PETITIONER:
COLLECTOR OF CUSTOMS(PREVENTIVE), AHMEDABAD
Vs.
RESPONDENT:
M/S. ESSAR GUJARAT LTD., SURAT.
DATE OF JUDGMENT: 19/11/1996
BENCH:
B.P. JEEVAN REDDY, SUHAS C. SEN, K.S. PARIPOORAN
ACT
HEADNOTE
JUDGMENT
JUDGMENT
SEN,J.
The first dispute in this case relates to the question whether the licence fees paid to M/s. Midrex International B.V., Zurich, (Midrex) should be added to the invoice value of the plant bought by M/s. Essar Gujarat Limited (EGL). The plant was originally installed at Emden Germany, in 1981 by a firm which went into liquidation. NORD/LB, a Bank, was appointed receive of the plant. The bank floated a global tender for the sale of the plant on "as is where is" basis, EGL made an offer of DM 26 million for the plant, but could not obtain clearance of Government of India for payment within the stipulated period. The deal, therefore, fell through, The Bank sold the plant to M/s. Teviot Investments Limited (TIL) On 24th March, 1987, EGL entered into a contract with TIL for purchase of the Direct Reduction Iron Plant on certain terms and conditions. The entire agreement was subject to two conditions - (1) approval of Government of India within 30th April, 1987 and (2) obtaining transfer of the operation licence from m/s.Midrex of Charlotte, USA. The contention before this Court, on behalf of the appellant, Collector of Customs, has been that these clearly were the conditions which had to be fulfilled before the sale could take place. As a matter of fact, EGL obtained transfer of the operation licence from Midrex before proceeding with the dismantling of the plant and exporting the plant in semi-knocked-down condition to India. On the other hand, it has been contended on behalf of EGL that the overriding stipulation of obtaining transfer of the operation licence from M/s.Midrex only kept an exit door open for EGL to back out of the contract. If for any reason, Government of India did not grant permission to go through the deal or the requisite licence from Midrex could not be obtained, it would be permissible for EGL not to go ahead with the contract. These two stipulations were not conditions of sale of the plant but were overriding conditions attached to the contract to enable EGL to back out of the contract in certain contingencies.
Before going into the merits of the rival contentions, it will be necessary to notice the facts relating to import of the plant and also the three agreements. The agreement between EGL and TIL was entered into on 24.3.1987. The agreement with M/s.Voest Alpine AG (V.A.) and with Midrex International B.V. were both entered into on 4th December, 1987. But the plant in semi-knocked-down condition was imported only in September/October, 1988. The first bill of entry in respect of 468 packages was dated 29.9.1988 and the second bill of entry in respect of 317 packages was dated 11.10.1982. In other words, even though the agreement to purchase the plant was formally executed by and between EGL and TIL on 24.3.1987, actual importation took place nearly 1 1/2 years thereafter and only after the two agreements with V.A. and Midrex were signed on 4.4.1987. These facts go to show that it was essential for EGL to have a licence from Midrex for working of plant. 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 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 an was not fulfilled, the sale would have fallen through. 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. The agreement with V.A. starts with the recital that-
"EGL will set up at Hazira,
Gujarat, a gas based Direct
Reduction (DR) Plant which is to be
re-engineered for a rated capacity
of 8,80,000 tpy of Hot Briquetted
Iron (HBI) and for this purpose
decided to buy the existing gas
based DR plant of NOHDDEUTSCHE
FERROWERKE (MORD FERRD) located at
Emden, West Germany, which had a
rated capacity of 8,00,000 tpy DRI
under the prevailing operating
conditions at Emden based the
Midrex Process and to incorporate
Hot Discharge and Hot Briquetting
facilities."
It was further recited in the agreement that the Collaborator (V.A.) was holding construction licence and rights to use patents form Midrex International B.V. for marketing, sale, design and construction of the Midrex plants at Hazira, lndia.
The agreements with V.A. and Midrex go to show that the plant located at Emden was described as a Midrex plant. Its rated capacity was calculated under the prevalling operating conditions at Emden based on the Midrex process. V.A. undertook to incorporate Hot Discharge and Hot Briquetting facility and for this purpose carried out refurbishing, replacement and modification of the plant. This would enhance the usefulness and value of the plant. It was noted that EGL had entered into an agreement with Midrex for the processing licence which was annexed to the agreement with V.A, V.A, was holding construction licence and the right to use patents from Midrex for marketing, sale, design and construction of the Midrex plant at Hazira in India. V.A. undertook to render necessary engineering services and did whatever was needed for incorporating Hot Discharge Briquetting facility and to make use of Midrex construction and process licence for this purpose.
EGL’s agreement with Midrex was annexed to the agreement with V.A. and it was time and again emphasised in the agreement that the plant was a Midrex plant and the various processes that had to be employed to make the plant operational in the manner it was intended could be done only on the basis of Midrex process, It was recited in the agreement that "the Collaborator (V.A.) is capable of providing process know-how, engineering and construction of Midrex gas based DR plants including Hot Discharge and Hot Briquetting facilities and has offered to provide the services to Essar as stated hereinafter."
In Article 3 of the agreement under the heading "Midrex Process Licence and Technical Services" it was provided that in addition to the services being provided by V.A., Midrex will provide certain technical services to V.A, or to EGL in connection with transfer of technology covered under the process licence agreement attached to in Annexure 12 of the agreement. The services included:
(a) basic engineering package for
the hot discharge and hot
briquetting system;
(b) advice to Essar on optimum
utilisation of iron oxide lump ore
and iron oxide pellets;
(c) provide information and
documentation to allow Essar to
implement improvements in plant
design and/or operating procedures
which have been developed by Midrex
or other Midrex Process Licensees.
(d) provide continuing information
to Essar on operating results from
other Midrex Plants to assist Essar
in optimizing plant operating
efficiency including operating
reports, operation bulletins and
operation seminars.
Article 10 of the agreement is as
under:
"Article 10: CONTRACT DHILL:-
In consideration of fulfilment by
Collaborator of its obligations
under this Agreement, Essar shall
pay to COLLABORATOR as below:-
SERVICES TO BE PROVIDED OUTSIDE
INDIA:
10.1.1Process DM (German Marks)
licenseand and
allied technical
services
10.1.1Process licens DM 2,000,000
fee payable to
MIDREX Corporation
for the right to use
the Midrex process and
patents
10.1.1.2
Costof Technical DM 10,100,000
services provided lump sum
under Article 3
in connection
with Midrex process
Technical Services.
10.1.2.1
Payment for DM 23,100,000
engineering and lump sum
consultancy fee
as specified
under this agreement
10.1.2.2
Payment for DM 2,200,000
theoretical and lump Sum
practical training
outside India
Total ------------
DM 37,400,000
lump sum
-------------
The agreement signed by EGL with Midrex International B.V., recorded that the licensee, EGL, had entered into an agreement for purchase of a Midrex Direct Reduction Plant installed at Emden, West Germany and intended to have the same dismantled, refurbished, adapted for production of Midrex Hot Briquetted Iron (HBI) and re-installed in India. The licensee had approached Midrex for an appropriate process licence for the operation of the plant utilising the Midrex Direct Reduction Process, and Midrex desired to grant such licence to licensee upon the terms and conditions stated in the agreement. It was further recorded that the licensee had entered into an agreement dated 4th December, 1987 with V.A. and it was agreed that Midrex would render various services as mentioned in the agreement, which would be annexed to the Collaboration Agreement with V.A.
It was clearly stated that the agreement with Midrex meant Process Licence Agreement including all the appendices, attachments and amendments thereto". It was further clarified that Midrex Direct Reduction Plant" shall mean any facility for reducing iron oxides into Product or direct reduced iron (DRI) which had been heretobefore, was being currently, or would be in the future constructed or operated under a licence from Midrex. Midrex Direct Reduction Process" was defined to mean the process used in the plant or other Midrex Plants for the direct reduction of iron bearing oxide (including iron ore, iron oxide pellets or other iron bearing materials it any form) in a shaft furnace to produce Product or direct reduced iron (DRI) using a gaseous reductant irrespective of the reductant source; the solids flow system beginning at the iron oxide distribution system at the top of the shaft furnace and ending at the Product discharge from the HBI quench system or the DRI discharge device at the bottom of the shaft furnace and the gaseous flow system beginning at the spent gas offtake of the shaft furnace, leading through the gas processing system and ending at the reducing gas inlet of the shaft furnace.
EGL was granted a licence to use the plant on the following terms:
Grant of Licence
(a) Subject to the provisions of
this Agreement, Midrex grants and
agrees to grant to Licensee for the
term of this Agreement:
(i) The right to use all Patents
and Confidential information the
operation of the Plant; and
(ii) The right to produce in the
Plant and use and sell worldwide,
Product produced by the Plant or
DRI which may be produced by the
Plant from time to time.
(b) Licensee should be free to sub-
license the rights granted under
the clause 2.1 of this Agreement to
another Indian party should it
become necessary. The terms of such
sub-licensing will, however, be as
mutually agreed to by all the
parties concerned including Midrex
and will be subject to the approval
of Government of India and Midrex.
The agreements with Midrex and also V.A. bring out the real nature of the agreement with TIL, which had been made subject to obtaining a licence from Midrex. This agreement with V.A. recites that the plant, when it was bought, had a rated capacity of 8,00,000 tpy DRI under the prevailing operating conditions based on the Midrex Process. It was recited that the Collaborator (V.A ) was holding construction licence and rights to use patents from Midrex for marketing, sale, design and construction of the Midrex plants at Hazira, India. The services that were to be rendered by V.A. would also include technical services in connection with the Midrex Process and engineering services necessary for this purpose. The Collaborator agreed use construction and process licence for this project at Hazira, India. It was recorded that EGL’s contract with Midrex sad been annexed to the contract with the Collaborator.
Reading all these agreements together, it is not possible to uphold the contention of Mr. Salve that the precondition of obtaining a licence from Midrex was not a condition of sale, but a clause 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 Midrex to operate this plant and use Midrex technology for producing sponge iron in India. Therefore, in our view, obtaining licence from Midrex was a pre-condition of sale. In fact, as was recorded in the agreement, the sale of the plant had not taken place even at the time when the contract with Midrex was being signed on 4.12.87, although the agreement with TIL for purchase of the plant was executed on 24th March, 1987. Therefore, we are of the 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.
Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 is to the following effect:-
"9. Cost and services.- (1) In
determining the transaction value,
there shall be added to the price
actually aid or payable for the for
the imported goods,-
(a) ... ...
(b) ... ...
(c) oyalties and licence fees
related to the imported goods that
the buyer is required to pay,
directly or indirectly, as a
condition of the sale of the goods
being 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
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
the buyer to the seller, or by the
buyer to a third party to satisfy
an obligation of the seller to the
extent that such payments are not
included in the price actually paid
or payable."
The Tribunal has referred to the Interpretative Notes given in the Schedule by which Rule 9 has been explained in the following words: -
"Rule 9(1)(c)
1. The royalties and licence fees
referred to in rule 9(1)(c) may
include among other things payments
in respect to patents, trademarks
and copyrights. However, the
charges for the right to reproduce
the imported goods in the country
of importation shall not be added
to the price actually paid or
payable for the imported goods in
determining the customs value.
2. Payments made by the buyer for
the right to distribute or resell
the imported goods shall not be
added to the price actually paid
or payable for the imported goods
if such payments are not condition
of the sale for export to the
country of importation of the
imported goods."
It is difficult to see how these Interpretative Notes come to the aid of the importer in this case. Midrex has granted licence to EGL not only for the right to produce in the Midrex Direct Reduction Process Plant and sell the products produced by the plant worldwide, but has also given the licensee (EGL) the right to use all patents, confidential information for the operation of the plant. Midrex has undertaken to supply all confidential information and patents updated from time to time during the period of the agreement. Therefore, we are of the view that licence fees Paid to Midrex will have to be added to the price of the plant to arrive at the transaction value of the plant.
There is another way of looking at the problem. Section 14 of the Customs Act provides:
"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
chargeable on any goods by
reference to their value the value
of such goods shall be deemed to
be-
(a) the price at which such or like
goods are ordinarily sold, or
offered for sale, for delivery at
the time and place of importation
or exportation, as the case may be,
in the course of international
trade, where the seller and the
buyer have no interest, in the
business of each other and the
price is the sole consideration for
the sale or offer for sale:
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 Sec.46, or a
shipping bill or bill of export; as
the case may be, is presented under
Sec.50;
(b) Where such price is not
ascertainable, the nearest
ascertainable equivalent thereof
determined in accordance with the
rules made in this behalf.
(2) Notwithstanding anything
contained in sub-section (1), if
the Central Government is satisfied
that it is necessary or expedient
to do it may, by 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.
(3) For the purposes of this
section-
(a) "rate of exchange" means the
rate of exchange-
(i) determined by the Central
Government, or
(ii) ascertained in such manner as
the Central Government may direct,
for the conversion of Indian
currency into foreign currency or
foreign currency into Indian
currency;
(b) "foreign currency" and Indian
currency" have the meanings
respectively assigned to them in
the Foreign Exchange Regulation
Act, 1973 (46 of 1973)"
The entire purpose of Section 14 is to find out the value of the goods which are being imported. The EGL in this case was purchasing a Midrex Reduction Plant in order a produce sponge iron. In order to produce sponge iron it was essential to have technical know-how from Midrex. It was also essential to have an operating licence from them. Without theses the plant would be of no value. That is why the pre-condition of a process licence of Midrex was placed in the agreement with TIL. It will not be proper to view that agreement with TIL in isolation in this case. The plant would be of no value if it could not be made functional. EGL wanted to buy the plant in working condition. This could only achieved by paying not only the price of the plant, but also the fees for the licence and the technical know-how for making the plant operational. Therefore, the value of the plant will comprise of not only the price paid for the plant but also the price payable for the operation licence and the technical know-how. Rule 9 should be construed bearing this in mind.
Mr. Salve, appearing on behalf of the EGL has laid great stress on the various clauses of the agreement between Essar and TIL to show that the title to the plant had passed to the purchaser without any precondition after payment was made in terms of clause 2 of the agreement. The delivery was also deemed to have taken place at the time and on the date of payment in full, in accordance with clause 2.
Clause 2 merely states that the purchaser shall purchase the property from the seller at an inclusive purchase price of 26 million German Marks. 10 per cent of the purchase price had to be paid within fifteen days of the declaration of the buyer that the Government of India has given approval under clause 11 of the agreement and the balance 20 per cent, within 60 days of the approval given by the Government of India. There is no mention of the other condition in clause 11 that the agreement would be subject to "the purchaser obtaining the transfer of the operation licence from Messrs Midrex of Charlotte, USA". It appears from the agreements with V.A. and Midrex that unless and until the requisite licence and know-how was obtained from Midrex and also V.A., it would be impossible to shift the plant from Emden, West Germany and install it at Hazira, India and produce sponge iron from that plant. It appears that if Midrex did not grant operation licence for running the plant, the usefulness and value of the plant will considerably diminish if not evaporate altogether.
There are also several curious aspects of the three agreements. The agreement with TIL starts with a recital that "the Purchaser and Seller have today respectively purchased and sold a Direct Reduction Iron Plant on the following terms and conditions". This indicates that the purchase and sale of the plant had place on 24.3.1987 fut in clause 2 it is stated that the Purchaser shall purchase the Property from the Seller" at the stated price. Thereafter, it is stated that the price shall become due and payable only after the buyer declaring that the Government of India has given approval as per clause 11 of the agreement. The delivery was also postponed till full payment was made in accordance with clause 2. The risk of accidental destruction, loss or damage to the property "shall devolve upon the Purchaser with the expiry of the day following that upon which the plant is delivered...". Clause 5 makes it clear that title to the property shall devolve upon the purchaser after complete, unconditional and irrevocable payment of the purchase price.
All these clauses go to show that though the agreement starts with the recital the "the Purchaser and the Seller have today respectively purchased and sold a Direct Reduction Iron Plane, on the following terms and conditions", but as a matter of fact no sale had taken place on that date, i.e. 24.3.87. The delivery was posted till full payment was made. The question of payment did not arise till Government of India gave its approval to the agreement. Title to the property would devolve upon the purchaser only after complete, unconditional and irrevocable payment of the purchaser price. The risk of destruction, loss or damage to the plant remain with the Seller till after the date of delivery of the plant. Therefore title to the plant was not to pass to the purchaser unless and until full payment was made. The entire contract was subject to the condition of the purchaser obtaining the necessary licence from Midrex to operate the plant. This clause may have been inserted to protect the interest of the purchaser but it was pre-condition of sale of the plant.
Although the agreement with TIL does not describe the plant as Midrex Direct Reduction Plant, the agreement with Midrex leaves no room for doubt that what the assessee had purchased was a Midrex Direct Reduction Plant at Emden. Although the plant was described in the agreement with TIL merely as a Direct Reduction Plant end the name of Midrex was carefully kept out, the agreement with Midrex cakes it abundantly clear the assessee had entered into an agreement to purchase Midrex plant for which it was essential to have operational and Midrex technology to make the plant functional. That is why the overriding clause of having prior licence of Midrex was inserted in the purchase agreement with TIL. Without this licence and various other technical information to be provided by Midrex, it might not have been possible to operate the plant at all. It was only after this agreement with Midrex t the purchase of the plant was completed. Bearing in mind the terms and conditions of all the three agreements, we are of the view that it was essential for EGL to have the Midrex licence to operate the plant and the pre-condition imposed in clause 11 of the purchase agreement about the operation licence from Midrex was to ensure that EGL got a plant which could be made operational with Midrex technology.
Therefore, the process licence fees of DM 2,000,000 was rightly added to the purchase price by the Collector of Customs. The order of CEGAT on this question is set aside.
The second question relates to the cost of technical services in connection with the Midrex Process provided under Article 3 of the agreement between Essar and their Technical Collaborators M/s. Voest Alpine of Austria (V.A.). In order to appreciate the scope of the controversy, it has to be remembered that an agreement with V.A. was entered into on 4th December, 1987. On this very day, Essar entered into another agreement with Midrex. In fact, the Midrex agreement was annexed to the agreement of V.A. and was thereby made a part of the agreement with V.A. The two agreements have to be read together to find out the real intention of the parties. Essar had purchased a Midrex Reduction Plant on "as is where is" basis from TIL. It was recited in the agreement with V.A. that Essar intended to set up at Hazira, Gujarat, a gas based Direct Reduction (DR) Plant which was to be re-engineered for a rated capacity of 880,000 tpy of Hot Briquetted Iron (HBI). For this purpose Essar decided to buy the existing gas based DR Plant located at Emden, West Germany, which had a rated capacity of 800,000 tpy DRI under the prevailing operating conditions at Emden based on the Midrex Process and to incorporate Hot Discharge and Hot Briquetting facilities. V.A. had inspected the Plant at Emdem and was satisfied as to the technical suitability for dismantling of the plant and its recreation at Hazira after necessary refurbishing, replacement and/or modifications. It was also recorded in the agreement that Essar had entered into an agreement with Midrex for process licence, which was annexed to the agareement and V.A. was holding construction licence and rights to use patents from Midrex for marketing, sale, design and construction of the Midrex Plants at Hazira, India.
Therefore, it appears from the two agreements that the plant was a gas based Midrex Direct Reduction Plant. Its rated capacity based on Midrex Process was 800,000 tpy. Essar had acquired the operating licence by virtue of an agreement with Midrex International, which was annexed to the agreement with V.A. V.A. had a construction licence and rights to use patents for marketing, sale, design and construction of the Midrex Plants. One of the stated objects for appointing V.A. to raise the existing rated capacity of plant of 800,000 tpy to 880,000 tpy and also to incorporate Hot Discharge and Hot Briquetting facilities. The agreement also recorded:-
"WHEREAS Essar is desirous of
engaging the COLLABORATOR under
this agreement for providing the
services for the project, as
generally detailed below, together
with such modifications and
additions as may be required and
shall also include technical
services in connection with the
Midrex Process and engineering
services necessary for the
incorporation of Hot Discharge and
Hot Briquetting facilities, Which
are obviously and fairly intended
and which may not have been
specifically referred to but are
essential for proper functioning of
the plant and further shall be
deemed to include and cover but not
limited to the following except for
services specifically excluded:
OUTSIDE INDIA
Use of Midrex construction and
process licence for this project at
Hazira, India.
Provide basic engineering and re-
engineering for re-location of the
existing plant to Hazira, India and
basis and detailed engineering work
for hot discharge and hot
briquetting facilities and also
prepare necessary technical
documents in Europe and handover
the same to the representative of
Essar in Austria.
Engineering and Consultancy
services and specialist supervision
by equipment suppliers and other
agencies.
Provide support services during the
stay of COLLABORATOR/other
specialists at Emden such as
accommodation logistic and
transport. Any other technical
assistance needed by
COLLABORATOR/Equipment Suppliers at
Emden.
Specialist supervision of
dismantling of the plant at Emden.
Provide training engineers for
training of ESSAR Personnel in a
similar plant/training and at
equipment suppliers works.
Supervision of plant scale tests
and preparation of the test
report."
Although Article 3 has been included in the agreement of Essar with V.A. it records that "in addition to the services to be provided by Collaborator, the following technical services will be provided by Midrex International B.V. to either Collaborator or Essar. Under Article 3, the following services were to be rendered:
"ARTICLE 3 - MIDREX PROCESS LICENSE
TECHNICAL SERVICE:
In addition to the services to be
provided by COLLABORATOR, the
following technical services will
be provided by Midrex International
B.V. to either Collaborator or
Essar in connection with the
transfer of technology covered
under the Process License Agreement
attached in Annexure XII to this
Agreement:-
1. Basic engineering package for
the hot discharge and hot
briquetting system including :-
(a) Preparation of the Cere Plant
Mass Balance for Gases and Solids
including preliminary water data
for the Hot Briquetting System;
(b) Development of the Basic
Process and Instrument Diagrams for
the Hot Briquetting, Gas and Solid
system.
(c) Development of the guide
drawing for furnace modification
required for Hot Discharge
Conversion.
(d) Development of the Overall
general arrangement drawing for Hot
Discharge Furnace and Briquetting
Facility.
(e) Development of the guide
drawings for the furnace Product
Discharge Chamber, Briquetter Food
Legs, and bubbles.
(f) Development of the guide
drawings for the Bottom seal Gas
System Scrubber and Heater.
(g) Development of general
arrangement drawings for the
Briquetting System including
Brakers, Quench system, Hot Finers
Recycle System, Dust Collection,
and Vapour Removal.
(h) Preparation of duty
specifications for the Briquetting
System Equipment.
(i) Preparation of duty
specifications for the Bottom seal
Gas system compressors, Nitrogen
Generator, and Bottom Seal Gas
Dryer."
Therefore, the payment of DM 10,100,000 was being made for the transfer of technology under the Process Licence Agreement entered into with Midrex. The service mentioned hereinabove are to be part of Licencing. Agreement with Midrex. This agreement was a pre-requisite for finalisation of the contract with TIL to purchase the plant at Emden. The licence is not merely a permission to use the plant, but also to provide technical know-how to make the plant functional and also to improve the capacity of the plant by incorporating Hot Briquetting system. As all these services were to be rendered under the Process Licence Agreement with Midrex, the amount payable to Midrex as part of the Process Licence fee has to be included in the Value of the plant. It has also to be borne in mind that the services were being rendered in order to improved capacity of the plant by incorporating Hot Briquetting facilities.
So far as payment of DM 23,100,000 is concerned, this sum is to be paid for Technical Services". A sum of DM 2.200,000 was payable for theoretical and practical training. This sum cannot be added to the value of the plant in any way. The sum of DM 23,100,000 payable for engineering and consultancy fee as specified in the agreement includes services like basic engineering and re-engineering for relocation of the existing plant at Hazira, India and basic engineering package for Hot Discharge and Hot Briquetting System and preparation of necessary technical documents and hand over the same to the representatives of Essar in Austria. V.A. was also to provide specialist supervision of dismantling of the plant at Emden and also supervision of the plant, preparation of test report etc. Along with this, V.A. undertook to supply support services such as accommodation, logistics and transport and any other technical assistance needed by the collaborator and also training the engineers and personnel in similar plant. It also agreed to render various services in India. The technical services will cover, inter alia, -
"2.3 Technical services related to
the relation of the plant from
Emden to Hazira and simultaneously
considering the incoporation of Hot
Discharge and Hot Briguetting
facilities.
2.3.1 Assisting ESSAR in the
arrangement of laboratory and plant
scale tests on Indian raw materials
(terms and conditions for the plant
scale test are to be agreed
directly between ESSAR and the
owner of the plant where the test
’s intended to be carried out;
Supervision of the test and
interpretation of the test results.
2.3.2. Auditing of all the
documentation available at Emden to
determine the nature and extent of
missing documents/information (if
any) as described in Annexure I.
Documents/lnformation will mean,
without exception, all the
drawings, manuals. diagrams,
calculations and records, etc.
available at Emden. ESSAR will make
available the documents to the
extent available at Emden.
2.3.3 Assessment of Process Related
Units and facilities (equipment,
machinery, piping instrumentation,
electrics and control system
related wear and spare parts) as
available at Emden, jointly with
ESSAR AND MECON and confirm the
suitability of these facilities for
refuse as such as evidenced at
Emden or alternatively establish
the extent of
revamping/replacement/debottle-
becking between dismantling and
re-installation. Details of plant
and equipment audit are described
in Annexure. II.
2.3.4 Engineering services for
Process Related Units, For the
Hazira DR Plant, the basic process
design parameters and ambient
conditions will be different from
that originally applicable and used
for the design of the modules at
EMDEN. For electrical and
instrumentation equipments the
basic concept of the control system
of the existing DR plant will be
retained. The EMDEN Design Criteria
and the Hazira Design Criteria are
stipulated in Annexure III of this
Agreement.
Collaborator will perform all
process calculations on the basis
of the design criteria applicable,
or Hazira and per-form the re-
engineering work to the extent
required simultaneously considering
the incorporation of Hot Discharge
and Hot Briquetting facilities.
2.3.4.1 Prepare complete list of
all new, missing equipment,
machinery, electrics
instrumentation refractories,
insulation, lubricants, chemicals,
catalyst to be procured modified,
erected and commissioned as well as
list of wear and spare parts for
the first two years of operation,
all with engineering specifications
sufficient to enable ESSAR to
arrange timely procurement.
COLLABORATOR will assist ESSAR in
providing technical clarifications
during evaluation and negotiations
with vendors.
2.3.4.2 Prepare a list of items
requiring reconditioning, along
with relevant specifications for
these items. Nature and extent of
re-conditioning will also be
specified by COLLABORATOR which
will be further discussed and
agreed with ESSAR and MECON in
accordance with Art.3.3.2.
2.3.5 Establish jointly with ESSAR
and MECON, a division list
identifying those equipments,
machinery, material and parts which
can be procured in India or have to
be imported. COLLABORATOR will
provide a list of
Vendors/manufacturers for
refurbishing or procurement of all
import items and MECON will provide
a list of indigenous items.
2.3.7. Preparation and issue of new
and re-engineered
drawings/documents/calculations/man
uals for Process Related Units as
necessary with sufficient details
to enable ESSAR to procure
equipment, prepare fabrication
drawings and fabricate structures,
erect, test, start up and
commission the Process Related
Units. The details of such drawings
and documents are given in Annexure
IV."
There are various other clauses relating to civil engineering technical specifications, documentation and also inspection and check sizing of motors, reduction gear and hydraulics of Service Units etc. It is difficult to hold that the entire payment of engineering consultancy fee to V.A. will have to be added to the imported plants. But the plant was sold on "as is where is basis. So whatever expenditure was needed to be incurred for dismantling the plant and making it ready for delivery has to be added to the value of the plant. The specialist supervision for dismantling of the plant and also engineering and consultancy services for this purpose will have to be added to the value of the imported plant. But this apart, other services rendered cannot be treated as adding in any way to the value of the plant. Since there is no clear indication as to how the various services have been vaelued separately of the amount of DM 23,100,000 should be added to the value of the plant on this account.
Therefore, we are of the view that DM 2,000,000 being the process licence fee paid to Midrex Corporation, DM 10,100,000 being the cost of technical services provided by Midrex and a sum of DM 2,310,000 being payment on account of engineering and consultancy fee payable to V.A., should be added to the value of the imported plant.
The appeals are disposed of as above. There will be no order as to costs.