2006 (5) TMI 295 - AT - Customs

Summary

Issues:
1. Whether basic design and engineering fees and foreign supervision charges are to be added to the invoice values of imported equipments under Rule 9 of the Valuation Rules? (Appeal No. C/V-537/2001)
2. Whether charges towards basic design and engineering fees, as-built drawings fees, and supervision charges are to be added to the invoice values of imported equipments under Rule 4 of the Valuation Rules read with Section 14 of the said Act? (Appeal No. C-1/2002)

Analysis:
1. The appellant entered into contracts for modernization of plants and imported equipment during 1990-1995. Customs authorities increased invoice values by 5-9% due to inclusion of basic design and engineering fees. Appellant paid additional demands, which were finalized by adding design and engineering fees to the declared assessable value. The issue was whether these fees should be included in the transaction value under Rule 9 of the Valuation Rules. The Tribunal found that the Supreme Court's decision in Mukund Ltd.'s case, which involved valuation of designs and drawings, did not apply to the present case of equipment importation. The reliance on this case was deemed misplaced, and the appellant's appeal was allowed.

2. The Deputy Commissioner included various charges in the valuation of imported equipment under Rule 4 of the Valuation Rules. However, the Tribunal disagreed with this approach. The Tribunal pointed out that the Supreme Court's decision in Collector of Customs v. Essar Gujarat Ltd. supported the appellant's case, emphasizing that only specific services could be added to the valuation under the Valuation Rules. The Tribunal found that the charges for design, drawings, and technical services were related to project implementation and should not be added to the assessable value. The Tribunal set aside the lower authorities' orders and allowed the appeals.

3. The Tribunal highlighted that neither Section 14 of the Act nor the Valuation Rules mandated the inclusion of costs related to post-importation activities in the price of equipment for customs duty levy. The Interpretative Notes to Rule 4 of the Valuation Rules explicitly stated that charges for post-importation activities should not be included in the assessable value. The Tribunal concluded that the lower authorities' findings were erroneous and ultra vires the Act and Valuation Rules. Additionally, Rule 9 of the Valuation Rules did not apply as there was no supply of engineering or drawings by the appellant to the foreign seller. The Tribunal allowed the appeals, setting aside the lower authorities' orders.