COMMISSIONER OF CUSTOMS, AHMEDABADversusMIS. ESSAR STEEL LTD.

                         (2015] 3 S.C.R. 1062


A        COMMISSIONER OF CUSTOMS, AHMEDABAD
                                    v.
                      MIS. ESSAR STEEL LTD.
                    Civil Appeal No.3042 of 2004
B
                           APRIL 13, 2015
              [A.K. SIKRI AND R. F. NARIMAN, JJ.]
          Customs Act, 1962 - s. 14 - Valuation of goods for
    purposes of assessment - Assessee entering into technical
C   ·service agreement with foreign supplier in relation to
    implementation of a project to set up a plant in India for
    production of certain goods - Subsequently, purchase order
     for import of plant and machinery placed - Assessment to
     customs duty - Payment made for the technical services
0
     agreement, if to be added to the value of the plant that is
    imported, inasmuch as such payment has been made as
     a condition of sale of the imported plant in terms of r. 9(1 )(e)
    - Held: Conjoint reading of the technical services
E    agreement and the purchase order, do not lead to the
     conclusion that fees for the technical services agreement
     is in any way a pre-condition for the sale of the plant itself
    - Technical services agreement read as a whole is only to
     successfully set up, commission and operate the plant after
F    it has been imported into India - On facts, r. 9(1)(e) would
     not be attracted - Thus, consideration for the technical
     services to be provided by the foreign company cannot be
     added to the value of the equipment imported to set up the
     plant in India - Customs Valuation (Determination of Price
G    of Imported Goods) Rules, 1988 - r. 9(1)(e).

         Dismissing the appeal, the Court
         HELD: 1.1 A cursory reading of Section 14 of the

H                                 1062
   COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                     1063
                 STEEL LTD.

 Customs Act, 1962 makes it clear that customs duty is         A
 chargeable on goods by reference to their value at a
 price at which such goods or like goods are ordinarily
 sold or offered for sale at the time and place of
 importation in the course of international trade. This
 would mean that any amount that is referable to the           B
 imported goods post-importation has necessarily to be
 excluded. It is with this basic principle in mind that the
 rules made under sub-clause i(A) have been framed
 and have to be interpreted. [Para 7] [1075-C-D]
      1.2 A reading of Rule 4 and Rule 9 of the Customs        C
 Valuation (Determination of Price of Imported Goods)
 Rules of 1988, makes it clear that only those costs and
 services that are actually paid or payable for imported
 goods pre-import are to be added for the purpose of
 determining the value of the imported goods. [Para 8]         D
 [1077-E-F]
      1.3 On an analysis of the technical services
 agreement dated 13.4.1991, it is clear that the
 respondent has only associated foreign Company as a           E
 technical consultant. There is no transfer of know-how
 or patents, trademarks or copyright. What is clear is that
 technical services to be provided by foreign Company
·is basically to coordinate and advise the respondent so
 that the respondent can successfully set up,                  F
 commission and operate the plant in India. Coordination
 and advice is to take place post-importation in order that
 the plant be set up and commissioned in India. In fact,
 all the clauses of this agreement make it clear that such
 services are only post-importation. Clause 9 on which         G
 a large part of the agreements ranged again makes it
 clear that ownership of patents, know-how, copyright
 and other intellectual property rights shall remain vested
 in the technical consultant and none of these will be
 transferred to the respondent. The respondent becomes         H
1064        SUPREME COURT REPORTS                [2015] 3 S.C.R.


 A owner of that portion of documents, drawings, plans
   and specifications originally created by the technical
   consultant pursuant to the agreement. This again refers
   only to documents, drawings etc. of setting up,
   commissioning and operating the plant, all of which are
 B post-importation of the plant into India. In fact, clause
   13 of the purchase order dated 21.6.1991 is important
   in that liquidated damages are only payable for delay
   in commissioning the plant and for failure to achieve
   the stipulated performance, both of which are post-
 C importation activities. [Paras 9 and 10] [1077-H, 1078-
   A-F]
       1.4 A conjoint reading of the technical services
   agreement and the purchase order do not lead to the
 D conclusion that the technical services agreement is in
   any way a pre-condition for the sale of the plant itself.
   On the contrary, the technical services agreement read
   as a whole is really only to successfully set up,
   commission and operate the plant after it has been
 E imported into India. Therefore, it is clear, that clause
   9(1)(e) would not be attracted on the facts of this case
   and consequently the consideration for the technical
   services to be provided by the foreign Company cannot
   be added to the value of the equipment imported to set
 F up the plant in India. [Para 11] [1078-G-H; 1077-A-B]

          Collector of Customs (Preventive) v. Essar Gujarat Ltd.
       1996 (8) Suppl. SCR 757: (1997) 9 SCC 738 - relied on.

 G      Tata Iron & Steel Co. Ltd. v. Commissioner of Central
   Excise & Customs, Bhubaneswar, Orissa 2000 (1) SCR
   876 : (2000) 3 SCC 472; Commissioner of Customs (Port),
   Kolkata v. J.K. Corporation Limited 2007 (2) SCR 196 :
   (2007) 9 SCC 401; Commissioner of Customs v. Ferodo
 H India (P) Ltd. 2008 (3) SCR 147: (2008) 4 sec 563;
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                  1065
                STEEL LTD.

Commissioner of Customs (Port), Chennai v. Toyota A
Kirloskar Motor (P) Ltd. 2007 (7) SCR 94: (2007) 5 SCC
371 - referred to.

                  Case Law Reference
                                                            B
  1996 (8) Suppl. SCR 757 referred to        Para 5

  2000 (1) SCR 876             referred to   Para 14

  2007 (2) SCR 196             referred to   Para 15        c
  2008 (3) SCR 147             referred to   Para 16

  2007 (7) SCR 94              referred to   Para 17
                                                            D
   CIVIL APPELLATE JURISDICTION: Civil Appeal No.
3042 of 2004.

    From the Judgment and Order dated 24.06.2003 of the
Custom Excise & Gold (Control) Appellate Tribunal, Wzb.     E
Mumbai in Appeal No.C/490/2002-Mum.

    N. K. Kaul, ASG, K. Radhakrishnan, Nisha. Bagchi,
Attrey Chatterji, Channan Parwani, Pooja Sharma, B.
                                                            F
Krishna Prasad, for the Appellant.

    S. K. Bagaria, Vikram Nankani, Vivek Jain, Mahesh
Agarwal, E. C. Agrawala, Vipin Jain, Vishal Agrawal, K. Ajit
Singh, Devika Mohan for the Respondent.                      G

    The Judgment of the Court was delivered by



                                                            H
1066        SUPREME COURT REPORTS                [2015] 3 S.C.R.


 A      R.F. NARIMAN, J. 1. In this appeal we are concerned
   with the addition in the value for assessment to customs
   duty of charges paid by the respondent to Met Chem
   Canada Inc. for supply of technical services required for
   setting up and commissioning a plant for the manufacture
 B of Hot Rolled Steel Coils in India. An agreement dated
   13.4.1991 was entered into between the respondent and
   Met Chem Canada Inc. to associate Met Chem Canada
   Inc. as a technical consultant to render technical services
   in relation to implementation of a project to set up a plant
 C in India for production of Hot Rolled Steel Coils and Strips.
   Under clause 1.1.6 'plant' is defined as:

           "1.1.6 . "Plant" shall mean the integrated steel plant
           having an estimated annual capacity of Eight Hundred
 D         Thousand Tonnes (800,000 M.T.) of hot rolled steel
           coils and strips or such other enhanced capacity as
           may be agreed between the parties, to be located at
           Hazira, Gujarat, India and as described in Annexure 1
           "PLANT UNITS' attached hereto and made thereof;"
 E
           Project is defined as:

           "1.1.8. "Project" shall mean the design, procurement,
           construction, erection and start-up of the plant."
 F
           The most material clause of the agreement relates to
       the scope of supply which is contained in clause 2, which
       reads as under:-

            "2.0. SCOPE OF SUPPLY:
 G
            2.1.    Technical consultant shall render following
            engineering and other technical Services from outside
            India;

 H
COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                     1067
      STEEL LTD. [R.F. NARIMAN, J.]

  2.1.1. Project Engineering Services:                      A

   Technical Consultant shall act as technical
 coordinator for the successful setting up,
 commissioning of all the facilities and achieving
 established operations of the Plant. Technical B
 Consultant shall coordinate all technical matters such
 as, but not limited to studying various alternative
 specifications and processes for the Plant and for
 manufacturing of Products; making recommendation
 for the most suitable and economic process, final C
 detailed specifications and processes for the selected
 route, advising as required regarding technical
 proposals from various suppliers, and Contractors for
 the supply of the Plant and equipment, and the
 erection thereof at the Site, including civil engineering, D
 designs, construction and installation of project utilities
 necessary for the successful setting up oLthe plant;
 carrying out the detailed project engineering including      •
 giving approvals for the various construction and
 Project implementation activities, engineering E
 drawings, methods of construction, etc.

  2.1.2.   Supervision and Monitoring of the Project:

 Technical Consultant shall provide advice regarding        F
 the activities in connection with the setting up of the
 plant from the technology, costs and time .schedule
 angle.

 2.1.3. Arrangement for Training of ESSAR's G
 Employees-outside India. Technical Consultant shall
 be responsible for arranging for up to two hundred
 (200) man months of training of (operating,
 maintenance and management) ESSAR employees
 at Steel Plant with proven technical capabilities in H
1068   SUPREME COURT REPORTS                  [2015] 3 S.C.R.


 A     appropriate fields, outside India. Specific subjects,
       duration of training for each subject and numbers of
       trainees in each group shall be mutually agreed upon
       in writing. All travelling, living and miscellaneous
       expenses of ESSAR employees in relation thereto
 B     shall be for ESSAR's account.

       2.1.4. Assistance in transfer of technology:
       Technical consultant shall select appropriate
       subcontractor/contractors depending on the source of
 c     technologies and organize transfer to ESSAR of
       technology necessary for successful operation and
       maintenance of the Plant.

       2.1.5.   Procurement support services:
 D
       Technical Consultant shall provide procurement
       support Services for procurement of Equipment in
       India such as assistance in finalization of lists,
       specifications and sizes and configuration of
 E     equipment to be purchased, listing of suitable
       vendors, floating of inquiries, scrutiny of quotation
       received, assistance in negotiations with the Suppliers
       and in finalisation of order, pre-dispatch inspection and
       witnessing of tests, etc."
 F
       As a consideration for the above scope of supply to
       be provided, the technical consultant was to be paid
       a fee of         DM 78,950,000 (Seventy Eight Million
       Nine Hundred Fifty Thousand Deutsche Marks).
 G     Since a large part of the arguments turned on clause
       9, it is set out in full hereinbelow:

       "9.0.    PATENTS.

       9.1.     The   Technical     Consultant      make     no
 H
COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                       1069
      STEEL LTD. [R.F. NARIMAN, J.]

   representation or warranty that any process,               A
   equipment or facilities which may be recommended
   by the Technical Consultant in respect to the Project
   can be employed, operated in India or otherwise used
   without infringing any patent, trademark, or other
   industrial property right of any third party in respect    B
 · of the same. ESSAR acknowledges that the Technical
   Consultant shall not be liable in the event of claims
   against ESSAR by any other party for such
   infringement and shall indemnify the Technical
   Consultant against such liability. The Technical           C
   Consultant shall intimate, if however, it knows or
   becomes aware that any process, equipment or
   facilities recommended by the Technical Consultant is/
   are the subject of patents, trademarks, or other
                                                              0
   industrial property right of any other company,
   individual or association.

  9.2. The Copy right in all documents (including, but
  not limited to computer data, specifications, drawing
  and plan supplied by ESSAR, shall remain with E
  ESSAR if originally owned by ESSAR.

 9.3. The Technical Consultant may own and possess
 patents, know-how, copyrights, and other intellectual
 property rights with respect to the Plant and its F
 operation and maintenance and/or the Products,
 which. will be disclosed by the Technical Consultant
 to ESSAR, to the extent required as per the Scope
 of Services for the purpose of this Project, while
 rendering Services to ESSAR under this Agreement. G
 ESSAR may disclose such information to other parties
 concerned for the Project only to the minimum extent
 necessary for implementation secrecy acceptable to
 all parties concerned prior to disclosure of information. H
1070    SUPREME COURT REPORTS                 [2015] 3 S.C.R.


 A      Ownership of any and all the patents, know-how,
        copyrights and other intellectual property rights shall
        remain vested in the Technical Consultant or its
        subcontractors, as applicable, and ESSAR shall
        secure and otherwise protect such patents, know-how,
 B      copyrights and other intellectual properties and keep
        them secret and confidential.

        9.4. Nothing contained in the Agreement shall be
        construed to mean that such patents, know-how,
 c      copyrights and other intellectual properties (referred
        to as the "Technical Information" in the Agreement)
        will be granted or transferred to ESSAR, unless
        otherwise specified in the Agreements.

 D     9.5. ESSAR shall take all reasonable measure to
       avoid disclosures of the Technical Information to any
       third party and shall disclose the said Technical
       Information to third parties only to the extent
       mentioned in Clause 9.3 above. ESSAR shall use
 E     the Technical information only for the purpose of the
       execution of the Project and similar projects owned
       by ESSAR and its associate companies in India. For
       the purpose of this clause, an associate company will
       mean a company which holds more than 30% of the
 F     equity capital of ESSAR or a company in which
       ESSAR holds more than 30% of the equity capital.

       9.6. ESSAR shall be the owner of that portion of all
       documents, drawings, plans, and specifications
 G     originally created by the Technical consultant
       specifically pursuant to this Agreement. The Technical
       Consultant may keep copies of all documents,
       drawings, plans and specifications and use them."

 H     By a supplementary agreement, the main agreement
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                  1071
        STEEL LTD. [R.F. NARIMAN, J.]

of 13.4.1991 was added to, the main difference being that A
the plant would now be having an estimated capacity of
16,00,000 tonnes instead of 8,00,000 tonnes. Further, the
lump sum fee payable was increased by OM 15,0050
Million making the total lump sum fee an amount of OM
94 Million.                                               B

     2. The services agreement is separate from the main
agreement for setting up the said plant in India. The main
agreement is contained in a purchase order dated
21.6.1991. The material clauses of the said purchase order C
are that for a plant of a capacity of 8,00,000 tonnes
capacity per year, the total CIF price payable would be US$
163,000,000. A liquidated damages clause contained in
clause 13 of the purchase order provides liquidated
damages for delay and/or failure to achieve performance. D
This purchase order was amended by a purchase order
dated 28.7.1992 by which the CIF price of the said steel
plant was revised to US$ 169,700,000. This was in view
of the fact that the plant capacity as stated earlier had been
doubled, and a sponge iron manufacturin·g plant of a E
capacity of one million tonnes which was originally to be
sold was now deleted.

     3. Vide a show cause notice dated 20.7.1993, Revenue
demanded the sum of OM 78.95 Million being technical F
know-how charges which ought to be added to the sum of
 US$169,700,000. In their reply to the show cause notice,
the respondent stated that none of the provisions of Rule
9 of the Customs Valuation (Determination of Price of
Imported Goods) Rules of'1988 would apply as no payment G
is made for technical services as a condition of sale of
imported goods. In any event, the agreement for technical
services is to be performed in India post-importation and,
therefore, would have to be excluded from the value to be H
1072        SUPREME COURT REPORTS                  (2015] 3 S.C.R.


 A     taken into account at the time of import.

           4. The Commissioner of Customs by an order dated
       31.1.2002 added a sum of DM 78 Million on the following
       basis:
 B
           "31. Since, the contract for technical consultancy was
           signed before the purchase order placed, it is evident
           that the payment made on account of the technical
           consultancy agreement is a condition of sale of
 c         imported goods. Even though, this aspect has not
           been covered in the agreement for technical
           consultancy as at the time of signing this agreement
           the purchase order was not placed to Mis. Metchem
           Inc. Canada. However, such an high amount of DM
 D         78 million has to be necessarily linked with the value
           of the purchase order which was US$ 169 million
           placed subsequently. At the time of signing of
           agreement both the parties fully understood that they
           will be signing another agreement on subsequent date
 E         relating to the sale of plant and machinery. Nobody is
           going to pay DM 78 million in vacuum if the other
           agreement does not materialize. Thus, I find that these
           two payments were not independent to each other but
           the buyer has no option but to buy machinery once
 F         they have made commitment for technical services.
           Therefore, I have no doubt in my mind that the
           payment made as per the technical consultancy
           agreement is a condition of sale of imported goods."

 G         5. An appeal by the respondent to CEGAT succeeded,
       and CEGAT by its judgment dated 24.6.2003 set aside the
       order of the Commissioner holding that the plant could have
       been set up and could run without the supply of technical
       knowledge. Secondly, the fact that the technical supply
 H
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                    1073
        STEEL LTD. [R.F. NARIMAN, J.]

agreement was signed prior to the agreement for supply A
of machinery would not be relevant. The judgment of this
Court in Collector of Customs (Preventive) v. Essar
Gujarat Ltd., (1997) 9 SCC 738, was distinguished on facts
in reaching the aforesaid conclusion.
                                                               B
     6. Shri Neeraj Kaul, learned Additional Solicitor General
argued before us that the case is, on facts, covered by the
judgment in Essar Gujarat's case (supra). According to
him, on a conjoint reading of the purchase order for supply
of the plant and the agreement for technical services it is C
clear that payments are made under the technical services
agreement as a condition for the sale of the imported plant
which cannot be set up without the technical services to
be provided. In reply, Shri Bagaria, learned senior advocate
appearing on behalf of the respondent, took us through the D
said agreements and contended that it was clear that
payments made under the technical services agreement
were not as a condition of sale of the plant. Further, the
Essar Gujarat judgment turned on its own facts which are
distinguishable, and several other judgments of this Court E
in fact conclude the matter in his favour.

    7. We have heard learned counsel for the parties.
Section 14 of the Customs Act, 1962 as it stood at the
relevant time is as follows:                                  F

    "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 G
    chargeable on any goods by reference to their value,
    the value of such goods shall be deemed to be the
    price at which such or like goods are ordinarily sold,
    or offered for sale, for delivery at the time and place
                                                            H
1074     SUPREME COURT REPORTS                    [2015] 3 S.C.R.


 A      of importation or exportation, as the case may be, in
        the course of international trade, where-

        (a) the seller and the buyer have no interest in the
        business of each other; or
 B
        (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:
 c.
       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
 D     be, is presented under Section 50.

           (1-A) Subject to the provisions of sub-section (1),
       the price referred to in that sub-section in respect of ,
       imported goods shall be determined in accordance with
 E.    the rules made in this behalf.

         (2) Notwithstanding anything contained in sub-section
         (1) or sub-section (1-A), if the Board is satisfied that it
         is necessary or expedient so to do, it may, by
 F       notification in the Official Gazette, fix tariff values for
         any class of imported goods or export goods, having
       · regard to the trend of value of such or like goods, and
         where any such tariff values are fixed, the duty shall
         be chargeable with reference to such tariff value.
 G
       (3) For the purposes of this section-

       (a) 'rate of exchange' means the rate of exchange-

          (1) determined by the Board, or
 H
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                     1075
        STEEL LTD. [R.F. NARIMAN, J.]

       (i1) ascertained in such manner as the Board may A
    direct,

    for the conversion of Indian currency into foreign
    currency or foreign currency into Indian· currency;

    (b) "foreign currency" and "Indian currency" have the     B
    meanings respectively assigned to them in clause (m)
    and clause (q) of Section 2 of the Foreign Exchange
    Management Act, 1999 (42 of 1999)."

        A cursory reading of the Section makes it clear that C
customs duty is chargeable on goods by reference to their
value at a price at which such goods or like goods are
ordinarily sold or offered for sale at the time and place of
importation in the course of international trade. This would D
mean that any amount that is referable to the imported
goods post-importation has necessarily to be excluded. It
is with this basic principle in mind that the rules made under
sub-clause 1 (A) have been framed and have to be
interpreted.                                                   E

     8. Under the Customs Valuation (Determination of
Price of Imported Goods) Rules of 1988, Rule 2(f) defines
"transaction value" as the value determined in accordance·
with Rule 4 of these Rules. Rule 4(1) in turn states that F
the transaction value of imported goods 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 these Rules. Rule 9 of the Rules is set out
hereinbelow:-                                                G
    "9. Cost and services. - (1) In determining the
    transaction value, there shall be added .to the price.
    actually paid or payable for the imported goods, -

                                                              H
1076    SUPREME COURT REPORTS                   (2015] 3 S.C.R.


 A     (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:-

 B     (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;
 c     (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
 D     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:-

 E     (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;
 F     (iii) (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
 G     India and necessary for the production of the imported
       goods;

       (c) Royalties and licence fees related to the imported
       goods that the buyer s required to pay, directly or
 H
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                          1077
        STEEL LTD. [R.F. NARIMAN, J.]

    indirectly, as a condition of the sale of the goods being      A
    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             B
    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 tbe
    buyer to the seller, or by the buyer to a third party to       c
    satisfy an obligation of the seller to the extent that such
    payments are not included in the price actually paid or
    payable.

    9(2) xx xxx
                                                                   D
    9(3) Additions to the price actually paid or payable shall
    be made under this on the basis of objective and
    quantifiable data.

    9(4) No addition shall be made to the price actually E
    paid or payable in determining the value of the
    imported goods except as provided for in this rule."

     A reading of Rule 4 and Rule 9 makes it clear that only
those costs and services that are actually paid or payable F
for imported goods pre-import are to be added for the
purpose of determining the value of the imported goods.
In the present appeal, arguments have veered around the
applicability of Rule 9(1 )(e). In this appeal, we are
concerned only with the first part of Rule 9(1)(e). The G
narrow question that arises before us is whether the
payment made for the technical services agreement is to
be added to the value of the plant that is imported
inasmuch as such payment has been made as a condition
of sale of the imported plant.                               H
     1078         SUPREME COURT REPORTS                (2015] 3 S.C.R.


      A      9. On an analysis of the technical services agreement
        dated 13.4.1991, it.is clear that the respondent has only
•V      associated Met Chem Canada Inc. as a technical
        consultant. There is riO transfer of know-how or patents,
        trademarks or copyright. What is clear is that technical
      B services to be provided by Met Chem Canada Inc. is
        basically to coordinate and advise the respondent so that
        the respondent can successfully set up, commission and
        operate the plant in India. It will be noticed that
        coordination and advice is to take place post-importation
      C in order that the plant be set up and commissioned in India.
        In fact, all the clauses of this agreement make it clear that .
        such services are only post-importation. Clause 9 on which
        a large part of the agreements ranged again makes it clear
     .D that ownership of patents, know-how, copyright and other
        intellectual
                  /
                       property rights shall remain vested in the
        technical consultant and none of these will be transferred
        to the respondent. The respondent becomes owner of that
        portion of documents, drawings, plans and specifications
      E originally created by the technical consultant pursuant to
        the agreement. This again refers only to documents,
        drawings etc. of setting up, commissioning and operating
        the plant, all of which are post-importation of the plant into
        India.
      F         10. In fact, clause 13 of the purchase order dated
            21.6.1991 is important in that liquidated damages are only
            payable for delay in commissioning the plant and for failure
            to achieve the stipulated performance, both of which are
            post-importation activities.
      G
              11. Another thing to be noticed is that a conjoint
          reading of the technical services agreement and the
          purchase order do not lead to the conclusion that the
        . technical services agreement is in any way a pre-condition
      H for the sale of the plant itself. On the contrary, as has been
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                        1079
        STEEL LTD. [R.F. NARIMAN, J.]
pointed out above, the technica! services agreement read A
as a whole is really only to successfully set up, commission
and operate the plant after it has been imported into India ..
It is clear, therefore, that clause 9(1)(e) would not be
attracted on the facts of this case and consequently the
consideration for the technical services to be provided by B
Met Chem Canada Inc. cannot be added to the value of
the equipment imported to set up the plant in India.
     12. And now to. the case law. Collector of Customs
(Preventive) v. Essar Gujarat Ltd., (1997) 9 SCC 738, c
was strongly relied upon by Shri Neeraj Kaul. The said
judgment related to the question whether licence fees
payable should be added to the invoice value of a plant
that was imported into India on an as is where is basis.
The agreement in that case was expressly subject to two D
conditions, the second of which was the obtaining of a
transfer of the operation licence of the plant from M/s.
Midrex of the United States. The judgment states: .
    "These facts go to show that it was essential for EGL
    to have a licence from Midrex for working of the plant.      E
    Mr. Salve has argued that it may have been essential
    for the EGL to have this licence in order to make the
    plant fully and effectively operational but it was not a
    condition of sale of the plant. It was quite an              F
    independent contract. From a plain reading of the
    agreement with TIL, it appears that the overriding
    clause may have been inserted to protect EGL but
    nonetheless it was a condition of sale. If this condition
    was not fulfilled, the sale would have fallen through.       G
    Moreover, it appears that the plant without Midrex
    licence would have been of no value at all. EGL had
    purchased the plant on "as is where is" basis. But in
    order to operate the plant, it was essential to have a
    licence from Midrex." (page 742)                             H
1080              SUPREME COURT REPORTS                       [2015] 3 S.C.R.


 A              A chart setting out the services to be provided outside
                India is supplied at page 744 of the judgment as
                follows:

          "SERVICES TO BE PROVIDED OUTSIDE INDIA:
 B
       10.1.1          Process licence      and    allied   OM (German Marks)
                       techrical services

       10.1.1.1       Process licence fee payable to        OM 20,00,000 lump sum
                      MIOREX Corpaation !br the right
 c                    to use the Mid"ex process and
                      patents

       10.1.12         Cost    of technical      ser\ices   OM    1,01,00,000   lump
                       provided under Article 3 in          sum
                       connection with Midrex process

 D     Technical Setvices

       10.1.2.1       Payment !br engineering and           OM 2,31,00,000      lump
                      consullancy fee as specified under    sum
                      this agreement

       10.1.22.       Payment for theoretical and           OM 22,00,000 lump sum
 E                    practical trairing outside India

                      Total                                 OM 3,74,00,000      lump
                                                            sum


        The Court held that the amount of 20 Lakh Deutsche
 f Marks and 101 Lakh Deutsche Marks were both payable
   for the right to use Midrex process and patents. In short,
   these amounts were payable for the transfer of technology
   under a process licence agreement entered into with
 G Midrex. The judgment states that without such licence the
   plant could not be operated at all by the importer without
   the technical know-how from Midrex. 'In any case, the plant
   could not be operated or be made functional. This being
   the case, since these amounts had to be paid before the
 H plant could at all be set up, these amounts would be added
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                         1081
        STEEL LTD. [R.F. NARIMAN, J.)

to the value of the imported plant.                               A

     13. However, so far as the sum of 231 Lakh Deutsche
Marks is concerned, since this was payment for engineering
and technical consultancy to set up and commission the
plant in India, this amount would have to be excluded. This       B
Court held that 10% of this amount only should be added
to the value of the plant as the plant had been sold abroad
on an as is where is basis and needed to be dismantled
abroad before it was ready for delivery in India. Obviously,
therefore this 10% is attributable to a pre-import stage.         C
Further, the amount of 22 Lakh Deutsche Marks payable
for theoretical and practical training of personnel outside
India again could not be added as this amount would
presumably be attributable to trained personnel who would
be used in the commissioning and operation of the plant,          D
which would, therefore, be attributable to a post-importation
event. Thus, properly read, the judgment in Essar Gujarat's
case actually supports the respondent in that the payment
for engineering and technical consultancy services in India
cannot be added to the value of the imported plant. Also,         E
in the present case, there is no transfer of technology under
a license. Therefore, no question arises as to whether
without such license the plant to be set up in India could
be operated at all. The judgment also concludes in favour         F
of the respondent the fact that all amounts payable for
training of personnel outside India cannot be added to the
value of the plant.                                          ,

    14.       Tata Iron & Steel Co. Ltd. v.
              In
Commissioner of Central Excise & Customs, G
Bhubaneswar, Orissa, (2000) 3 SCC 472, a protocol had
been signed between the seller and the Indian purchaser
which stated that the total price will be the price for the
imported equipment plus the price for "engineering".
                                                                  H
1082        SUPREME COURT REPORTS                  (2015] 3 S.C.R.


 A         The Tribunal in the said case added the amount of
       "engineering" to arrive at the value of the imported goods.
       This Court reversed the Tribunal by relying upon Rule 12
       of the Customs Valuation (Determination of Price of
       Imported Goods) Rules, 1988 which reads as follows:
 8
           "12.      Interpretative Notes. - the interpretative notes
           specified in the Schedule to these rules shall apply for
           the interpretation of these rules."

 c          The relevant interpretative note which was relied upon
       is important and reads as follows:

            "Note to Rule 4

            Price actually paid or payable
 D
            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
 E          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
 F          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
 G          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.
 H
                                      ..
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                      1083
        STEEL LTD. [R.F. NARIMAN, J.]

       The value of imported goods shall not include the       A
     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, B
     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
     (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 D
     do not relate to the imported gcods are not part of
     the customs value."

    Rule 9(1)(e) was not attracted on facts.    This Court
held:                                                          E

     "15. Clause (e) of sub-rule (1) of Rule 9 is attracted
     when the following conditions are satisfied:

     (1) there is a payment actually made or to be made        F
     as a condition of sale of the imported goods by the
     buyer to the seller or to a third party;

     (it) such payment, if made to a third party, has been
     made or has to be made to satisfy an obligation of
     the seller, and                                       G

     (iit) such payments are not included in the price
     actually paid or payable.

                                                               H
1084   SUPREME COURT REPORTS                   [2015) 3 S.C.R.


 A     16. It is nobody's case that the seller had an obligation
       towards a third party which was required to be
       satisfied by it and the buyer (i.e. the appellant) had
       made any payment to the seller or to a third party in
       order to satisfy such an obligation. The price paid by
 B     the appellant for drawings and technical documents
       forming the subject-matter of contract MD 301 can by
       no stretch of imagination fall within the meaning of "an
       obligation of the seller" to a third party. There was also
       no payment made as a condition of sale of imported
 c     goods as such. Rule 9(1)(e) also, therefore, has no
       applicability.

       17. So far as the Interpretative Note to Rule 4 is
       concerned it is no doubt true that the Interpretative
 D     Notes are part of the Rules and hence statutory.
       However, the question is one of their applicability. The
       part of the Interpretative Note to Rule 4 relied on by
       the Tribunal has been couched in a negative form and
       is accompanied by a proviso. It means that the
 E     charges or costs described in clauses (a), (b) and (c)
       are not to be included in the value of imported goods
       subject to satisfying the requirement of the proviso
       that the charges were distinguishable from the price
       actually paid or payable for the imported goods. This
 F
       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
 G     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
 H
COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                1085
      STEEL LTD. [R.F. NARIMAN, J.]

 clearly distinguishable from the price acfually paid or A
 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 B
 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, C
 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, D
 assembly, maintenance etc. of imported goods, they
 were relatable to post-import activity to be undertaken
 by the appellant. Such charges were covered by a
 separate contract, i.e. cortract MD 301. They could
 not have been included in the value of imported goods E
 merely because the value of documents referable to
 imported equipments and materials was mixed up with
 the value of those documents which were referable
 to equipment which was yet to be procured or
 imported or manufactured by the appellant; the value F
 of the latter category of documents also being neither
 dutiable nor clubbable with the value of imported
 goods. The Tribunal has not doubted the genuineness
 of th(;! contracts entered into between the appellant
 and SNP. Rather it has observed vide para 10.2 of G
 its order that entering into two contracts (MD 301 and
 MD 302) was a legal necessity. The Tribunal has also
 stated that it was not recording any finding of "skewed
 split-up". Shri Ashok Desai, the learned Senior
                                                         H
1086,      SUPREME COURT REPORTS                    [2015] 3 S.C.R.


             Counsel for the appellant has pointed out that under
           · Chapter Heading 49.06 of the Customs Tariff Act,
             1975 plans and drawirigs for engineering and
        ·• industrial purposes being originals drawn by hand as
             also their photographic reproductions on sensitised
 8       ;! papers and carbon copies thereof are declared free
           · from payment of customs duty. Sub-rules (3) and (4)
             of Rule 9 clearly provide that additions to the price
             actually paid or payable' are permissible under the
             Rules if based on objective and quantifiable data and
 c           no addition except as provided for by Rule 9 is
             permissible."

          15. In Commissioner of Customs (Port), Kolkata v.
     J.K. Corporation Limited, (2007) 9 SCC 401, on facts the
 D · agreement there was itself in two parts, part (a) providing
     for licence, know-how and technology while part (b)
   . provided for supply of equipment. This Court distinguished
     the judgment in the Essar Gujarat case and applied the
     judgment in TISCO (supra) as follows:
 E
          , "16. Reliance has been placed by Mr. Radhakrishnan
             on a decision of this Court in Essar Gujarat Ltd.
             [(1997) 9 sec 738 : (1996) 88 ELT 609] In that case,
         · . the licence fee was paid to the supplier of the plant
 F           and machinery for a licence to operate the plant,
             which was in· reality nothing but was held to be an
             additional price payable for the plant itself and was,
             therefore, held to be includible in its assessable value.
             It is in the aforementioned fact situation, this Court
 G           held: (SCC pp. 745-46, para 13)

            "13[12]. Reading all these agreements together, it is
            not possible to uphold the contention of Mr. Salve
            that the precondition' of obtaining a licence from
 H
COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                   1087
      STEEL LTD. [R.F. NARIMAN, J.]

   Midrex was not a condition of sale, but a clause A
   inserted to protect EGL. Without a licence from
   Midrex, the plant would be of no use to EGL. That
   is why this overriding clause was inserted. This
   overriding clause was clearly a condition of sale. It
   was essential for EGL to have this licence from B
   Midrex to operate this plant and use Midrex
   technology for producing sponge iron in India.
   Therefore, in our view, obtaining a licence from
   Midrex was a precondition of sale. In fact, as was
   recorded in the agreement, the sale of the plant had C
   not taken place even at the time when the contract
   with Midrex was being signed on 4-12-1987, although
   the agreement with TIL for purchase of the plant was
   executed on 24c3-1987. Therefore, we are of the
                                                           0
   view that the tribunal was in error in holding that the
   payments to be made to Midrex by way of licence
   fees could not be added to the price actually paid
   to TIL for purchase of the plant."

  17. The Court noticed several curious aspects of the    E
  agreement stating that it started with the recital that
  "the purchaser and the seller have today respectively
  purchased and sold a direct reduction iron plant, on
  the following terms and conditions", which, according F
  to this Court, indicated that the purchase and sale of
  the plant had taken place on 24-3-1987, but in clause
  (2) it was stated that the purchaser would purchase
  the property from the seller at the stated price. Upon
  construing the terms of the conditions, it was opined: G
  (SCC p. 749, para 24)

  "24. Therefore, the process licence fees of DM
  20,00,000 was rightly added to the purchase price by
  the Collector of Customs. The order of CEGAT on this    H
1088         SUPREME COURT REPORTS                 [2015] 3 S.C.R.


 A          question is set aside."

           19. However, in TISCO [(2000) 3 SCC 472] this Court
       took note of Interpretative Note to Rule 4 and held: (SCC
       p. 482, para 17)
 B
            "The part of the Interpretative Note to Rule 4 relied
            on by the Tribunal has been couched in a negative
            form and is accompanied by a proviso. It means that
            the charges or costs described in clauses (a), (b) and
 c          (c) are not to be included in the value of imported
            goods subject to satisfying the requirement of the
            proviso that the charges were distinguishable from the
            price actually paid or payable for the imported goods.
            This part of the Interpretative Note cannot be so read
 D          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."

            In an instructive passage on principle, this Court also
 E     laid down:

            "9. The basic principle of levy of customs duty, in view
            of the aforementioned 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
 F
            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.
 G          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 know-how for the purpose of
            setting up of a plant from the machinery imported or
            running thereof, the same would not be computed for
 H
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                       1089
        STEEL LTD. [R.F. NARIMAN, J.]

     the said purpose. Any amount paid for post- A
     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 B
     purpose of carrying out the provisions of the Act. The
     wordings of Sections 14 and 14(1-A) are clear and
     explicit. The Rules and the Act, therefore, must be
     construed, having regard to the basic principles of
     interpretation in mind.                                C

       11. What would, therefore, be excluded for computing
       the assessable value for the purpose of levy of
       customs duty, inter alia, has clearly been stated
       therein, namely, any amount paid for post-importation D
       activities. The said provision, in particular, also applies
       to any amount paid for post-importation technical
       assistance. What is necessary, therefore, is a
       separate identifiable amount charged for the same. "
                                                                   E
      16. Similarly, in Commissioner of Customs v. Ferodo
India (P) Ltd., (2008) 4 SCC 563, this Court dealt with Rule
9(1 )(e) and the Essar Gujarat judgment as follows:

     "22. In the alternate, it has invoked Rule 9(1)(e). This F
     Rule 9(1)(e) cannot stand alone. It is a corollary to
     Rule 4. There is no finding in the present case that
     what was termed as royalty/licence fee was in fact not
     such royalty/licence fee but some other payment
     made or to be made as a condition prerequisite to the G
     sale of the imported goods. It is important to bear in
     mind that Rule 9 refers to cost and services. Under
     Rule 9(1), the price for the imported goods had to be
     enhanced/loaded by adding certain costs, royalties
                                                              H
1090   SUPREME COURT REPORTS                 [2015] 3 S.C.R.


 A     and licence fees and values mentioned in Rules
       9(1)(a) to 9(1)(d). It refers to "all other payments
       actually made or to be made as a condition of sale
       of the imported goods". In the present case, the
       Department invoked Rule 9(1)(c) on the ground that
 B     royalty was related to the imported goods, having
       failed it cannot fall back upon Rule 9(1)(e) because
       essentially we are concerned with the addition of
       royalty, etc. to the price of the imported goods.
       Further, in the present case, the Department has
 c     accepted the transaction value of the imported goods.

       23. In Essar Gujarat Ltd. [ From Final Order No. 91
       of 2002 dated 12-2-2002 of the Customs, Excise and
       Gold (Control) Appellate Tribunal, New Delhi in Appeal
 D     No. C/573/2001-A : See (2002) 142 ELT 343 (Tri);
       (2003) 156 ELT 62 (Tri); (2006) 195 ELT 206 (Tri) and
       (2006) 205 ELT 208 (Tri)] the buyer had entered into
       a contract with TIL for purchase of direct reduction
       iron plant ("the plant"). The entire agreement was for.
 E     import of the plant. The agreemen.t was subject to two
       conditions-(a) approval of GOI and (b) obtaining
       transfer of licence from M/s Midrex, USA Without the
       licence from Midrex, the imported plant was of no use
       to the buyer. Therefore, it was essential to have the
 F
       licence from Midrex to operate the plant. Therefore,
       it was held by this Court that procurement of licence
       from Midrex was a precondition of sale which was
       specifically recorded in the agreement itself. In view
 G     of specific terms and conditions. to that effect in the
       agreement, this Court held that-payments made to
       Midrex by way of licence fees had to be added to the
       price paid to TIL for purchase of the plant. There is
       no such stipulations in TAA in the present case.
 H
  COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                        1091
        STEEL LTD. [R.F. NARIMAN, J.)

     Therefore, in our view, the adjudicating authority erred    A
     in placing reliance on the judgment of this Court in
     Essar Gujarat Ltd. [ From Final Order No. 91 of 2002
     dated 12-2-2002 of the Customs, Excise and Gold
     (Control) Appellate Tribunal, New Delhi in Appe~I No.
     C/573/2001-A: See (2002) 142 ELT 343 (Tri); (2003)          B
     156 ELT 62 (Tri); (2006) 195 ELT 206 (Tri) and (2006)
     205 ELT 208 (Tri)]"
                                                        I


    17. Essar Gujarat has also been distinguished in
Commissioner of Customs. (Port), Chennai v. Toyota               C
Kirloskar Motor (P) Ltd., (2007) 5 SCC 371, as follows:-

     "36. Therefore, law laid down in Essar Gujarat Ltd.
     [(1997) 9 sec 738] and J.K. Corpn. Ltd. ((2007) 9
     SCC 401 : (2007) 2 Scale 459] is absolutely clear and D
     explicit. Apart from the fact that Essar Gujarat Ltd.
     ((1997) 9 sec 738] 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 E
     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
     transaction value.                        ·               F

    37. The observations made by this Court in Essar
    Gujarat Ltd. ((1997) 9 SCC 738] in para 18 must be
    understood in the factual matrix involved therein. The
    ratio of a decision, as is well known, must be culled G
    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 Ltd. [(1997) 9 SCC 738] a clear
                                                             H
1092   SUPREME COURT REPORTS                  [2015] 3 S.C.R.


 A     distinction has been made between the 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 transac;tion value and
 B     not the post-importation one. The said decision,
       therefore, in our opinion, is not an authority for the
       pr.oposition 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
 c     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.

       38. The transaction value must be relatable to import
 D     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
 E     activities, which may not have anything to do with the
       import of the capital goods.

       39. Article 4 provided for additional assistance in
       respect of the matters specifically laid down therein.
 F     Technical assistance fees have a direct nexus with the
       post-import activities and not with importation of
       goods.

       40. It is also a matter of some significance that
 G     technical assistance and know-how were required to
       be given not as a condition precedent, but as and
       when the respondent makes a requ~st therefor and
       not otherwise. Appendix C of the agreement relates
       to manufacture of local parts which evidently has
 H
   COMMNR. OF CUSTOMS, AHMEDABAD v. ESSAR                       1093
         STEEL LTD. [R.F. NARIMAN, J.]

      nothing to do with the import of the capital goods. A
      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."
                                                                B
     18. On a reading of all the authorities hereinabove, it
is clear that the facts of the present case do not attract Rule
9(1)(e). We, therefore, dismiss the appeal of Revenue.
There shall be no order as to costs.

Nidhi Jain                                  Appeal dismissed.