LexUNION OF INDIA AND ORS. versus MAHINDRA AND MAHINDRA LTD., BOMBAY
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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--F oreign Collaboration agreement-Value of im- ported packs-Price shown in the invoices-Whether reflects the true sale c price-Taking into consideration the lumpsum payment made under the ~ 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 took the view that the lump sum paid under the agreement included on E 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
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