiers v. State of Tamil Nadu, [ 1996] 5 SCC 390 in respect of the
Assessment Year 1978-79, this Court has held that making photostat copies
on paper with xerox machine and delivering the same to the customer for G
payment was a contract for work or service and not a contract of sale. The
transfer of paper was only incidental and hence such transaction was not
exigible to sales tax.

In Hindustan Shipyard Ltd, v. State of A.P., (2000] 6 SCC 579, this Court
was called upon to decide whether the transaction of building of a ship after H
624 SUPREME COURT REPORTS [2001] l S.C.R.

A an order had been placed amounted to sale as defined under the A.P. General
Sales Tax Act or was it a works contract. While coming to the conclusion that
the transaction in question had amounted to a sale this Court observed that
in order to decide whether such a transaction is a contract of sale or contract
for works or service the same had to be culled out from the terms of the
B contract.

All the aforesaid decisions related to the period prior to the Forty- sixth
Amendment of the Constitution when Article 366 (29A) was inserted. At that
time in the case of a works contract it was held that the same could not be
split and State Legislature had no legislative right to seek to levy sales tax
C on a transaction which was not a sale simpliciter of goods. Rainbow Colour
lab & Anr. v. State of M.P. and Others, [2000] 2 SCC 385 was, however, a
case relating to the definition of the word "sale" in the M.P. General Sales Tax
Act, 1958 after its amendment consequent to the insertion of Article 366
(29A). The question there was whether the job rendered by a photographer
in taking photographs, developing and printing films would amount to works
D contract for the purpose of levy of sales tax. This Court held that the work
done by the photographer was only a service contract and there was no
element of sale involved. After referring to earlier decisions of this Court, it
was observed at page 391 as follows:

"15. Thus, it is clear that unless there is sale and purchase of goods, ~-
E either in fact or deemed, and which sale is primarily intended and
not incidental to the contract, the State cannot impose sales tax on
a works contract simpliciter in the guise of the expanded definition
found in Article 366(29-A)(b) read with Section 2(n) of the State Act.
On facts as we have noticed that the work done by the photographer
which as held by this Court in Kame case is only in the nature of
F
a service contract not involving any sale of goods, we are of the
opinion that the stand taken by the respondent State cannot be
sustained."

Even though in our opinion the decisions relating to levy of sales tax
G would have, for reasons to which we shall presently mention, no application
to the case of levy of customs duty, the decision in Rainbow Colour Lab case
(supra) requires consideration. As a result of the Forty-sixth Amendment,
sub-article 29A of Article 366 was inserted as a result whereof tax on the sale
or purchase of goods was to include a tax on the transfer of property in goods
(whether as goods or in some other form) involved in the execution of a works
H contract. Taking note of this amendment this Court in Rainbow Colour Lab
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL J.] 625

at page 388-389 observed as follows: A

"I J. Prior to the amendment of Article 366, in view of the judgment
of this Court in State af Madras v. Gannon Dunkerley & Co. (Madras)
Ltd. the States could not levy sales tax on sale of goods involved in
a works contract because the contract was indivisible. All that has
happened in law after the 46th Amendment and the judgment of this B
Court in Builders' case is that it is now open to the States to divide
the works contract into two separate contracts by a legal fiction: (i)
contract for sale of goods involved in the said works contract, and
(ii) for supply of labour and service. This division of contract under
the amended law can be made only if the works contract involved a C
dominant intention to transfer the property in goods and not in
contracts where the transfer in property takes place as an incident of
contract of service. The amendment, referred to above, has' not
empowered the State to indulge in a microscopic division of contracts
involving the value of materials used incidentally in such contracts.
What is pertinent to ascertain in this connection is what was the D
dominant intention of the contract. Every contract, be it a service
contract or otherwise, may involve the use cf some material or the
other in execution of the said contract. The State is not empowered
by the amended law to impose sales tax on such incidental materials
used in such contracts ..." E
In arriving at the aforesaid conclusion the Court referred to the decision
of this Court in Hindustan Aeronautics Ltd. v. State of Karna/aka, (1984] I
SCC 706 and Everest Copier (supra). But both these cases related to pre-
Forty-sixth Amendment era where in a works contract the State had no
jurisdiction to bifurcate the contract and impose sales tax on the transfer of F
property in goods involved in the execution of a works contract. The Forty-
sixth Amendment was made precisely with a vi~w to empower the ·state to
bifurcate the contract and to levy sales tax on the value of the material
involved in the execution of the works contract, notwithstanding that the
value may represent a small percentage of the amount paid for the execution G
of the works contract. Even if the dominant intention of the contract is the
rendering of a service, which will amount to a works contract, after the Forty-
sixth Amendment the State would now be empowered to levy sales tax on the
material used in such contract. The conclusion arrived at in Rainbow Colour
'Lab case, in our opinion, runs counter to the express provision contained in
Article 366 (29A) as also of the Constitution Bench decision of this Court in H
..
626 SUPREME COURT REPORTS f2001] I S.C.R.

A Builders' Association of India and Others ·v. Union of India and Others,
[1989] 2 sec 645.

According to Section 12 of the Customs Act, duty is payable on goods
imported into India. The word "goods" has been defined in Section 2(22) of
the Customs Act and it includes in sub-clause (c) "baggage" and sub-clause
B (e) "any other kind of movable property". It is clear from mere reading of the
said provision that any moveable article brought into India by a passenger
as part of his baggage can make him liable to pay customs duty as per the
Customs Tariff Act. An item which does not fall within sub-clauses (a), (b),
(c) or (d) of Section 2(22) will be regarded as coming under Section 2(22) (e).
C Even though the definition of the goods purports to be an inclusive one, in
effect it is so worded that all tangible movable articles will be the goods for
the purposes of the Act by residuary clause 2(22) (e ). Whether movable
article comes as a part of a baggage, or is imported into the country by any
other manner, for the purpose of the Customs Act, the provision of Section
12 would be attracted. Any media whether in the form of books or computer
D disks or cassettes which contain information technology or ideas wou Id
necessarily be regarded as goods under the aforesaid provisions of the
Customs Act. These items are moveable goods and would be covered by
Section 2(22)(e) of the Customs Act.

E The rate at which the customs duty is to be imposed has to be such
as may be specified in the Customs Tariff Act. This is stipulated by Section
12 of the Customs Act. Thus the two Acts have to be read in conjunction
with each other.

Section 2 of the Tariff Act states that the rate at which duties of
F customs shall be levied under the Customs Act are specified in the First and
Second Schedule to the said Act. Chapter 49 of the First Schedule relates to
printed books, newspapers, pictures and other products of the printing industry;
manuscripts, typescripts and plans. Note 2 in Chapter 49 states that the term
"printed" also means reproduced by means of a duplicating machine, produced
G under the control of a computer, embossed, photographed, photocopied,
thermocopied or typewritten. Heading 49.05 pertains to "maps and hydrographic
or similar charts of all kinds, including atlases, wall maps, topographic plans
and globes". Heading No. 49.06 specifies "plans and drawings for architectural,
engineering, industrial, commercial, topographical or similar purposes, being
originals drawn by hand; handwritten texts; photographic reproductions on
H sensitised paper and carbon copies of the foregoing. The residuary heading
ASSO. CEMENT CO. LTD v. COM MR. or CUSTOMS [KIRPAL, J.] 627
No. 49.11 reads as follows: A
"Other printed matter, including printed pictures and photographs

Rate of duty
Standard Preferential
Areas B
4911.10 -Trade advertising material, 25%
commercial catalogues and the like

- Other:

4911.91 - Pictures, designs and photographs 25% c
4911.99 - Other 25%

Drawings, plans, manuals etc. specified in Chapter 49 of the Tariff Act
are thus statutorily regarded as goods attracting a specified rate of customs D
duty on their import into India. There is no challenge to any of the statutory
provisions and reading the two Acts together there can be no manner of
doubt that what has been imported into India by the appellants, through the
courier or otherwise, from their technical collabo;·ators were goods even
though the tangible articles so imported contained information or knowledge
for use by the appellants. E
In view of the clear provisions of the Customs Act and the Tariff Act,
which have been referred to herein above, whenever any goods or moveables
or tangible articles are imported into this country customs duty is payable.
For the purpose of attracting levy it would be immaterial as to what are the
types of goods imported or what is contained in them or recorded thereon. F
The contents will be relevant for the purpose of valuation. Therefore the
decisions of this Court relating to the levy of sales tax in cases bf works
contracts will have no application here.

In the sales tax cases referred to hereinabove no doubt the question G
which arose was whether, in a works contract, where there was a supply of
---~ materials and services in a indivisible contract, but there the question had
arisen because the States' power prior to the Forty-sixth Amendment to the
Constitution, were not entitled to bifurcate or split up the contract for the
purpose of levying sales tax on the element of moveable goods involved in
the contract. Apart from the decision in Rainbow Colour Lab's case, which H
628 SUPREME COURT REPORTS [2001] I S.C.R.

A does not appear to be correct, the other decisions cited related to pre-Forty-
sixth Amendment period. Furthermore the provisions of the Customs Act and
the Tariff Act are clear and unambiguous. Any moveable articles, irrespective
of what they may be or may contain would be goods as defined in Section
2(22) of the Customs Act.

B It is true that what t~e appellants had wanted was technical advice or
information technology. Payment was to be made for this intangible asset. But
the moment the information or advice is put on a media, whether paper or
diskettes or any other thing, that what is supplied becomes chattel. It is in
respect of !he drawings, designs etc. which are received that payment is made
C to the foreign collaborators. It is these papers or diskettes etc., containing the
technological advice, which are paid for and used. The foreign collaborators
part with them in lieu of money. It is, therefore, ,,old by them as chattel for
use by the Indian importer. The drawings, designs, manuals etc., so received
are goods on which customs duty could be levied.

D The decision of Winter v. Putnam's case (supra) is also of no help to
the appellants as in that case, it was the quality of information regarding
mushrooms which was not regarded as a product event though the
encyclopaedia containing the information was regarded as goods. Here we are
not concerned with the quality of information given to the appellants. The
E question is whether the papers or diskettes etc. containing advice and/or
information are goods for the purpose of Customs Act. The answer, in our
view, is in the affirmative.

With regard to the submission on behalf of the appellants that the
contracts in these cases were for services and it is on that basis that permission
F from Reserve Bank of India was obtained for release of foreign exchange. The
submission of Mr. Rohatgi, in reply, was that the Reserve Bank does not
adjudicate on the question whether the technical material being imported are
goods or not for the purpose of imposition of customs duty. We agree witn
this submission. The appellants had represented to the Reserve Bank that the
G collaborators were rendering service and on this representation remittances
were allowed. The Reserve Bank must have examined the applications from
the point of view of release of foreign exchange. It was not an adjudicating
authority under the Customs Act. Had there been any doubt about the
question whether what was imported were goods or not then, perhaps, the
grant of permission to remit money for services rendered and payment of
H taxes in respect thereof may have been relevant. But here, on the examination
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL. J.] 629

of the law applicable to the levy of customs duty the position is free from A
any ambiguity. As has already been observed hereinabove the drawings,
designs, manuals etc., imported through couriers were 'goods' on which
customs duty was payable. The action of the Reserve Bank cannot result in
negating the statutory provisions of the Customs Act and the Tariff Act
applicable in the instant cases. The belief of the appellants that what was B
imported were not 'goods', as the Reserve Bank had also regarded the
payment was being made for services and not goods, was clearly erroneous
and misplaced.

Re: Valuation

In support of the contention that even if what was imported were goods
c
on which customs duty was payable the value thereof should be nominal, it
~ was contended that the levy could only be on· the media on which transfer
was made and not on the whole of the intellectual content. While referring
to Builders Association of India case (supra) it was submitted that there this
Court had held that in the case of works contract levy of sales tax was D
permitted .only on that component of the works contract which was relatable
to goods. Similarly, in the case of Mis Gannon Dunkerley and Co. and Others
v. State of Rajasthan and Others, [1993) 1 SCC 364 it was held that tax on
sale of goods in works contract was based upon the value of goods as they
relate to the entire project and charges for planning, designing and architect
fee could be excluded. It was, therefore, argued that in the present cases only E
the media on which the know-how was transmitted could be subjected to duty
and its value was only nominal.

In the case of Hotel Leela Ventures the Commissioner had taken the
whole of the value of the contract for the purpose of levy of duty while in
F
the case of Sterlite Industries, as also in some other cases, an adhoc percentage
of about one-third of the total contract value was taken as the basis for levy
of the tax. At the time of importation the couriers had, however, given the
value of dollar one in respect of the media on which the information was
stored.
G
Section 14 of the Customs Act deals with valuation of goods for
pL:rposes of assessment. The said section is as follows:

"14. Valuation of goods for purposes of assessment.-(1) For the
purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other
law for the time being in force whereunder a duty of customs is H
630 SUPREME COURT REPORTS [2001] l S.C.R.

A chargeable on any goods by reference to their· value, the value of
such goods shall be deemed to be the price at which such or like
goods are ordinarily sold, or offered for sale, for delivery at the time
and place of importation or exportation, as the case may be, in the
course of international trade, where the seller and the buyer have no
interest in the business of each other and the price is the sole
B consideration for the sale or offer for sale:

Provided that such price shall be calculated with reference to the
rate of exchange as in force on the date on which a bill of entry is
presented under section 46, or a shipping bill or bill of export, as the
C case may be, is presented under section 50;

(I A) Subject to the provisions of sub-section ( l ), the price referred
to in that sub-section in respect of imported goods shall be determined
in accordance with the rules made in this behalf.

D (2) Notwithstanding anything contained in sub-section (I) [or
sub-section (I A)], if the Central Government is satisfied that it is
necessary or expedient so to do it may, by notification in the Official
Gazette, fix tariff values for any class of imported goods or exp011
goods, having regard to the trend of value of such or like goods, and
where any such tariff values are fixed, the duty shall be chargeable
E with reference to such tariff value.

(3) For the purposes of this section •

(a) "rate of exchange" means the rate of exchange •

(i) determined by the Central Government, or
F
(iO ascertained in such manner as the Central Government may
direct, for the conversion of Indian currency into foreign currency
or foreign currency into Indian currency;
(b) "foreign currency" and "Indian currency" have the meanings
G respectively assigned to them in the Foreign Exchange Regulation
Act, 1973 (46of1973)."

In exercise of this power under the Customs Act, the Central
Government promulgated "Customs Valuation (Determination of Price
of Imported Goods) Rules, 1988". Three Rules which are relevant are
H Rules 3, 4 and 9. While Rules 3 and 4 have been quoted hereinabove
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.] 631
~

y-- Rule 9 reads as follows: A
"9. Cost and services.- (I) In determining the transaction value,
there shall be added to the price actually paid or payable for the
imported goods,-

(a) the following cost and services, to the extent they are incurred
by the buyer but are not included in the price actually paid or,
B
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; c
(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 the D
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;
E
(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 plans F
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 G
• ~-....?-- royalties 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; H
632 SUPREME COURT REPORTS [2001] I S.C.R.

A (e) All other payments actually made or to be made as a condition
of sale of the imported g,oods, 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.

B (2) For the purposes of sub-section (I) and sub-section (I A) of
Section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the
value of the imported goods shall be the value of such goods, for
delivery at the time and place of importation and shall include-

(a) the cost of transport of the imported goods to the place of
c importation;

(b) loading, unloading and handling charges associated with the
delivery of the imported goods at the place of importation; and

(c) the cost of insurance: Provided that -
D (i) where the cost of transport referred to in clause (a) is not
ascertainable, such cost shall be twenty per cent of th~ free
on board value of the goods;

(ii) the charges referred to in clause (b) shall be one per cent
of the free on board ·value of the goods plus the cost of
E transport referred to in clause (a) plus the cost of insurance
referred to in clause (c);

(iii) where the cost referred to in clause (c) is not ascertainable,
such cost shall be 1.125 per cent of free on board value of
the goods;
F
Provided further that in the case of goods imported by air, where the
cost referred to in clause (a) is ascertainable, such cost shall not
exceed twenty per cent of free on board value of the goods :
Provided also that where the free on board value of the goods is not
G ascertainable, the costs referred to in clause (a) shall be twenty per
-~----
cent of the free on board value of the goods plus cost of insurance
for clause (i) above and the cost referred to in clause (c) shall be
1.125% of the free on board value of the goods plus cost of transport
for clause (iii) above.
H (3) Additions to the price actually paid or payable shall be made under
- r·
ASSO. CEMENT CO. LTD v. COM MR. OF CUSTOMS [KIRPAL. J.] 633

this rule on the basis of objective and quantifiable data. A
(4) No addition shall be made to the price actually paid or payable in
determining the value of the imported goods except as provided for
in this rule."

As is evident from the perusal of the aforesaid provisions, namely, Sections B
12 and 14 of the Customs Act and Rules 3, 4 and 9 the value of the goods
which are imported is deemed to be the price at which they are ordinarily sold.
Sub-section (IA} provides that the price referred to in sub-section (I) of
Section 14 shall be determined in accordance with the rules made in this
behalf. As per Rules 3 and 4 the transaction value of the imported goods,
subject to adjustment under Rule 9, is to be the price actually paid or payable C
for the goods when sold for export to India. Rule 9 (!) (b) (iv) is important
for that shows that engineering, development, artwork, design work and plans
.;L> •and sketches would form part of the price of goods for the purpose of
determining its value for levy of duty. In this connection, it will be useful to
refer to the following passage from a decision of this Court in the case of D
Collector of Customs (Prev.), Ahmedabad v. Essar Gujarat Ltd, (1996) 88
E.L.T. 609 S.C. at page 616 para 17:

"The entire purpose of Section 14 is to find out the value of the goods
- -~( whic:1 are being imported. The EGL in this case was purchasing a
Midrex Reduction Plant in order to produce sponge iron. In order to E
produce sponge iron, it was essential to have technical know-how
from Midrex. It was also essential to have an operating licence from
them. Without these, the plant would be of no value. That is why the
pre-condition of a process licence of Midrex was placed in the
agreement with TIL. It will not be proper to view that agreement with
TIL in isolation in this case. The plant would be of no value if it could F
not be made functional. EGL wanted to buy the plant in working
condition. This could only be achieved by paying not only the price
of the plant, but also the fees for the licence and the technical know-
how for making the plant operational. Therefore, the value of the plant
will comprise of not only the price paid for the plant but also the price G
payable for the operation licence and the technical know-how. Rule 9
should be construed bearing this in mind."
(Emphasis added)

Significantly Chapter 49 also includes items which have substantial
intellectual value as opposed to the value of the paper on which it is put. H
634 SUPREME COURT REPORTS [2001] I S.C.R.

A Newspapers, periodicals, journals, dictionaries etc., are to be found in Chapter
49 wherein maps, plans and other similar items are also included, while -
Chapter 97 talks about original engravings. It is clear that intellectual property
when put on a media would be regarded as an article on the total value of
which customs duty is payable.

B To put it differently, the legislative intent can easily be gathered by
reference to the Customs Valuation Rules and the specific entries in the
Customs Tariff Act. The value ·of an encyclopaedia or a dictionary .or a
magasinc is not only the value of the paper. The value of the paper is in fact
negligible as compared to the value or price of an encyclopaedia. Therefore,
C the intellectual input in such items greatly enhance the value of the papers
and ink in the aforesaid examples. This means that the charge of a duty is
on the final product whether it be the encyclopaedia or the engineering or
architectural drawings or any manual.

Similar would be the position in the case of a programme of any kind
D loaded on a disc or a floppy. For example in the case of music the value of
a popular music cassette is several times more than the value of the blank
cassette. However, if a pre-recorded music cassette or a popular film or a
musical score is imported into India duty will necessarily have to be charged
on the value of the final product. In this behalf we may note that in State
E Bank of India v. Co!Iector of Customs, Bombay, (2000) 1 Scale 72, the Bank
had, under an agreement with the foreign company, imported a computer
software and manuals, the total value of which was US$ 4,084,475. The bank ,.
filed an application for refund of customs duty on the ground that the basic
cost of software was US $ 401.047. While the rest of the amount of US $
3,683,428 was payable only as a licence fee for its right to use the software
F for the bank countrywide. The claim for the refund of the customs duty paid
on the aforesaid amount of US $ 3,683,428 was not accepted by this Court
as in its opinion, on a correct interpretation of Section 14 read with the rules,
duty was payable on the transaction value determined therein and as per Rule
9 in determining the transaction value there has to be added to the price
G actually paid or payable for the imported goods, royalties and the licence fee
for which the buyer is required to pay, directly or indirectly as a condition
of sale of goods to the extent that such royalties and fees are not included
in the price actually paid or payable. This clearly goes to show that when
technical material is supplied whether in the form of drawings or manuals the
same are goods liable to customs duty on the transaction value in respect
H thereof.
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [K!Rl'AL, J] 635
It is misconception to contend that what is· being taxed is intellectual A
input. What is being taxed under the Customs Act read with Customs Tariff
Act and the Customs Valuation Rules is not the input alone but goods whose
value has been enhanced by the said inputs. The final product at the time
of import is either the magazine or the encyclopaedia or the engineering
drawings as the case may be. There is no scope for splitting the engineering
drawing or the encyclopaedia into intellectual input on the one hand and the B
paper on which it is scribed on the other. For example, paintings are also to
be taxed. Valuable paintings are worth millions. A painting or a portrait may
be specially commissioned or an article may be tailor made. This aspect is
irrelevant since what is taxed is the final product as defined and it will be an
absurdity to contend that the value for the purposes of duty ought to be the C
cost of the canvas and the oil paint even though the composite product, i.e.,
the painting is worth millions.

It will be appropriate to note that the Customs Valuation Rules, 1988 are
framed keeping in view the GA TT protocol and the WTO agreement. In fact
our Rules appear to be an exact copy of the GATT and WTO. For the purpose D
of valuation under the 1988 Rules the concept of "transaction value" which
was introduced was based on the aforesaid GA TT protocol and WTO
agreement. The shift from the concept of PTice of goods, as was classically
understood, is clearly discernible in the new principles. Transaction value
may be entirely different from the classic concept of price of goods. Full
E
meaning has to be given to the rules and the transaction value may include
many items which may not classically have been understood to be part of the
sale price.

The concept that it is only chattel sold as chattel, which can be regarded
as goods has no role to play in the present statutory scheme as we have F
already observed that the words "goods" as defined under the Customs Act
has an inclusive definition taking within its ambit any moveable property. The
list of goods as prescribed by the law are different items mentioned in various
chapters under the Customs Tariff Act, 1997 or 1999. Some of these items are
clearly items containing intellectual property like designs, plans etc.
G
__ fa- In the case of St. Albans City and District Council v. International
Computers ltd. (1996) 4 All ER 481 Sir lain Glidewell in relation to whether
computer programme on a disc would be regarded as goods observed at page
493 as follows:

"Suppose I buy an instruction manual on the maintenance and repair H
636 SUPREME COURT REPORTS [2001] I S.C.R.

A of a pai1icular make of car. The instructioi1s are wrong in an important
respect. Anybody who follows them is Iikely to cause serious damage
to the engine of his car. In my view, the instructions are an integral
part of the manual. The manual including the instructions, whether in
a book or a video cassette, would in my opinion be 'goods' within
the meaning of the l 979 Act, and the defective instructions would
B result in a breach of the implied terms in s 14.

If this is correct, I can see no logical reason why it should not also
be correct in relation to a computer disk onto which a programme
designed and intended to instruct or enable a computer to achieve
particular functions has been encoded. If the disk is sold or hired by
c the computer manufacturer, but the programme is defective, in my
opinion there would be prima facie be a breach of the terms as to
quality and fitness for purpose implied by the 1979 Act or the 1982
Act."

D The above view, 111 our view, appears to be logical and also in
consonance with the Customs Act. Similarly in Advent Systems limited v.
UNISYS Corporation 925 F 2d 670 (3d Cir 1991) it was contended before the
Court in United States that software referred to in the agreement between the
parties was a "product" and not a "good" but intellectual property outside ).
the ambit of Uniform Commercial Code. Jn the said Code, goods were defined
E as "all things (including specially manufactured goods) which are moveable
at the time of the identification for sale". Holding that computer sofiware was
a "good'. the court held as follows:

"Computer programmes are the product of an intellectual process, but
once implanted in a medium are widely distributed to computer owners.
F
An analogy can be drawn to a compact disc recording of an orchestral
rendition. The music is produced by the artistry of musicians and in
itself is not a "good". but when transferred to a laser-readable disc
becomes a readily merchantable commodity. Similarly, when a professor
delivers a lecture, it is not a good, but, when transcribed as a book,
G it becomes a good.
That a computer programme may be copyrightable a~ intellectual
property does not alter the fact that once in the form of a floppy disc
or other medium, the programme is tangible, moveable and available
in the marketplace. The fact that some programmes may be tailored for
H specific purposes need not alter their status as "goods" because the
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.] 637
Code definition includes "specially manufactured goods". A
We are in agreement with the aforesaid observations and hold that the
value of the goods imported would depend upon the quality of the same and
would be represented by the transaction value in respect of the goods
imported.
B
It would not be correct, as was done in Leela Ventures case, to take the
entire contract value as being the value of the imported goods. What is the
transaction value in respect thereof has to be ascertained. In most of the other
cases this has been done by adopting about one-third of the contract value
as being the transaction value of the imported goods for the purpose of levy C
of customs duty.

In Leela Ventures case the Commissioner must re-determine the
transaction value of the drawings etc., imported keeping in view the terms of
the agreements and then impose the levy.
D
Re: Limitation:

The next submission on behalf of the appellants was that in the case
of short levy or non-levy of duty the normal period for issuing a notice
seeking to realise the difference in the duty levied and imposable is that of
six months. This period is extendable to five years only if the proviso to E
Section 28 (I) can be validly invoked. It was the case of the appellants that
there was never an intention on their part to evade duty. Agreements entered
into with foreign collaborators had been disclosed to the Government of India
who had approved the remittances as fees for technical services rendered.
Payments had been made as directed by the Reserve Bank of India by
resorting to Form A-2 and deducting tax at source on the remittances so F
made. Service tax which was payable was also deposited and this clearly
shows that' the appellants bonafide believed that the value of the drawings
and other technical material imported was only nominal.

While relying on various decisions of this Court, it was submitted that G
the proviso to Section 28 (l) of the Customs Act can only apply if there is
a positive inaction or deliberate attempt. to mislead the revenue. On the facts
of the present case, it was submitted that none of the ingredients of the
proviso would enable the enlarg.ement of the limitation from six months to five
years was present. Our attention was drawn to the cases of Collector of
Central Excise, Hyderabad v. Mis Chemphar Drugs and Liniments, H
638 SUPREME COURT REPORTS (2001) I S.C.R

A Hyderabad, [1989] 2 SCC 127, Cosmic Dye Chemical v. Collector of Central
Excise, Bombay, [l 995] 6 SCC l l 7, Mis Padmini Products v. Collector of
Central Excise, Bangalore, [ 1989] 4 SCC 275, Tamil Nadu Housing Board v.
Collector ofCentral Excise, Madras and Another, [ l 995] Suppl. l SCC 50 and
Collector of Centre/ Excise v. H.MM limited(l995) 76 ELT 497. In all these
B cases the Court was concerned with the applicability of the proviso to Section
l l-A of the Central Excise Act which, like in the case of Customs Act,
contemplated the increase in period of limitation for issuing a show-cause
notice in the case of non-levy or short-levy to five years from a normal period
of six months. The said Section l l A along with the proviso reads as under:

"Section l l A. Recovery of duties not levied or not paid or short-
c levied or short-paid or erroneously refunded.-( l) When any duty of
excise has not been levied or paid or has been short-levied or short-
paid or erroneously refunded, a Central Excise Officer may, within six
months from the relevant date, serve notice on the person chargeable
with the duty which has not been levied or paid or which has been
D short-levied or short-paid or to whom the refund has erroneously
been made, requiring him to show cause why he should not pay the
amount specified in the notice:
Provided that where any duty of excise has not been levied or
paid or has been short-levied or short-paid or erroneously refunded
E by reason of fraud, collusion or any wilful mis-statement or
suppression of facts, or contravention of any of the prov is ions of this
Act or of the ru Jes made thereunder with intent to evade payment of
duty, by such person or his agent, the provisions of this sub-section
shall have effect, as if, for the words "six months", tlie words 'five
years' were substituted.
F
Explanation.-Where the service of the notice is stayed by an order
of a court, the period of such stay shall be excluded in computing the
aforesaid period of six months or five years, as the case may be.
(2) The Central Excise Officer shall, after considering the representation,
G if any , made by the person on whom notice is served under sub-
section (I), determine the amount of duty of excise due from such
person (not being in excess @fthe amount specified in the notice) and
thereupon such person shall pay the amount so determined.
(3) For the purposes of this section,-
H (i) "refund" includes rebate of duty of excise on excisable goods
ASSO. CEMENT CO. LTD v. COMMR. Ol' CUSTOMS [KIRPAL, J.] 639
exported out of India or on excisable materials used in the A
manufacture of goods which are exported out of India;

(ii) "relevant date" means,-

(a) in the case of excisable goods on which duty of excise has not
been levied or paid or has been short-levied or short-paid -
B
(A) where under the rules made under this Act a periodical return,
showing partiCulars of the duty paid on the excisable goods removed
during the period to which the said return relates, is to be filed by a
manufacturer or a producer or a licensee of a warehouse, as the case
may be, the date on which such return is so filed;
c
(B) where no periodical return as aforesaid is filed, the last date on
which such return is to be filed under the said rules;
___,..
(C) in any other case, the date on which the duty is to be paid under
this Act or the rules made thereunder;
D
(b) in a case where duty of excise is provisionally assessed under
this Act or the rules made thereunder, the date of adjustment of
duty after the final assessment thereof;

(c) in the case of excisable goods on which duty of excise has been
erroneously refunded, the date of such refund."
E
While interpreting the said provision in each of the aforesaid cases, it
was observed by this Court that for proviso to Section 11 A can be invoked,
the intention to evade payment of duty must be shown. This has been clearly
brought out in Cosmic Dye Chemical case (supra) where the Tribunal had held
that so far as fraud, suppression or mis-statement of facts was concerned the
question of intent was immaterial. While dis- agreeing with the aforesaid E
interpretation this Court at page 119 obs-:rved as follows:

"6. Now so far as fraud and collusion are concerned, it is evident that
the requisite intent, i.e., intent to evade duty is built into these very
words. So far as misstatement or suppression of facts are concerned, G
they are clearly qualified by the word 'wilful' preceding the words
"misstatement or suppression of facts" which means with intent to
evade duty. The next set of words "contravention of any of the
provisions of this Act or rules" are again qualified by the immediately
following words "with intent to evade payment of duty", It is, therefore,
not correct to say that there can be a suppression or misstatement of H
640 SUPREME COURT REPORTS [2001] 1 S.C.R.

A fact, which is not wilful and yet constitutes a permissible ground for
the purpose of the proviso to Section l l-A. Misstatement or
suppression of fact must be wilful."

The aforesaid observations show that the words "with intent to evade payment
of duty" were of utmost relevance while construing the earlier expression
B regarding the mis-statement or suppression of facts contained in the proviso.
Reading the proviso as a whole the Court held that intent to evade duty was
essentially before the proviso could be invoked. . ....._

Though it was sought to be contended that Section 28 of the Customs
C Act is in pari materia with Section 11 A of the Excise Act, we find there is one
material difference in the language of the two provisions and that is the words
"with intent to evade payment of duty" occurring in proviso to Section 11 A
of the Excise Act are missing in Section 28 (1) of the Customs Act and the
proviso in particular. The said sub-section 28(1) of the Customs Act reads as
follows:-
D
"28. Notice for payment of duties, interest etc.- (l) When any duty
has not been levied or has been short-levied or erroneously refunded,
or when any interest payable has not been paid, part paid or
erroneously refunded, the proper officer may,-

E (a) in the case of any import made by any individual for his personal
use or by Government or by any educational, research or
charitable institution or hospital, within one year;

(b) in any other case, within six months,

from the relevant date, serve notic~ on the person chargeable with the
F duty or interest which has not been levied or charged or which has
been so short-levied or part paid or to whom the refund has erroneously
been made, requiring him to show cause why he should not pay the
amount specified in the notice.

Provided that where any duty has not been levied or has been short-
G
levied or the interest has not been charged or has been part paid or
the duty or interest has been erroneously refunded by reason of
collusion or any wilful mis-statement or suppression of facts by the
importer or the exporter or the agent or employee of the importer or
exporter, the provisions of this sub-section shall have effect as if for
H the words "one year" and "six months", the words "five years" were
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL. J.] 641
substituted. A
Explanation.-Where the service of the notice is stayed by an order
of a court, the period of such stay shall be excluded in computing the
aforesaid period of one year or six months or five years, as the case
may be."
B
The proviso to Section 28 can inter alia be invoked when any duty has
not been levied or has been short-levied by reason of collusion or any wilful
mis-statement or suppression of facts by the importer or the exporter, his
agent or employee. Even if both the expressions 'mis-statement' and
'suppression of facts' are to be qualified by the word 'wilful', as was done
in the Cosmic Dye Chemical case while construing the proviso to Section C
11 A, the making of such a wilful mis-statement or suppression of facts would
attract the provisions of Section 28 of the Customs Act. In each of these
appeals it will have to be seen as a fact whether there has been a non-levy
or short-levy and whether that has been by reason of collusion or any wilful
mis-statement or suppression of facts by the importer or his agent or employee. D
In the present cases, the technical literature, drawings, manuals etc.,
were imported through courier and in one case through Mr. Kato. In each of
-i. these cases it is only a nominal value which was disclosed at the time of
importation. All this technical literature, drawings etc., were brought and
cleared as personal baggage. Jn our opinion, to examine whether the proviso E
to Section 28 (I) was validly invoked it is necessary to see the provisions
relating to the clearance of the personal baggage.

Chapter XI contains special provisions regarding baggage, goods
imported or exported by post, and stores. Section 77 of the Customs Act
provides that the owner of any baggage shall, for the purpose of clearing it, F
make a declaration of its contents to the proper officer. Section 81 enables the
Central Board of Excise and Customs to make regulations in respect of baggage
and the said Section 81 reads as follows:

"Section 81. Regulations in respect of baggage.- The Board may make
regulations, G
(a) providing for the manner of declaring the contents of any baggage;

(b) providing for the custody, examination, assessment to duty and
clearance of baggage;
(c) providing for the transit or transhipment of baggage from one H
642 SUPREME COURT REPORTS (2001] 1 S.C.R.

A customs station to another or to a place outside India."

Under Rule JO of the Customs Valuation (Determination of Price of
Imported Goods) Rules I 988, the importers are required to furnish, inter alia,
a declan;tion disclosing full and accurate details relating to the value of the
imported goods and any other statement, any information or document etc.
B as considered necessary for determination of the value of imported goods.

Under the said Section baggage declaration forms have been prescnbed
which inter alia require the owner of the baggage to disclose the description
of the goods as well as the value in respect thereof. It is as owner of the
C baggage containing the drawings and other technical literature and manual
etc., that the couriers cleared the goods. They may not be the owners of the
drawings etc., but for the purpose of clearance of the baggage, containing the
said articles, the courier was the owner of the baggage. The Tribunal has held,
and in our opinion correctly, that the sender as well as the receiver were aware
of the value of the goods. The courier acted as the conduit or the agent and
D would only have declared such value in respect of the goods imported as
must have been instructed by the sender and or receiver. The decla~tion by
the courier of the value of the drawings in the Leela Ventures case and other
technical material in the case of other appellants must have been done by the
courier either at the behest of the sender or the receiver or at his own behest.
E In either case the declaration of the value of the drawings as being very
nominal was clearly a mis-statement or a mis-representation of facts. According
to the baggage declaration forms it is for the passenger to give value of the
goods being brought in by him. When the value of the goods which were
dutiable in the present cases was shown as only nominal, while in actual fact
the correct value was much more, there was clearly an attempt on the part of
F the passenger, namely, the courier, to have the goods cleared through customs
authorities by grossly undervaluing the value thereof. The courier gave a
specific value of one dollar in respect of the drawings when both the sender
and the appellants knew fully well as to how important and valuable these
goods were. In the case of Leela Ventures it was on the basis of the architectural
G drawings that the renovation etc., was to take place whereas the technical
material made available to the other appellants was necessary for their purpose.
We have already held that the value of the goods so imported was not merely
the cost of the price of the media but also the intellectual input on the media
as represented by architectural drawings or users manuals etc. The value of
architectural drawings was not merely the cost of the paper and the ink but
H would be much more. In some of the cases we were informed that the
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.] 643
appellants had the1i1selves volunteered that about one-third of the total ainount A
~ payable to the collaborators should be taken as a figure representing the
transaction value of the technical material so imported.

The Tribunal as well as the Commissioner were right in coming to the
conclusion that there was a wilful suppression or mis-statement of the value
of the goods imported and, therefore, the respondents were entitled to invoke B
the provisions of the proviso to Section 28 ( 1) of the Customs Act and issue
show-cause notice even if period of six months importation had expired but
before the expiry of five years thereof in the case of all the appellants except
in the cases of Mis. H&R Rolling Mill Engineers Pvt. Ltd. (C.A. No.1493 of
2000) and M/s. Videocon VCR Ltd. (C.A. No. 3632 of2000). C

Re: Whether heading No. 98.03 appliable.

Prior to 26th May, 1995 goods which were imported by the appellants
through couriers were taxed under Chapter 98 of the Customs Tariff Act.
Heading No. 98.03 provides that "all dutiable articles, imported by a passenger D
or a member of a crew in his baggage" was taxable at the standard rate of
150 per cent. This rate of duty was, of course, su~ject to such exemptions
which were issued from time to time.

With effect from 26th May, 1995, when the President gave his assent
to the Finance Bill, 1995, the Customs Tariff Act stood amended as a result E
whereof goods imported through courier services were exempted from the
operation of Chapter 98. A circular dated 30th May, 1995 issued by the
Ministry of Finance, Govt. Of India specifically provided that henceforth
imports by courie_rs shall not be classified as baggage under heading No.
98.03. The practice of charging a uniform duty at the rate of 80 per cent ad
valorem on articles imported through couriers in terms of exemption notification F
'dated l st March, 1994 was to be discontinued with immediate effect. Couriers
Imports (Clearance) Regulations, 1995 were framed and notified on 26th May,
1995 as a result of which the imports through courier were to be classified
as imports falling under the respective customs tariffs and headings. One of
the results of the framing of the said Regulations was that the goods imported G
____ .._,i..
by couriers were to be divided into three categories which are (a) documents
(b) samples and free gifts and (c) dutiable goods.

In connection with the imports made, prior to the promulgation of the'
Couriers' Regulation, the learned counsel submitted that the respondents
had erred in assuming that the disputed material had been brought into the H
644 SUPREME COURT REPORTS [2001] I S.C.R.

A country as passenger baggage. It was contended that the appellants had n.ot
specified the manner in which the material was to be sent by the foreign
collaborators. It was submitted that Entry 98.03 was a special provision
providing for special procedure and an omnibus rate of duty applicable to
all goods imported by passengers or a crew member as their baggage. This
B provision, it was contended, was wholly inapplicable to corporate entities.
The appellants were not natural persons and they were quite incapable of
being treated as passengers. In any event, it was submitted, after clearance
of the disputed items there was no scope for the respondents to initiate
proceedings against the appellants or in respect of the material allegeci to
have been imported and the said proceedings, if any, could have been
C initiated only against the passenger from whom less duty than what was
legitimate was recovered, namely, from the courier.

We are unable to agree with the aforesaid contentions. Heading of
Chapter 98 clearly shows that the same is applicable to passengers' baggage.
As a matter of fact, in each of the present cases, the technical material which
-
D was received was cleared as part of passenger baggage. Whether the courier
or the person bringing the technical material was a person nominated by the
collaborator or by the appellants is of no consequence because the levy
under Section 12 of the Customs Act is on the goods imported into India. In
other words, the subject matter of the tax is not the person importing or
E exporting but the subject matter of the tax is the goods imported. If such
goods are imported as a part of the baggage then by virtue of heading No.
98.03 rate of duty prescribed therein has to be paid. The underlying principle
prior to May, 1995 in relation to taxing the passengers' baggage was that the
said baggage which contained dutiable articles was not to be taxed separately
as articles but the baggage as a composite unit was to be taxed in its entirety, ~
F after giving a credit for the free allowance which was available to the passenger.

It cannot be denied that the imports were made by the appellants. The
courier or any other passenger may be the mode or the manner of physical
importation of the goods, just as the said goods may have been imported by
G post. Section 28 of the Customs Act, however, enables the Government to
issue notice to the persons importing the articles into India. It is by reason
of the collaborators agreements that the drawings, manuals, technical material
etc. were sent by the foreign collaborators to the appellants and it is the
appellants who were the importers who alone could be made liable in case of
~

non-levy or short-levy of customs duty. The word 'importer' in Section 2 (26)
H of the Customs Act includes the owner and as the appellants were the owners
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.] 645
· of the goods, certainly after these were received by them, it is only from them A
that the short-fall in duty levied could have been recovered.-The parties took
a chance in importing the articles through the courier. Initially they were
successful in havi~g the goods cleared by declaring a nominal value in
respect thereof. They may not have been able to do this if the technical
material_and goods had been imported, not as a part ofp~sserigers''baggage, B
but in the ordinary course of import either through post or by. f!ling bill. of
entry~

We, therefore, concur with the conclusion of the Tribunal and the
Commissioner that the provisiof!s of Chapter 98 were rightly applied on the
-·. facts of these cases.
c
CIVIL APPEAL NO 3632 OF 2000.
[Mis. Videocon VCR ltd., v. Commissioner of Customs]

The appellant had entered into a technical collaboration agreement with
Mis. Toshiba Corporation, Japan on 13th October, I 989. The total contract D
value was hundred million Japanese Yen as fees which was settled at seventy
million Japanese Yen. Apart from providing technical information, Mis. Toshiba
Corporation was also to render consulting and training services and had
permitted made use of Toshiba patent.

With the approval of Reserve Bank of India, remittance was made in E
- Form A-2 and service tax paid.

On 29th June, 1992 Mr. Kato, presumably a representative of Mis.
Toshiba, brought with him to India drawings and designs as part of his
+ personal baggage. This was cleared without payment of duty.
F
On 26th May 1997, a show cause notice was issued to Mis_ Videocon
alleging _that duty was payable under Chapter 98 heading No. 98.03 and the
appellant was charged with mis-declaration and suppression which entitled
the invocation of extended period of-limitation of five years.
G
Reply to show cause notice was filed in which it was, in.ter a/ia, stated
that there was no mis-declaration or suppression and that the drawings and
designs were classifiable under heading No. 49.06 of Chapter 49 and in 1992-
93 tariff, import of such drawings and designs was free_

On 26th March, 1999, an order was passed against the appellant H
646

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SUPREME COURT REPORTS [2001] 1 S.C.R.

A classifying the drawings and designs under sub-heading No. 4911.99 and
~
diagrams and films under sub-heading 3705.90. No reason was given as to
why these drawings and designs were not classifiable under heading
No. 49.06. The entire contract value was taken as a valuation of technical
information received and duty and penalty was imposed.

B On appeal to the Tribunal, the appellant met with partial success to the
extent that the valuation was determined at one-third of the contract value of
hundred million Yen, even though the settled value was seventy million Yen.
The case of the appellant that import in 1992-93 was free was not considered
as the Tribunal proceeded on the basis that all imports were during the period

c 1993-96 when under Chapter 49, import was dutiable but by notification the
tariff rate was less or nil.

It was contended by Mr. Bulchandani on behalf of appellant that at the
time when the drawings were imported into India, the import of the same was
free and even if the drawings were to be regarded as part of the baggage of
--
D Mr. Kato, thereby applying the provisions of heading No. 98.03, even then
no duty could be imposed.

It was further contended that in any case the extended period of limitation
of five years could not be attracted in the present case.

E We find force in the contention of the appellant. Heading No. 98.03 of
Chapter 98 of the Schedule in the Tariff Act imposes a prescribed duty of 150
per cent on 'dutiable articles' imported by a 'passenger or a member of a crew
in his baggage. What is, therefore, to be seen is whether the drawings and
designs were dutiable articles. Heading No. 49.06 under Chapter 49 of the

F
Customs Tariff for the year 1992-93 provides as follows: +
"Plans and drawings for architectural; engineering, industrial,
commercial, topographical or similar purposes, being originals drawn
by hand; hand-written texts; photographic reproductions on sensitised
paper and carbon copies of the foregoing"
G The rate of duty specified therein in Column (4) was "free". According _.... ~
to Section 78 of the Customs Act, the rate of duty and tariff value applicable
to baggage shall be the rate and valuation in force on tile date on which a
declaration is made for clearing the baggage. It was the contention of the
learned counsel for the appellant that as articles in question would fall under
H heading No. 49.06 they were free of duty. Therefore, they could not be
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.] 647

regarded as dutiabl"e articles and its value could not be included in· the A
baggage of the passenger for the purpose of levy of customs duty.

While dealing with the provisions of the Excise Act, this Court in
Collector of Central Excise, Hyderabad, v. Vazir Sultan Tobacco Co. ltd.,
(1996) 83 ELT 3 SC referring to an earlier decision in the case of Wallace Flour
Mills Company v. Collector ofCentral Excise, ( 1989) 44 EL T 598 had observed B
that if by virtue of an exemption notification the rate of duty was reduced to
nil, the goods specified in the Tariff Act would still be regarded as excisable
goods on which nil rate of duty was payable.

It appears to us that the aforesaid decisions, which were sought to be C
invoked by the respondent in an effort to submit that the drawings and
designs, which came as a part of passenger baggage were dutiable goods,
would not be applicable. In Vazir Sultan and Wallace Flour Mills cases
(supra), this Court considered the definition of "excisable goods" in Section
2( d) of the Central Excise Act, 1944 which was as follows:
D
'"Excisable goods' mean5 goods specified in the [the First Schedule
and the Second Schedule] to the Central Excise Tariff Act, 1985 (5 of
1986) as being subject to a duty of excise and includes salt".

Under the Customs Act, there are two definitions which are relevant.
Section 2(22) defines "goods" as follows: E
"Goods" includes-

(a) vessels, aircrafts and vehicles;

(b) stores;

(c) baggage; F
(d) currency and negotiable instruments; and

(e) any other kind of movable property."

In addition thereto, Section 2(14) defines "dutiable goods" as follows:
G
"dutiable goods" means any goods which are chargeable to duty and
on which duty has not been paid".

Under the Central Excise Act. 1944 in definition of words "excisable
good;" under Section 2( d), the very specification or inclusion of goods in the
First and Second Schedule of the Central Excise Tariff Act w0uld make them H
648 SUPREME COURT REPORTS (2001] 1 S.C.R.

·A excisable goods subject to duty. Under the Customs Act, the provisions ·seem
to be somewhat different. While by virtue of Section 2(22) all kinds of
movable property would be 'goods' but it is only those goods which would
be regarded as 'dutiable goods' under Section 2( 14) which are chargeable to
duty and on which duty has not been paid. The expression "chargeable to
duty on which dutY has not been paid" indicates that goods on which duty
B has been paid or on which no duty is leviable, and therefore no duty is
payable, will not be regarded as 'dutiable goods'. It is only if payment of duty
is outstanding or leviable that goods will be regarded as dutiable goods.

Section 12 of Customs Act provides that the duties of customs shall be
· C levied at such rates as may be specified under the Customs Tariff Act. When
the Customs Tariff Act itself provides that the import of dr!lwings and designs
under heading No. 49.06 is 'free', it must follow that these drawings and
designs, though goods, were not chargeable to duty. In view of the difference
in the language of the Excise and Customs Acts, the decisions in the cases
ofVazir Sultan and Wallace Flour Mills (supra) may not be very apposite and
D if no customs duty is chargeable either by reason of tariff not providing for
it or because of the exemption notification, those goods will not be regarded
as dutiable goods "on which duty has not been paid". It is sufficient in the
present case to observe that the drawings and designs which were imported
by the appellant were correctly classifiable under heading No. 49.06 and the
E tariff itself providing that the import of the same is free, the said drawings and
designs were not dutiable articles and, therefore, no customs duty was leviable
thereon even as a part of the passenger baggage. On this short ground alone
the appeal of Videocon has to be allowed.

C.A. No. 1493 of2000.
F [Mis H & K Rolling Mill Engineers Pvt. ltd. v. The Commissioner of
+
Customs]

The appellant is a JOlllt venture company. Sixty per cent of its
shareholders are Indians while forty per cent of the shares are held by H &
G K. Germany. The appellant supplies technology to Bhilai Steel Plant and it is
required to pay to the German company licence fee of DM 2,40,000 and
engineering fee of DM 60,000.

The appellant prepared designs and drawings which were sent to H &'
K. Germany for the limited purpose of getting it checked and approved. It is
H stated that the appellant received a fax message from the German company
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL .I.] 649

approving the designs and drawings. Copy of the designs and drawings A
which had been prepared and sent by the appellant came back to India
through courier containing the stamp and approval of the German company.
Like in the case of Mis Leela Ventures income tax was deducted at source
for the payments made to the Gennan company after pennission of the Reserve
Bank of India had been obtained.
B
In the show cause notice which was issued it was proposed to regard
the drawings which had come through the courier at OM 60,000 equivalent
to Rs. 11,03,800 as being subject to levy of duty. In the show cause notice
it was stated that these technical drawings were supplied by the German
company and being goods imported through courier services were classifiable C
under heading No. 98.03 and duty and penalty was payable in respect thereof.

Unlike other cases, we find that these drawings in respect of which
customs duty had been levied were not something which had originated
from Germany. These drawings were prepared by the Indian company of
which the German company was a shareholder. These drawings were po D
doubt sent to Germany for approval but the agreement between the parties
does not show ti'at the payment of DM 60,000 was directly relatable or
attributable to the approval and despatch of the said drawings to India. Under
the agreements between the parties apart from the licence fee payable by the
Indian company, for the use of the name of the German company and
engineering fee, money was payable in terms of the agreement. As we have E
already observed there is nothing to show that this amount of OM 60,000 was
relatable only to the approval of the said designs and drawings.

Be that as it may the value of these drawings which belong to the
-+ Indian company were merely approved by the German company could only F
be nominal and under no circumstances the said value could be regarded as
OM 60,000. The nominal value disclosed by the courier, on the facts and
circumstances of this case. could not, therefore, be said to be incorrect. The
order passed against the appellant levying the customs duty and penalty is,
therefore, to be set aside. Ordered accordingly.
G
Conclusion;

As a result of the aforesaid discussion, Civil Appeal No. 1493 of 2000
of Mis H & K Rolling Mill Engineers Pvt. Ltd. and Civil Appeal No. 3632 of
2000 of Mis Videocon VCR Ltd. are allowed and the orders of the Commissioner
and Customs, Excise & Gold (Control) Appellate Tribunal in their cases are H
650 SUPREME COURT REPORTS [2001] I S.C.R.

A ·set aside. The other appeals are dismissed but in the case of Leela Ventures,
out of the total contract value, the Commissioner will detennine the transaction
value of the drawings, designs, etc., imported through the courier and then
impose the levy thereon. There will be no order as to costs.

K.K.T. Appeals allowed dismissed.
B

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