Case Law Details
Commissioner of Customs Vs Kerala State Electricity Board Ltd (CESTAT Bangalore)
In the case of Commissioner of Customs Vs Kerala State Electricity Board Ltd. (CESTAT Bangalore), the tribunal addressed whether charges for supervision of installation and field efficiency tests paid to overseas suppliers should be included in the assessable value for customs duty. The Revenue challenged the Commissioner’s ruling, arguing that these charges should be added to the import value under Rule 9(1)(e) of the Customs Valuation Rules, 1988. However, the respondent contended that these charges were related to post-importation activities and thus should not be included in the customs duty calculation. The CESTAT upheld the respondent’s position, ruling that such charges are not part of the assessable value for customs duty. The tribunal emphasized that these expenses are not considered a condition of sale but rather post-importation costs, as confirmed by relevant Supreme Court judgments. Consequently, the Revenue’s appeal was dismissed, and the original decision to exclude these charges from the assessable value was affirmed.
FULL TEXT OF THE CESTAT BANGALORE ORDER
This appeal is filed by the Revenue against Order-in-Appeal No. COC-CUSTM-000-APP-511-2015-16 dated 08.06.2015 passed by the Commissioner of Customs (Appeals), Cochin.
2. The facts of the case in brief are that the respondents are registered under the Project Contract with Commissioner of Customs for availing project benefits under Project Import Regulations, 1986 i.e., concessional rate of duty for import of goods for setting up of a Hydro Electric Power Project at Kuttiyadi. On completion of the project, the respondent was directed for reconciliation and on the basis of scrutiny of records, it was alleged that the respondent had inter alia not paid duty of Rs.96,23,121.50 on the charges of Supervision of Installation and Field Efficiency Test, which was not included in the total value of project cost. On adjudication, the said demand was confirmed by the adjudicating authority. Aggrieved by the said order, the respondent filed an appeal before the learned Commissioner (Appeals), who allowed the appeal of respondent by setting aside the order of the adjudicating authority. Hence, Revenue is in appeal.
3. The learned Authorised Representative for the Revenue reiterated the findings of the adjudicating authority. He has submitted that the respondent registered a Project Contract No.2/1997 under Project Import Regulations, 1986 for availing concessional rate of duty for import of goods for setting up power project at Kuttiyadi, Kerala. The total value for supply of machinery was CAD $ 2,64,55,525. However, by an addendum dated 18.11.1997, the respondent informed that value of machinery is CAD$ 2,48,62,972 and charges towards Supervision of Installation and Field Efficiency Test is CAD $ 15,92,553. He has submitted that all imports took place before 2002, hence, Rule 9(1)(e) of the Customs Valuation Rules, 1988 would apply for determination of value of imported goods. He submits that as per the said Rule “all other payments actually made or to be made as a condition of sale of imported goods, by the buyer to the seller, are to be added to the price actually paid or payable for the imported goods.” Charges towards Supervision of Installation and Field Efficiency Test being an integral part of the contract needs to be added for computation of assessable value for determination of customs duty on the said Project Import.
4. The learned advocate for the respondent on the other hand submitted that Supervision of Installation and Field Efficiency Test were post-import activities, the value of the same cannot be included for the purpose of valuation for payment of customs duty. The adjudicating authority has wrongly observed that the said charges being part of the scope of supply; hence would form part of assessable value by virtue of Rule 9(1)(e) of the Customs Valuation Rules, 1988. He has submitted that as per Section 14 of the Customs Act, 1962, the customs duty must have a direct nexus with the value of the goods payable at the time of importation. Therefore, the amount payable for any activity which are post-importation cannot form part of the assessable value for levy of customs duty. He has submitted that the issue is no more res integra and covered by the judgment of the Hon’ble Supreme Court and the Tribunal in the following cases:
(i) Bombay Dyeing & Manufacturing Co. Ltd. vs. Collector of Customs, Bombay: 1997 (90) ELT 276 (SC)
(ii) Commissioner of Customs (Port), Kolkata vs. J.K. Corporation Ltd.: 2007 (208) ELT 485 (SC)
(iii) Commissioner of Customs (Port), Kolkaa vs. Steel Authority of India Ltd.: 2020 (372) ELT 478 (SC)
(iv) Arcil Catalyst Pvt. Ltd. vs. Commissioner of Customs (Import), Mumbai: (2023) 3 Centax 288 (Tri.-Bom.)
5. Heard both sides and perused the records.
6. We find that the short issue involved in the present appeal for consideration is: whether the value of ‘Supervision of Installation’ and ‘Field Efficiency Test’ be included in the value of the project import for levy of customs duty.
6.1 The Revenue proposed to include the said value under Rule 9(1)(e) of the Customs Valuation Rules, 1988 which reads as under:
“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, –
(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.”
6.2 It is the claim of the Revenue that the said charges paid to the overseas suppliers of goods is a condition of sale, hence to be included in the value of the goods. On going through the contract and the addendum thereafter, we find that it cannot be called as a condition of sale of the goods. What is condition for sale has been explained by the Hon’ble Supreme Court in the case of Commissioner of Customs (Port), Kolkata vs. Steel Authority of India Ltd. (supra) as follows:
“26. The expression “condition”, simply put, conveys the idea that something could be done only if another thing was also done. In the given context, it would imply that import of equipments could be allowed by the other party provided the design features for post-importation activities were also obtained from the same supplier or from a firm as per the overseas supplier’s direction. But there is no material before us to suggest that import of equipments was effected with simultaneous obligation of SAIL that the designs relating to post-importation activities should also be obtained from the same entity. The revenue has proceeded with the understanding that since both were obtained from the same vendor, condition of obtaining designs etc., for post-importation activities was implicit in the contract. The Revenue has sought to emphasize their case on the basis that as it was a turnkey project, importation of equipments and post-importation project implementation exercise were mutually dependent. In our opinion, reading such implied condition into the contracts would be impermissible in the absence of any other material to demonstrate subsistence of such condition. No part of the contract has been shown to us from which such condition could be inferred. Necessity of subsistence such condition has been laid down in the case of Ferodo India (P) Ltd. for invoking Rule 9(1)(e). In our opinion, the provisions of Rule 9(1)(e) cannot be automatically applied to every import which has surface features of a turnkey contract. Just because different components of a contract or multiple contracts give the shape of turnkey project to the imported items, without specific finding on existence of “condition” as contemplated in clause 9(1)(e), value of all these components could not be added to arrive at the assessable value. Such an exercise would go against the provisions of Interpretative Note to Rule 4, which is part of the Valuation Rules in view of the provisions of Rule 12 thereof.”
6.3 From the Agreements dated 29.5.1995 and the addendum dated 24.2.1996, we do not find the charges paid on account of Supervision of Installation and Field Efficiency Test as a condition of sale. Besides, the said charges are not to be included in the assessable value of the imported goods as post-importation charges as held by the Hon’ble Supreme Court in Bombay Dyeing Manufacturing Co. Ltd. (supra).
7. In the result, the impugned order is upheld and the Revenue’s appeal is dismissed.
(Order pronounced in Open Court on 26.07.2024.)
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