# MIS ASSOCIATED CEMENT COMPANIES LTD v. COMMISSIONER OF CUSTOMS

- **Citation:** [2001] 1 S.C.R. 608
- **Court:** Supreme Court of India
- **Decided:** 2001-01-25
- **Case number:** Civil Appeal No. 3632 of 2000
- **Bench:** B.N. Kirpal, Doraiswamy Raju, K.G. Balakrishnan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-associated-cement-companies-ltd-v-commissioner-of-customs-17686
- **Pages:** 43

## Headnote

Customs Act, 1962--Section 2(22) (c) and (e) 12, 24 & 28(1)--Customs
mluation (Determination of Price of Imported Goods) Rules, 1988-Rules
C 3&4-Customs duty-Levy of-On import of drall'ings, designs etc.-ln the
course of transfer of technology ll'ith foreign collaborators-Held, customs
duty can be levied, since they are goods-Customs Tariff Act, 1995-Chapler
49.
Sections 12 & 14-Rules 3, 4, & 9-Customs duty--On the imported
D drawings and designs, etc.-Valuation of-Plea that duty can be levied only
on the media-Held, intellectual property when put an a media would be
regarded as an article and hence duty is payable on its total value.
Section 28(!) proviso-Rule 10-Customs duty-Non-payment ofE Issuance of notice-After limitation period-Plea that notice barred by
limitation, in the absence of intention to evade duty-Willfiil suppression or
miss-statement of value of the imported goods, proved-Held, notice not
barred hy limitation.
--"(. -
Sections 2 {14) , 2(22) & 12-Customs d1:ty-levy of-Import of
_.
F drawings and designs etc.-Without payment of duty--Duty levied on entire
contract value-Tariff provided that import on the goods was free of dutyHeld, drawings and designs were not dutiable articles-Central Excise Act,
1944-Section 2(d)--Customs Tariff Act, 1995-Heading No. 49.06
Section 28( !)-Customs duty-levy of-On the import of drawings and
G designs etc.--Drawings originally sent ji-om India, later imported after
approval of the same from the foreign collaborator-Held, duty not /eviable.
Customs Tariff Act, 1995--Heading No. 9R.03--Customs duty-levy
of-Import of technical material hy courier--Clearance of-A part of
passenger haggage-Held, duty has to be paid on such goods by virtue of
H
608
.,,...___
ASSO CEMENT CO. LTD v. COM MR. OF CUSTOMS
609
the Heading
Appellants, public corporations engaged in the manufacture of excisable
goods, entered into technical collaboration with foreign companies. As part
A
of the fulfilment of the contract, the contracting parties abroad, sent drawings
designs etc. to India through professional couriers or by post parcels. In
Civil Appeal No. 3632 of 2000 these were imported by hand through a B
passenger. In Civil Appeal No. 1493 of 2000, the drawings sent from India
were approved by the foreign com pally and then sent to India. At the time of
importation only the nominal value of the drawings etc., were declared. It
came to the notice of the respondent that the appellants had imported drawings,
designs, etc., on remitting the consideration for the same, and they had been C
cleared without proper declaration and without payment of correct amount of
duty
The respondents issued show cause notices under Section 28(1) r/w
Section 24 of the Customs Act, 1962, for levying customs duty on the drawings,
designs, etc. Appellants replied that since the imported materials were not D
'goods', there could not be any excise duty on service since the remittance
were in form A-2 and tax at source under the Income Tax Act was paid in
respect of the contracts; and that the demand was barred by limitation. The
Commissioner demanded duty and imposed penalty on the appellants. Appeal
of the appellants before the Tribunal was dismissed.
In appeal to this Court it was contended that the transaction between
the appellants and their respective foreign collaborators was one of transfer
of technology and hence excise duty cannot be levied on the value of ideas
which are not goods; and that the contracts in these cases were for services
E
F
on the basis of which permission for release of foreign exchange was obtained
from Reserve Bank of India; and that even if what was imported were goods,
valuation of the same had to be nominal only on the media; and that the show
cause notices which were issued were barred by time inasmuch as the
extended period of limitation could not be availed as the appellants had never
intended to evade duty; and that the imports through the courier could not be
governed by heading No. 98.03 of

## Text

_Characters 0–39,712 of 104,040. This is a partial read: ask again with offset=39712 for what follows._

A
B
MIS ASSOCIATED CEMENT COMPANIES LTD.
v.
COMMISSIONER OF CUSTOMS
JANUARY 25, 2001
[B.N. KIRPAL, DORAISWAMY RAJU AND
K.G. BALAKRISHNAN, JJ.]
Customs Act, 1962--Section 2(22) (c) and (e) 12, 24 & 28(1)--Customs
mluation (Determination of Price of Imported Goods) Rules, 1988-Rules
C 3&4-Customs duty-Levy of-On import of drall'ings, designs etc.-ln the
course of transfer of technology ll'ith foreign collaborators-Held, customs
duty can be levied, since they are goods-Customs Tariff Act, 1995-Chapler
49.
Sections 12 & 14-Rules 3, 4, & 9-Customs duty--On the imported
D drawings and designs, etc.-Valuation of-Plea that duty can be levied only
on the media-Held, intellectual property when put an a media would be
regarded as an article and hence duty is payable on its total value.
Section 28(!) proviso-Rule 10-Customs duty-Non-payment ofE Issuance of notice-After limitation period-Plea that notice barred by
limitation, in the absence of intention to evade duty-Willfiil suppression or
miss-statement of value of the imported goods, proved-Held, notice not
barred hy limitation.
--"(. -
Sections 2 {14) , 2(22) & 12-Customs d1:ty-levy of-Import of
_.
F drawings and designs etc.-Without payment of duty--Duty levied on entire
contract value-Tariff provided that import on the goods was free of dutyHeld, drawings and designs were not dutiable articles-Central Excise Act,
1944-Section 2(d)--Customs Tariff Act, 1995-Heading No. 49.06
Section 28( !)-Customs duty-levy of-On the import of drawings and
G designs etc.--Drawings originally sent ji-om India, later imported after
approval of the same from the foreign collaborator-Held, duty not /eviable.
Customs Tariff Act, 1995--Heading No. 9R.03--Customs duty-levy
of-Import of technical material hy courier--Clearance of-A part of
passenger haggage-Held, duty has to be paid on such goods by virtue of
H
608
.,,...___
ASSO CEMENT CO. LTD v. COM MR. OF CUSTOMS
609
the Heading
Appellants, public corporations engaged in the manufacture of excisable
goods, entered into technical collaboration with foreign companies. As part
A
of the fulfilment of the contract, the contracting parties abroad, sent drawings
designs etc. to India through professional couriers or by post parcels. In
Civil Appeal No. 3632 of 2000 these were imported by hand through a B
passenger. In Civil Appeal No. 1493 of 2000, the drawings sent from India
were approved by the foreign com pally and then sent to India. At the time of
importation only the nominal value of the drawings etc., were declared. It
came to the notice of the respondent that the appellants had imported drawings,
designs, etc., on remitting the consideration for the same, and they had been C
cleared without proper declaration and without payment of correct amount of
duty
The respondents issued show cause notices under Section 28(1) r/w
Section 24 of the Customs Act, 1962, for levying customs duty on the drawings,
designs, etc. Appellants replied that since the imported materials were not D
'goods', there could not be any excise duty on service since the remittance
were in form A-2 and tax at source under the Income Tax Act was paid in
respect of the contracts; and that the demand was barred by limitation. The
Commissioner demanded duty and imposed penalty on the appellants. Appeal
of the appellants before the Tribunal was dismissed.
In appeal to this Court it was contended that the transaction between
the appellants and their respective foreign collaborators was one of transfer
of technology and hence excise duty cannot be levied on the value of ideas
which are not goods; and that the contracts in these cases were for services
E
F
on the basis of which permission for release of foreign exchange was obtained
from Reserve Bank of India; and that even if what was imported were goods,
valuation of the same had to be nominal only on the media; and that the show
cause notices which were issued were barred by time inasmuch as the
extended period of limitation could not be availed as the appellants had never
intended to evade duty; and that the imports through the courier could not be
governed by heading No. 98.03 of the Customs Tariff Act. In Civil Appeal No. G
3632 of2000 appellant contended that at the time when the drawings were
imported, the import of the same was free of duty and duty could not be levied
even as part of the passenger baggage.
Allowing Civil Appeal Nos. 3632 of 2000 and 1493 of 2000 and
dismissing the other appeals, the Court.
H
610
SUPREME COURT REPORTS 12001] I S.C.R.
A
HELO: I.I. Drawings, plans, manuals etc., specified in Chapter 49 of
the Custom Tariff Act, 1995 arc statutorilv rcaarded as goods attractina a
"
~
,
0
specified rate of customs duty on their import into India. There is no challenge
to any of the statutory provisions and reading the two Acts i.e., Customs Act,
1962 and Customs Tariff Act together, there is no doubt that what has been
B imported into India by the appellant collaborators were goods even though
the tangible articles so imported contained information or knowledge for use
by the appellants. 1627-01
1.2. In view of the clear provisions of the Customs Act and the Customs
Tariff Act. whenever any goods of movables of tangible articles are imported
C into this country, customs duty is payable. For the purpose of attracting levy
it would be immaterial as to what are the types of goods imported or what is
contained in them or recorded thereon . The contents will be relevant for the
purpose of valuation. 1627-Fl
1.3. The moment the information or advice is put on a media, whether
D papers of diskettes or any other thing, that what is supplied becomes 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
E chattel for use by the Indian importer. The drawings, designs, manuals etc.,
so received are goods on which customs duty could be levied. 1628-q
1.4. The beliefofthe appellants that what was imported were not 'goods',
as the Reserve Bank had also regarded the payment was being made for
services and not goods, was clearly erroneous and misplaced. The appellants
F had represented to the Reserve Bank that the collaborators were rendering
service and no this representation remittances were allowed. The Reserve
Bank must han examined the applications from the point of view of release
of foreign exchange. It was not an adjudicating authority under the Customs
Act. Had there been any doubt about the question whether what was imported
G were goods or not then, perhaps the grant of permission to remit money for
services rendered and payment of taxes in respect thereof may have been
relevant. But here, on the examination of the law applicable to the levy of
customs duty the position is free from any ambiguity. As the drawings,
designs, manuals etc., imported through couriers were 'goods' on which
customs duty was payable. The action of the Reserve Bank cannot result in
H negating the statutory provisions of the Customs Act and the Tariff Act
. --
)-- -
--
ASSO. CEMENT CO. LTD v. COM MR. OF CUSTOMS
611
_applicable in the instant cases. 1628-G-H; 629-AI
':he Assis/an/ Sales Tax Officer and Others v. B.C. Kame, Proprietor
Kmne, Proprietor Kame Photo Studio, 1197711 SCC 634 and Everest Copiers
v. Siate a/Tamil Nadu, 1199615 SCC 390, distinguished.
A
State of Himachal Pradesh v. Associated Hotels of India ltd., (1972) 29 B
STC 474; Stale of Madras v. Gannon Dunkerley and Co. (Madras) ltd.,
(1958) 9 STC 353; Stale of Tamil Nadu v. Anandan1 Viswanathan, 1198911
SCC 613; Hindustan Shipyard ltd. v, State of UP., 120001 6 SCC 579;
Rainbow Colour lab & Anr v. State of MP. and Others, 120001 2 SCC 385;
Hindustan Aeronautics ltd v. State of Karnataka, 119841 I SCC 706 and c
Builder's Association of India and Others v. Union of India & Others, 119891
2 sec 645, referred to
Dela Nominees Pty. lit. v. Viscount Plastic Products Pty. ltd., (1979)
VR 167; Wilhelm Winter; Cynthia Zheng v. G.P. Putnam's Sons, 938 F'. 2nd
1033 9th Cir. (1991); Robinson v. Graves (1935) KB 579 and lee v. Griffin, D
(1861) I B & S 272, referred to.
'Contract of Sale of Goods', by Benjamin, Third Edition, referred to.
2.1. Intellectual property, when put on a media, would be regarded as
an article on the total value of which customs duty is payable. The legislative · E
intent can easily be gathered by reference to the Cus_toms 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
enhance the value of the papers and ink. The charge of a duty is on the final F
product whether it be the encyclopaedia or the engineering or architectural
drawing or any manual. 1634-B-CI
2.2. It is misconception to contend that what is being taxed is intellectual
input. What is being taxed under the Customs Act read with Customs Tariff G
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 magasine 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 H
612
SUPREME COURT REPORTS [2001] 1 S.C.R.
A 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. [635-A-CI
2.3. The shift from the concept of price of goods, as was classically
understood, is clearly discernible in the new principles. Transaction value
B may be entirely different from the classic concept of price of goods. Full
meaning has to be given to the rules and the transaction value may include
many items which may not classically have been understood to be part of the
sale price. It would not be correct, to take the entire contract value as being
the value of the imported goods.1635-E[
c
Mis Gannon Dunkerley and Co. and Others \'. State of Rajasthan and
Others, IJ 993[ l SCC 364; Collector of Customs (Prev.) Ahmedabad v.
Essar Gujarat ltd., (l 996) 88 EL T 609 S.C. and State Bank of India v.
Collector of Customs, Bombay, 120001 I SCALE 72, referred to.
D
St. Albans City and District Council v. International Computers Ltd.,
(1996) 4 all ER 481 and Advent Systems ltd. v. UNISYS Corporation, (925) F
2nd 670 3rd Cir (1991 ), referred to.
3. I. There was a wilful suppression or mis-statement of the value of tJte
goods imported and, therefore, the respondents were entitled to invoke the
E provisions of the proviso to Section 28 (l) of the Customs Act and issue
show-cause notice even it period of six months importation had expired but
before the expiry of five years thereof. 1643-BI
F
G
3.2. The proviso to Section 28 can inter a/ia be invoked when any duty
has not been levied or has been short-levied by reason of collusion or any
wilful mis-statement or suppression of facts by the importer or the exporter,
his agent or employee. Even if both the expressions 'mis-statement' and
'suppression of facts' are to be qualified by the word 'wilful', the making of
such a wilful mis-statement or suppression of facts would attract the provisions
of Section 28 of the Customs Act.1641-B-CI
Collector uf Central Excise, Hyderabad v. Mis Chemphar Drugs and
linime111s, Hyderabad, 1198912 SCC 127; Cosmic Dye Chemical v. Collector
()/ Central Excise, Bombay, [ 19951 6 SCC 117; Mis Padmini Products v.
Collector ()f Central Excise, Bangalore, [ 19891 4 SCC 275; Tamil Nadu
Housing Board v. Collector of Central Excise. Madras and Another. [ 1995[
H suppl. I SCC 50 and Collector Central Excise v. H.M.M. ltd., (1995) 76 ELT
'
. ..,___
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS
613
497, referred to.
A
4. In the present cases, the technical. material which was received was
cleared as part of passenger baggage. Whether the courier or the person
bringing the technical material was a person nominated by the collaborator
or by the appellants is of no consequence.because the levy under Section 12
of the Customs Act is on the goods imported into India. In other words, the B
subject matter of the tax is not the person importing or exporting but the
subject matter of the tax is the goods imported. If such goods are i~ported as
a part of the baggage then by virtue of heading No. 98.03 r~te of duty
prescribed therein has to be paid. The underlying principle prior to May,
1995 in relation to taxing the passengers' baggage was that the said baggage C
which contained dutiable articles was not to be taxed separately as articles
but the baggage as a composite unit was to be taxed in its entirety, after
giving credit for the free allowance which was available to the passenger.
1644-D-FI
5.1. In Civil Appeal No. 3632 of2000, the drawings and designs which D
were imported by the appellant were correctly classifiable under heading No.
49.06 and the tariff itself providing that the import of the same is free, the
said drawings and designs were not dutiable articles and, therefore, no customs
duty was leviable thereon even as a part of the passenger. (648-E(
5.2. Under the Central Excise Act, 1944 in definition of words "excisable E
goods" under Section 2(d), the very specification or inclusion of goods in the
First and Second Schedule of the Central Excise Tariff Act would make them
excisable goods subject to duty. Under the Customs Act, the provisions seem
to be somewhat different. While by virtue of Section 2(22) all kinds of movable
property would be 'goods' but it is only those goods which would be regarded F
as 'dutiable goods' under Section 2(14) which are chargeable to duty and on
which duty has not been paid. The expression "chargeable to duty on which
duty ha.snot been paid' indicates that goods on which duty has been paid or on
which on duty is leviable, and therefore no duty is payable, will not be regarded
as 'dutiable goods' . It is only if payment of duty is outstanding or leviable
that goods will be regarded as dutiable goods. (647-H; 648-A-Bf
G
Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Co.
ltd., (1996) 83 EL T 3 SC and Wallace Flour Mills Company v. Collector
Central Excise, (1989) 44 EL T 598, referred to.
6. The value of drawings in Civil Appeal No. 1493 of 2000, which H
614
SUPREME COURT REPORTS [2001) I S.C.R.
A belong to the Indian company were 1nerely approved by the German company
could only be nominal and under no circumstances the said value could be
regarded as DM 60,000. The nominal value disclosed by the courier, on the
facts and circumstances of the case, could not, therefore, be said to be
incorrect. 1649-F]
B
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 821 of2000.
c
From the Judgment and Order dated 15 .11. 99 of the Central Excise
-,.... ·
Customs and Gold (Control) Appellate Tribunal, West Zone, Mumbai in A.No.
C. 445-R/99in 0. No. C-11/3169/WZB/ 1999.
With
C.A. Nos. 1021, 1023, 1027, 1028, 1029, 1030,1031, 1032, 1033, 1423, 1493,
1494, 3250-51 and 3632 of 2000.
Harish N. Salve, Solicitor General, Mukul Rohtagi, Additional Solicitor
D General, Ashok H. Desai, A. N. Haksar, Joseph Vellapally Anant Haksar, Jay
Savla, V. Lakshmikumaran, V.S. Nankani, N. Menon, Ms. Reena Bagga, Ms. M.
Ogra, Ms. Hemantika Wahi, Ms. Sumita Hazarika, Kamal Bulchandani, Uday
Kumar, Vikram Malik, Rajiv Dutta, Ravinder Narain, F. Sorabjee, Yashmin
Godrej, Sanjiv Sen, Rajan Narain, Agni Pushp Singh, Ms. Bhawna Gupta,
E U.A. Rana, Rajesh Nair, Ms. Shally Maggon, Gaurishankar Murthy, Ms. Nisha
Bagchi, Ms. Rekha Pandey, P. Parmeswaran, Prakash Shah, Naresh Thakar,
Kap ii Sharma, Om Prakash and Ms. Meenakshi Ogra for the appearing parties.
The Judgment of the Court was delivered by
F
KIRPAL, J. These appeals have been filed against the common order
dated 15th November, 1999 of the Customs, Excise and Gold (Control) Appellate
Tribunal which, while confirming the order of the Commissioner of Customs
held that drawings, designs etc., relating to machinery or industrial technology
were goods which were leviable to duty of customs on their transaction value
at the time of their import.
G
As principal arguments on behalf <1f the appellants were addressed in ,. ~
the case of M/s Hotel Leela Ventures Limited by Mr. Ashok H. Desai, learned
senior counsel, for the sake of convenience we wil! refer to the relevant facts
in that case in greater detail.
H
Leela Ventures are engaged in the business of setting up, operating and
. --jt.,
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J]
615
maintaining Hotels and Resorts. For designing the Hotels and Resorts, it A
engaged a foreign company Mis Wimberly Allison Tong & Goo, USA ("WAT'
for short) for providing architectural services including design development
drawings. Leela Ventures had entered into four agreements with the said
foreign company in respect of four different ventures in India. Apart from
preparing the designs and drawings the scope of work under the said
agreements included site visits and on site consultations with architects.
Leela Ventures paid WAT under the said agreements for the services
rendered and the amount was remitted through bank by following the
procedure of remittance under Form A-2 prescribed by the Reserve Bani< of
B
India which form is meant for foreign exchange remittances, other than for C ,
import of foreign goods, pursuant to the permission given by the Reserve
Bank.
In terms of the said agreements entered into with WAT, the appellants
received drawings and diskettes through couriers during the period 30th
October, 1995 and 12th May, 1996: The drawings so received were part of D
technical collaboration and/or technical know-how and wen~ accompanied by
an airway bill and an invoice issued by the consignor. The courier, in all the
cases, declared the drawings with various descriptions such as "drawings",
"architectural designs" etc. The value of these drawings and designs was
declared at a nominal value of one dollar. According to Leela Ventures one E
dollar was the correct value because drawings by themselves have no value,
since if the drawings are lost they could be replaced and the loss would
merely be of the cost of paper. The value declared by the courier was bona
fide and was based on the invoice carried by it. As per the appellants, the
declaration by the courier was in accordance with the accepted practice at
that time. At the time of the imports these designs and the diskettes were. F
cleared at the nominal value declared.
The other appellants in these appeals are also public corporations
e~gaged in the manufacture of excisable goods. Like Leela Ventures the other
ap!Jellants also entered into technical collaboration with leading manufacturers G
in their own fields abroad. The agreements provided for exchange of technology
in the form of supply of know-how, drawings and designs on media training
by personnel staff and similar other activities. As a part of fulfillment of the
contracts, the contracting parties abroad, from time to time, sent drawings,
designs etc. In the case of Mis Videocon these drawings etc., were imported
by hand through one Mr. Kato. In all other cases the drawings etc., were H
616
SUPREME COURT REPORTS [2001) l S.C.R.
A imported through Professional Courier or by post parcels. In each case only
a nominal value was declared at the time of its importation.
According to the respondents, intelligence gathered by the Directorate
of Revenue Intelligence and Special Valuation Branch, Bombay revealed that
the appellants had imported drawings, designs and plans through couriers on
B remitting the consideration for the same but these had been cleared without
proper declaration and without payment of correct amount of duty. In view
of the omission on the part of the appellants to declare the correct transaction
value, show-cause notices under Section 28( I) read with Section 14 of the
Customs Act, 1962 were issued asking the appellants as to why (a) the sum
C remitted or declared during investigation as consideration for drawings, designs
and plans supplied by their collaborators should not be taken as transaction
value under Section 14 of the Customs Act read with the Customs Valuation
Rules, 1988 as the basis for assessment of goods to customs duty; (b)
Customs duty should not be demanded under the provisions to Section 28
(I) of the Customs Act, 1962 and the amount deposited towards customs duty
D should not be adjusted against the duty demanded; ( c) The goods, i.e.,
drawings, designs and plans should not be held liable to confiscation under
Section 111 (m) of the Customs Act, 1962; and ( d) Penalty should not be
imposed under Section 112 (a) and I I 4A of the Customs Act, I 962.
E
F
In the case of Leela Ventures the show-cause notice dated 21st January,
1998/18th February, 1998 valued the drawings and designs at Rs. 2,66,87,100
being the transaction value and on that value the amount demanded under
Section 28( I) of the said Act was Rs. 26,68,310.
In response to the show-cause notice, the appellants sent their replies,
inter-alia, submitting that what was imported were not goods and there could
be no excise duty on services since the remittances were in Form A-2 and tax
at source under the Income-Tax Act was paid in respect of the said contracts.
It was also the case of the appellants that the demand was barred by limitation
since there was no suppression or wilful mis- statement as the appellants
bona fide believed that no customs duty was payable in the case of contracted
G services represented by drawings, designs, etc., which were imported.
After giving an opportunity of representation being filed and hearing
the learned counsel the Commissioner passed a consolidated order dated 26th
March, 1999. The Commissioner demanded duty and imposed penalty. The
appellants then filed appeal before the Tribunal but without success. During
H the course of pendcncy of the appeal barring three all other importers
. --r-·
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J]
617
voluntarily deposited ihe duty as per the classification then suggested.
A
In these appeals, the learned counsel for the appellants urged four
contentions which had been unsuccessfully raised before the Tribunal. These
contentions were (i) Excise duty cannot be levied on the value of ideas as
they are not goods; (ii) Even if what was imported were goods, the valuation
of the same has to be nominal; (iii) the show-cause notices which were issued B
were barred by time inasmuch as the extended period of limitation of five
years would not be available on the facts of the present case; (iv) the imports
through the courier could not be governed by heading No. 98.03 of the
Customs Tariff Act. The learned Additional Solicitor General, in his able
manner, supported the Tribunal's decision.
Whether drawings, diskettes, manual etc., imported are goods on which
excise duty could be levied.
c
The learned counsel submitted that in all these cases the transactions
between the appellants and the foreign collaborators were for transfer of D
technology. The knowledge or know-how which is supplied, though valuable,
was intangible. The media is only the vehicle of transmission and is only
incidental to the main transaction, even if Government authorities regard
this to be l! contract for services and not for sale of goods. In support of this,
reliance was placed on the fact that the Reserve Bank of India had required
application for remission of foreign exchange on Form - A2 which is meant E
for foreign exchange remittance otherwise than for import of goods. On the
remittances so made the appellants had deducted the income-tax at source.
It was contended that if it was a case of sale of goods to the appellants then
the question of deducting any income tax and paying the same would not
have arisen and, on the contrary, the amount of excise duty which would have F
been payable would have been less than the income tax which was deducted.
In the alternative it was contended that even if the transactions are
composite the court has to determine whether these relate to contract for
service or goods. In this connection, it was submitted that when price is paid
for photograph, the payment is not for paper which is developed but is for G
the skill of the photographer and the price of developing. Contract for
architectural services was stated to be like a contract by a solicitor to give
a legal opinion or for a doctor to give a medical diagnosis since the essence
of the contract is the expert's skill.
The learned counsel contended that the transaction between the H
618
SUPREME COURT REPORTS [2001] I S.C.R.
A appellants and their respective foreign collaborators was one for transfer ·or
technology. This knowledge or know-how though valuable was intangible.
Th~ technology when transmitted to India on some media does not get
converted from an intangible thing to tangible thing or chattel. Media is only
vehicle for transmission and is wholly incidental to the main transaction. By
B way of analogy it was submitted that legal opinions or judgments of Courts
when communicated on legal briefs or as certified copies do not constitute
transfer of goods by the counsel to his clients or by a Court to a litigant.
Reliance was placed on the decision of U.S. 9th Circuit Court of Appeals in
Wilhelm Winter; Cynthia Zheng v. G.P.Putnam 's Sons, 938 F.2nd I 033 (9th Cir.
1991 ). In that case, the plaintiffs had bought an encyclopaedia on mushroom,
C a book published by the defendants. On the basis of the information contained
therein the plaintiffs became severely ill from cooking and eating mushrooms
after relying on the information obtained from the said encyclopaedia. The
plaintiffs sued the publishers and sought damages based on products liability,
breach of warranty etc. The trial Court held that the information contained in
D
a book is not a product for the purposes of strict liability under products
liability law. Affirming the trial Court, the Circuit Court of appeals came to the
conclusion that the products liability law reflects its focus on tangible items
and does not take into consideration the unique characteristics of ideas and
expressions. In other words, the quality of information contained in a book
would not be regarded as a product for the purposes of product liability law.
-~
E This would not detract from the fact that the encyclopaedia of mushroom
F
G
would be regarded as goods containing information supplied by the author
and published by the defendants. As we shall presently see this case can be
of little assistance for deciding the point in issue.
Before we deal with the aforesaid contentions raised on behalf of the
appellants, it is appropriate to first consider the relevant provisions applicable
in the present case. Section 2(22) of the Customs Act contains the definition
of the word "goods" which is as follows:
"(a) vessels, aircrafts and vehicles;
(b) stores;
(c) baggage;
(d) currency and negotiable instruments; and
H
(e) any other kind of movable property;"
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ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.]
619
Section 156 of the Customs Act gives the Central Govt. power to make A
rules consistent with the Act and sub-section 2(a) thereof enables the framing
of rules to provide for the manner of determining the price of imported goods
under sub-section (IA) of Section 14. In exercise of the powers conferred by
the aforesaid Section 156 of the Customs Act, the Central Govt. has framed
Customs Valuation (Determination of Price oflmported Goods) Rules, 1988. B
For the purpose of this· case, two Rules which are important are Rules 3 and
4 which read as follows:
"J Determination of the method of valuation.- For the purpose of
these rules,-
(i) the value of imported goods shall be the transaction value;
C
(ii)
if the value cannot be determined under the provisions of clause
(i) above, the value shall be determined by proceeding
sequentially through Rules 5 to 8 of these rules.
4. Transaction value.-( I) The transaction value of imported goods D
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.
·
(2) The transaction value of imported goods under sub-rule (I) above
shall be accepted:
E
Provided that-
(a)
there are no restrictions as to the disposition or use of the
goods by the buyer other than restrictions which-
(i)
are imposed or required by law or by the public authorities F
in India; or
(ii) limit the geographical area in which the goods may be
resold; or
(iii) do not substantially affect the value of the goods;
(b)
the sale or price is not subject to same condition or consideration
for which a value cannot be determined in respect of the goods
being valued;
(c)
no part of the proceeds of any subsequent resale, disposal or
G
use of the goods by the buyer will accrue directly or indirectly H
620
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS [2001] I S.C.R.
to the seller, unless an appropriate adjustment can be made in
accordance with the provisions of Rule 9 of these rules; and
( d)
the buyer and seller are not related, or where the buyer and seller
are related, that transaction value is acceptable for customs
purposes under the provisions of sub-rule (3) below.
(3) (a) Where the buyer and seller are related, the transaction value
shall be accepted provided that the examination of the circumstances
of the sale of the imported goods indicate that the relationship did
-,....
not influence the price.
(b) In a sale between related persons, the transaction value shall be
accepted, whenever the importer demonstrates that the declared value
of the goods being valued, closely approximates to one of the
following values ascertained at or about the same time-
(i)
the transaction value of identical goods, or of similar goods, in
sales to unrelated buyers in India;
(ii) the deductive value for identical goods or similar goods;
(iii) the computed value for identical goods or similar goods.
Provided that in applying the values used for comparison, due
account shall be taken of demonstrated difference in commercial
.~
levels, quantity levels, adjustments in accordance with the
provisions of Rule 9 of these rules and cost incurred by the
seller in sales in which he and the buyer are not related:
(c) substitute values shall not be established under the provisions of
clause (b) of this sub-rule."
Rule 10 provides for declaration by the importer and is as follows:
"10. Declaration by the importer.-( I) The importer or his agent shall
furnish-
(a) a declaration disclosing full and accurate details relating to the
value of imported goods; and
(b)
any other statement, information or document including an
invoice of the manufacturer or producer of the imported goods
where the goods are imported from or through a person other
than the manufacturer or producer, as considered necessary by
the proper officer for determination of the value of imported
r
'
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [K!RPAL, J.]
621
goods under these rules.
(2) Nothing contained in these rules shall be construed as restricting
or calling into question the right of the proper officer of customs to
,.
satisfy himself as to the truth or accuracy of any statement,
infonnation; document or declaration presented for valuation purposes.
(3) The provisions of the Customs Act, 1962 (52 of 1962) relating to
confiscation, penalty and prosecution shall apply to cases where
wrong declaration, information, statement or documents are furnished
under these rules."
A
B
Section 2 of the Customs Tariff Act provides for the rates at which the C
customs duty is levied under the Customs Act, 1962. As specified in First and
the Second Schedule, Chapter 98 inter alia applies to passengers' baggage
and heading No. 98.03 states that on "all dutiable articles, imported by a
passenger or a member of a crew in his baggage", customs duty will be paid
at the standard rate of duty of 150 per cent.
Reliance was placed by Mr. Desai on a number of decisions of this
Court, relating to levy of sales tax, in support of his contention that in
contract by supply of services there is no sale of goods and, as such, no
D
· . ~
customs duty could be imposed on the intellectual property which was
obtained. We will first refer to the decisions so cited.
E
This Court in The Assistant Sales Tax Officer and Others v. B.C. Kame,
Proprietor Kame Photo Studio, [ 1977] I SCC 634, was called upon to decide
the question that when a photographer undertakes a photograph and thereafter
supplies prints to his clients whether it could be said that he had entered into
a contract for sale of goods. The question which this Court posed was F
whether the contract is a contract of work and labour or a contract for sale.
It held that a contract for sale is one whose main object is the transfer of
property in, and the delivery of the possession of, a chattel as a chattel to
the buyer where, however, the principal object of work undertaken by the
payee of the price is not the transfer of a chattel qua chattel, the contract is G
one of work and labour. After referring to the earlier decisions of this Court
in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd.,
(1972) 29 STC 474 and the Stale of Madras v: Gannon Dunkerley & Co.
(Madras) Ltd., (1958) 9 STC 353, in which case the Constitution Bench had
held that in a building contract the property materials do not pass to the other
party as in a contract for sale of movable property, it was concluded that H
622
SUPREME COURT REPORTS [2001] I S.C.R.
A when a photographer takes a photograph, develops the negative or does
some other photographic work and thereafter supplies the prints to his clients
·-"<
then it could not be said that he had entered into a contract for sale of goods.
The question of levy of sales-tax, therefore, did not arise.
In Kame 's case (supra) reference was made to the decision of Robinson
B v. Graves, (1935) KB 579, where it was held that a contract by an artist to paint
a portrait of a lady was a contract for work and labour and not for the sale
of goods as the substance of the contract was that skill and labour should
~-
be exercised upon the production of the portrait and that it was only ancillary
to the contract that there would pass from the artist to his customer some
C material. In Robinson's case an earlier decision of lee v. Griffin,, (1861) I B
& S 272 was attempted to be distinguished. lee v. Griffin was a case where
the plaintiff had contracted to make a set of artificial denture to fit them into
his patient's mouth. The patient died after the denture was made without
having accepted the denture though he had an opportunity of doing so. The
plaintiff sued executor for the goods bargained and sold. It was held in that
D case that wherever a contract is entered into for the manufacture of chattel
there the subject-matter of the contract is a sale and delivery of the chattel.
Blackburn J, specifically observed as follows:
E
F
G
"If the contract be such that, when carried out, it would result in the
sale of a chattel, the party cannot sue .for work and labour but, if the
result of the contract is that they party has done work and labour
which ends in nothing that become the subject of a sale, the party
cannot sue .for goods sold and delivered The case of an attorney
employed to prepare a deed is an illustration of this latter
proposition, it cannot be said that the paper and ink he uses in the
preparation of the deed are goods sold and delivered I do not think
that the test to apply these cases is whether the value of the work
exceeds that of the material used in its execution for, if a sculptor
were employed to execute a work of art, greatly as his skill and
labour, supposing it to be of the highest description, might exceed
the value of the marble in which he worked, the contract would in
my opinion nevertheless be a contract for the sale of chattel. "
Referring to the case of Robinson v. Graves and lee v. Griffin in Contract for
Sale of Goods, Benjamin's Third Edition states at pages 39- 40 as follows:
"In Robinson v. Graves however, the Court of Appeal reintroduced,
· H
purportedly as a qualification to this rule, what is in effect the
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--r··
--~
ASSO. CEMENT CO. LTD v. COMMR. OF CUSTOMS [KIRPAL, J.]
623
criterion of relative importance as between work and· materials A
which had been rejected in Lee v. Griffin, although the court professed
to be considering what was the substance of the contract rather thc.n
the more substantial component in the product ultimately delivered
Jn Robinson v. Graves, Greer L.J said: "If you find .. that the substance
of the contract was the production of something to be sold .. then B
that is a sale of goods. But if the substance of the contract, on the
other hand, is that skill and labour have to be exercised for the
production of the article and that it is only ancillary to that that
there will pass from the artist to his client or customer some materials
in addition to the skill involved in the production of the portrait,
that does not make any difference to the result, because the substance C
of the contract is the skill and experience of the artist in producing
the picture. " This statement, with respect, overlooks the fact that
what passes to the client is not the materials but the finished picture,
of which both the work and the materials are components. Lee v.
Griffin and Robinson v. Graves cannot be reconciled: the reasoning D
in each case could have been applied to the facts of the other. It has
yet to be appreciated that a decision of this problem can be reached
only by adopting one or the other of these equally arbitrary rules. "
(Emphasis added)
The test laid down in Lee v. Griffin had been preferred by the Australian
Courts'. In Dela Nominees Pty. Ltd v. Viscount Plastic Products Pty. Ltd., E
(1979) VR 167 the Supreme Court of Victoria, Australia described Robinson
v. Graves as a hard case and rejected its test as "illogical and unsatisfactory"
"wrong in principle" and "too erratic" to be useful.
The principle enunciated in Kame 's case was followed by this Court in F
State a/Tamil Nadu v. Anandam Viswanathan, (1989] 1 SCC 613. In this case,
this Court held that a contract for printing of question paper for educational
institutions constituted a works contract and, therefore, exempted from tax. In
Everest Copiers v. State of Tamil Nadu, [ 1996] 5 SCC 390 in respect of the
Assessment Year 1978-79, this Court has held that making photostat copies
on paper with xerox machine and delivering the same to the customer for G
payment was a contract for work or service and not a contract of sale. The
transfer of paper was only incidental and hence such transaction was not
exigible to sales tax.
In Hindustan Shipyard Ltd, v. State of A.P., (2000] 6 SCC 579, this Court
was called upon to decide whether the transaction of building of a ship after H
624
SUPREME COURT REPORTS [2001] l S.C.R.
A an order had been placed amounted to sale as defined under the A.P. General
Sales Tax Act or was it a works contract.