Delhi High Court
Union Of India vs M/S Honda Siel Car India Limited on 23 December, 2011
Author: Sanjiv Khanna
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ Writ Petition (Civil) No. 2731/2003
Reserved on: 8th November, 2011
% Date of Decision: 23rd December, 2011
Union of India ...Petitioner
Through Mr. Mohan Prasaran, ASG with
Mr. S.K. Dubey and
Mr. Vivek Pipersenia, Advocates.
Versus
M/s Honda Siel Car India Limited ...Respondent
Through Mr. V. Lakshmi Kumaran,
Mr. L. Badri Narayanan and
Mr. Krishna Rao, Advocates.
+ Writ Petition (Civil) No. 11831/2005
Union of India ...Petitioner
Through Mr. Mohan Prasaran, ASG with
Mr. S.K. Dubey and
Mr. Vivek Pipersenia, Advocates.
Versus
M/s Honda Siel Car India Limited ...Respondent
Through Mr. V. Lakshmi Kumaran,
Mr. L. Badri Narayanan and
Mr. Krishna Rao, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
1. Whether Reporters of local papers may be
allowed to see the judgment?
2. To be referred to the Reporter or not ?
3. Whether the judgment should be reported
in the Digest ?
WPC 2731/2003 & 11831/2005 Page 1 of 37
SANJIV KHANNA, J.
The Union of India has preferred these writ petitions impugning
the final decision of the Settlement Commission vide orders dated 20 th
August, 2002 and 7th January, 2004.
2. As the issues involved and the questions raised are identical and
similar, we are disposing of these writ petitions by this common
decision. For the sake of convenience, we have referred to and treated
the Writ Petition (Civil) No. 2731/2003 as the lead case.
3. The respondent no. 1 in the present cases, Honda Siel Car India
Limited, was the applicant before the Settlement Commission. The said
respondent is a joint venture company of M/s Honda Motors Company,
Japan (Honda Japan, for short) and M/s Siel India Limited, the Indian
Partner. The equity of the respondent no.1 is held by Honda Japan and
Siel in the ratio of 90% and 10% respectively.
4. M/s Siel India Ltd. entered into an agreement dated 12th
September, 1995, with Honda, Japan for manufacture and sale of
automobiles with technical know-how/technical information etc. from
them. Foreign Investment Promotion Board (FIPB, for short) granted
approval to the said joint venture vide letter dated 13th November, 1995.
Subsequently, Honda Japan and the respondent No.1 entered into a
Technical Collaboration Agreement (TCA, for short) and a
Memorandum on Exchange of Technicians both dated 21st May, 1996.
5. The respondent No.1 had imported into India drawings, plans,
designs, manuals including CD roms, video cassettes etc. (drawing etc.
for short) under the TCA agreement from Honda, Japan. The dispute
pertains to drawings etc. which were imported on or before 1st March,
1997. These imported drawings etc. were cleared and custom duty was
paid as per declarations made computing the import value as equivalent
to the cost of the physical tangible material i.e. cost of paper, printing,
cost of video cassette or CD etc. without including the value of the
technical information, which was embedded in the drawings etc.
6. The petitioner issued two show cause notices to the respondent
No.1 that the imported drawings etc. were grossly undervalued and the
lump sum fee of US$ 30.5 million (equivalent to about Rs. 120 crores @
Rs.40 per dollar) reflects their true value. Thus, the custom duty on the
drawings etc. had been undervalued because of the false and wrong
declarations at the time of import. The petitioner had conducted search
in the premises of the respondent No.1 to collect and obtain important
information. In the first show cause notice dated 17 th November, 2000,
the respondent no.1 was asked to show cause as under:-
"(i) Transaction value should not be rejected and
valuation should not be made in terms of Section 14(1) of
the Custom Act 1962 read with Rule 8(1) of the Customs
Valuation (Determination of Price of Imported Goods)
Rules 1988.
(ii) Commercial value in CIF of Rs.7,08,97,829/- and
Rs.8,26,827/- (total Rs.15,35,85,656/-) should not be
taken for the drawings covered by the Bills of Entry No.
930554 dated 6.11.95 and No. 935034 dated 23.11.95, in
place of declared CIF value of Rs.64,880/- and Rs.34,148/-
respectively.
(iii) The drawings of value of Rs.15,35,85,656/-
covered by Bills of Entry No. 930554 dated 6.11.95 and
No. 935034 dated 23.11.95 should not be held liable for
confiscation under section 111(m) of the Customs Act,
1962 for mis-declaration of commercial value and
description of goods.
(iv) The differential duty of Rs.87,40,334/- should not
be recovered under section 28 of the Customs Act, 1962,
after adjusting amounting to Rs.3,00,00,000/- against total
demand of Rs.3,87,40,334/-, as Rs.3,00,00,000/- has
already been realized provisionally.
(v) A penalty of Rs.3,87,40,334/- equal to the total
differential duty may not be recovered under section 114-A
of the Customs Act, 1962 for willful suppression of fact.
(vi) Further penal action against the importers, M/s
Shriram Honda Power Equipment Ltd. and M/s HSCIL, as
above, President Shri Teruo Fujisaki, Vice-President and
Shri Nandan Kumar Goila and Finance Director Shri
Hironobui Goto under section 112 of the Customs Act,
1962, may not be taken for the misdeclaration, misleading
and suppression of facts.
(vii) Interest in terms of section 28-AB of the Customs
Act, 1962, may not be recovered."
7. In the second show cause notice dated 16th March, 2001, the
respondent No.1 was asked to show cause as under:-
"(i) take the commercial value as Rs.3,47,375,735/-
CIF as against the declared nominal value;
(ii) demand differential duty of Rs.10,19,98,137/-
under Section 28 of the Act;
(iii) hold the consignments liable for confiscation under
Section 111(m) of the Act;
(iv) impose penalty under Section 114A of the Act;
(v) demand interest under Section 28AB of the Act;
and
(vi) impose penalty on S/Sh. Teruo Fujisaki,
Nandankumar Goila and Hironbu Golo, President,
Vice President and Finance Director respectively of
the applicant firm."
8. During the course of investigation, the respondent No.1 vide their
letter dated 15th April, 1997 had given break-up of the lump sum fee of
US $ 30.5 million paid to Honda, Japan under the TCA. It was/is the
contention of the respondent No. 1 that the lump sum fee can be divided
into six parts and only three parts can be taken into consideration for
computing the value of the imported drawings etc. This letter, the
contention of the respondent no. 1 and the assertion of the petitioner are
discussed below.
9. While the show cause notices were pending consideration, the
respondent No.1 approached the Settlement Commission by way of two
applications dated 15th May, 2001 and 26th November, 2001. The
petitioner is aggrieved by the two impugned orders dated 20th August,
2002 and 7th January, 2004, by which the Settlement Commission has
disposed of these applications.
10. The operative portion and the directions given by the Settlement
Commission vide order dated 20th August, 2002 read as under:-
"21. In view of our findings, the case is ordered to be
settled in following terms:-
(i) The correct duty liability of the applicant in this case is
Rs.32,63,032/- which has been paid by them by
appropriating from the deposit of Rs.3 crores made during
the investigations. Revenue shall consider the return of the
balance amount of deposit in accordance with the Law.
(ii) The applicant is granted immunity for offences
under the Customs Act, 1962 read with the IPC in respect of
the case covered under the application and the SCN in
question.
(iii) The applicant is granted immunity from fine and
penalty under the Customs Act, 1962 in respect of the case
covered by the application and the SCN in question.
(iv) No interest in chargeable under Section 28AB of
the Act as the duty in this case became payable before the
said Section was inserted in the Customs Act by Finance
(no. 2) Act, 1996. Further, the importer made a large
deposit during the investigation itself, far in excess of their
correct duty liability.
11. The operative portion and the directions given by order dated 7 th
January, 2004 read as under:-
"42. Taking all the above into account, the case is
settled in terms of Section 127C(7) of the Act on the
following terms and conditions:
(i) The case is settled for a duty amount of Rs.84,00,257/-.
The said amount has already been paid. No further amount
towards duty is due from the applicant.
(ii) The applicant is to pay simple interest @ 10% per
annum in terms of Section 28AB of the Act. The applicant
shall calculate the interest amount, get it verified from the
Revenue and after getting the confirmation, pay the same
within 30 days of receipt of this order. Immunity from
payment of interest in excess of 10% is granted.
(iii) Immunity from confiscation of the goods is
granted.
(iv) Immunity from penalty and prosecution under the
provisions of the Customs Act is granted to the applicant
and S/Sh. Teruo Fujisaki, Nandan Kumar Goila and Hironbu
Golo, President, Vice-President and Finance Director
respectively of the applicant company."
12. Broadly two contentions have been raised by the petitioners.
Firstly, the lump sum fee of US$ 30.5 million cannot be bifurcated and
constitutes the true and correct value of the imported drawing etc. The
second contention relates to jurisdiction of the Settlement Commission.
13. By order dated 19th December, 2006, interim applications filed by
respondent No.1 were decided by this Court and directions were issued
to refund the payments made by the respondent No.1 along with interest.
This order was made subject matter of challenge before the Supreme
Court and the appeals stand partly allowed. It was held by the Supreme
Court that the High Court had erred in directing refund of the Rs.3
crores (approximately) as an important question of law of the
jurisdiction of Settlement Commission was involved. It was also
observed that the High Court had erred in giving direction to the officers
of the Customs Department to pay penalty by way of interest to the tune
of 15%. Respondent No. 1 was directed to furnish a bank guarantee for
a sum of Rs.3 crores. Directions were also given to the High Court to
dispose of the writ petitions expeditiously. Directions to recover Rs.65
lakhs from the officers was set aside. Similarly the directions to initiate
disciplinary proceedings against the officers were directed to remain
suspended.
14. Thereafter, on 6th November, 2007, the following order was
passed:-
"Mr. Parasaran, who is appearing for the Customs
Department in this matter, states that the
petitioners in this case do not have a strong case
on the issue with regard to the jurisdiction of the
Settlement Commission to entertain the settlement
petition, but he would like to press the petition on
the merits of the order passed by the Settlement
Commission. However, we have to examine how
far this Court can go into merits of the order
passed by the Settlement Commission under the
power of judicial review. Be that as it may, the
petitioners shall file synopsis of arguments
enclosing therewith copies of judgments which
they wish to rely upon with advance copy to the
counsel for the respondent within three weeks,
who shall file their revised synopsis of arguments
within two weeks thereafter.
List on 15th January, 2008 for final arguments at
2.30 P.M."
15. It is clear from the said order that the Union of India has given up
their contention regarding jurisdiction of the Settlement Commission to
entertain the settlement applications.
16. During the course of hearing before us, Mr. Mohan Parasaran,
ASG, did not raise/press this issue.
17. The imports in question were made in the year 1996 and before 1 st
March, 1997. It is an accepted case of both parties that imports of
drawings etc. made after 1st March, 1997, are exempted and not
dutiable. Whether the technical data and information recorded in the
form of drawings etc. are goods capable of being valued other than the
value assigned to the material on which they were copied was
ambiguous and debatable at the time of import. This controversy was
put to rest by the Supreme Court in Associated Cement Companies Ltd.
vs. Commissioner of Customs, 2001 (4) SCC 593. Paragraphs 27, 33-
34, 41-42, and 44 of this judgment are relevant and are reproduced
below:-
"27. According to Section 12 of the Customs Act, duty is
payable on goods imported into India. The word „goods‟ has been
defined in Section 2(22) of the Customs Act and it includes in
clause (c) „baggage‟ and clause (e) „any other kind of movable
property‟. It is clear from a mere reading of the said provision that
any movable article brought into India by a passenger as part of
his baggage can make him liable to pay customs duty as per the
Customs Tariff Act. An item which does not fall within clauses
(a), (b), (c) or (d) of Section 2(22) will be regarded as coming
under Section 2(22)(e). Even though the definition of the goods
purports to be an inclusive one, in effect it is so worded that all
tangible movable articles will be the goods for the purposes of the
Act by residuary clause (e) of Section 2(22). Whether movable
article comes as a part of a baggage, or is imported into the
country by any other manner, for the purpose of the Customs Act,
the provision of Section 12 would be attracted. Any media
whether in the form of books or computer disks or cassettes which
contain information technology or ideas would necessarily be
regarded as goods under the aforesaid provisions of the Customs
Act. These items are movable goods and would be covered by
Section 2(22)(e) of the Customs Act. (SCC pp. 609-10, para 27)
* * *
33. It is true that what the appellants had wanted was technical
advice on information technology. Payment was to be made for
this intangible asset. But the moment the information or advice is
put on a media, whether paper or diskettes or any other thing, that
what is supplied becomes a chattel. It is in respect of the
drawings, designs etc. which are received that payment is made to
the foreign collaborators. It is these papers or diskettes etc.
containing the technological advice, which are paid for and used.
The foreign collaborators part with them in lieu of money. It is,
therefore, sold by them as chattel for use by the Indian importer.
The drawings, designs, manuals etc. so received are goods on
which customs duty could be levied.
34. The decision of Winter v. Putnam case is also of no help to
the appellants as in that case it was the quality of information
regarding mushrooms which was not regarded as a product even
though the encyclopaedia containing the information was
regarded as goods. Here we are not concerned with the quality of
information given to the appellants. The question is whether the
papers or diskettes etc. containing advice and/or information are
goods for the purpose of the Customs Act. The answer, in our
view, is in the affirmative.
* * *
41. Significantly Chapter 49 also includes items which have
substantial intellectual value as opposed to the value of the paper
on which it is put. Newspapers, periodicals, journals, dictionaries
etc. are to be found in Chapter 49 wherein maps, plans and other
similar items are also included, while Chapter 97 talks about
original engravings. It is clear that intellectual property when put
on a media would be regarded as an article on the total value of
which customs duty is payable.
42. To put it differently, the legislative intent can easily be
gathered by reference to the Customs Valuation Rules and the
specific entries in the Customs Tariff Act. The value of an
encyclopaedia or a dictionary or a magazine is not only the value
of the paper. The value of the paper is in fact negligible as
compared to the value or price of an encyclopaedia. Therefore,
the intellectual input in such items greatly enhances the value of
the paper and ink in the aforesaid examples. This means that the
charge of a duty is on the final product, whether it be the
encyclopaedia or the engineering or architectural drawings or any
manual.
Xxx
44. It is a misconception to contend that what is being taxed is
intellectual input. What is being taxed under the Customs Act
read with the Customs Tariff Act and the Customs Valuation
Rules is not the input alone but goods whose value has been
enhanced by the said inputs. The final product at the time of
import is either the magazine or the encyclopaedia or the
engineering drawings as the case may be. There is no scope for
splitting the engineering drawing or the encyclopaedia into
intellectual input on the one hand and the paper on which it is
scribed on the other. For example, paintings are also to be taxed.
Valuable paintings are worth millions. A painting or a portrait
may be specially commissioned or an article may be tailor-made.
This aspect is irrelevant since what is taxed is the final product as
defined and it will be an absurdity to contend that the value for
the purposes of duty ought to be the cost of the canvas and the oil
paint even though the composite product, i.e., the painting, is
worth millions."
18. The view expressed in the said case was followed and elucidated
by the Supreme Court in Commissioner of Customs vs. Parasrampuria
Synthetic Ltd., (2001) 9 SCC 74(as clarified in Commissioner of
Customs Vs. Gujarat Perstorp Electronics Ltd.,(2005) 7 SCC 118) and
Tata Consultancy Services Vs. State of Andhra Pradesh,(2005) 1 SCC
308.
19. We are satisfied that the Settlement Commission had jurisdiction
and the condition of full and true disclosure of duty liability stipulated in
Section 127B of the Act is not violated and infringed in the present case.
Reasons are as under:-
(i) The question of valuation was debatable issue at the time of
imports in question and was subsequently settled by the decisions of the
Supreme Court.
(ii) Even after the aforesaid decisions, the value to be assigned to
imported drawings etc. was matter of debate and required adjudication.
Settlement in such cases is preferable and is certainly not a barred or
prohibited.
(iii) The Settlement Commission had passed orders dated 17th October
2001 and 27th March 2002 admitting applications after recording that the
conditions stated in Section 127B were satisfied. These orders were not
made subject matter of challenge. The petitioner have filed the present
writ petitions only after the Settlement Commission passed the final
orders dated 20th August, 2002 and 7th January, 2004.
(iv) It can be argued that during the course of settlement proceedings
also, the respondent No.1 should have acted fairly and cooperated. Spirit
of settlement and probity on the part of the respondent No.1 was
required. There are no adverse findings or observations in the orders that
are impugned before us. Merely because the Settlement Commission has
accepted the stand of the respondent No.1 cannot be a ground to
dislodge and throw out the respondent No.1 by holding that they have
violated Section 127B of the Act.
(v) Requirement of Section 127B that an applicant should disclose
fully and truly the duty liability was not violated merely because the
Settlement Commission has accepted the bifurcation given by the
respondent No.1 in their letter dated 15th April, 1999 and not accepted
the stand of the petitioner that US$ 30.5 million represents the value of
imported drawings etc. Further, the defence and contention of
respondent no.1 on import value, the bifurcation of consideration of US$
30.5 million into different heads and attribution of a part thereof towards
imported drawings etc., does not establish or show that there was failure
to fully or truly disclose duty liability. The figures given in the letter are
not disputed, but the question is whether such bifurcation is permissible
or relevant for determination of value of the imported drawings etc. This
is a matter of perception/understanding and is certainly debatable, and it
cannot be equated with failure or omission to make full and true
disclosure of the duty liability. Question of valuation of imported
drawings etc., is not free from difficulty and a certain amount of
guesswork and estimation is involved in the present case.
20. This brings us to the core issue raised in the present case, whether
this Court in exercise of jurisdiction under Article 226 and 227 of the
Constitution, should interfere with the final order and directions passed
by the Settlement Commission. This Court accepts that it has limited
jurisdiction and can interfere in case there is any error in the decision
making process and not reflect and adjudicate the merits of the decision
itself. The said terms are well understood and define the scope and
confines of jurisdiction of a writ Court. The said terms/expression has
been interpreted and elucidated by the Supreme Court to mean that the
parameters for exercise of jurisdiction under Articles 226 or 227 of the
Constitution cannot be tied down in a straitjacket formula or rigid rules.
The High Court interferes with orders of subordinate courts and
tribunals where (1) there is an error manifest and apparent on the face of
the proceedings such as when it is based on clear misreading or utter
disregard of the provisions of law, and (2) a grave injustice or gross
failure of justice has occasioned thereby. In the exercise of the power of
writ under Article 226 nor in supervisory jurisdiction under Article 227,
the High Court will convert itself into a court of appeal and indulge in
re-appreciation or evaluation of evidence. Exercise of writ jurisdiction is
justified and required where important evidence has been overlooked
and the legal provisions involved are misinterpreted or misapplied. In
regard to a finding of fact recorded by a tribunal, a writ can be issued
only if in recording such a finding, the tribunal has acted on evidence
which is legally inadmissible, or has refused to admit admissible
evidence, or if the finding is not supported by any evidence at all,
because in such cases the error amounts to an error of law.
21. The contention of the petitioners is that the decisions of the
Settlement Commission are flawed, bad and is a result of errors in the
decision making process for the following reasons:-
(a) TCA agreement does not postulate and permit bifurcation and the
lump sum fee of US$ 30.5 million represents the true and correct value
of the imported drawings.
(b) Expenses on personnel are not part of lump sum fee payable
under the TCA and were separately payable under the Memorandum of
Exchange of Technicians dated 21st May, 1996.
(c) Rule 9(2)(e) of the Customs Valuation (Determination of Price of
Imported Goods) Rules, 1988 (CVR, for short) is applicable.
(d) The conclusions and the valuation of the imported drawings etc.
made by the Settlement Commission is otherwise per se based on
surmises and conjectures.
22. Section 14 of the Act states that value of imported goods is
deemed to be the price at which such or like goods are ordinarily sold,
and offered for sale, or delivered at the time of sale or importation. The
price is determined on arms‟ length basis i.e. the seller and buyer have
no interest in the business of each other and the price is sole
consideration for sale or offer for sale. As noticed above, respondent
No.1 and Honda, Japan are closely associated as the latter has 90% share
holding in the respondent No.1-company. In Section 14(1) of the Act,
there is reference to „deemed price‟ or the „transactional value of the
goods‟, which is the deemed price and is required to be determined in
accordance with the CVR. Referring to different rules in the CVR and
different methods of valuation stipulated therein, in Commissioner of
Customs vs. Messrs Ferodo India Pvt. Ltd., (2008) 4 SCC 563, it has
been held as under:-
"11. Rule 3 of the CVR, 1988 inter alia provides for six methods of
determination of the price of imported goods. The six methods are:
Method 1 ' Transaction Value (Rule 4)
The primary basis for customs duty is "transaction value", as defined in
rule 4(1) of CVR, 1988, which is the price actually paid or payable for
the goods when sold for export to India, adjusted in accordance with the
provisions of rule 9. Adjustments to the price actually paid or payable are
required in cases where certain specific elements which form part of the
value for customs purposes are incurred by the buyer but are not included
in the price actually paid or payable for the imported goods. Rule 9
embodies the principle of attribution of certain costs to the price of the
imported goods. Rule 9 also provides for inclusion of certain
considerations which passes from the buyer to the supplier in the form of
specified goods or services, other than in the form of money.
Method 2 ' TV of Identical Goods (Rule 5)
Rule 5 through rule 7A provides for four alternate methods of
determining the customs value whenever such value cannot be decided
under the provisions of rule 4.
Under Rule 5, the value of imported goods shall be the transactional
value of identical goods sold for export to India if the goods are:
(i) the same in all respects (including physical characteristics, quality and
reputation);
(ii) produced in the same country as the goods being valued; and
(iii) produced by the producer of the goods being valued.
Method 3' TV of Similar Goods (Rule 6):
Under this method, the value of imported goods is the transaction value
of similar goods if:
(i) goods closely resemble the goods being valued in terms of
components, materials and characteristics;
(ii) goods which are capable of performing the same functions and are
commercially interchangeable with the goods being valued;
(iii) goods which are produced in the same country and by the producer
of the goods being valued.
Rule 6A provides for determination of value when transaction value
cannot be determined under rules 4, 5 and 6. In such cases, the following
two methods are envisaged on the request of the importer and subject to
the approval of the proper officer, i.e., under rules 7 and 7A.
Method 4 ' Deductive Value (Rule 7)
Rule 7 provides that when customs value cannot be determined on the
basis of transaction value of the imported goods or identical or similar
goods, the value of the imported goods shall be based on the unit price at
which the imported goods or identical goods or similar goods are sold to
an unrelated buyer in the country of importation in the greatest aggregate
quantity.
The starting point in calculating the deductive value is the same price in
the country of importation. Various deductions are necessary to reduce
that price to the relevant customs value. These deductions are:
(i) commissions usually paid or agreed to be paid, profits and general
expenses added in connection with sales;
(ii) usual transport cost and corresponding insurance are to be deducted
from the price of the goods when these costs are usually incurred within
the country of importation;
(iii) the customs duty and other national taxes payable in the country of
importation by reason of importation;
(iv) value added by further processing, wherever applicable.
Method 5 ' Computed Value (Rule 7A)
Computed value determines the customs value on the basis of the cost of
production of the goods being valued plus an amount for profit and
general expenses usually reflected in sales from the country of
exportation to the country of importation of goods of the same class or
kind. It is, therefore, the total sum of production cost and profit and
general expenses.
Method 6 ' Fall-Back Method (Rule 8)
When the customs value cannot be determined under any of the previous
methods, it has to be determined using reasonable means consistent with
the principles and general provisions of the CVR, 1988 and Section 14(1)
of the 1962 Act and on the basis of data available in India. To the great
extent possible, this method is based on previously determined values
and methods with a reasonable degree of flexibility in their application."
23. On the question, which method should be adopted for valuation of
the imported drawing etc., the Settlement Commission has observed and
held as under:-
"The question of valuation of the drawings, designs etc.,
is no longer res interga. In Associated Cement Companies
Ltd. Vs. Commissioner of Customs, 2001 (128) ELT
21(SC), the Apex Court have heed that the value of
drawings, designs etc. has to be on the basis of transaction
value (i.e.) including the cost of intellectual component.
Relying on the same judgment, the Advocate for the
applicant has contended that the Apex Court have ruled in
the said judgment that in the absence of any specific value
for the designs, drawings, etc., 1/3 of the total contract value
has to be adopted. The Ld. Advocate of the Revenue is
correct in pointing out that the Apex Court has not ruled so.
In para 57 of the said judgment, the Apex Court have
observed that they were informed that some of the
Appellants before them had themselves volunteered that
about 1/3 of the total amount payable to the collaborator
should be taken as a figure representing transaction value of
the technical material imported. In fact, in the same
judgment, the Apex Court have held that the value has to be
arrived at in terms of the contract, vide para 48 of the
judgment. While on this question, it is also tobe mentioned
for the sake of record that Sh. Lakshmi kumaran submitted
that the above judgment has been referred to a Larger bench
vide the judgment of the Apex in Tata Consultancy Service
Vs. State of Andhra Pradesh 2001 (129) ELT 3 (SC), which
was disputed by Sh. Bajpai, Ld. Advocate for Revenue.
Anyhow, this controversy is academic since in this case the
value is being arrived at in terms of TCA, and in terms of
transaction value and not on any notional basis."
24. We have noticed the aforesaid paragraph as it was contended by
Mr. V. Lakshmi Kumaran, Advocate appearing on behalf of the
respondent No.1 that in Associated Cement Company (supra), the
Supreme Court has held that 1/3 of the amount payable by the importer
should be taken as a figure representing the technical value of the
imported material. The said contention was rightly rejected by the
Settlement Commission in view of the TCA in the present case. This is
not a case of a composite/multiple contract.
25. In order to decide the aforesaid contentions, we have to refer to
clauses of the TCA and the break-up given in the letter dated 15th April,
1999.
26. TCA agreement dated 21st May, 1996 defines the term "knowhow
and technical information" in clauses 6 and 7 of Article 1. The said
clauses read as under:-
"6. The term "Know-How" shall mean any and
all secret technical information (except for the
Intellectual Property Rights), whether in writing or
not including but not limited to drawings,
standards, specifications, material lists, process
manuals and direction maps, which directly relates
to the Products or the Licensed Parts themselves
or is necessary for the manufacture of the Products
or the Licensed Parts and which LICENSOR owns
at the time of execution of this Agreement or may
own from time to time during the term of this
Agreement or under which LICENSOR is entitled
to grant a license to LICENSEE;
7. The term "Technical Information" shall
mean (i) the Know-How, and (ii) any technical
information, not included in the Know-How, such
as service materials and Japanese Industrial
Standard (JIS), whether in writing or not, which
directly relates to the Products or the Licensed
Parts or is necessary for the manufacture of the
Products or the Licensed Parts and which
LICENSOR owns at the time of execution of this
Agreement or may own from time to time during
the term of this Agreement or under which
LICENSOR is entitled to grant a license to
LICENSEE, and the Technical Information shall
included the "Technical Materials" designated by
LICENSOR as "Technical Materials".
27. Article 2 and Article 4 of the Agreement are also relevant and
read as under:-
"Article 2. GRANT OF LICENSE
Subject to the terms and conditions herein
contained, LICENSOR hereby grants to
LICENSEE an indivisible, non-transferable and
exclusive right and license to manufacture, use
and sell the Products and the Licensed Parts within
the Territory under the Intellectual Property Rights
and by using the Know-How, and the Technical
Information, provided that the LICENSEE may
grant sub-licenses with a proper written consent of
LICENSOR.
Article 4. FURNISHING OF TECHNICAL
INFORMATION.
4.1 During the term of this Agreement,
LICENSOR shall furnish LICENSEE with the
Technical Information required by the LICENSE,
based on mutual consultation between LICENSOR
AND LICENSEE, by disclosing it in documentary
form, and/or by dispatching LICENSOR‟s
technical expert(s) to LICENSEE and/or accepting
LICENSEE‟s engineer(s) at LICENSOR‟s
facilities to instruct and advise them as to the
application of the Technical Infomration and/or
otherwise, in the manner mentioned in this Article
4.
4.2 Furnishing of the Technical Information in
documentary form, that is the Technical Materials,
which shall be written in the English language,
shall be effected within reasonable period of time
after the Effective Date hereof, with regard to the
Technical Information existing as of the Effective
Date hereof, and shall be effected from time to
time, at the time when LICENSOR deems it
necessary to do so, or effect within reasonable
period of time from the day when the LICENSOR
approves LICENSEE‟s request, or be effected
within reasonable period of time from the day
when LICENSOR and LICENSEE agree to a
model change of the Products with regard to the
Technical information coming to exist after the
Effective Date hereof. All expenses for
preparation and delivery of the Technical
Materials shall be borne by LICENSOR. Any
incidence of taxation or Customs Duties shall be
borne by LICENSEE.
4.3 Technical guidance by dispatching to
LICENSEE technical expert(s) of LICENSOR
and/or technical training of LICENSEE‟s
engineer(s) at a factory or factories of LICENSOR
or its designee shall be made in accordance with
the "Memorandum of Exchange of Technicians"
separately entered into between the parties hereto
as Exhibit III attached hereto."
28. The consideration payable in the agreement is mentioned in
Article 14 and the said Article reads as under:-
"Article 14: CONSIDERATION
14.1 In consideration of the right and license
granted to LICENSEE under Article 2 hereof and
of the furnishing of the Technical Information
under Article 4.2 hereof, LICENSEE shall pay to
LICENESOR the following fees:
1. Lumpsum fee:
The amount of lumpsum fee payable by the
LICENSEE to the LICENSOR shall be US$
30.5 million. This fee shall be payable in 5
continuous equal annual instalments, the
amount of each of which installments shall
be six million one hundred thousand US
dollars (US$6,100,000), beginning from the
3rd year after the commencement of
Commercial Production. The lumpsum fees
shall be payable by LICENSEE in currency
of US dollars by bank transfer remittance to
the bank account designated by
LICENSOR, based on final government
approval.
2. Royalty:
The rate of royalty payable by the
LICENSEE to the LICENSOR shall be Four
(4) percent, both on internal sales and
exports, subject to taxes.
The royalty shall be calculated on the basis
of ex-factory sale price of the product
exclusive of excise duties, minus the cost of
standard brought out components and the
landed cost of imported components
irrespective of the source of procurement,
including ocean-freight, insurance, customs
duties, and other similar charges.
The royalty shall be payable for a period of
seven (7) years from the date of
commencement of Commercial Production.
List of standard brought-out items is as per
exhibit II.
...............
14.4 It is understood and confirmed that it should
be separately agreed to by the parties hereto
in the "Memorandum on Exchange of
Technicians" referred to in Article 4 hereof
that any and all fees, costs, expenses and
other consideration for and in connection
with the technical guidance provided by
LICENSOR by dispatching to LICENSEE
technical expert(s) of LICENSOR and the
technical training of LICENSEE‟S
engineer(s) at a factory or factories of
LICENSOR or any of its designees,
including but not limited to technical
guidance fees, per diem allowances,
travelling expenses, staying or living
expenses and other incidental expenses,
shall be payable by LICENSEE to
LICENSOR in accordance with such
"Memorandum on Exchange of
Technicians", separate from and in addition
to the payments under this consideration is
included in the payments under this Article
14."
29. Article 16 of the agreement deals with trademark and states that
Honda Japan has granted indivisible and non-transferable license to the
respondent no.1 to use the trade marks in connection with sale and
distribution and marketing of cars, parts etc.
30. Article 19 deals with terms of agreement and states that the
agreement shall come into force from the effective date and continue for
a period of ten (10) years from the date of agreement or seven (7) years
from the date of commencement of commercial production and shall be
thereafter renewed subject to prevailing laws in India. There are also
provisions relating to termination.
31. The contention of the respondent No.1, which has been accepted
by the Settlement Commission, is that 30.5 million dollars or Rs.120
crores should be bifurcated into six heads in terms of their
letter/bifurcation given by Honda, Japan. The said letter is relevant and
material and therefore is reproduced in entirety:
"COST BREAK DOWN OF KNOWHOW/TECHNICAL INFORMATION SUPPLIED/ TO BE
SUPPLIED TO HONDA SIEL CARS INDIA LTD. AS OF APRIL 14, 1999.
No. DETAILS UPTO FEB 28, MAR 1, 1997 APR 1, 1999 - TOTAL
1997 - MAR 31, DEC. 2004
1999 (ESTIMATED)
1. COST OF MARKET RESEARCH & ¥48,520,000 ¥ 55,000,000 ¥103,520,000
FEASIBILITY STUDIES FOR INDIA
2. COST OF DEVELOPMENT ¥106,229,900 ¥180,528,300 ¥300,000,000 ¥586,758,200
(1) DRAWINGS
(2) MANUALS & HAND BOOKS ¥165,600,000 ¥110,400,000 ¥305,000,000 ¥581,000,000
(QUALITY/EQUIPMENT
MAINTENANCE/ SAFETY/SHOP
PRACTICES/SERVICE/ PARTS/
OTHERS)
3. OPERATION STANDARDS & ¥20,452,000 ¥30,678,000 ¥55,000,000 ¥106,130,000
SPECIFICATIONS AND
CATALOGUES IN BOOK FORM
4. TRAINING ¥ 416,000 ¥3,744,000 ¥4,600,000 ¥8,760,000
MANUALS/HANDBOOKS, VIDEO
CASETTES SUPPLEMENTING
MANUALS FOR :
SERVICE/PARTS/OTHERS
5. TESTING & HOMOLOGATION ¥136,431,000 ¥150,000,000 ¥286,431,000
6. OTHER INCIDENTAL COSTS - ¥ 710,109,000 ¥728,291,000 * *
HONDA PERSONNEL INVOLVED IN ¥1,438,400,800
TOA
7. TOTAL ¥1,051,326,900 ¥1,190,073,100 ¥869,600,000 ¥3,111,000,000
NOTES:
1. EXCHANGE RATE AS ON NOV 95 - US$ 1 = ¥ 102
2. WITH RESPECT TO SERIAL NO. 6. "HONDA PERSONNEL INVOLVED IN TCA" -
HONDA HAS SET UP A PROJECT TEAM OF ENGINEERS & OTHER SENIOR LEVEL
PERSONNEL, TO WORK EXCLUSIVELY ON THE INDIA PROJECT; THIS WOULD
NOT HAVE BEEN NECESSARY BUT FOR THE INDIA PROJECT, RESPONSIBILITY
OF THE INDIA PROJECT TEAM, INTER ALIA INCLUDES PROJECT PLANNING,
ASSISTING IN & MONITORING PROJECT IMPLEMENTATION, TRAINING &
EFFECTIVE TRANSFER OF THE KNOW-HOW & TECHNICAL INFORMATION TO
HONDA SIEL.
"*" THE TERM "OTHER INCIDENTAL COSTS" COVERS THE OUTFLOW ON SUCH
PERSONNEL OF INDIA PROJECT TEAM, RELATED COSTS SUCH AS
INTERNATIONAL TRAVEL. DOMESTIC TRAVEL ETC OF THESE PERSONNEL
EMPLOYED BY HONDA MOTOR CO. LTD., JAPAN EXCLUSIVELY FOR THE
IMPLEMENTATION OF THE TCA.
"*" THE ACTUAL EXPENDITURE INCURRED UPTO MARCH 1998 ON HONDA
PERSONNEL INVOLVED IN TCA IS ¥2,006,157,000 HOWEVER, OUT OF THE
ACTUAL EXPENDITURE ONLY AN AMOUNT OF ¥ 1,438,400,800 HAS BEEN
SHOWN BECAUSE OF THE FACT THAT THE LUMP SUM CONSIDERATION OF ¥
3,111,000,000 ($ 30.5 MILLION) FOR TCA HAD AN ESTIMATED COMPONENT OF
ONLY ¥ 1,438,400,800 FOR "OTHER INCIDENTAL COSTS" THE ACTUAL EXPENDITURE IN
EXCESS OF ¥ 1,438,400,800 IS NOT RECOVERABLE AND HAS NOT BEEN RECOVERED
FROM HONDA SIEL IN TERMS OF THE TCA SINCE THIS IS PROJECT SUPPORT
EMANATING FROM HONDA MOTOR CO. LTD. JAPAN.
3. THE COSTS INDICATED UNDER SERIAL NO. 2,3 & 4 ABOVE, INCLUDE THE EXPENSES
ON CONCEPTUALISATION, DESIGN & DEVELOPMENT AND PREPARATION OF THE
DOCUMENTS AND NOT MERELY THE COSTS OF REPRODUCTION.
Cost Buildup of Drawings
Drawings supplied to India Drawings Estimated Supply Total Drawings
not need Plan of Drawings
1995/11 - 1997/3/1 - in India 2000- 2003-
1997/2/28 1999/3/31 2002 2004
City New Civic or
City X Model
7,500 6,193 9,131 2,000 23,000 47,824
Breakup of 7,500 Dutiable Drawings
Number of Special Drawings for India out of Dutiable Drawings 178
Number of Common Drawings out of Dutiable Drawings 7,322
Cost of Total Drawings for "City" Model to be Produced in 7 Countries.
Labour cost per hour (¥5,500) x working hour per day(8) x Days in a month (30) x
man months (1940) = ¥ 2,560,800,000 (a)
These costs include the expenses on conceptualization, design & development and
preparation of the designs & drawings, and do not represent merely the costs of reproduction
of designs & drawings.
Proportion of proposed production Plan of City Model in India, during 1995 through 2002
10.5% of the total production plan in 7 countries
(a) ¥2,560,800,000 x 7322/22824x10.5% = X ¥ 86,258,703
(a) ¥2,560,800,000 x 178/22824 = Y ¥ 19,971,188
Total X + Y ¥106,229,892
Cost of balance 15324 drawings of CITY
¥2,560,800,000 x 15324/22824 x 10.5% = ¥180,528,300"
32. There is merit in contention of the petitioner that the aforesaid
bifurcation is not stipulated in the TPA quoted above and is a unilateral
act on the part of the respondent No. 1. We have quoted Articles 2, 4
and 14 of the TPA under which US$ 30.5 million was payable. The
tribunal while accepting the bifurcation and including only three
elements mentioned at serial Nos. 2, 3 and 4, has acted merely on ipsi
dixit of the respondent No. 1. It has ignored the terms and conditions of
Articles 2, 4 and 14 mentioned above. The consideration of US$ 30.5
million is consideration for know-how and technical information. This
is obvious if the proposal submitted to the Government for FDI approval
and the order/approval dated 13th November, 1995 passed by the FIPB
are scanned and examined. The relevant paragraphs of the proposal read
as under:-
"4.2 SERVICES TO BE RENDERED BY HONDA
- Honda will provide the know-how including drawings, designs,
production techniques and processes, material
specifications/sources of supply, quality control symptoms and
procedures etc. in relation to the business of the new company.
- Assisting in supply of materials, machinery and other equipment
necessary for the operation of the JV company.
- Training of joint venture personnel in India and in other overseas
plants/locations of Honda.
- Deputation of technical personnel for technical advise and
guidance for installation and commissioning of the plant,
manufacture and assembly of passengers cars design and
development, vendor development, Testing, Marketing,
Service/Parts etc., as per Agreement to be signed on exchange of
technical personnel.
4.3 TRADEMARK USER AGREEMENT
- As a part of JV Agreement, Honda will allow use of "HONDA"
name and insignia and other trademarks on the products, as per
Trade Mark User Agreement to be signed.
4.4 PAYMENTS TO HONDA MOTOR CO., JAPAN
1. TECHNICAL KNOW-HOW FEE
For the Technology and know how to be transferred to the JV Co.,
Honda will receive a technical know-how fee of US$ 30 mn.
(Gross) subject to tax deduction at source). In order to support the
cash flows of the new JV company, Honda has agreed to receive
this know how fee in 5 equal, interest free, instalments beginning
from the 3rd year of commercial production.
2. MODEL CHANGE FEES
Honda usually change its models every 4-6 years depending on the
market needs. In order to provide the latest updated technology
and designs for model change, following lumpsum technical fee
will be payable at the time of such change:
- Full Model Change of first model : US$ 0.5 mn.
th
(expected to be in the 6
Year of commercial production of the first model)
- Minor changes
Additions/deletions/variations : No change."
33. The relevant paragraph of the approval by the FIPB, reads as
under:-
"5. Royalty is 4.00% (four percent) both on internal
sales and exports subject to sales, for a period of 7 years
during the period of agreement.
6. Lumpsum Payments:
Technical know-how: US$ 305.00 Lakhs (Three hundred
and Five Lakhs) subject to taxes, to be paid in 5 (five) equal
installments beginning from 3rd year of commencement of
commercial protection."
7. It is noted that you shall not pay any new model fees."
34. There is also merit in the contention of the petitioner that break-
ups given by the respondent No. 1 under serial No. 1 and 5 under the
headings "cost of market research and feasibility studies for India" and
"testing and homologation" may have been incurred, but this by itself
would not justify their exclusion. The TPA does not postulate re-
imbursement of expenses incurred by Honda Japan in market research
feasibility studies, testing and homologation. What is taxable is the
import value of the drawings etc. The market research feasibility,
studies, testing and homologation may have been carried out or incurred
in India or even abroad, but if they were used, utilized and incorporated
in drawings, etc. imported from Japan into India, then they have to be
added or included in the import value on which the custom duty is
payable. At the same time, if the market research, feasibility, studies
and testing homologation activities have been undertaken in India and
had not been used or incorporated in the drawings, etc. imported from
Japan, but utilized in India itself by personnel/officers of Honda Japan,
or by the respondent no.1, then these have to be excluded and cannot be
added to the import value of drawings etc. for computing the customs
duty. The value of the imported goods, i.e. the drawings etc., has to be
determined at the time and place of importation. Customs duty has direct
nexus with the value of the goods imported.
35. There are several decisions in which the Courts have elucidated
and explained what has to be included and would constitute the import
value for computing customs duty (see Commissioner of Customs Vs.
M/s J.K. Corp. Limited, 2007 (2) SCALE 459, Commissioner of
Customs Vs. Toyota Kirloskar Motor Private Limited, (2007) 5 SCC
371) . Learned counsel for the respondent No. 1 had submitted that no
customs duty is payable on drawings, plans etc. made in India. The said
preposition is correct. Customs duty is payable on import. However, it
is for the respondent No. 1 to show and establish that the drawings etc.
were made in India or technical knowledge or information was furnished
in India and not imported from Japan. The bifurcation and the figures at
serial nos. 2, 3 and 4 alone do not show and establish the value of the
imported drawings etc. Thus there is this flaw and error in the decision
making process.
36. Settlement Commission by the impugned orders has held that the
respondent No. 1 is liable to pay customs duty of Rs. 84,00,257/- and
Rs.32,63,032/-. It is the case of both the sides that customs duty on
drawings etc. was payable @ 10% of the import value computed as per
Section 14 and CVR. Therefore, in other words, the Settlement
Commission has held that the total import value of the drawings etc. was
about Rs. 11.6 crores upto 1st March, 1997, out of the lump-sum
payment of Rs.120 crores in terms of the TCA. Rs.11.6 Crores
constitutes about 10% of the total lump-sum value. The date 1st March,
1997 is relevant as thereafter Customs duty on drawing etc. was
withdrawn. During the course of hearing before us, it was stated by the
respondent No.1 that about 48,000 plans, drawings, manuals etc. were
imported during the period of seven years after 21 st May, 1996. It was
submitted that till 1st March, 1997, only 7500 drawings, etc. were
imported. The value mentioned at Sl. Nos. 2, 3 and 4 has been added
and the entire amount was divided by 48,000 to compute the import
value of 7500 drawings etc. Thus, the Settlement Commission has
valued 7500 drawings etc. on prorate basis and each drawing has been
given the same value. There are two apparent flaws in the said
reasoning. Firstly, it is accepted that by December, 1997, the
manufacturing plant for cars had been made operational. Most of the
drawings etc., therefore pertaining to the manufacturing plant, had been
imported before 1st March, 1997. Value assigned to the new car model
in the FDI proposal was only US Dollars .5 Million. There is no dispute
that certain amount of guess work and latitude has to be given to
calculate the value but the Settlement Commission has to apply its mind
to reach a particular figure and give reasons why a particular
method/formula is acceptable. This is missing in the impugned orders
and we find that out of the total value mentioned in the TCA of Rs. 120
crores, a small fraction has been assigned to the drawings, etc. imported
before 1st March, 1997. These factors have not been given due credence
and have not been examined/considered. The scrutiny and detailing, which
was required, is missing. Secondly, as per the petitioner 6000 drawings
etc. were found at the time of search. This figure has been reiterated in
the writ petitions.
37. The TCA does not provide for reimbursement of expenditure
incurred by Honda-Japan on market survey, to decide whether or not to
enter Indian Market and to select an appropriate model. The Settlement
Commission made an error in holding that TCA provides for
reimbursement of expenditure and the same cannot be included in the
value of imported drawing etc. This reasoning is not supported by TCA
and FIPB approval. Further, the quantum or the value of the technical
information and know-how was quantified in the TCA. The relevant
portion of the order of the Settlement Commission accepting the
contention of the petitioner in this regard has been quoted above. The
Settlement Commission therefore was not right in accepting the stand of
the respondent No.1 that the reimbursement of expenditure incurred by
Honda Japan should be deducted from the figure of USD 30.5 million.
38. The Settlement Commission has also erred in holding that the
consideration of US$ 30.5 million is for Article 2 i.e. for use of
trademark/name Honda. As noticed above, the respondent No.1 had to
pay annual royalty @ 4% under Article 14.1.2 in addition to US$ 30.5
million. It appears that both sides had attributed 4% royalty as payable
for use of trademark and rights under Article 2 and not towards know-
how and technical information furnished under Article 4.2/14.
39. Thus, on these aspect we are in agreement with the petitioner that
there is an error in the decision making process. These relevant aspects
have been over looked and not considered.
40. However, on certain other aspects, it is not possible to accept
interpretation and stand of the petitioner either in entirety or in part. It is
important to state so as we are passing an order of remit for a fresh
decision by the Settlement Commission. In case these observations are
not made, it is likely to create confusion and doubt about some of the
contentions raised but not adverted to by us. We agree on these aspects
in full or in part with the contention of the respondent No.1 and the
findings recorded by the Settlement Commission. For the sake of clarity,
the contentions of the petitioner, which are not acceptable or, we do not
find any ground to interfere with fully or in part, are noticed below:-
(i) Whether TCA agreement pertains to knowhow and technical
information in intangible form?
The petitioner has contended that the agreement does not provide
for technical information/support or knowhow except by way of
drawings etc. The Settlement Commission has agreed with the
contention of the respondent No.1 that the TCA requires Honda Japan to
render technical information and knowhow in various forms but not
limited and confined to drawings etc. The Settlement Commission after
examining the provisions of TCA has held that knowhow and technical
information can be provided in writing or in intangible form. The words
used in TCA are "in writing or not". The findings of the Settlement
Commission on "writing or not" in TCA cannot be faulted with.
Technical information and knowhow need not be through the medium of
plans, drawings, manuals etc. It can be by other modes and means or
non document form including intangible forms like deploying personnel
or overseeing construction of the factory or manufacturing, training to
staff etc. It is clarified that bifurcation of value between drawing etc. and
„others‟, is another aspect and has to be specifically examined and
considered and computed after detailing material/evidence.
(ii) Whether lump sum fee is for technical knowhow and
information supplied till December, 1997 and not afterwards?
The Settlement Commission has agreed with the contention of the
respondent No.1 that the lump sum fee on account of knowhow and
technical information cannot be restricted to information/knowhow
furnished till December, 1997. We do not agree with the petitioner that
the aforesaid finding of the Settlement Commission requires interference
in exercise of power of judicial review. After interpreting and
examining the articles of the TCA, the Settlement Commission has
reached the conclusion that the lump sum fee is not restricted to
technical knowhow or information supplied or furnished till December,
1997 as there was a contractual requirement that the knowhow or
information shall be furnished for a period of 7 years or 10 years. The
technical knowhow is not restricted to setting of the plant, but also for
manufacture of cars including designs, engine, transmission etc. It is
noticeable that as per the proposal initially submitted, payment of USD
.5 million was to be made on introduction of new car model, but after
approval of the FIBP, this component was added to USD 30 million
lump sum fee. No additional fee was payable for new car models
(iii) Expenses on personnel whether they are included in the lump
sum fee?
The TCA did stipulate that payment for personnel deputed by
Honda Japan to India or expenses on technical training given to Indians,
who travel abroad to Honda Japan for technical information and know-
how shall be subject to another agreement. A separate agreement, i.e.
Memorandum of Understanding dated 21st May, 1996, was entered into
for the said purpose between the respondent No.1 and Honda Japan and
the rates/consideration were stipulated therein. The Settlement
Commission has accepted the stand of the respondent No.1 that the
second agreement was not implemented and payments as stipulated in
the Memorandum were not made at least till the commercial production
started in December, 1997. We do not think that there is any error or
mistake in the findings recorded by the Settlement Commission, which
can be corrected in exercise of power of judicial review on the said
aspect. The Settlement Commission has accepted, on the basis of the
payments made by the respondent No.1 and documents placed on
record, that personnel from Honda Japan had visited India for imparting
training to Indians and similarly, Indians had visited Japan for training
but no payment was made under the Memorandum of Understanding
dated 21st May 1996. Obviously, imparting of training to Indians in
India or abroad does qualify and is covered by the concept of knowhow
and technical information. In case respondent No.1 had separately paid
for the personnel, then Settlement Commission can be faulted with but
not otherwise. There is no material or evidence to show such payment.
The petitioner cannot content that the respondent no.1 and Honda Japan
could not have by mutual consent agreed that consideration envisaged
and payable under the TCA was suffice. A written agreement for
modification was stipulated and envisaged by the TCA, but not
mandated by law. Review or modification in law is not prohibited.
FIPB approval for payment of knowhow etc. includes deployment and
training of personnel. This cannot be equated with reimbursement of
expenses/costs etc. The two companies are closely related and there can
be mutual understanding. This cannot be objected to. It was for the
respondent No.1 and the Honda Japan to regulate their affairs and
mutually decide payment of consideration. The fact that no separate
consideration was paid and payment of consideration under TPA was
adjusted towards personnel has been accepted by the Settlement
Commission. The said finding cannot be challenged on the ground that
it is faulty and is required to be set aside in exercise of writ jurisdiction.
But, the Settlement Commission has erred and not noticed that the
valuation is on the date of import and subsequent adjustment/reduction
under any oral understanding cannot be taken into consideration. We
may record that the respondent no.1 has contended that under TPA and
Memorandum of Understanding separate payment was mandated when
personnel were deputed or sent to Honda Japan on specific request of
respondent no.1. This aspect will be re-examined by the Settlement
Commission and contention accepted or rejected after giving reasons.
The petitioner has relied and referred to Article 14.4 of the TPA, which
has been quoted above. The effect and interpretation thereof will be
considered. We do not give any firm opinion thereon. The caveat
mentioned above will be considered.
(iv) Whether Rule 9(2)(e) is applicable?
This contention of the petitioner has to be rejected. The said Rule
applies when an addition is made to value of imported tangible goods in
the form of machinery, plant, etc. by including value of knowhow,
which has been billed separately, but is intricately or otherwise linked
with the imported machinery/plant. (see Commissioner of Customs
(Port), Chennai v. Toyota Kirloskar Motor Private Ltd., 2007 (5) SCC
371, Tata Consultancy Services v. State of Andhra Pradesh, (2005) 1
SCC 308). This is not so in the present case. The show cause notice does
not make any such allegation. No case has been made out to show that
imported tangible goods in the form of machinery were sold by Honda,
Japan. It is not alleged in the present writ petitions that the knowhow
and technical information relates to other imported goods in form of
plant and machinery supplied by Honda Japan.
41. We have deliberated upon whether we should decide the question
of valuation and compute the value of the imported drawings etc. or
should remand the matter to the Settlement Commission for fresh
adjudication. The first course is advisable as it will curtail delay,
expedite and conclude the matter, but is not legally acceptable, inspite
the fact that these writ proceedings have remained pending for long.
There are substantive and legal difficulties in adopting the first
approach. Question of valuation always requires expert and factual
input. We cannot adorn or function as the Settlement Commission and
re-examine the said aspects. In these circumstances, we have no option,
but to remit the matter to the Settlement Commission for fresh decision
keeping in view the aforesaid aspects. We want to clarify that we have
dealt with the contentions raised by the petitioner for deciding the
present writ petition. These observations and findings will be binding on
the Settlement Commission to the extent indicated above. These
observations should not be construed as determinative in respect of
issues on which we have not recorded categorical and final
observations/findings. In facts of the case, there will be no order as to
costs.
(SANJIV KHANNA)
JUDGE
(R.V. EASWAR )
JUDGE
December 23rd, 2011
NA
