Legal principle

Transaction value must be relatable to the import — amounts payable as a condition of import (including the value of software embedded before shipment) are includible in assessable value, whereas charges for post-importation activities are not, and components that together attain a clearly defined function are classifiable as one apparatus under Note 4 to Section XVI.

Court decision

The Supreme Court dismissed the appeal with no order as to costs, affirming the Tribunal: the classification of all components together under CTH 85438999 was correct under Note 4 to Section XVI, and the value of the embedded software and associated services was rightly included in the assessable value as part of the importation.

Facts

Indusind Media & Communications Ltd. imported 19 items (Multiplexor Satellite Receivers, test and measurement equipment etc.) at Air Cargo Complex, New Delhi under Bill of Entry 260085 dated 26.06.2003, declaring them individually under Chapters 84/85 with a declared value of Rs.1,02,91,463. The Department, acting on information from SIIB Mumbai, alleged the items together formed a complete 'Head End' for cable TV operations classifiable under CTH 85438999 per Note 4 to Section XVI, and that the importer had split the invoice to suppress the value of embedded software and of pre-shipment integration and installation services. After adjudication, the Principal Commissioner by order dated 29.12.2015 rejected the declared value, redetermined it at Rs.1,72,03,243 (US$ 361633 CIF), confirmed differential duty of Rs.54,19,475, confiscated the goods under Section 111(m) with a Rs.10 lakh redemption fine under Section 125, and imposed penalties under Sections 112(a) and 114AA on the company (Rs.15 lakhs each provision) and on its Vice President (Technical) Brig. Deshpande. The Tribunal dismissed the company's appeal, and the company approached the Supreme Court under Section 130E.

Key provisions

• Section 14, Customs Act, 1962 — Valuation of goods
• Section 114AA, Customs Act, 1962 — Penalty for use of false and incorrect material
• Section 112(a), Customs Act, 1962 — Penalty for improper importation of goods
• Section 18, Customs Act, 1962 — Provisional assessment of duty
• Section 111(m), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 125, Customs Act, 1962 — Option to pay fine in lieu of confiscation
• Rule 10, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Cost and services
• Section 130E, Customs Act, 1962 — Appeal to Supreme Court