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CASE NO.: Appeal (civil)  3635 of 2006

PETITIONER: Commnr. of Customs (Port), Chennai

RESPONDENT: M/s Toyota Kirloskar Motor Pvt. Ltd

DATE OF JUDGMENT: 17/05/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T

S.B. SINHA, J :

1.      Leave granted.

        2.      This appeal is directed against a final order dated 07.12.2005 passed  by the Customs, Excise and Service Tax Appellate Tribunal (for short, ’the  CESTAT’) passed  in Appeal Nos. C/231/04 and C/949/04 whereby and  whereunder the appeal preferred by Respondent herein was allowed and that  of Appellant herein was dismissed.   

3.      Kirloskar Systems Limited entered into an agreement with Toyota  Motor Corporation, Japan.  It is also a major shareholder in the Respondent- Company.  For the purpose of establishing an automobile manufacturing  plant, Respondent imported some capital goods and parts thereof.  

4.      Dispute between the parties revolves round the valuation of the said  capital goods and parts imported by the respondent from Toyota Motor  Corporation for manufacture of automobile in India.  Under the agreements  entered into by and between the respondent and the said Toyota Motor  Corporation, royalty and know-how fees were to be paid.   

5.      According to the Revenue such payments were to be added to the  invoice value of the goods so as to arrive at a proper transaction value, in  terms of Rule 9(1)(c) of the Customs Valuation (Determination of Price of  Imported Goods) Rules, 1988 (for short, ’the Rules).   Payments of royalty,  according to the Revenue, have a direct nexus to the imported goods as the  same go into the manufacture of the licensed vehicles and spare parts.          

6.      Before embarking upon the rival contentions of the parties, we may  notice the basic and undisputed facts of the matter.  

7.      A Technical Assistance Agreement was entered into by and between  Toyota Motor Corporation and the respondent herein.  Some of the  payments were required to be made towards engineering services and for  imparting training to its personnel at Japan.                   In the said agreement, the terms ’licensed vehicles’, ’local parts’, and  ’licensed products’ have been defined.  By reason of the said agreement, the  respondent was given manufacturing licence for the licensed products of  Toyota.  The licence was to be given on non-exclusive, non-divisible, non- transferable and non-assignable basis and was not to include any right to  grant sub-licences without the licensor’s prior consent.

       Articles 3 and 4 of the said agreement, which are material for our  purpose,  read as under :

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               "Article 3      Ordinary Assistance

(a)     The Licensor shall, in accordance with the  formalities and conditions separately prescribed by  it, furnish the licensee, upon its request, with such  technical know how, information, data etc. relating  to the licensed products in written, verbal or any  other form, as then are or where used by the  Licensor and are then in the hand of and freely  disposable by the Licensor and as are then  considered necessary and applicable by the  Licensor for the manufacture of the licensed  products from among those stipulated in appendix- C attached hereto.

(b)     Any technical know-how, information, data, etc.  furnished to the Licensee by the Licensor in  accordance with the preceding paragraph (a) and  all copies thereof shall, at the licenses expense, be  sent back to the Licensor even during the terms of  this agreement, as soon as the Licensor requests  their return, considering the same unnecessary for  the licensee, the Licensee shall also impose said  obligation upon its employees, officers and  directors who may have the custody of or access to  such know-how information data etc. and those  reproduced, whether those persons are in or out of  office."  

       Appendix C of the agreement provides for technical know-how,  information data, etc. which were to be furnished by the licensor to the  licensee under Article 3 being those which had separately been designated  by the licensor from amongst those specified therein, namely, for : (i)  studying the feasibility of local parts manufacturing, (ii) manufacturing of  local parts, and (iii) production, preparation of licensed products.       

       Article 4 of the agreement reads as under :

"Article 4 \026 Additional Assistance  

(a)     At the Licenses written request, the Licensor may  furnish the Licensee with manufacturing,  engineering and other know how and information  relating to the licensed products which are not  readily available in the licensors records but which  the Licensor is willing to develop especially for the  licensee, and which shall be furnished through  such documents and assistance as designated at the  discretion of the Licensor from among those  stipulated in appendix D attached hereto and any  other documents and assistance from time to time  designated by the licensor.

(b)     In the event of the preceding paragraph (a), the  Licensee shall pay the Licensor all fees, and all  costs and expenses incurred by the Licensor in  developing and furnishing such know-how,  information, documents and or assistance.           

(c)     If the assistance rendered under paragraph (a)  hereof is technical assistance or engineering  assistance concerning the licensed products, such  assistance will be provided in accordance with the  procedures and conditions set forth in Appendix E

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attached hereto"  

       Appendix D provides for assistance  to be furnished by the licensor to  the licensee in terms of  Article 4, which are separately designated by the  licensor from amongst those specified therein, namely, for : (i) construction  of plant, (ii) production and preparation, and (iii) pilot production and  production model.           Article 7 provides for basic requirements for manufacture of the  licensed products. Article 11 provides for inspection thereof.  Article 16  provides for payment of royalty in the following terms :

               "Article 16 -   Royalty

(a)     The     Licensee shall pay the Licensor royalty on  all of the licensed products manufactured by the  Licensee while this agreement is effective under  article 30 hereof, in consideration of the license to  use the technical know how, information, data, etc.  furnished by the Licensor under article 3 hereof.   The amount of the royalty shall be fixed in  accordance with paragraphs (a) and (b) of Article  17 hereof.

(b)     The Licensee may deduct from the royalty  payments hereunder any withholding taxes which  the Licensee is required under the law of the  territory to pay for the account of the licensor,  provided that the Licensee shall pay such taxes on  behalf of and in the name of the Licensor and  furnish the Licensor with proper certificates for the  same from the authorities concerned, to enable the  Licensor to obtain credit therefor against its  Japanese taxes.  Handling fees or any other  expenses incurred in remitting the amount of  royalty shall be for the account of the Licensee and  shall not be deducted from the royalty payments."    

         The mode and manner in which calculation of royalty is to be made  has been provided under Article 17, sub-clause (2) whereof is as under :                                  "(2)    With respect to the unit Local Parts (such as  engines, transmissions, steering links and axles), as  separately agreed upon by the parties hereto,  manufactured by the Licensee itself during each calendar  quarter for sale (i) as spare parts for the licensed vehicles  and or (ii) as original equipment parts and or spare parts  for other vehicles than the licensed vehicles,  the  Licensee shall pay the Licensor royalty equivalent to  three percent (3%) of the local value added of those unit  Local Parts.  For this  purpose,  the number of the unit  Local Parts subject to royalty shall be determined at the  time of their line off at the factory where they are  manufactured, and the local value added shall be  Licensees wholesale or selling prices of those unit Local  Parts minus the following costs and tax, if included  therein :

(i)     All costs for the KD parts which are incurred until  such KD parts have been brought into the above  mentioned factory; (ii)    All costs for such Local Parts as are standard  bought out components as used to manufacture  those licensed vehicles and as listed in appendix H

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attached hereto, which are equivalent to the  Licensees cost of production thereof if those are  manufactured by the Licensee itself or the  Licensees purchase prices thereof if those are  purchased by the Licensee from third parties and;

(iii)   Sales tax, excise tax, commodity tax or any other  tax of similar nature (other than any of such taxes  to be refunded to the licensee) imposed directly on  the manufacture, sale or delivery by the Licensee  of those unit Local Parts."

       Article 21 provides for patents.    

        8.      Indisputably, in terms of the said agreement, the Respondent imported  capital goods from Toyota Motor Corporation for manufacture of Passenger  Utility Vehicles.  Proceeding on the basis that the supplier is related to the  respondent, the matter relating to valuation of the said capital goods was  referred to the Special Valuation Branch for verification in regard to  acceptance or otherwise of the declared invoice value.  The Special  Valuation Branch by reason of a circular dated 06.04.1999 was directed to  continue to assess the value of imports from the related supplier  provisionally.  

9.      Another agreement known as ’TMSS Overseas Parts Export  Agreement’ was entered into by and between the respondent and the Toyota  Motor Management Services Singapore Pvt. Ltd.  The said agreement  covered the seal of the TMSS.  The Assessing Authority passed an order in  original dated 31.01.2003 holding : (1) In view of Articles  3 and 4 of the  agreement, a lump sum amount of J.Y. 1,015,000,325 paid up to 31.10.2002  towards technical know-how should be loaded to the value of goods  imported as components, tools and new capital goods imported from related  supplier. (2) The value of components be arrived at by the adjustments,  namely, proportionate addition of lump sum amount and by loading of 5%  royalty. (3) The invoice values of spares/accessories be loaded by 2% on  account of royalty payment and 3% on spares/accessories imported after  01.01.2004.

10.     In coming to its conclusions, as noticed hereinbefore, the Assessing  Authority recorded the following findings :

"42.    It has already been pointed out that it is Toyota  Motor Corporation which decide what Toyota  Products would be sold to TKML and having  decided that TMC had made it mandatory on the  part of the importers to use the technical assistance  agreement and thus it can be concluded that import  of Toyota Products is subject to conditions related  to the use of TAA.   43.     Thus in terms of Rule 9(1)(c) of the CVR 88,  Royalties and license 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 shall be added to the extent that such  royalties and fees are not included in the price  actually paid or payable for the imported goods.                                  xxx             xxx                     xxx

46.     Since the goods were imported from the supplier  cum collaborator (and their subsidiaries) who  transferred the technical know how and the

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licensee to use their technology for which the  foreign collaborator receives the royalty on the  sale proceeds of the finished products the value of  the imported goods will naturally be influenced by  the relationship as well as the collaboration  agreement.  

47.     The very fact that royalty is paid to the supplier on  locally manufactured products, makes it clear that  the manufacture of such products is dependent  upon the Technical knowhow/ Technology/  Licence/ Patent available with the supplier which  may be transferred either in the collaboration  agreement or which may be inherent in the goods  supplied.  Otherwise, there is no rationale for  payment of royalty in a locally manufactured  products which will not be the case if the  transaction involves outright sale of  equipment/machinery/component etc.

48.     The logical conclusion is that the royalty is  relatable to the imported goods as the royalty is  nothing but an inherent condition to the  transaction\005.Hence, the royalty payable by the  importers to their collaborator/supplier is  includible in the assessable value of the imported  goods as per Rule 9(i)(c) of the CVR 88."    

11.     An appeal preferred thereagainst by the respondent  before the  Commissioner of Customs was dismissed, holding :

"a)     Royalty is not to be added  to the value of          components parts such as Unit Local Parts and KD          Parts.

b)      Royalty is to be added to the value of components  parts falling under the category of other than Unit  Local Parts.

c)      TKH is to be added only to the value of capital  goods and tools imported from related supplier  during the tenure of the agreement and should be  apportioned to the total value of such goods.

d)      TKH is  not to be added to the  value of the          components.

e)      Remaining portion of the Order-in-Original          remains unaltered."

12.     Aggrieved by and dissatisfied therewith, both the parties preferred  appeals there- against before CESTAT.  By reason of the impugned  judgment, CESTAT held :                                  "\005As regards royalty which goes under "ordinary  assistance" relevant article of the agreement  stipulates that upon request the foreign supplier  shall furnish to the importer such technical know- how, information, data relating to the licensed  products.  The licensed products are the  automobile to be manufactured in India under the  agreement as well as specific parts.  It is to be seen  that the technical know how, information etc. to be

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furnished are for studying the feasibility of Local  Parts manufacturing, for manufacturing of local  parts, for production preparation of licensed  products etc.  What is important is that none of  assistance is in relation to the goods under import.   Further, royalty is to be computed at the agreed  percentage of local value addition of vehicle  manufactured under licence or unit local parts  manufactured and sold or exported.  Thus, the  computation also has no bearing upon the imported  goods or their value\005In the agreement under  question or the import of goods, there is nothing  indicating that royalty payment is a condition of  the sale of the imported goods.  Thus, the  requirement of royalty being a condition of sale  also is not satisfied.  In view of these, we are of the  opinion that there is no requirement in the present  case for adding royalty payment to the price  payable for the purpose of determining the  transaction value of the imported parts\005In sum,  all payments are towards assistance rendered in  India for setting up the plant.  None of this is in  relation to the goods under import.  Thus, the  payments under ’lump sum payments heading’  also do not satisfy the requirement under rule  9D(c) of the payments being "related to the  imported goods" or being a condition of sale of the  goods being value.  Thus, there is no legal sanction  for adding this payment also the price paid in order  to arrive at the transaction value."      13.      Mr. Gopal Subramanium, the learned Additional Solicitor General  of India, would submit that the agreements entered into by and between the  respondent and the said Toyota Motor Corporation must be read in their  entirety, wherefrom it would be evident that the terms laid down therein are  relevant for determining the conditions of import.  According to the learned  counsel it must be held to be involving continuous exercise and in view of  the fact that the patent was held by the respondent and furthermore grant of  licence and know-how technology being sine qua non for running the  automobile manufacturing plant set up by the respondent at Bangalore,  Articles 3 and 4 of the Agreement have rightly been invoked for the purpose  of determination of the transaction value of the capital goods.  Strong  reliance, in this behalf, has been placed by the learned Additional Solicitor  General on Collector of Customs (Preventive), Ahmedabad v. Essar Gujarat  Ltd., Surat [(1997) 9 SCC 738].

14.     Mr. R. Parthasarthy, the learned counsel appearing on behalf of the  respondent, on the other hand, would submit that on a proper reading of the  decision of this Court in Essar Gujarat Ltd. (supra), it would appear, that  only the costs which were required to be incurred by the importer before  importation of the capital goods had been taken into consideration for  determination of the transactional value of the imported goods.  It was  submitted that  a conjoint reading of the provisions of Section 14(1) of the  Central Excise and Salt Act, 1944 and Rules 3, 4 and 9(1)(c) of the Rules,  would clearly show that the valuation must be relatable to the goods  imported, a logical corollary whereof would be that the same must be  payable as a condition of import and not for the purpose of setting up of a  manufacturing plant wherefor goods may be used.

15.     Drawing our attention to Articles 3 and 4 of the agreement, the  learned counsel submitted that ordinary assistance and additional assistance  provided for therein are in relation to the manufacturing activities to be  carried out in India by the respondent and the same has nothing to do with  the import of the capital goods.   

16.     It was furthermore submitted that the provisions of the Act and the

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rules framed thereunder do not lay down any provision for determination of  the value on the basis as to whether the parties are related or not.  

17.     The Customs Act, 1962 (for short, ’the Act’) was enacted to  consolidate and amend the law relating to customs.  The terms ’goods’ and  ’import’ have been defined in Section 2(22) and Section 2(23) respectively  in the following terms :

               "2(22).  "good" includes \026

               (a)      vessels, aircrafts and vehicles;                 (b)     stores;                 (c)     baggage;                 (d)     currency and negotiable instruments; and                 (e)     any other kind of movable property;"

"2(23)  "import", with its grammatical variations and  cognate expressions, means bringing into India from a  place outside India;"

       Chapter V provides for levy of, and exemption from payment of  customs duties.  Section 14 provides for valuation of goods for the purpose  of assessment in the following terms :                  "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 chargeable on any goods  by reference to their value, the value of such goods shall  be deemed to be \026

       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 \026

(a)     the seller and the buyer have no interest in the  business of each other; or

(b)     one of them has no interest in the business of the  other, and the price is the sole 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 case may be, is  presented under section 50;"

18.     The Central Government in exercise of its power conferred upon it  under Section 156 of the Act, made rules known as "Customs Valuation  (Determination of Price of Imported Goods) Rules, 1988.  Rule 3 provides  for determination of the method of valuation, stating :

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

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

(ii)    if the value cannot be determined under the  provisions of clause (i) above, the value shall be

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determined by proceeding sequentially through  Rules 5 to 8 of these rules."

19.     How the transaction value would be determined has been laid down in  Rule 4 of the Rules, stating that the same shall be the price actually paid or  payable for the goods when sold for export to India adjusted in accordance  with the provisions of Rule 9 of the said rules.  Rule 9 of the Rules provides  for determination of transaction value, stating :

"Cost and services.-  (1) 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 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;

(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 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;

(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 and sketches undertaken elsewhere than  in India and necessary for the production of the  imported goods;

(c)     royalties and licence fees related to imported  goods that the buyer is required to pay, directly or  indirectly, as a condition of the sale of the goods being  valued, to the extent that such royalties 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;

(e)     all other payments actually made or to be made as  a condition of sale of the imported goods, by the buyer to  the seller, or by the buyer to a third party to satisfy an  obligation of the seller to the extent that such payments  are not included in the price actually paid or payabe."

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20.     The issue before us  is no longer res integra in view of the decision of  this Court in Commissioner of Customs (Port), Kolkata v. M/s J.K.  Corporation Limited [2007 (2) SCALE 459], wherein it is stated : " 9. The basic principle of levy of customs duty, in view  of the afore-mentioned provisions, is that the value of the  imported goods has to be determined at the time and  place of importation.  The value to be determined for the  imported goods would be the payment required to be  made as a condition of sale.  Assessment of customs duty  must have a direct nexus with the value of goods which  was payable at the time of importation.  If any amount is  to be paid after the importation of the goods is complete,  inter alia by way of transfer of licence or technical  knowhow for the purpose of setting up of a plant from  the machinery imported or running thereof, the same  would not be computed for the said purpose.  Any  amount paid for post-importation service or activity,  would not, therefore, come within the purview of  determination of assessable value of the imported goods  so as to enable the authorities to levy customs duty or  otherwise.  The Rules have been framed for the purpose  of carrying out the provisions of the Act.  The wordings  of Sections 14 and 14(1A) are clear and explicit.  The  Rules and the Act, therefore, must be construed, having  regard to the basic principles of interpretation in mind."

21.     Reliance, as noticed hereinbefore, however, has been placed by the  learned Additional Solicitor General on  Essar Gujarat Limited (supra). 22.     We may, thus, at the outset, consider the applicability of Essar Gujarat  Limited (supra) in the facts of the present case.  In Essar Gujarat Limtied  (supra), a plant was originally installed at Emden, Germany, which went in  liquidation in respect whereof a bank was appointed as receiver of the plant.   A tender was floated for sale of the plant on "as is where is" basis.  Essar  Gujarat Limited (EGL) made an offer of 26 million.  The offer, however, did  not materialize as the Central Government’s clearance could not be obtained.   The plant was sold to M/s Teviot Investments Limited (TIL).   EGL entered  into a contract with TIL for purchase of the Direct Reduction  Iron Plant on  the terms and conditions mentioned therein.  Another agreement was also  entered into in respect thereof.  EIL intended to enhance the capacity of the  plant for which a Collaboration Agreement was entered into by and between  EIL and M/s Voeist Alpine AG (VA), the relevant provisions whereof were  as under :         "EGL will set up at Hazira, Gujarat, a gas-based  Direct Reduction (DR) Plant which is to be re-engineered  for a rated capacity of 8,80,000 tpy of Hot Briquetted  Iron (HBI) and for this purpose decided to buy the  existing gas-based DR plant of NOHDDEUTSCHE  FERROWERKE (MORD FERRD) located at Emden,  West Germany, which had a rated capacity of 8,00,000  tpy DRI under the prevailing operating conditions at  Emden based on the Midrex Process and to incorporate  Hot Discharge and Hot Briquetting facilities."   23.     In the said agreement it was stipulated that the collaborator (VA) had  been holding the construction licence and rights to use patents from Midrex  International B.V. for marketing, sale, design and construction of the Midrex  plants at Hizira, India.   24.     This Court noticed Articles 3 and 10 of the agreement in question in  paragraphs 7 and 8 of the judgment, which read as under : "7. In Article 3 of the agreement under the heading  Midrex Process Licence and Technical Services it was  provided that in addition to the services being provided  by V.A., Midrex will provide certain technical services to

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V.A. or to EGL in connection with transfer of technology  covered under the process licence agreement attached to  in Annexure 12 of the agreement. The services included: (a) basic engineering package for the hot discharge  and hot briquetting system; (b) advice to Essar on optimum utilisation of iron  oxide lump ore and iron oxide pellets; (c) provide information and documentation to  allow Essar to implement improvements in plant  design and/or operating procedures which have  been developed by Midrex or other Midrex  Process Licensees; (d) provide continuing information to Essar on  operating results from other Midrex Plants to assist  Essar in optimizing plant-operating efficiency  including operating reports, operation bulletins and  operation seminars. 8. Article 10 of the agreement is as under:         Article 10: CONTRACT DHILL:         In consideration of fulfilment by Collaborator of  its obligations under this Agreement, Essar shall pay to  COLLABORATOR as below: SERVICES TO BE PROVIDED OUTSIDE INDIA: 10.1.1 Process licence and allied  technical services DM (German Marks) 10.1.1.1 Process licence fee payable to  MIDREX Corporation for the  right to use the Midrex process  and patents DM 20,00,000 lump  sum 10.1.1.2 Cost of technical services  provided under Article 3 in  connection with Midrex  process DM   1,01,00,000   lump sum Technical Services 10.1.2.1 Payment for engineering and  consultancy fee as specified  under this agreement DM 2,31,00,000  lump sum  10.1.2.2 Payment for theoretical and  practical training outside India   DM 22,00,000 lump  sum

Total DM 3,74,00,000  lump sum."                                                                                          

25.     Paragraph 10 of the agreement, therefore, had two components : (i)  Services to be provided outside India; and (ii) Technical Services.  Noticing  the terms subject to which the licence was granted in favour of EGL as also  the agreements with Midrex and VA, this Court observed : "\005This agreement with V.A. recites that the plant, when  it was bought, had a rated capacity of 8,00,000 tpy DRI

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under the prevailing operating conditions based on the  Midrex Process. It was recited that the Collaborator  (V.A.) was holding construction licence and rights to use  patents from Midrex for marketing, sale, design and  construction of the Midrex Plants at Hazira, India. The  services that were to be rendered by V.A. would also  include technical services in connection with the Midrex  Process and engineering services necessary for this  purpose. The Collaborator agreed to use Midrex  construction and process licence for this project at  Hazira, India. It was recorded that EGLs contract with  Midrex had been annexed to the contract with the  Collaborator."

26.     In the aforementioned fact situation, a contention raised on behalf of  the EGL that the pre-condition for obtaining a licence was not the condition  of sale was rejected, holding that without the same, the plant would be of no  use to EGL, wherefor the overriding clause was inserted showing that the  same was a condition of sale.   27.     It was in the aforementioned premise, payments made to Midrex by  way of licence fee was held to be liable to be added to the price actually paid  to TIL for purchase of the plant by EGL.  Construing the provisions of  Section 14 of the Act read with Rule 9 of the Rules, it was held :           "18. The entire purpose of Section 14 is to find out  the value of the goods which are being imported. The  EGL in this case was purchasing a Midrex Reduction  Plant in order to produce sponge iron. In order to 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 precondition 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 not be made functional. EGL wanted to buy the  plant in a 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 not only the price paid for the plant but  also the price payable for the operation licence and the  technical know-how. Rule 9 should be construed bearing  this in mind."

28.     This Court noticed several curious aspects of the three agreements,  but ultimately held that whereas the amounts payable in terms of clauses  10.1.1.1, 10.1.1.2 and 10.1.2.1 were to be taken into consideration for the  purpose of determining the transactional value, 10% of the amount,  however, for payment of engineering and consultancy fee as specified under  the agreement was held to be payable by way of guess work.   29.     Therefore, law  laid down in Essar Gujarat Limited  (supra) and J.K.  Corporation Limited (supra) are absolutely clear and explicit.  Apart from  the fact that Essar Gujarat Limited (supra) was determined on the peculiar  facts obtaining therein and furthermore having regard to the fact that the  entire plant on "as is where is" basis was transferred subject to transfer of  patent as also services and technical know-how needed for increase in the  capacity of the plant, this Court clearly held that the post-importation service  charges were not to be taken into consideration for determining the  transactional value.   30.     The observations made by this Court Essar Gujarat Limited (supra) in   paragraph 18 must be understood in the factual matrix involved therein.  The  ratio of a decision, as is well-known, must be culled out from the facts  involved in a given case.  A decision, as is well-known, is an authority for  what it decides and not what can logically be deduced therefrom.  Even in  Essar Gujarat Limited (supra), a clear distinction has been made between the

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charges required to be made for pre-importation and post-importation. All  charges levied before the capital goods were imported were held to be  considered for the purpose of computation of transaction value and not the  post importation one.  The said decision, therefore, in our opinion, is not an  authority for the proposition that irrespective of nature of the contract,  licence fee and charges paid for technical know-how, although the same  would have nothing to do with the charges at the pre-importation stage,  would have to be taken into consideration towards computation of  transaction value in terms of Rule 9(1)( c) of the Rules.   31.     The transactional value must be relatable to import of goods which a’  fortiori would mean that the amounts must be payable as a condition of  import.  A distinction, therefore, clearly exists between an amount payable  as a condition of import and an amount payable in respect of the matters  governing the manufacturing activities, which may not have anything to do  with the import of the capital goods.   32.     Article 4 provided for additional assistance in respect of the matters  specifically laid down therein.  Technical assistance fees have a direct nexus  with the post-import activities and not with importation of goods.  33.     It is also a matter of some significance that technical assistance and  know-how were required to be given not as a condition precedent, but as and  when the respondent makes a request therefor and not otherwise.  Appendix  C of the agreement relates to manufacture of local parts which evidently has  nothing to do with the import of the capital goods.  Appendix D again is  attributable to construction of plant; production preparation; and pilot  production and production model, wherewith the import of capital goods did  not have any nexus.   34.     We may furthermore notice that Interpretative Note appended to Rule  4 also plays an important role in a case of this nature which reads as under : "Note to Rule 4 Price actually paid or payable         The price actually paid or payable is the total  payment made 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 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, 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  following 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  after importation on imported goods such as  industrial plant, machinery or equipment; (b) The cost of transport after importation; (c) Duties and taxes in India.         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." 35.     The said rule clearly states that the charges or costs envisaged  thereunder were not to be included in the value of the imported goods  subject to satisfying the requirement of the proviso that charges were

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distinguishable from the price actually paid or payable for the imported  goods. 36.     Interpretation of the said rule came up for consideration before a  Bench of this Court in Tata Iron & Steel Co. Ltd. v. Commissioner of  Central Excise & Customs, Bhubaneswar, Orissa [(2000) 3 SCC 472],  wherein it was held : "\005This 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 the imported goods. To illustrate, if the seller has  undertaken to erect or assemble the machinery 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 distinguishable 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 separately paid by including  them in the price of imported equipments. Clause (a) in  the third para of the 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. 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\005"

37.     Yet again  a three-Judge Bench of this Court in Union of India and  Others v. Mahindra and Mahindra Ltd., Bombay [(1995) Supp. (2) SCC  372], opined : "\005Ordinarily the Court should proceed on the basis that  the apparent tenor 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 was determined by reckoning or taking into  consideration the lump sum payment made under the  collaboration agreement in the sum of 15 million French  Francs.\005"

       It was furthermore held :

"9. 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  interference in this appeal. The crucial aspects appearing  in the case are that the parties were dealing at arms  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 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 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 was paid, that there is no

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material to show that the supply of the CKD packs or  spares weighed with the parties in fixing the payments  under the collaboration agreement but, on the other hand,  the collaboration agreement for the technical know-how  and the supply of CKD packs and spares are independent  commercial transactions; in other words, there existed no  nexus between the lump sum 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  learned Single Judge and the Division Bench concluded  that the contention 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  foreign collaborator while determining the consideration  of 15 million French 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  accept the price mentioned in the invoices for the purpose  of assessing the customs duty."

38.     It may be true, as has been contended by the learned Additional  Solicitor General, that Rule 9(1)(c) of the rules had not been taken into  consideration therein, but the same does not make much difference. 39.     For the views we have taken, we are of the opinion that the CESTAT  cannot be said to have committed any error in arriving at its decision in the  impugned judgment.  There is, thus, no merit in this appeal, which is  dismissed accordingly.  In the facts and circumstances of the case, there  shall, however, be no order as to costs.