Legal principle

Rule 9(1)(e) cannot be invoked to add the value of post-importation services to the assessable value merely because the import forms part of a turnkey contract; a specific finding that import of the goods was conditional on obtaining those services from the same supplier is essential.

Court decision

The Supreme Court dismissed the Revenue's appeal and upheld the CESTAT order in favour of SAIL, holding that charges for basic design and engineering, drawings and supervision attributable to post-importation activities cannot be added to the assessable value, and that Rule 9(1)(e) cannot be automatically applied to imports having surface features of a turnkey contract without a specific finding that a 'condition' existed.

Facts

SAIL imported plant, equipment and spares under two turnkey contracts (1989 and 1990) with German-Indian consortia for modernisation of its Durgapur rolling mills, the contracts being registered for project import benefits. Besides the equipment, the contracts carried separate price heads for basic design and engineering, as-built drawings, foreign supervision charges during manufacture/erection/commissioning, and training. The customs authorities added the design and engineering fees, as-built drawings and supervision charges to the invoice value under Rule 4 read with Rule 9(1)(e) of the 1988 Valuation Rules, treating the arrangement as a conditional turnkey package deal. The Commissioner (Appeals) upheld the additions, but CESTAT set them aside, holding the disputed charges related to post-importation activities and could not be included in the value of imported goods.

Key provisions

• Section 14, Customs Act, 1962 — Valuation of goods
• Section 12, Customs Act, 1962 — Dutiable goods
• Rule 9(1)(e), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Residual method
• Rule 4, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Transaction value of identical goods
• Section 2(q), The Foreign Exchange Management Act, 1999 — Definitions.