Summary
Coal India's subsidiary imported P&H shovel spares under a purchase order requiring, in addition to 100% of the FOB value payable to the US supplier, payment of 8% of FOB to the supplier's Indian agent (Voltas) as engineering and technical service charges. The Supreme Court upheld the customs authorities and CESTAT: the product support services were pre-importation activities directly relatable to the import and a condition of sale, so the charges were includible in the assessable value under Section 14 of the Customs Act read with Rule 9(1)(e) of the Customs Valuation Rules, 1988, and were not excluded by the Note to Rule 4.
Issues
- Whether engineering and technical service charges of 8% of FOB value paid by the importer to the foreign supplier's Indian agent form part of the assessable value of the imported goods under Section 14 of the Customs Act read with Rule 9 of the Customs Valuation Rules, 1988.
- Whether such charges are excluded by the Note to Rule 4 as charges for maintenance or technical assistance undertaken after importation.
Provisions considered
- Section 14(1)(a) and (1A) (as it stood at the relevant time), Customs Act, 1962Value for duty is deemed to be the price at which such or like goods are ordinarily sold for delivery at the time and place of importation in the course of international trade between unrelated parties, to be determined under the rules. Read with Rule 9(1)(e), the agent's charges, being directly relatable to the import, fell within this value. (¶¶ 26, 26.1, 33)
- Rule 9(1)(a) and (e), Customs Valuation (Determination of Price of Imported Goods) Rules, 1988Rule 9 adds to the price actually paid or payable, inter alia, commissions and brokerage other than buying commissions (clause (a)) and all other payments made as a condition of sale by the buyer to the seller or to a third party to satisfy the seller's obligation (clause (e)). The 8% payment to the Indian agent, required by the supplier's quotation and the purchase order and not deductible from FOB, was a condition of sale covered by Rule 9(1)(e). (¶¶ 11, 19, 20, 21.3, 24, 28, 33)
- Rule 4 and Interpretative Note to Rule 4 (via Rule 12), Customs Valuation (Determination of Price of Imported Goods) Rules, 1988Transaction value is the price actually paid or payable adjusted under Rule 9. The Note excludes charges for construction, erection, assembly, maintenance or technical assistance undertaken after importation. As explained in J.K. Corporation, only post-importation activities are excluded; the agent's product support services here were not post-importation and so the exclusion did not apply. (¶¶ 27, 29, 30, 31, 33)
- Section 130E, Customs Act, 1962The appeal to the Supreme Court against the CESTAT order was filed under this provision. (¶ 1)
Held
- Customs duty is assessed on the value of goods at the time and place of importation, which includes payments required as a condition of sale; amounts paid for post-importation services or activities, including post-importation technical assistance, are excluded from the assessable value by the Note to Rule 4 of the Customs Valuation Rules, 1988. (¶¶ 30, 31, 32)
- Where the foreign supplier's quotation and the purchase order oblige the importer to pay an additional 8% of FOB value to the supplier's Indian agent, not deductible from the FOB amount, for product support services such as identifying spares requirements, scrutinising orders and letters of credit, assisting customs clearance and insurance survey, those services are pre-importation activities directly relatable to the import and the payment is a condition of sale includible in the assessable value under Sections 14(1) and 14(1A) of the Customs Act read with Rule 9(1)(e) of the Customs Valuation Rules. (¶¶ 18, 19, 20, 33)
- The concurrent findings of the Assistant Commissioner, Commissioner (Appeals) and CESTAT that the payments to the agent were not linked to any specific service rendered to the importer, with whom the agent had no contract, but were made only in connection with the sale of the goods, warranted no interference. (¶¶ 21, 21.1, 21.2, 24, 25, 25.1, 34)
Result
Appeal dismissed; CESTAT order dated 20.04.2010 confirming the inclusion of the engineering and technical service charges in the assessable value and the demand of Rs. 64,47,244 upheld.