Legal principle

Technical know-how or service charges cannot be added to the assessable value of imported goods under Rule 9(1)(e) of the Customs Valuation Rules, 1988 unless paid as a condition of sale of the imported goods, since amounts for separately identifiable post-importation technical assistance are excluded from transaction value.

Court decision

The Supreme Court dismissed the appeal of the Revenue with no order as to costs, holding on a reading of the prior authorities that the facts of the present case do not attract Rule 9(1)(e); the technical service charges were not includible in the assessable value, and the decision went in favour of Essar Steel Ltd.

Facts

The Commissioner of Customs, Ahmedabad appealed against a decision favouring M/s. Essar Steel Ltd. concerning the assessment of a plant imported for the manufacture of Hot Rolled Steel Coils, imported under a purchase order at a CIF price of US$ 169,700,000. Essar had separately paid Met Chem Canada Inc. a lump sum fee (originally DM 78,950,000, later totalling DM 94 million) under an agreement dated 13.4.1991 for technical consultancy services for setting up and commissioning the plant in India. By a show cause notice dated 20.7.1993, the Revenue demanded addition of DM 78.95 million as technical know-how charges to the CIF value, and the Commissioner of Customs by order dated 31.1.2002 added DM 78 million, holding the consultancy payment to be a condition of sale of the imported goods. The dispute concerned whether this technical services fee formed part of the assessable value under Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

Key provisions

• Section 14, Customs Act, 1962 — Valuation of goods
• Section 2(q), The Foreign Exchange Management Act, 1999 — Definitions.