ORDER
V.K. Agrawal, Member (T)
1. The issue involved in this appeal filed by M/s. United Systems Engineers Pvt. Ltd. is whether the cost of Research and Development charges and Technological know-how fees are includible in the assessable value of prototype radio manufactured and supplied by them to Rural Communication Division, Telecom Research Centre, Bangalore.
2. Shri B.V. Kumar, learned Counsel for the appellants has submitted, in his letter dated 23-2-2001, a synopsis and has requested to decide the matter on merits on the basis of the grounds of appeal.
3. We have therefore heard Shri G. Sreekumar Menon, learned SDR, and perused the records. He submitted that the issue stands settled by the Supreme Court’s judgment in the case of Associated Cement Companies Limited v. Commissioner of Customs reported in 2001 (128) E.L.T. 21 (S.C.) wherein it was held that cost of drawing and design and manuals and technical materials has to be included in the transaction value under the Customs Act, 1962.
4. The appellants on the other hand have contended that they had entered into two development projects i.e. Development of TDMA UHF Digital Radio Terminal for Rural Communication Division, Telecom Research Center, Bangalore, and (ii) A Technology Transfer Agreement with C. DOT for transferring the technology for the 4000 MHz radio unit and necessary CPFSK modem required for transmission of 384K bits/sec data; that under the agreement they were not only to transfer the technology but also to sell the prototypes developed to prove the technology to show a functioning model of the technology developed; that the cost of Research and Development is not includible in the cost of prototype which are developed only to prove the functioning of the technology; that it would form part of the assessable value of the goods in the hands of the subsequent buyers who may manufacture the goods on mass scale by using the technology acquired; that the cost of Research and Development and the intellectual property right has no nexus with the manufacture of the product and as such cost of R & D should be distinguished from the engineering drawing, designing/documentation charges.
4. In the memorandum of appeal the appellants have mentioned that penalty is not warranted in the circumstances of the case as there was no concealment of facts or mala fide on their part.
5. The learned SDR refers to the finding of the Commissioner wherein it has been mentioned that there was no evidence to show that any of the documents on the basis of which show cause notice has been issued was brought to the notice of the Department; that only during the investigation these documents came to light; that the visit of the officers to the factory cannot be a ground for contending that extended period of time would not apply. Reliance has been placed on the ratio of the decision in the case of Jai-shri Engineering Co. Pvt. Ltd. reported in 1989 (40) E.L.T. 214 and in the case of CCE v. Thermax reported in 1994 (70) E.L.T. 247.
6. We have considered the submissions of both the sides. It is not in dispute that prototype developed by the appellants was supplied by them. Whatever cost has been incurred by them in developing the prototype will form part of the assessable value. If any expenses have been incurred on R & D they have to form part of the intrinsic value of the prototype developed and supplied by them. The Hon’ble Supreme Court in the case, relied upon by the learned SDR, has observed that intellectual inputs greatly enhance the value and giving example, the Hon’ble Supreme Court mentioned that the value of paper is negligible as compared to the value or price of the Encyclopaedia or a Dictionary. The Hon’ble Supreme Court held that “this means that the charges of a duty is on the final product whether it be Encyclopaedia or the engineering or architectural drawings or any manual”. Following the ratio of the judgment of the Supreme Court, we find no reason to interfere with the impugned order. We also agree with the findings of the Commissioner on the invokability of the provisions of Section 11A(1) as the material facts were not disclosed to the Department and duty was not paid on the entire value. Penalty is imposable on the appellants. We find that only penalty of Rs. 10,000/- has been imposed in a case involving duty of Rs. 1.21 lakhs which in our view is not high at all. We, therefore, uphold the order and reject the appeal.