COLLECTOR OF CUSTOMS (PREVENTIVE), AHEMDABAD versus M/S ESSAR GUJARAT LTD. SURAT

Citation: [1996] SUPP. 8 S.C.R. 757 · Decided: 19-11-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Disposed off
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Judgment (excerpt)

COLLECTOR OF CUSTOMS (PREVENTIVE), AHEMDABAD 
A 
v. 
MIS ESSAR GUJARAT LTD. SURAT 
NOVEMBER 19, 1996 
[B.P. JEEV AN REDDY, SUHAS C. SEN 
AND K.S. PARIPOORNAN, JJ.] 
Customs Tariff Act 1975 Section 14. Customs valuation (determination 
B 
of price of Imported Goods) Rules 1988-Rule 9·-Determination of the 
/value of the imported plant-The licence fees as well as the payment made 
for the technical services should be added to the invoice value of the imported C 
plant. 
The respondent, entered into a contract with Mis. Telviot 
Investment Ltd. for purchase of a Direct Reduction Iron Plant on 
24.3.1987. The entire agreement was subject to two conditions, namely, D 
approval of the Government of India within 30th April, 1987 and 
obtaining transfer of operationolicence from Mis Midrex. The 
re,pondent entered into an agreement with Midrex for the processing 
lictnce on 4.f2.1987. On the same day another agreement was entered 
into by the respondent with Mis Yoest Alpine (VA) for technical know-
how of the plant. These licences were essential for working of the E 
plant. Finally the plant was i111ported in October, 1988 after obtaining 
the license from Midrex and VA. The Collector of Customs while 
assessing added the licence fee as well as the cost of technical know-
how to the invoice value of the plant, which was challenged by the 
respondent before the Tribunal. The Tribunal allowed the appeal and 
held that the license fees and thi fees paid for technical know-how F 
would 11ot be added to the value of the plant. The Collector of Customs 
filed this appeal against the Order of the Tribunal. Allowing the 
appeal, this Court 
HILD: 1.1.0btaini11g a lice11ce from Midrex to operate the plant G 
was a pre-conditimt of sale of the plant. In fact, although the agreement 
to purchase the plant was formally executed on 74.3.1987 the actual 
importation took place only after the agreements with Midrex and 
VA were signed on 4th December, 1987. As per Rule 9 of the Customs 
Valuation (Determination of Price of Imported Goods) Rules, 1988, 
the licence fees, paid as a condition for the sale of the plant shall be H 
757 
I 
758 
SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R. 
A included in the actual price of the plant. Therefore, the Tribunal was 
in error in holding that the payments made to Midrex by way of 
licence fees could not be added to the price actually paid to TIL for 
purchase of the plant. (764-F-HI 
· 1.2. Midrex has granted licence to the respondent not only for 
B the right to produce in the Midrex Direct Reduction process plant 
and sell the products worldwide, but also has given the licences the 
right to use all patents, confidential information for the operation of 
the plant. Therefore, licence fees paid to Midrex will have to be added 
to the price of the plant to arrive at the transaction value of the 
plant. (766-BC) 
c 
1.3. The entire purpose of section 14 of the Customs Tariff Act is 
to find out the value of the goods which are being imported. The 
Respondent purchased Midrex Reduction plant in order to produce 
sponge iron. In order to produce sponge iron, it was essential to have 
D technical know-bow from Midrex. It was also essential to have an 
operating licence from them, Without these, the plant would be of no 
value. Respondent wanted to buy the plant in working condition. 
This could only be achieved by paying not only the price of the plant, 
but also the fees for the licence and the technical know-how for making 
the plant operational. Therefore, the value of the plant will comprise 
E of not only the price paid for the plant but also the price payable for 
the operation licence and the Technical know-how. Therefore, the 
process licence fees ofD.M.2,000,000 was rightly added to the purchase 
price, by the Collector Customs. The Order of CEGAT on this Question 
is set aside. [767-EG, 769-G) 
F 
2. As regards technical services, the entire payment of engineering 
~onsultancy fees to VA can not be added to the value of the imported 
plant. Whatever expenditure had to be incurred for dismantling the 
plant and making it ready for delivery has to be added to the value of 
the plant. But this apart, other services rendered cannot be treated as 
G adding to the value of the plant. Since there is no clear indication as 
to bow the various services had been valued separately, 10% of the 
amount of D.M.23,100,000 paid for engineering and consultancy fees 
should be added to the value of the plant on
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