2019 (9) TMI 1282 - SC - Customs

Valuation of imported goods - necessary software had to be embedded in the equipment - cost of post import services - rejection of declared value - Classification with reference to Note 4 to Section XVI of the First Schedule - Rule 10A of the erstwhile Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - inclusion of cost of services - Rule 9(1) (e) (adding cost of services) of the erstwhile Custom Valuation (Determination of Price of Imported Goods) Rules, 1988 - provisional assessment not finalised - HELD THAT - It is a matter of record that after considering the purchase order in the instant case, the Tribunal found that apart from supply of equipment, necessary software had to be embedded in the equipment before the supply was effected. The facts also disclose that out of 19 items indicated in the Bill of Entry, only 8 items were physically presented while the rest were already embedded in the main unit. These facts are not only reflective that the individual components were intended to contribute together and attain a clearly defined function as dealt with in Note 4 of Section XVI as stated above, but also indicate that software that was embedded through cards in the main unit, was not any post-importation activity. The value of the software and the concerned services were therefore rightly included and taken as part of the importation. The facts on record as stated above further disclose that the Department was therefore right in invoking principle under said Note 4 and considering the imported items as part of one apparatus or machine to be classifiable under the heading appropriate to the function. The submission advanced by the Appellant in that behalf therefore has to be rejected. Even if the governing rule is taken to be Rule 9 of 1988 Rules, there would be no difference in the ultimate analysis. Appeal dismissed.

Summary

Issues Involved:
1. Classification of imported goods.
2. Valuation of imported goods, including the inclusion of software and service charges in the assessable value.

Detailed Analysis:

1. Classification of Imported Goods:
The primary issue was whether the imported goods should be classified under Tariff Heading 8543 as determined by the adjudicating authority or under 8525 as claimed by the appellant. The Tribunal relied upon Note 4 to Section XVI, which states that if individual components contribute together to a clearly defined function, they should be classified under a single heading appropriate to that function. The Tribunal concluded that the goods should be classified under heading 8525, which pertains to "Transmission apparatus for radio-telephony, radio-telegraphy, radio-broadcasting or television." This classification was not contested by the respondent.

2. Valuation of Imported Goods:
The second issue involved the valuation of the imported goods, specifically whether the value of embedded software and service charges should be included in the assessable value. The Tribunal found that the purchase order required the necessary software to be embedded in the equipment before supply. This was supported by the fact that out of 19 items listed in the Bill of Entry, only 8 were physically presented, with the rest already embedded in the main unit. The Tribunal concluded that the value of the software and related services should be included in the transaction value under Rule 9(1)(b) of the 1988 Rules, which is almost identical to Rule 10 of the 2007 Rules.

Tribunal's Findings and Conclusion:
The Tribunal found that the imported goods were intended to function together as a "Head End" for cable TV operations and should be classified under heading 8525. On the issue of valuation, the Tribunal concluded that the value of the embedded software and related services should be included in the transaction value. The Tribunal remanded the matter to the adjudicating authority for re-computation of the differential duty based on this classification.

Supreme Court's Analysis:
The Supreme Court affirmed the Tribunal's findings. It noted that Rule 9 of the 1988 Rules, which was applicable, required the inclusion of the value of materials, components, parts, and similar items incorporated in the imported goods in the transaction value. The Court found that the software and services were not post-importation activities but were embedded in the goods before importation. Therefore, the value of these should be included in the assessable value.

Final Judgment:
The Supreme Court dismissed the appeal, affirming the Tribunal's view that the imported goods should be classified under heading 8525 and that the value of embedded software and services should be included in the assessable value. The appeal was dismissed without any order as to costs.