Holding

The invoice price is the sole consideration; there is no nexus between the lump‑sum payment and the CKD pack price, so Section 14(1)(a) applies and the appeal is dismissed.

Summary

Mahindra & Mahindra Ltd. entered into a ten‑year technical know‑how agreement with Peugeot, a French firm, paying a lump‑sum of 15 million French Francs. The company later imported CKD engine packs and service parts. The Customs Assistant Collector held that the invoice price of the CKD packs was not the sole consideration, attributing part of the lump‑sum payment to the packs and applying Section 14(1)(b) of the Customs Act with Rule 8, raising the value by 1.5%. The High Court and Division Bench set aside the assessment, ordering a refund. On appeal, the Supreme Court examined whether the lump‑sum payment should be factored into the price of the CKD packs. It held that the parties dealt at arm's length, there was no nexus between the lump‑sum royalty payment and the price of the imported packs, and the invoice price was the sole consideration, so Section 14(1)(a) applied. Consequently, the appeal was dismissed with costs.

Issues considered

The price shown in the invoices for the CKD packs is the sole consideration for the sale or should the lump‑sum payment under the technical know‑how agreement be taken into account for customs valuation.
Whether Section 14(1)(b) of the Customs Act and Rule 8 of the Customs Valuation Rules can be invoked in this case.

Legislation cited

Customs Act, 1962s. 14(1)(a), s. 14(1)(b)
Customs Valuation Rules, 1963s. Rule 8

Subjects

Customs valuationSection 14Rule 8CKD packsTechnical know‑how agreementArm's length transactionInvoice priceLump‑sum paymentForeign collaborationCustoms duty

Judgment

UNION OF INDIA AND ORS. A
r v.
MAHINDRA AND MAHINDRA LTD., BOMBAY

MARCH 8, 1995

[J.S. VERMA, S.P. BHARUCHA AND K.S. PARIPOORNAN, JJ.] B

Customs Act, 1962/Customs Valuation Rules:

•
-r-·
S.14( 1)(b )!Rule 8--Foreign Collaboration agreement-Value of im-
ported packs-Price shown in the invoices-Whether reflects the true sale
price-Taking into consideration the lumpsum payment made under the
c
~ collaboration agreement, the value of imported packs raised by applying
provisions of s.14(1)(b)-Held: Invalid and unjustified.

The Respondent, a Public Limited Company, has been carrying on
business in the manufacture of different types of automobile vehicles. It D
entered into a technical know-how agreement for ten years with a French
Company in respect of a diesel engine manufactured by it. As per the
agreement, respondent remitted the amount in three instalments. Respon-
dent imported CKD packs and service components from 1982 onwards
from the said French Company. The Assistant Collector, Central Excise
E
took the view that the lump sum paid under the agreement included on
element of price to be settled in regard to the supply of CKD components,
and would have included an element of royalty also for the products. He
held that the invoice value of CKD parts set out in the Invoices is not the
I
sole consideration for the sale of the goods. Invoking the provisions under
_...__ s.14(1)(b) r/w Rule 8 of the Customs Valuation Rules, he held that the F
value of the imported packs should be raised by 1.5%. This was affirmed
by the Collector of Customs (Appeals).

Respondent filed a Writ petition before the High Court. The Single
Judge before whom it was listed, quashed the impugned orders and or-
G
dered refund of excise duty recovered from the respondent. On appeal a
Division Bench confirmed the order•
......
In appeal to this Court, Union of India contended that the price
mentioned in the invoices was not the sole consideration; and that the price
should have been determined by taking into consideration the lump sum H
595
596 SUPREME COURT REPORTS [1995] 2 S.C.R.

A of 15 million French Francs paid by the respondent to the foreign Col-
laborator under the agreement and on that basis Section 14( 1) (a) was
excluded and ·s~ction 14(1)(b) was resorted to.

Respondent contended that there was no material to indicate any
nexus or connection between the lump sum payment of 15 million French
B Francs and the supply of CKD packs to the Respondent; that it cannot be
said that the price fixed in the invoices is not the price of the goods
obtained later and was reckoned or reflected in the lumpsum payments
made,_ long before; and that the parties never had in mind the nature and
extent of the spare parts that might be required later, when the Collabora-
. C lion agreement was entered into.
Dismissing the appeal, this Court -

HELD : 1. The collaboration agreement entered into between the
parties is clear and it is not open lo the revenue to construe it differently
D by reading into it something which is not there. (609-A]
2. The crucial aspects appearing in the case are that the parties were
dealing at arm's length; that the seller and the buyer have no interest in
the business of each other; that, ordinarily, the technical know-how of the
machine can take in 'the assembly' thereof, that the CKD packs and spares
E were supplied to the respondents by the collaborator not at a concessional
price but at the price at which they were sold to others; that, as agi-eed t~
by the respondents, the option was entirely with the respondents to order
the parts as per theii; requirements; that there was no obligation on the
respondents to purchase CKD packs at all; that long before the supply of
F the CKD packs and spares, the royalty due to the collaborators was paid;
and that there is no material to show that the supply of the CKD packs or
spares weighed with the parties in faxing the payments under the collabora·
tion agreement but, on the other hand, the collaboration agreement for the
technical know-how and the supply of CKD packs and spares are inde-
pendent commercial transactions. In other words, there existed no nexus
G between the lufnpsum payment under the agreement for the technical
know-how and the determination of the price for supply of CKD packs or
spares. It is by highlighting the above aspects that the single Judge and
the Division Bench rightly concluded that resort to section 14(l)(b) of the
Act and Rule 8 of the Customs Valuation Rules was clearly incorrect and
H unsustainable. The reasoning and conclusion of the Judges of the High
U.0.1. v. MAHINDRAANDMAHINDRALID.[PARIPOORNAN,J.) 597

r Court are justified and valid in the facts and circumstances of the· case A
and no interference is called for. (608-8-H]

CIVIL APPELLATE JURISDICTION Civil Appeal No. 1886
(NM) of 1993.

From the Judgment and Order dated 7/8.3.91 of the Bombay High B
Court in A.No. 237/87 in W.P. No. 3167 of 1986.

D.P. Gupta, Solicitor General, K. Swamy, V.K. Verma and P. Par-
(- meshwaran for the Appellants.

Atul Setalwad, D. Shroff, Ravinder Narain, Ms. Punita Singh and Ms. C
Sonu B_hatnagar for the Respondents.

The Judgment of the Court was delivered by

PARIPOORNAN, J. The Union of India, the Collector of Customs,
Bombay and the Assistant Collector of Customs, Special Valuation Branch, D
Bombay are the appellants in this appeal. M/s. Mahindra and Mahindra
Limited, Bombay are the respondents. The matter herein arises under the
Customs Act, 1962. The respondents filed Writ Petition No: 3167 of 1986
in the High Court of Bombay and assailed the order dated 20.9.1985,
passed by the Assistant Collector of Customs, evidenced by Ext:-K and the E
appellate order dated 2.9.1986 passed by the Collector of Customs (Ap·
peals) affirming the said order, evidenced by Ext. M. A learned Single
Judge by Judgment dated 27.7.1988 quashed the aforesaid orders and also
ordered reM,.d of excise duty recovered from the respondents during the
period from June, 1984 onwards, after verifying the particulars submitted
by the respondents. The appellants herein filed Appeal No. '2:37 of 1987 F
before a Division Bench of the Bombay High Court. The DiVision Bench,
by Judgment dated 7th and 8th of March, 1991, affirmed the decision of
the learned Single Judge. The prayer for the issue of a certificate to appeal
to this Court was also declined. Thereafter, the appellants moved this
Court in S.L.P. (Civil) No. 3203 of 1993 and this Court by Order dated G
19.4.1993 granted leaves to the appellants in the following terms:·

"Learned Solicitor General submits that· he does not assail the
judgment of the High Court insofar as it relates to the finding on
the question 'that the seller and the buyer have no interest in the
business of each other' but he assails the judgm~nt on the other H
598 SUPREME COURT REPORTS [1995) 2 S.C.R.

A question so far as it relates to the question that 'the plice is the
sole consideration for the sale or the offer for sale' in Section 14(1)(~)
of the Customs Act.

Leave granted."

B 2. We heard Sri Dipankar P. Gupta, Solicitor General who appeared
for the appellants and Sri Atul Setalvad, Senior Advocate, who appeared
for the respondents. The respondents are a public limited company carry-
ing o~usiness in the manufacture of different types of automobile

....
vehicles: Their factories are situated at Bombay, Igatpuri and Nasik. They
C entered into a technical know-how agre.ement with M/s. Automobile , I

Peugeot, a French company, in respect of a diesel engine manufactured by
Peqgeot and known as IDP 4.90. The original agreement is dated 6.11.1979,
Ext'.'13,.-..(Page 98-109 of the Paper Book), and the supplemental agreement
is dat~tf6.3.1980 (pages 112-114 of the Paper Book).
:n
3. The period of agreement was for a duration of 10 years from the
date of securing the consent c;if the Government of India to the agreement.
. The respondents agreed to pay to the foreign collaborator in Paris a sum
of 15 million French Francs in three instalments. It is common ground that
the respondents remitted the amount so agreed to Peugeot in three instal-
E ments on 27.5.1980, 15.4.1981 and 18.9.1981, amounting to Rs. 95,27,448,
Rs. 84,17568 and Rs. 81,83,058, respectively. Article F in the agreement
dealt with the subject of supply of CKD packs and service parts. The
respondents imported CKD packs and service components for Peugeot
from the year 1982 onwards. In June, 1984, the Customs Appraising Group
F referred the question as to the valuation of a consignment of cranks~afts
r
imported, to the Special Valuation branch of the Custom Department. The
Assistant Colle'Ctor, after hearing the company, issued an order dated
20.9.1985, holding that out of the lumpsum payment made to the respon-
dents-M/s. Peugeot 15% is attributed towards designs, patents and trade
marks, and the circumstances under which CKD packs are imported
G warrant valuation under Rule 8 of the Customs Valuation Rules, 1963 read
with section 14(1)(b) of the Customs Act and excludes section 14(a) of the
Act before assessment. He took the view that the composite agreement
envisaged supply of CKD packs of components for 5 years, and it is obvious
that the price of CKD packs set out in the invoice value is determined after
H bearing in mind the lumpsum payment made under the agreement. In other
U.0.1. v. MAHINDRAANDMAHINDRALID.[PARIPOORNAN,J.] 599

words, the lumpsum paid by the respondents under the agreement included A
an element of price to be settled in regard to the supply of CKD com-
ponents under the agreement, and the lumpsum must have included an
element of payment of royalty also for the products. Finally, he held that
the invoice value of CKD parts set out in the invoices is not the sole
consideration for the sale of the goods and calling in aid the provisions of B
section 14(1)(b) read With Rule B of the Customs Valuation Rules, he held
that the value of the imported packs shall be raised by 1.5%. This was
~ affirmed by the Collector of Customs (Appeals) by order dated 2.9.1986.
/- Thereupon the respondents-company filed Writ Petition No. 317 of 1987
under Article 226 of the Constitution of India in the High Co.urt of Bombay
and assailed the aforesaid orders successfully. C
4. In order to adjudicate the controversy raised in this appeal it will
be useful to quote the relevant statutory provisions and also the important
terms contained in the main agreement dated 6.11.1979 and the sup-
plemental agreement dated 6.3.1980, executed between the respondents
and the foreign collaborator, stressed by counsel. D
"Agreement made this 6th day of November, 1979 by and between
AUTOMOBILES PEUGEOT, 75 avenue de la Grande Armee,
PARIS FRANCE, (hereinafter referred to as 'PEUGEOT') on the
one hand, and MAHINDRA AND MAHINDRA LIMITED, E
Gateway Building, Appollo Bunder, Bombay 400 039, India
(hereinafter referred as to 'M & M'), on the other hand.

WHEREAS M&M is engaged in the matiufacture of motor
vehicles of various types fitted with internal combustion engines,
F
and WHEREAS M&M is desirous of improving the utility of the
said vehicles by fitting the~ with an engine manufactured on the
basis of latest technology:

and WHEREAS PEUGEOT as a result of long experience and
extensive and continuous research and development in the business G
of manufacture of motor vehicles, has developed or acquired and
possesses designs and technical knowledge in the manufacture of
an engine designated XDP 4.90 (hereinafter referred to as the
Engine) which is identified in. Exhibit A attached hereto and has
industrial property rights consisting of designs, engineering, tech- H
600 SUPREME COURT REPORTS (1995) 2 S.C.R.

A nological and all other infonnation with respect to the Engine;

and WHEREAS M&M desires, for the purpose of carrying on its
business as a manufacturer of motor vehicles, to obtain the right
to manufacture, assemble and use the Engine and use the technical
knowledge of PEUGEOT and also to have continuing technical
B assistance from PEUGEOT during the period of the Agreement;

and WHEREAS PEUGEOT is willing to grant the use of its
technical knowledge and to assist M&M in the manufacture and
assembly of the Engine in the manner hereinafter provided;

c Therefore, it is hereby agreed between PEUGEOT and M&M as
~-
follows: I

A - SUPPLY OF PEUGEOT ENGINE TECHNOLOGY

1. As soon as practicable after the effective date of-this Agree-
D ment PEUGEOT shall furnish to M&M complete technical know-
how which · shall include specifications, drawings, designs, design
data and calculations, techniques, facilities, trade secrets and
processes and manufacturing control procedures and methods used
by PEUGEOT in the manufacture of the Engine (hereinafter
E referred to as the PEUGEOT Engine Technology) so as to enable
the manufacture of the Engine by M&M in India and to this intent,
will furnish to M&M two copies, one of which will be in the form
of tracings and/or films, of all of the documentation of the
PEUGEOT Engine technology as' follows .
F xxx xxx xxx xxx xxx xxx xxx

xxx xxx xxx xxx xxx xxx xxx
4. The PEUGEOT Engine Technology referred to herein shall be ,.
such as will enable M&M progressively to manufacture the Engine
0 with up to hundred pe.r cent indigenous content in India.

5. The PEUGEOT Engine Technology referred to herein shall be
delivered by PEUGEOT to M&M, or its designated repre-
sentatives, in PARIS, or, at the latter's request, be mailed in PARIS
H toM&M.
U.0.1. v. MAHINDRAANDMAHINDRALTD:(PARIPOORNAN,J.) 601

6. PEUGEOT shall not furnish or make available directly or A
indirectly the PEUGEOT E11gi11e Tech11ology 11ecesswy to manufac-
ture, assemble and sell the E11gi11e i11 India, to any other person.

xxx xxx xxx xxx xxx xxx xxx

B - RIGHT TO MANUFACTURE, ASSEMBLE AND SELL B
xxx xxx xxx xxx xxx xxx xxx

(b) to assemble in India the Engine from parts, components and
other elements delivered by PEUGEOT and/or manufactured lo.cally
or supplied by Indian suppliers; C
xxx xxx xxx xxx xxx xxx xxx

C - MODIFICATIONS, QUALITY, INDUSTRIAL PROPERTY,
SECRECY
D
1. During the period of Five (5) years from the effective date of
this Agreement.

xxx xxx xxx xxx xxx xxx xxx

(i) M&M shall permit PEUGEOT's representative access at all E
reasonable times to M&M's premises to inspect all the operations
associated with the m11nufacture and assembly of the Engine.

4. (a) PEUGEOT expressly retains its ownership and its exclusive
possession of all the industrial property rights relating to the
Engine and to the PEUGEOT Engine Technology such as proces- F
ses and manufacturing secrets as well as licences, patents, trade
marks and brand names;

(p). To·erui.ble implementation of the objectives of this Agreement,
·PEUGEOT expressly grants to M&M the exclusive rights to use G
in India all the said industrial property rights including applicable
patents, trade marks, registered designs and design copyrights
relating to the Engine or any parts, components or other elements
thereoft

xxx xxx xxx xxx xxx xxx XXX. H
J_ -
602 SUPREME COURT REPORTS (1995) 2 S.C.R.

A (e) PEUGEOT hereby grants the right to M&M to use the trade
marks and applications therefor contemplated by this Agreement
in the Union of India and outside India, subject to the Agreement
of PEUGEOT in relatK:in to the Engine, all parts, accessories,
components and other elements thereof to be manufactured or
procured by M&M and to this end PEUGEOT and M&M shall
B cause to be executed as occasion may required such applications,
affidavits, declarations, agreements and other papers as may be
necessary or desirable to ensure M&M's due resignation in India
as a registered user of all PEUGEOT's Indian trade marks con-
templated by this Agreement;
·C
5. (a) Unless otherwise agreed, during the period of five (5) years
from the effective date of this Agreement, M&M shall apply to all
engines and parts thereof manufactured, assembled and sold under
this Agreement the trade mark IND ENOR, in the same dimensions
and with the same characters and symbols as those carried by
D original Engines and parts in Franc. Each Engine shall bear an
apparent insignia with the marking "PEUGEOT Diesel ENGINE,
type INDENOR, made by M&M.

xxx xxx xxx xxx xxx xxx xxx
E. D - TRAINING, TECHNICAL ASSISTANCE

·xxx xxx xxx xxx xxx xxx
E-PAYMENTS
F 1. As consideration for providing the use of PEUGEOT Engine
technology pursuant to this Agreement, M&M shall pay
PEUGEOT in PARIS a sum of fifteen million (15,000,000) French
Francs as follows:

a) Five million (5,00,000) French Francs on the effective date
G of this Agreement ;

b) Five million (5,00,000) French Francs at the date of supply ,>--
of the PEUGEOT Engine Technology or within a period of nine
(9) months from the effective date of this Agreement, whichever
H occurs firsts;
U.0.1. v. MAHINDRAANDMAHINDRALID.[PARIPOORNAN,J.] 603

c) Five million (5,00,000) French Francs on commencement of A
commercial production.
(
xxx xxx xxx xxx xxx xxx xxx

F - SUPPLY OF CKD PACKS AND SERVICE PARTS
B
1. during the period of five (5) years form the effective date of this
Agreement, PEUGEOT agreed to supply CKD packs in the rough
or finished state as may be required by M&M and agreed by
PEUGEOT for the production of the Engine. Such packs are to
be fo the current PEUGEOT design. PEUGEOT also agrees to C
supply such service parts as may be required by M&M. ·

2. The price of a complete Engine in CKD form shall be
PEUGEOT's ex-works price of the Engine as exported in CKD fonn
to other parts of the world and as notified by PEUGEOT TO M&M
from time to time and as agreed to by M&M. D
3. PEUGEOT shall prepare a Bill of Material for the Engine
according to the specifications agreed upon with M&M which shall
show individual part numbers.

The cost of each such part shall be expressed as a percentage E
or the complete engine price in CKD form as defined in Clause
F.2 hereinabove so that the total sum of all the said percentages
shall be one hundred (JOO). Such Bill of Material shall be revised
as necessary from time to time as may be mutually agreed. M&M
;
shall have complete discretion in its selection of items to be pur- F
chased from such Bill of Material provided that adequate notice shall
be given to PEUGEOT sufficiently in advance and taking into
consideration PEUGEOT's production programme and control re-
quirements, and provided further that the equivalent local item has
previously met PEUGEOT's quality specifications.
G
xxx xxx xxx xxx xxx xxx xxx

G - PUBLICITY AND NEGATIVING ANY PRESUMPTION OF
AGENCY

xxx xxx xxx xxx xxx xxx xxx H
604 SUPREME COURT REPORTS (1995) 2 S.C.R.

A H - DURATION OF THE AGREEMENT- TERMINATION

xxx xxx xxx xxx xxx xxx xxx

I - MISCELLANEOUS CLAUSES

B xxx xxx xxx xxx xxx xxx xxx
8. This Agreement is a single Agreement indivisible and nonseverable.
Any refusal or failure to peifomi and substantial part thereof or any
substantial breach of any part thereof shall, unless, the parties ')-
otherwise agree, entitle the other to terminate the whole of this ~
c Agreement without prejudice to rights already accrued hereunder.i•

Supplemental Agreement dated 6th March, 1980 between the parties ---,
provided thus :

"Supplemental Agreement made this 6th day of March 1980 by and
D between AUTOMOBILES PEUGEOT, 75 avenue de la Grandle
Armee, Paris .16e, FRANCE (hereinafter referred to as ·
PEUGEOT) on the one hand, and MAHINDRA AND
MAHINDRA LIMITED, Gateway Building, Apollo Bunder,
Bombay 400 039, INDIA (hereinafter referred to as M&M), on
E the other.

WHEREAS PEUGEOT and M&M have entered into an Agree-
ment dated the 6th day of November 1979 (hereinafter referred to
as the Main Agreement) for the manufacture in India of the
PEUGEOT XDP 4.90 Diesel Engine;
F
and WHEREAS the Government of India have suggested certain
modifications to the Main Agreement;

Therefore, it is hereby agreed between PEUGEOT and M&M as
follows:
G
xxx xxx xxx xxx xxx xxx xxx
4. Clause C.S(a) of the Main Agreement shall be substituted by
the following:

H· Unless otherwise agreed, during the period of five (5) years from
>\

U.O.I. v. MAHINDRAANDMAHINDRALID.[PARIPOORNAN,J.] 605

the effective date of this Agreement M&M shall apply to all A
Engines and parts thereof manufactured and assembled and sold
• under the Agreement the marking 'Manufactured by M&M with
PEUGEOT technology'."

xxx xxx xxx xxx xxx xxx xxx
B

We shall now set out the relevant statutory provisions. Section 14(1)
(a) & (b) of the Customs Act, 1962, are to the following effect :

"14. (1) For the purpose of the Customs Tariff Act, 1975, or any C
other law for the time being in force whereunder a duty of customs .
r is chargeable on any goods by reference to their value, the value
of such goods shall be deemed to be -

(a) the price at which such or like goods are ordinarily sold, or
offered for sale, for delivery _at the time and place of importation D
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 consideration for the
sale or offer for sale;
E
Provided that such price shall be calculated with reference to
the rat~ 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 case may be, is presented under section 50;

(b) where such price is not ascertainable, the nearest ascertainable F
equivalent thereof determined in accordance with the rules made
as this behalf."

5. The main thrust of the arguments of the learned Solicitor General
before us was that the price for the sale of CKD packs by the foreign
collaborator to the respondents is not the true price. In other words, the G
price fixed or mentioned in the invoices was not the sole consideration for
-°"' the sale of CKD packs, for the various reasons stated by the Assistant
Collector in his order. According to the learned Solicitor General, the
price mentioned in the invoices was (or should have been) determined by
taking into consideration the lumpsum of 15 million French Francs (nearly H
606 SUPREME COURT REPORTS (1995] 2 S.C.R.

A three crores of Rupees) paid by the respondents to the foreign collaborator
under the agreement. It is on this basis section 14(1)(a) was excluded and
resort to section 14(1)(b) of the Customs Act was sought to be justified by
the revenue. In appreciating the above plea we have to bear in mind certain
•
basic principles. The bargain. between the respondents and the foreign
collaborator is evidenced by written agreements. (dated 6.11.1979 &
B 6.3.1980). There is no material nor was it suggested that the dealings
between the parties are not at arm's length. No evidence is available to
show that the payment of royalty to the collaborator induced any extra
commercial obligation for the price of CKD packs, parts and comp~nents.
Ordinarily the Court should proceed on the basis that the apparent tenor
C of the agreements reflect the real state of affairs. It is, no doubt, open to
the revenue to allege and prove that the apparent is not the real and that
the price for the sale of the CKD packs is not the true price, and the price ---i
I
was determined by reckoning or taking into consideration the lumpsum
payment made under the collaboration agreement in the sum of 15 million
D French Francs. The short question is whether the revenue has succeeded
in showing that the apparent is not the real and that the price shown in the
invoices does not reflect the true. sale price and so section 14(1)(b) of the
Act was properly invoked.

6. Certain aspects highlighted by the learned Solicitor General to
. E prove that the price of CKD packs mentioned in the invoices is not the
true price are as follows: The collaboration agreement dated 6.11.1979 is
an indivisible and composite one. The agreement shopld be read as a
whole. The technology for the assembly of the engine is necessary and is
included in the agreement. The price of technology 'to assemble' is really
.F a part of the bargain and is included in the composite agreement. The
.f<?reign collaborator who retained the industrial property rights relating to
the engine exclusively permitted the respondents to use the same in India
and the consideration therefor is also included; but for this, the respon-
d,ents cannot use the property at all and the supply of CKD packs and
service parts to the respondents was only one of the aspects covered by the
G bargain, and the apparently sizeable amount paid (consideration shown) as
per the agreements could only be by reckoning the supply of CKD packs
, ·and the service parts in the future. In the circumstances, the consideration
mentioned in the agreement should cover, at least in part, the price of the
CKD packs and spares that may be supplied later, though it is not expressly
H
U.0.1. v. MAHINDRAANDMAHINDRALID.[PARIPOORNAN,J.) 607

stated so. It may even include an element of payment of royalty for the A
products.

7. On the other hand, counsel for the respondent Sri Setalwad laid
emphasis on the following: The High Court has concurrently found that
the respondent and the foreign collaborator had no interest in the business B
.of each other and the said finding is not assailable in this appeal especially
in vie~ of the conditions under which special leave was granted by this
Court. The CKD packs and spares were supplied by the foreign col-
laborator to the respondents at the same price at which they were sold to
others and the agreeinents did not provide for any concession to the
respondents - buyers. In other words, the price charged by the foreign C
collaborator for the supply of CKD packs and spares and other articles is
uniform. The payments under the agreements were made by 1981, and the
import of CKD packs and spares started later in 1982. It was only two years
thereafter, for the first time on U.6.1984, the customs authorities intimated ·
the respondent that they will load the invoice value. Finally, more than 3 D
years after the import of the goods, the goods were loaded at 1.5%,
arbitrarily and without any basis. The technical know-how of every machine
(in the instant case, the engine) will include 'assembly' and there is nothing
unusual in the collaboration agreement which provides for manufacture of
the engine, for the supply of the necessary know-how for the assembly E
thereof. Indeed, Clause A(4) of the main agreement provides "for manufac-
ture of an engine with 100% indigenous contents in India." What is more,
. under Clause F 1-3, the option vested with the respondents, to import the
whole or any part of the materials, including CKD packs and spar'?s etc.
There is no material to indicate any nexus or connection between the F
lumpsum payment of 15 million French Francs and the supply of CKD
packs to the respondents by Peugeot for the production of the engine. No
material has been adduced by the Revenue to demonstrate that the price
fixed in the invoices is not the true or the real price, or. in other words, the
apparent is ~ot the real. In no sense, it can be stated that the price of the G
goods obtained later was reckoned or· reflected in the lumpsum payments
made, long before. The parties never had in mind the nature and extent of
the spare parts that may be required later, when the collaboration agree-
ment was entered into. The inference so suggested to be drawn is arbitrary,
and ad hoc and has no foundation. H
608 SUPREME COURT REPORTS [1995) 2 S.C.R.

A 8. On an evaluation of the relevant clauses in the collaboration
agreements and the attendant circumstances, we are of the view that the
concurrent Judgments of the High Court at Bombay do not merit inter-
ference in this appeal. The crucial aspects appearing in the case are that
the parties were dealing at arm's length, that the seller and the buyer have
B no interest in the business of each other, that, ordinarily, the technical
know-how of the machine can talc~ in 'the assembly' thereof, that the CKn
packs and spares were supplied to the respondents by the collaborator not
at a concessional price but at the price at which they were sold to others,
that, as agreed to by the respondents, the option was entirely with the
C respondents to order the parts as per their requirements, that there was
no obligation on the respondents to purchase CKD packs at all, that long ·
before the supply of the CKD packs and spares, the royalty due to the
collaborators wa8 paid, that there is no material to show that the supply of
the CKD packs or spares weighed with the parties in fixing the payments
D under the collaboration agreement but, on the other hand, the collabora-
tion agreement for the technical know-how and the supply of CKD packs
and spares are independent commercial transaction; in other words, there
existed no nexus between the lumpsum payment under the agreement for \
the technical know-how and the determination of the price for supply of
E CKD packs or spares. It is by highlighting the above aspects that the ·
learned Single Judge and th-e Division Bench concluded that "the conten-
tion that the price quoted in the invoices tendered by Mahindra &
Mahindra (respondents) does not reflect the correct price because·a part
of the value of imported packs and components was already received by
F foreign collaborator while determining the consideration of 15 million
Fren~h Francs cannot be accepted", and "the collaboration agreement does
not support the claim nor was there any material available to the Assistant
Collector to warrant such a conclusion", and, therefore, resort to section
14(1)(b) of the Act and Rule 8 of the Customs Valuation Rules is clearly
incorrect and unsustainable and the "Assistant Collector was bound to
G aceept the price mentioned in the invoices for the purpose of assessing the
customs duty".

9. We are of the view that the reasoning and conclusion of the
H learned judges of the High Court are justified and valid in the facts and
circumstances of the case. The collaboration agreement entered into be-
..J\

U.0.1. v. MAHlNDRAAND MAHINDRA LID. [PARIPOORNAN,J.] 609
/

tween the parties is clear and it is not open to the revenue to construe it A
differently by reading into it something which is not there. In the result, we
hold that the Judgment appealed against does not merit interference and
this appeal deserves to be and is hereby dismissed with costs, which we
quantify at Rs. 10,000.

G.N. Appeal dismissed~

'r

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