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PETITIONER: THE BOMBAY DYEING & MANUFACTURING CO. LTD.

       Vs.

RESPONDENT: COLLECTOR OF CUSTOMS, BOMBAY.

DATE OF JUDGMENT:       18/02/1997

BENCH: S.P. BHARUCHA, S.B. MAJMUDAR

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      BHARUCHA, J.      This is an appeal against the judgment and order of the Customs, Excise and Gold (Control) Appellate Tribunal and it concerns and  assessment of project imports for the purposes of Customs duty.      Prior to  the introduction  of Item  72A in the earlier Custom Tariff,  Individual imports,  Though intended  for  a single project, were separately assessed to Customs duty, To obviate the  inconveniences that  resulted, the  facility of project imports  was introduced  and it  required  that  the contract  relating   to  the   project  import   should   be registered. The  Project Imports  (Registration of Contract) Regulations, 1964,  were introduced  as a  consequence. They provide that  every importer claiming assessment of articles falling under the relevant entry, being Heading 84.66 of the present Customs  Tariff, should apply to appropriate officer of Customs at the port where the goods are t be imported for registration of his contract. The application in that behalf must specify  "such other  particulars as  may be considered necessary by  the Appropriate  Officer for  the purposes  of assessment under the said Heading".      The  appellants   entered  into  a  contract  on  19th. December, 1978,  with corporations  doing  business  in  the United Stated  of America  in the  style of  ’Hercofina’  to purchase  manufacturing   equipment,  apparatus,  machinery, including  spare   parts  and   accessories,  comprised   in Hercofina’s  plant  at  Burlington,  New  Jersey,  USA,  for manufacture of  Dimethyl Terephthlate  (DMT) at the price of US $  10,000,000,00  (US  $  ten  million).  The  appellants applied for  registration of  the said  contract  under  the Project Import  Registration of  Contract Regulations  1965, (hereinafter called "the said Regulations"). On 11th. April, 1979, The appellants were informed by the under Secretary to the Government  of India  in the  Department  of  Industrial Development, Ministry  of Industry  that the  Government had approved the  import by  the  appellants  of  the  aforesaid capital goods for the production of DMT for the CIF value of US $  17 million.  It was  noted in the said letter that the appellants would  be incurring  as dismantling  charges  the

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cost of US $ 5.50 million for which necessary clearance from the Reserve Bank should be obtained. On 21st. may, 1979, the Deputy Secretary in the Ministry of Petroleum, Chemicals and Fertilizers required the appellants to furnish a certificate from a  firm of  Chartered Engineers regarding the soundness and reliability  of the aforesaid plant before incurring any expenditure for  its purchase.  On 1st.  August,  1981,  the Under Secretary in the Department of Economic Affairs in the Ministry of  Finance informed  the  Reserve  Bank  that  the Government had  approved the  procurement of  capital goods, technical assistance,  etc.,  in  connection  with  the  DMT project of the appellants thus:                                          Value i)   Import of Capital Goods            US $ 17.00 million ii)  Overseas dismantling charge etc.   US $ 5.5 million iii) Fee for Technology & Technical     US $ 2.5 million"      Assistance.      On 24th.  August,  1982,  the  Assistant  Collector  of Customs, Bombay,  informed  the  appellants  that  the  said contract had been registered and that spare to the extent of 10 percent  of the value of the main machinery were eligible for the  concessional rate of assessment under Heading 84.66 (ii). On 30th September, 1982, the Reserve Bank informed the appellants that  it had  agreed to  the expenditure  by  the appellants of US $ 5.5 million towards dismantling and other charges in  respect of  the import of aforesaid plant, which charges were  not required  to be  endorsed  on  the  import licence issued  for that  import. On  8th October, 1982, the Joint  Controller  of  Imports  and  exports  wrote  to  the Collector of  Customs, Bombay,  asking the  Collector not to debit the  said dismantling charges to the face value of the said import licence.      It was  contended by the appellants before the Tribunal that there  had been  a pre-assessment of the said plant and that, therefore,  the Collector  of Customs  was in error in applying the  provision of  Section 14 of the Customs Act to the valuation  of the  said plant fr the purposes of Customs duty. The  Tribunal did  not accept  the argument  that  the registration of the said contract by the Customs in terms of the said Regulations amounted to pre-assessment of the value of the said plant. It accepted the argument on behalf of the Revenue that  there had  only been  a provisional assessment and it  was open to the Collector to value the said plant on the basis of Section 14.      Before us  it was  accepted that  there had been only a provisional assessment  at the  stage when the said contract was registered  under  the  said  Regulations,  but  it  was submitted  that  once  the  value  of  the  said  plant  was determined at  US 4  17 million  and the  said contract  was registered under  the  said  Regulation  read  with  Heading 84.66, then,  for the  purposes of the final assessment, the value of the said plant had to be taken to be the value that had been  so determined  and it  was  open  to  the  Customs authorities not  to accept  that value  only  if  there  was material to  indicate that  it was  arrived at on account of some error  or a  particular item  fell outside the scope of the project  import. We  find it  difficult  to  accept  the submission. Once  it is accepted that there is not more than a provisional  assessment at  the stage when the contract is registered under  the said  Regulations, it  is open  to the Customs authorities  to make  a final assessment taking into account all  factors that are relevant thereto, and they are not inhibited  by reason of the registration of the contract under the said Regulations.      The question  now is  whether the  Customs  authorities

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have taken relevant factors into account in making the final assessment of the said plant.      The  adjudicating  authority  added  the  following  in making the  final assessment of the value of the said plant, and was upheld by the Tribunal : "                                                      US $ 1.   Inspection/dismantling/packing and forwarding  3847621 2.   Vendor inspection                               339253 3.   Insulation removal                               691981 4.   Insurance in USA                                 139365 5.   Tata Incorporated charges                        217500 6.    Reimbursement  to Tata Incorporated for misc. Expenses such as  equivalent transport,  copying,  telephone,  telex, postage legal expenditure.                            265018                                       ----------------------                                                5500738                                        ---------------------      After some  debate, learned  counsel for the appellants fairly stated  that he  could not  contest the  addition  of dismantling, packing  and forwarding  charges in  item no. 1 above; and  "insurance in  USA", being  item  no.  4  above, because these  expenses arose  upon the  terms of  the  said contract.      The amount  relating to  inspection in item no .1 above is US  $ 1.048  million. It was submitted by learned counsel for the appellants that these inspection charge could not be included in  the assessable  value the  said  plant  as  the inspection was  optional. It  did not flow from the terms of the said  contract nor  did it enhance the value of the said plant. It  was not  needed to  incurred for  dismantling the said plant  and making  it ready  for transport. It was only for determining  what parts of the said plant needed repair. The Tribunal  had been  error in emphasising clause 9 of the said contract  in holding that these inspection charges were includible for  the purposes  of arriving  at the assessable value of  the said  plant. Clause  9 of  the  said  contract records that  independent certification  of the condition of the said  plant was  required to  enable the  appellants  to obtain an  import licence  for it.  It was, therefore, agree that  the  appellants  would  engage.  in  consulation  with Hercofina, and  engineering contractor,  at the  appellants’ expense, to  inspect the  major pieces of the said plant and issue a  certificate in  this behalf.  It seems  to us clear that this  inspection, carried  out by  Catalytic  Inc.  was pursuant to the aforementioned term of the said contract and the expenditure  incurred i  that behalf was rightly held by the Tribunal to flow thereout.      Insofar  as  "Vendor  inspection"  (item  2  above)  is concerned, it  appears  that  it  was  carried  out  by  the original supplier  of the said plant. It was not required to be incurred  for the  purposes of dismantling the said plant nor for  making it  ready for being transported. There is no material shown  to us  from the  record  that  suggests  the contrary. we are, hence, of the view that the expenditure on this inspection  should not have been taken into account for the purposes of arriving at the assessable value of the said plant.      Learned counsel  for the  appellants submitted that the expenditure incurred  on "insulation  removal" Item 3 above) should also  not  have  been  taken  into  account  for  the purposes of  arriving at  the assessable  value of  the said plant. Under  the terms  of clause 4 of the said contract it was the  obligation of the appellants, at their own cost and expense, to  make all  arrangements and  perform  all  work, themselves or through agents or contractors of their choice,

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necessary to  effect  dismantling,  packing,  removal  an  d shipment of  the said plant from Burlington, New Jersey. The said  plant   as  installed   was  insulated   by  asbestos. Environmental  laws  in  the  U.S.A.  required  by  asbestos insulation that  was removed  from the  said  plant  in  New Jersey to  enable the said plant to be transported had to be buried at  an approved  site. It  was, therefore,  that  the appellants had  to  engage  the  services  of  a  specialist contractor who  came to the site with protective devices and vehicles to  remove the asbestos insulation and transport it to the  burial site.  Learned  counsel  for  the  appellants submitted  that,   while  the  said  contract  required  the appellants to  dismantle the  said plant  and, therefore, to remove the  asbestos insulation,  it  did  not  require  the appellants to  bury the  asbestos. We  must proceed upon the assumption that the said contract required the appellants to carry out  their obligations  thereunder in a lawful manner. It was,  therefore,  implicit  that  the  appellants  should conform  to  the  law  that  required  to  removed  asbestos insulation of the said plant to be buried. The obligation in this  behalf  flowed  out  of  the  said  contract  and  the expenditure incurred  thereon was rightly taken into account in determining the assessable value of the plant.      The appellants  had entered  into a  contract with M/s. Tata Projects for providing services in India with regard to construction of  the said  plant. They had agreed to pay the expenses in  this behalf actually incurred by M/s. Tata Inc. in the  U.S.A. and  their fees.  Accordingly, the appellants had paid  the fees  of M/s.  Tata Inc.  (item 5  above)  and reimbursed them  for the expenditure which they had actually incurred (item  6 above). Learned counsel for the appellants submitted that the payment of the fees of M/s. Tata Inc. was payment for  rendering a service and could not be taken into account  in  arriving  at  the  value  of  the  said  plant. Attention was  drawn to the judgment of this Court in Apollo Tyres Ltd.  vs. Collector of Customs, 1997 (89) E.L.T. 7 (to which one  of us  was party)  where it  was  held  that  the commission or remuneration payable to a purchasing agent did not enhance  the value  of the  items  purchased.  The  same reasoning, it  was submitted,  applied to  the fees  of M/s. Tata Inc.  and the reimbursement to them of actual expenses. Learned counsel  for the  Revenue, Fairly,  did not  dispute this.      To summarise,  only the additions of US $ 33953, 217500 and 265018,  being  the  additions  on  account  of  "Vendor Inspection" (item  2),  "Tata Incorporated charges" (item 5) and "Reimbursement to Tata Incorporated ..... " (item 6) are not sustained.      The letter  dated 24th  August, 1982,  written  by  the Assistant Collector  of Customs to the appellants intimating to them  that the  said contract had been registered, stated that spares to the extent of 10 per cent of the value of the main machinery  were eligible  for the  concessional rate of assessment under  Item 84.66.  It goes  without saying  that this percentage  must now  be calculated on the basis of the enhanced value  of the  said plant.  Spares to  that  extent would from  part of the project import and must be valued on par with  the said  plant, that  is to  say that the rate of exchange which  is applied in respect of the said plant must also be applied to this percentage of the spares.      The appeal  is  allowed  and  the  order  under  appeal modified to  the extent aforestated. There shall be no order as to costs.

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