Holding

The value of separately supplied engineering documents cannot be added to the customs value of imported equipment under Rules 9(1)(b) and 9(1)(e) of the Customs Valuation Rules, 1988, and therefore cannot be clubbed for duty assessment.

Summary

Tata Iron and Steel Co. imported equipment and associated engineering documents under three contracts (MD 301 for documents, MD 302 for equipment, and an umbrella contract). The customs authority issued show‑cause notices alleging that the value of the engineering documents should be included in the customs value of the equipment, leading to additional duty and penalty. The Custom, Excise and Gold (Control) Appellate Tribunal held that the three contracts formed a single package and that the document value must be clubbed with the equipment value under Rule 9(1)(b) and (e) of the Customs Valuation Rules, 1988. The Supreme Court held that the buyer had not supplied any goods or services free of charge or at reduced cost, nor was there any seller’s obligation to a third party, so neither Rule 9(1)(b) nor Rule 9(1)(e) applied; the interpretative note to Rule 4 does not permit inclusion of the document value. Consequently, the document value is neither dutiable nor clubbable with the equipment value. The Court set aside the Tribunal’s order, allowed the appeal, and remanded the matter to the Tribunal to examine any claim of under‑valuation of the equipment.

Issues considered

The applicability of Rule 9(1)(b) of the Customs Valuation Rules, 1988 to the value of engineering documents supplied with imported equipment.
The applicability of Rule 9(1)(e) of the Customs Valuation Rules, 1988 concerning payments made as a condition of sale.
Whether the interpretative note to Rule 4 permits the value of engineering documents to be excluded from the customs value of the equipment.
Whether the equipment under contract MD 302 has been under‑valued for customs duty purposes.

Legislation cited

Customs Act, 1962s. 112, s. 130E
Customs Tariff Act, 1975
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988s. Rule 2(f), s. Rule 3, s. Rule 4, s. Rule 9

Subjects

customs valuationduty assessmentengineering documentsRule 9Rule 4under‑valuationproject importsinterpretation of customs rulesclubbing of valuespenalty

Judgment

A TATA IRON AND STEEL CO. LTD.
v.
COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS,
BHUBANESHWAR, ORISSA

FEBRUARY 16, 20CO
B
[S.P. BHARUCHA, R.C. LAHO'fl AND MRS. RUMA PAL, JJ.]

Customs Valuation Rules, 1988 :

C Rule 9(l)(b) and (e}-Valuation of imported goods-Equipment im-
ported along with engineering documents on basis of three contracts-Third
contract recited overall price including equipment and engineering docu-
ments-Concessional duty over project imports and nil duty over engineering
documents-Show cause notice issued and equipment valued along with
D engineering documents-High Court in writ petition ordered release of goods
on payment of penalty and furnishing bank guarantees-Fresh show cause
notice issued and another order for payment of duty and penalty passed-In
appeal CEGAT held, the three contracts to be part of one package including
value of engineering documents in value of equipment-On appeal Held,
E value of engineering documents neither dutiable nor clubbable with value of
equipment-Matter remanded to ascertain whether equipment had been
under-valued-f'roceedings against those exonerated by the Tribunal could
not be re- opened-f'roject Import Regulations, 1986-Custom Tarrif Ac~
1975-Sub Heading No. 4906.00.

F Rule 9(1)(b)(ii) to (iv)-Applicability-Held, applicable if goods and
seTVices were supplied by the buyer to the j·eller free of charge or at a reduced
,--
cost for use in connection with the production and sale of imported goods to i
the extent that such value has not been included in the price actually paid or ''
payable.
G
Rule 9( I)(e)-Applicability-Obligation of the seller towards a third
party to be satisfied by the seller and making of a payment by the buyer to
the seller or to a third party to satisfy the same is a condition precedent-Held,
where condition not satisfied and equipment imported along with engineering
H documents, value of both i:annot be clubbed together.
876
TATA IRON AND STFELCO. LID. v. C.C.E. 877

Interpretative Note to Rule-4-Applicability-Held, value of charges not A
covered by clauses (a j to (c) could not be included in the value of imported
equipment-Where price of engineering documents had been separately paid,
Note cannot be pressed into se1vice-Value of documents and drawings etc.
cannot be 'charges for co11stmctio11, erection, assembly etc.·· of imported goods
as they were covered by a separate contract.
B
The appellant company, imported certain equipment along with their
drawings and engineering documents after signing a protocol with the
seller stating that the total price would include the price of the equipments
and engineering documents. Three contracts were entered; (1) Agreement
for supply of technical documents at the price of 12.5 million DM (MD C
301), (2) Agreement for sale of equipment at the price of 13.5 million DM
(MD 302) and (3) An overall sale contrdct re-cited at an overall price of
26 million DM.

The appellant registered contract MD 301 under the Projtct Import
Regulations, 1986 to avail a concessional rate of duty for project imports. D
The consignment consisting of technical docuI!J.ents arrived und was clas-
sified under Sub-Heading No. 4906.()0 of the Customs Tariff Act, 1975
assessable to nil duty. The first consignment under contract MD 302 also
arrived which was cleared after provisional assessm1:nt un payment uf duty
on declared value of 60,75,IJIJO FOB. E
The second consignment was also cleared. A show cause notice was
issued as to why goods covered by contract MD 301, consisting of technical
documents should not be included in the value of goods covered by
contract MD 302. The appellant filed a writ petition before the High Court
challenging the show cause notice and the goods were ordered to be F
released after furnishing bank guarantees of R.s. 8 crores along with a
reduced extra duty than that was demanded and the admitted customs
duty.

Another show cause notice was issued to the appellant company, its
two officers, and the engineering consultant. An order assessing customs G
duty at Rs. 15,49,09,060 was passed along with a penalty. The notices
appealed to the Custom, Excise and Gold (Control) Appellate Tribunal
which held the three contracts to be part of one package. It held that
technical documents pertaining to imported equipment were includablt in
the value of equipment, however documents pertaining to equipment to be H
878 SUPREME COURT REPORTS [2000) 1 S.C.R.
A procured or manufactured or relatable to post import activities like as· •~
sembly, construction and ope~ion could be excluded from payment of
custom duty by merence to Interpretative Note to Rule 4 of Customs
Valuation Rules, 1988. However this benefit was not made available to the
appellant since separate values had not been shown and the two contracts
B were clubbed together. Hence this appeal.

Allowing this appeal, this Court

HELD : 1.1. Rule 9(1)(b) of Custom Valuation Rules, 1988 refers to
the value of four specified goods and services supplied by the buyer free
C of charge or at a reduced cost for use in connection which the production
and sale of imported goods to the seller and to the extent that such value
has not been included in the price actually paid or payable. [888-C]

1.2. The buyer had not supplied any goods or services free of charge
or at reduced cost for use in connection with the production and sale for
D export of imported goods. All the exercise done by the Tribunal in
scrutinising the document.s forming the subject matter of the contract DM
301 was uncalled for. [888-E]

2. The seller had no obligation towards a third party which was
E required to be satisfied by it and the appellant had made no payment to
the seller or to a third party in order to satisfy such an obligation. The
price paid by the appellant for drawings and technical documents forming
subject matter of contract DM 301 can by no stretch of imagination fall
within the meaning of •an obligation of the seller" to a third party. There
F was also no payment made as a condition of sale of imported goods and
as such Rule 9(l)(e) also, has no applicability. [889-C] -l

3.1. Interpretative Notes are part of the Rules and are statutory.
That part of the Interpretative Note to Rule 4 relied on by the Tribunal
has been couched in a negative form and is accompanied by a proviso,
G meaning that the charges or costs described in clauses (a) to (c) are
not to be included in the value of imported goods subject to satisfying
the requirement that the charges were distinguishable from the price
actually paid or payable for the imported goods. This part cannot be so
read to mean that those charges which are not covered in clause (a) to
H (c) are available to be included in the value of imported goods. [889-D-EJ
TATA IRON AND STEEL CO. LTD. v. C.C.E. 879

3.2. This Interpretative Note cannot be pressed into service for A
calculating the price of any drawings or technical documents though
separately paid by including them in the price of imported equipment
Clause (a) in third para of Note to Rule 4 is suggestive of charge for .
services rendered by the seller in connection with construction, ereetion
etc. of imported goods. The value of documents and drawing etc. cannot B
be "charges for construction, erection, assembly etc." of imported goods.
[889-H]

3.3. The drawings and documents having been supplied to the buyer-
importer for use during construction, erection, assembly maintenance etc.
of imported goods, they were relatable to post-import activity to be under- C
taken by the appellant. Such charges were covered by a separate contract
as they could not have been included in the value of imported goods merely
because the value of documents referable to imported equipments and
materials was mixed up with the value of those documents which were
referable to equipment to be procured or imported. The value of the latter D
category of documents is neither dutiable nor clubbable with the value of
imported goods. (890-A-B]

4. The impugned order of the Tribunal is set aside. The case is sent
back to the Tribunal to entertain and examine the plea of the Revenue if the
contract OM 302 is undervalued on the material already available on record. E
The Tribunal would not reopen proceedings against those who had been
exonerated and no appeal was filed. The dutiable value of the equipment
shall not exeeed the valuation done by the Tribunal alongwith the amount of
penalty fixed as both were not challenged by the Revenue. If the equipments
forming subject matter of contract DM 302 are found to be under valued the
legal consequences such as confiscation may follow. [891-E-F; 892-D] F

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 96 of
1998.

From the Judgment and Order dated 20.8.97 of the Central Excise
Customs and Gold (Control) Appdlate Tribunal, Calcutta, in A. No. G
CN-78/96-Cal in P.O. No. 1031/Cal/1997.

Harish N. Salve, Joseph Vellapally, Ashok Desai, Ravinder Narain,
Ashok Sagar, Ms. lpsita, Ms. Padmin Kumari, Sanjiv Sen, D.N. Misra and
Ms. Arnita Mitra for the Appellant. H
880 SUPREME COURT REPORTS [2000J 1 S.C.R.
A K.N. Raval, Additional Solicitor General, Dileep Tandon, P. Parmes- -
waran, Hemani Sharma and V.K. Verma for the Respondent.

The Judgment of the Court was delivered by

R.C. LAHOTI, J. The Tata Cron & Steel Company Ltd. (TlSCO, for
B short), the appellant before us, has imported certain equipments and
drawing and engineering documt:nts from Siderugia National of Portugal -
a Government of Portugal Undertaking. [t appears that some time in the
year 1981 Italimpianti, Genevo, Italy supplied materials, designs and en-
gineering drawings etc. to Siderugia National Portugal (hereinafter SNP,
C for short) for setting up rolling mill project in Portugal. The supplies
consisted of equipments for blast furnanee, LD converter, steel plant bellet
castors, wire rod mills, torpedo ladle cars etc. However, before the equip-
ments could be installed, Portugal decided to join European Economic
Community (EEC) consequent whereupon Portugal could not have ex-
panded its steel making capacity, SNP decided to cancel its investment plan
D and to sell the equipments and materials which were lying unused from
1981 to 1986. On 14th April, 1988 a protocol was signed between the seller
and purchaser companies (i.e. SNP and TISCO) which inter alia stated that
the total price will be price for the equipment plus price for the engineering
FOB Portugal-Lisbon port. The price for the equipment with suitable
E sea-worthy packing to be provided by SNP will be 13.5 million Deutsche
Marks (DM) and the price for engineering will be 12.5 million Deutsche
Marks. The protocol also provided th.i.t the equipment was being sold
without any operation on performance guarantees and in "as is where is"
condition. Subsequently on 11th October, 1989 three contracts were
entered into between the parties as under :
F
1. Agreement for supply of technical documentation - called MD 301.

2. Agreement for sale of equipments and materials (part of equip-
ments of a blast furnace and three torpedo ladle cars) - called MD 302.
G 3. An overall sale contract, being an umbrella contract, covering the
abovesaid two agreements for establishing contractual relationship and
setting up conditions both for sale of equipment and supply of technical
documentation.

H The over-all sale contract recited an overall price of 26 million DM
·.. TATA IRON AND STEEL CO. LTD. v. C.C.E. ;Re. LAI-10'11,J.j 881

and its break-up into two, namely, 12.5 million OM for technical documen- A
tation and 13.5 million D M for equipments and materials. The earlier two
agreements reci~ed thi.: considerations of 12.5 million OM and 13.5 million
OM respectively. Thus the prices as recited in the protocol dated 14.4.88.
remained unchanged.

The appellant sought for registration of its contract MD 302 undt:r B
Project lmports Regulations, 1986 with the C'ustoms House, Paradeep
which was allowed entitilng it to avail the benefit of concessional rate of
duty for project imports.

The consignment consisting of technical documents, engineerings t:tc. c
covered by contract MD 301 arrived at Calcutta and was cleared by
Calcutta customs House in the months of April-May, 1990. The consign-
ment was claimed by the appellant to b1: classifiable under sub-lkading
No. 4906.00 of the Customs Tariff Act, 1985 assessable to nil duty.
D
As against the contract MD 302 the first consignment arrived at Port
Paradeep and was cleared under Bill of Entry dated 6.4.90. The value of
the goods was shown as D.M. 60, 75,0CO FOB. The goods were assessed
provisionally and allowed clearanci.: on payment of duty on the declared
value. The second consignment under this contract also arrived at
Paradecp Port. Bill of Entry dated 7.7.90 was filed declaring the value to E
be 6,75,739 D.M. ln between the department had gathered intdligence and
formed an opinion that the contract MD 302 registeri.:d under the Project
Import Regulations was actually a sub··contract of another contract of the
same date and the value thereof was 26 MDM. Th1: Assistant Collector of
CUstoms, Paradtep, vide communication dat.:d 7th July, 1990, callt:d upon F
the appellant to sub=t all the documents including the correspondence
with the forcian supplier, copy of the import licence etc. The appdlant
submitted the required documents including copy of the agreement MD
301. An exchange of correspondence bctwet:n the Assistant Collector of
Customs and tht: appellant followed. On 16th July, 1990 tht: Assistant
Collector of CUstoms, Paradeep issued a show cause notice to the appellant G
calling upon it to show cause why the sum of 12.5 MOM being the value
of the goods covered by contract MD 301 should not be included in
determining the assessable value of the goods imported under the contract
MD 302 followt:d by other consequences flowing from under-valuation of
th~ goods imported. Vide order dated 10.8.90 the Assistant Collector H
882 SUPREME COURT REPORTS [2000) 1 S.C.R.
A permitted clearance of the goods upon furnishing of bank guarantees of
Rs. 7,44,80,300 and extra duty deposit of Rs. 2,82,01,636 as also payment
of admitted customs duty.

The appellant filed a writ petition before the Orissa High Court
challenging the show cause notice and the demand raised by order dated
B 10.8.90. On 30.8.90 the Orissa High Court disposed of the writ petition
directing the release of the goods subject to furnishing a bank guarantee
of Rs. 8 crores and depositing the extra duty reduced by l crore than that
demanded, accompanied by payment of admitted customs duty. The ap-
pellant complied with the order of the High Court and got the goods
C cleared.

The appellant also filed a reply to the show cause notice. Personal
hearing was given by the Assistant Collector. On 23.8.1993 the Commis-
sioner of Customs and Central Excise, Bhubaneswar issued a second show
D cause notice to the appellant and two of its officers and also to the
appellant's engineering consultant. Replies were filed. On 30th April, 1996
the Commissioner of Customs and Central Excise, Bhubaneswar passed an
order assessing the levy of customs duty at Rs 15,49,09,060. A penalty of
Rs. 5 crores was also imposed on the appellant under Section 112 of the
Customs Act. Penalties were imposed on other notices also.
E
The appellant and other noticees preferred appeals before the Cus-
toms, Excise and Gold (Control) Appellate Tribunal, Calcutta which have
been disposed of by a common order. The Tribunal has held that the three
contracts entered into between the seller, i.e., SNP and the app~Uant were
F in fact parts of one package, that is, the three constituted one composite
agreement. The technical documentation supplied to the appellant could
be divided into three parts : (i) those pertaining to the imported equip-
ment, (ii) those pertaining to the equipment which was yet to be procured
or manufactured by appellant, and (iii) those relatable to post-import
G activities undertaking by the appellant for assembly, construction, erection
operation and maintenance of the imported equipment. The value of the
contract to the extent of (i) above was liable to be included in the value of
equipments and materials imported by the appellant though the value of
the technical documents covered by (ii) and (iii) above could have been
excluded for payment of customs duty by reference to Interpretative Note
H to Rule 4 of Customs Valuation Rules. 1988 (hereinafter 'Rules', for short).
TATA IRON AND STEEL CO. LTD. v. C.C.E. [R.C. LAHOTI, J.] 883

However, since separate values have not been shown, the benefit of Inter- A
pretative Note to Rule 4 abovesaid was not available to the appellant and
the entire value of the two contracts was liable to be clubbed together for
the purpose of levying customs duty.

It will be useful to extract and reproduce verbatim a few findings
from the order of the tribunal as under : B
"It is pertinent to mention, on first appellant's own admission
that where an item has been partly ~upplied and partly not
supplied by S.N ., technical documents for the latter have been
supplied. These technical documents will serve the purpose for the C
who.le items as such, technical documents being common to an
item. In this manner the first appellant has got technical documents
for manufacture of substantial number of import items. It is there-
fore obvious that the technical documents supplied to the appel-
lants pertain both to (i) the imported equipment and (ii) the D
equipment which was yet to be procured or manufactured by the
appellants. It may also contain (iii) technical documents which are
related to post-importation activities undertaken by the appellants
for assembly, construction, erection, operation and maintenance
of the imported equipment. Value of two categories of documents E
at (ii) and (iii) above could be excluded, had these values been
separately shown in the contract, MD-301 or invoices. Since
separate values have not been shown, support from Interpretative
Note to rult: 4 of the Valuation Rule, proposed by the Id. Advo-
cate Dr. Chakraborty cannot be taken. Htn~e the entire value
of 12.5 million DM of technical documentation will have to be F
included in value (13.5 million DM) of the equipment of B.E.
and T.L.Cs." (Para 6.2.II)

"Claim of the appellant's Counsel that these are separate con-
tract is not tenable. Article 2 relating to 'Price' and Clause 1 G
thereof makes it abundantly clt:ar that ''over-all price of the sale
scope of the present contract is fixed and not subject to any revision
and amounts to DM-26 million giving a break-up of the same in
l3.5 million and 12.5 million OMS. It is thus the over-all price of
26 million OM which is material in the Contract. Article 3 makes H
884 SUPREME COL'RT RrPORTS [200011 S.C.R.
A it binding on both the contracting parties that neither of them shall
transfer totally or partially its contractual position. either
gratuitously or onerously, without previous written consent o.f the
other party. It is thus apparent that the appellants cannot back out
of contract for supply of technical documents, even if they wished,
B without the written consent of the other party i.e., S.N. Portugal.
These facts brings out the element of compulsion in purchase of
the technical documents of whatever natural alongwith the pur-
chase of equipments and materials. That be" ng the factual position,
provisions of rule 9(1J(e) of the V.;luation Rults 1988 come into
play. Clause (e) of Sub-rule (1) of Rule 9 envisages addition of "all
c other payments actually made or to be made as a condition of the
said of the imported goods, by the buyer to the seller.... .''. There-
fore, entire 26 million DM will have to be taken as value of the
equipments and materials." (para 6.3.III)

D
In spite of the findings as abovesaid having been arrived at vidc para
10.4, the Tribunal has stated that though in its opinion the value of
equipments would be entire contract price of 26 million DM as against
21.2747826086 million DM computed by the adjudicating officer as detailed
in Annexure 1 appended to his orC:.cr, since only TISCO had appealed to
E it and the Revenue had chosen not to file any appeal, the appdlant could
not be put in a situation worse than if it had not filed an appeal and
therefore duty liability of the appellant shall have to remain confined to
the value of the equipment at 21.2747826086 million DM as found by the
adjudicating officer. The quantum of penalty imposed on the appellant was
F reduced by the Tribunal from Rs. 5 crores to Rs. 4 cron.:s. Th.: penalties
on other noticees w.:re set asi.de. The appellant as come up to this Court
by filing this appeal under Section 130 E of the Customs Act, 1962.

We have heard Shri Ashok Desai, the learned semor counsel for the
G appellant and Shri Kirit Raval, the learned Additional Solicitor General
for the respondents. We are satisfied that the impugned order of the
Tribunal cannot be sustained and therefore has to be set aside followed by
a remand so as to assess thi:: value of the goods liable to payment of
customs duty and thereupon. determine the quantum of duty and penalty,
H if any, for the reasons stated hereinafter.
TATA IRON AND STEEL CO.LTD. v. C.C.b. [R.C. LAHOTI, J.] 885

A perusal of the order of the Tribunal shows that it has mainly A
proceeded on two sets of reasoning for holding against the appellant.
Firstly, the Tribunal has examined the applicability of Rule 9(1)(b)(iv) and
formed an opinion that benefit thereof was not available to the appellant.
By reference to the:: Interpretative Note to Rule 4 it has held that to the
extent the drawings and technical documents were referable to the
manufacture and sale of the imported equipments, their value was liable B
to be included in the value of the equipments and material imported and
inasmuch as separate values thereof have not been shown the entire value
of 12.5 million DM of technical documentation covt:red by contact DM 301
was liable to be included in the value of the equipments. Secondly, the
Tribunal has hdd the provisions of Rule 9(1)(e) being attracted and C
coming into play for the purpose of determining the valuation of the
equipment and materials imported on the reasoning that the drawings. and
engineerings were compulsorily purchasable by the appellant along with
the equipment and materials and hence the value of the two was liable to
be clubbed. Shri Ashok Desai, the learned senior counsel for the appellant
has vehemently attacked the correctness of the reasoning employed by the D
Tribunal and has submitted that the Tribunal has gone totally amiss in
interpreting the rules and judging the case thereunder. It was submitted by
Shri Ashok Desai that the interpretation as placed on the rules by the
Tribunal is not correct. We will presently test the correctness of the
contention so advanced.
E
Section 12 of the Customs Act is the charging section. Section 14
provides for the duty of customs being chargeable on any goods by refer-
ence to their value. In exercise of the powers conferred by Section 156 of
the Customs Act, 1962 the Central Government has framed Customs
Valuation (Determination of Price of Imported Goods) Rules, 1988. Clause F
(f) of Rule 2 defines "transaction value" to mean the value determined in
accordance with Rule 4. Under Rule 3 either the value of imported goods
shall be the transaction value or if it cannot be determined then the same
shall be determined by proceeding sequentially through Rules 5 to 8. Rule
•
4 provides that the transaction value of imported goods shall be the price
actually paid or payable for the goods when sold for export to India G
adjusted in accordance with the provisions of Rule 9. Under Rule 9, the
value or price of certain cost and services is liable to be added to the
transaction value while determining the value of the imported goods. Rule
9, in so far as relevant and to the extent referred to by the Tribunal is
extracted and reproduced hereunder : H
886 SUPREME COURT REPORTS [2000) 1 S.C.R.
A 9. Cost and services. (1) In determining the transaction value,
there shall be added to the price actually paid or payable for the
importt.:d goods, -

xxx xxx xxx

B (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
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 :
c
(i) material, components, parts and similar used in the produc-
tion of the imported goods;

(ii) tools, dies, moulds and similar items used in the production
of the imported goods.
D
(iii) materials consumed in the production of the imported
goods;

(iv) engineering, development, art work, design work, and
E in
plants and sketches undertaken elsewhere than India and neces-
sary for the production of the importi:d goo.ds;

xxx xxx xxx

(e) all other paymems actually made or to be made as a
condition of sale of rhe imported goods, by the buyer to the seller,
F
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.

xxx xxx xxx .
G
(3) Additions to the price actually paid or payable shall be
made under this rule on the basis of objective and quantifiable
data.

(4) No addition shall be made to the price actually paid or
H payable in determining the value of the imported goods except as
TATA IRON AND STEEL CO. LTD. v. C.C.E. [R.C. LAHOTI,J.] 887

provided for in this rule. A
(emphasis supplied)

Reference has also been made by the Tribunal to the Interpretative
Notes. Rule 12 provides that the Interpretative Notes specified in the
Schedule to these rules shall apply for the interpretation of these rules. B
Note to Rule 4 reads as under :

'Note to Rule 4
Price actually paid or payable

The price actually paid or payable is the total payment made C
or to be made by the buyer to or for the benefit of the seller
for the imported goods. The payment need not necessarily
take the form of a transfer of money. Payment may be made
by way of letters of credit or negotiable instruments. Payment
may be made directly or indirectly. An example of an indirect D
payment would be the settlement by the buyer, whether in
whole or in part, of a debt owed by the seller.

Activities undertaken by the buyer on his own account,
other than those for which an adjustment is provided in Rule
9, are not considered to be an indirect payment to the seller, E
even though they might be regarded as of benefit to the seller.
The costs of such activities shall not, therefore, be added to
the price actually paid or payable in determining the value of
imported goods.

The value of imported goods shall not include the foil ow- F
ing charges or costs, provided that they are distinguished from
the price actually paid or payable for the imported goods :

(a) Charges for construction, erection, assembly,
maintenance or technical assistance, undertaken G
after importation on imported goods such as in-
dustrial plant, machinery or equipment :

(b) The cost of transport after importation;

(c) Duties and taxes in India. H
888 SUPREME COURT REPORTS [2CXXJ) 1 S.C.R.

A The price actually paid or payable refers to the price for
the imported goods. Thus the flow of dividends or other
payments from the buyer to the seller that do not relate to
the imported goods are not part of the customs value.

( t:mphasis supplied)
B
A bare reading of Ruic 9(1 )(b) shows that it refors to the value of
the four specified goods and services supplied by the buyer free of charge
or at a reduced cost for use in connection with the production and sale of
imported goods to the seller and to the extent that such value has not been
C included in the price actually paid or payable. To illustrate, the sellt:r may
have manufactured equipments of a design. drawings whereof were made
available by the buyer say by engaging an indi;pendent expert agency in the
country of the seller. Although the seller has not incurred any expenditure
on the technical/engineering design of the equipment manufactured by it
D yet the prict: paid for securing the engineering designs and drawings will
be a component of the: value of the equipment manufactured. In spite of
the price for the services rendertd by the expt:rt agency having been paid
by the buyer, the value thereof is liable to be added to the value of the
imported goods for dt:termining the transaction value. In the case at hand
E it is nobody's case that the buyer had supplit:d any goods or services free
of charge or at reduced cost for use in connection with the production and
sale for export of imported goods. All the i::xercise dont: by the Tribunal
in scrutinising the documents forming subject matter of contract OM 301
so as to classify them into thrt::e categories stated earlier in this judgment
F was therefore uncalled for. ~NP had purchased the entire steel pkut
equipment from an Italian supplier more than six years before the trans-
action in question had taken plact: with the appdlant. Such documents
must have accompanied by equipments and matt:rials made available to
SNP by the Italian supplier of SNP. It cannot be comprt:hended and
certainly it is not the case of the Revt:nue that the technical documents
G were supplie~ or made availabfo by the Italian supplier to SNP either free
of charge at the instance of the appellant or cost thereof was incurred
wholly or partially by the appellant.

Clause (e) of sub-Rule(l) of Rule 9 is attracted when the following
H conditions are satisfied :
TATA IRON AND STEEL CO. LTD. v. C.C.b. [R.C. LAHOTI, J.] 889
_., (i) There is a payment actually made or to be made as a condition of A
sale of the imported goods by the buyer to the seller or to a third party;

(ii) such payment, if made to a third party, has been made or has to
be made to satz.ify an obligation of the seller; and

(iii) such payments arc not included in the price actually paid or B
payable.

It is nobody's case that the seller had an obligation towards a third party
which was required to be satisfied by it and the buy~r (i.e. the appellant) had
made any payment to the seller or to a third party in order to satisfy such an
obligation. The price paid by the appellant for drawings and technical docu- c
ments forming subject matter of contract OM 301 can by no stretch of
imagination fall within the meaning of 'an obligation of the seller' to a third
party. There WdS also no payment made as a condition of sale of imported
goods as such. Rule 9(1)(e) also, therefore, has no applicability.
D
So far as Interpretative Note to Rule 4 is concerned it is no doubt
true that the Interpretative Notes are part of the Rules and hence statutory.
However, the question is one of their applicability. The part of Interpreta-
tive Note to Rule 4 relied on by the Tribunal has been couched in a
negative form and is accompanied by a proviso. It means that the charges
or costs described in clauses (a), (b) and (c) are not to be included in the E
value of imported goods subject to satisfying the requirement of the proviso
that the charges were distinguishable from the price actually paid or
payable for the imported goods. This part of the Interpretative Note cannot
be so read as to mean that those charges which are not covered in clauses
(a) to (c) are available to be included in the value of imported goods. To
illustrate, if the seller has undertaken to erect or assemble the machinery F
(
after its importation into India and levied certain charges for rendering
such service the price paid therefor shall not be liable to be included in
the value of the goods if it has been paid separately and is clearly distin-
guishable from the price actually paid or payable for the imported goods.
Obviously, this Interpretative Note cannot be pressed into service for
calculating the price of any drawings or technical documents though
G
separately paid by including them in the price of imported equipments.
Clause (a) in third para of Note to Rule 4 is suggestive of charges for
services rendered by the seller in connection with construction, erection
etc. of imported goods. The value of documents and drawings etc. cannot
be "charges for construction, erection, assembly etc." of imported goods. H
890 SUPREME COURT REPORTS (2COO) 1 S.C.R.
A Alternatively, even on the view as taken by the Tribunal on this Note, the
drawings and documents having been supplied to the buyer-importer for
use during construction, erection, assembly, maintenance etc. of imported
goods, they were relatable to post-import activity to be undertaken by the
appellant. Such chargcs were covered by a separate contract, i.e. contract
MD 301. They could not have been included in the value of imported goods
B merely because the value of documents referable to imported equipments
and materials was mixed up with the value of those documents which were
referable to equipment which was yet to be procured or imported or
manufactured by the appellant; the value of the latter category of docu-
ments also being neither dutiable nor clubbable with the value of imported
C goods. The Tribunal has not doubted the genuineness of the contracts
entered into between the appellant and SNP. Rather it has observed vide
para 10.2 of its order that entering into two contracts (MD 301 and MD
302) was a legal necessity. The Tribunal has also stated that it was not
recording any finding of 'skewed split up', Shri Ashok Desai, the learned
senior counsel for the appellant has pointed out that under Chapter
D Heading 49.06 of the Customs Tariff Act, 1975 plans and drawings for
engineering and industrial purposes being originals drawn by hand as also
their photographic n:productions on sentisizcd papers and carbon copies
thereof are declared free from payment of customs duty. Sub-rules (3) and
(4) of Rule 9 clearly provide that additions to the price actually paid pr
payable is permissible under the Rules if based on objective and quantifi-
E able data and no addition except as provided for by Rule 9 is permissible.

The abovesaid reasons demolish the edifice on which the order of
the Tribunal is based. However, still the only thing that remains to be
considered is whether there has been under valuation of blast furnace
F equipment covered by the contract MD 302. It is a pure and simple case
of finding out 'the price actually paid or payable for the goods' - the phrase
as occurring in Rules 2(f), 4 and 9, so as to find out the transaction value
and levy duty thereon under Sections 12 and 14 of the Customs Act. One
of the allegations made in the show cause notice given to the appellant was
of the blast furnace equipments (BFE) having been undervalued by trans-
G ferring a part of the value of the equipments to the value of engineering
documents and drawing. In substance the show cause notice alleged the
blast furnace equipment having been under valued by artificially excluding
therefrom the value of technical documents. According to the Revenue
such documents are even otherwise and in ordinary course supplied by the
H seller to the buyer. Because of the absence of such documents the goods
TATA IRON AND STEEL CO. LTD. v. C.C.E.[R.C.LAHOTl,J.j 891

sold being equipments would be of no use at all but the appellant had so A
manipulated the single transaction by bifurcating the single content into
two documents so as to under value:: the blast furnace equipments by
transferring a part of the value of such equipments to the value of engineer-
ing documents and drawings. The gist of the allegation is under valuation
of blast furnace equipment. Shri Kirit Raval, the learned Additional
Solicitor General has submitted that from the stage of the show cause
B
notice till before the Tribunal the Revenue has kept its plea alive. Vide
para 7 of its order the Tribunal noted this plea of the:: Revenue but did not
go into it as the Tribunal considered it not necessary in view of other
· fmdings arrived at. The learned Additional Solicitor General submitted
that if this Court may not sustain the order of the Tribunal then in all c
fairness the:: Revenue:: should be allowt:d an opportunity of substantiating its
plea of under valuation followed by such other relief to which it may be
entitled in the event of its succeeding on its plea. We find merit in this
submission. In our opinion on the order of the Tribunal being set aside the
matter needs to be sent back to the Tribunal for examining on merits the D
abovesaid plea of the Revenue which was refused to be gone into earlier
on account of its having been found to be unnecessary.

The appeal is allowed. The impugned order of the Tribunal is set
aside. The case is sent back to the Tribunal to entertain and examine the
plea of the Revenue if the contract DM 302 is undervalued on the basis of E
the material already available on record. The Tribunal shall consistently
with the observations made and findings recorded in this judgment hear
and dispose of the appeal before it within a period of six months from the
date of communication of this order. The bank guarantee furnished by the
appellant shall be kept alive and the amount deposited shall also continue F
to remain in deposit till the date of decision by the Tribunal whereafter the
bank guarantee and the deposit shall be dealt with consistently with the
order of the Tribunal.

Though we have set aside the order of the Tribunal and made a
remand we would like:: to clarify a few points. Apart from the appellant, G
two officers of the company namely Dr. JJ. Irani and Shri S.L. Shrivastava
and an engineering consultant of the appellant, namely, M/s. M.M. Dastur
& Co. were also proceeded against and penalties were imposed on them.
They were exonerated by the Tribunal. The Revenue has not come up in
appeal against the order of the Tribunal exonerating the abovesaid three. H
892 SUPREME COURT REPORTS (2000] 1 S.C.R.
A This order of remand would not reopen the proceedings against those <-
three. Similarly, the Tribunal has held that the duty liability of the appellant
in spite of a finding of under valuation could not be re-determined by
pegging the value of the equipment at an amount over ·and above
21.2747826086 million OM .:IS this was the: figure found by the adjudicating
B officer and not challenged by the Revenue. The amount of penalty levied
on the appellant was reduced by the Tribunal to Rs. 4 crores which too
has not been challenged by the Revenue. On hearing the case after remand
if the plea of the Revenue may find favour with the Tribunal the dutiable
value of the equipment and materials shall not exceed 21.2747826086
million DM and the amount of penalty shall not exceed Rs. 4 crores. Shri
C Ashok Desai, the learned senior counsel for the appellant submitted that
the Tribunal has also held, vide para 9 of its order, that the liability of the
goods to confiscation did not arise and that part of the order should also
be held to have achieved a finality, with this submission we do not agree.
If the Tribunal may find the equipments forming the subject matter of
D contract DM 302 to be under valued the legal consequences flowing from
such finding may follow.

The appeal stands disposed of accordingly. No order as to the costs.

A.O. Appeal allowed.

\