Legal principle

Payments made by an importer to the foreign supplier's Indian agent as a condition of sale, being product support services directly relatable to the importation, must be added to the transaction value under Rule 9(1)(e) of the Customs Valuation Rules, 1988 read with Sections 14(1) and 14(1A) of the Customs Act, 1962, only charges for services undertaken after importation being excluded by the Note to Rule 4.

Court decision

The Supreme Court dismissed Coal India's appeal and upheld the orders of the Assistant Commissioner, Commissioner (Appeals) and CESTAT, holding that the services rendered by the Indian agent were not post-importation activities but product support services directly relatable to the import of the goods, covered by Sections 14(1) and 14(1A) of the Customs Act read with Rule 9(1)(e) of the Customs Valuation Rules, and hence includable in the assessable value.

Facts

M/s Coal India Ltd, a Government of India undertaking, imported P&H Shovel spare parts from M/s Harnischfeger Corporation, USA, whose Indian distributor M/s Voltas Limited was entitled under the purchase order to engineering and technical service fees of 8% of the FOB value, payable in Indian rupees and not deducted from the FOB amount. The spares were supplied on 21.03.2001 and cleared under provisional assessment. By order-in-original dated 03.03.2004, the Assistant Commissioner finalised the assessment, holding that the service fees/agency commission paid to Voltas were includable in the assessable value under Rules 9(1)(a) and 9(1)(e) of the Customs Valuation Rules, 1988 read with Section 14(1)(a) of the Customs Act, 1962, and demanded short levy of Rs.64,47,244. The Commissioner (Appeals) confirmed this, and CESTAT dismissed Coal India's appeal, holding the payment to Voltas, as agent of the foreign supplier, was a condition of sale with a direct nexus to the value of the imported goods. Coal India appealed to the Supreme Court under Section 130E of the Customs Act.

Key provisions

• Section 14, Customs Act, 1962 — Valuation of goods
• Section 2(q), The Foreign Exchange Management Act, 1999 — Definitions.
• Section 156, Customs Act, 1962 — General power to make rules
• Section 22, Customs Act, 1962 — Abatement of duty on damaged or deteriorated goods
• Section 130E, Customs Act, 1962 — Appeal to Supreme Court