2020 (4) TMI 774 - SC - Customs

Valuation of certain items imported under two contracts - inclusion of the price of drawings, design etc. - imports were made in connection with modernisation, expansion and modification for their plant at Durgapur in West Bengal - main case of the appellant is that these two cases involved importation of turnkey projects and the entire contract value have to be treated as the transaction value for the purpose of charging customs duty - appellant s case in substance is that on a composite reading of Section 14 of the Act, Rules 4 and 9(1)(e) of the 1988 Rules, the price of drawings, design etc., should be added to the invoice value of the imported equipments, as those intangible items formed an integral part of the arrangement agreed upon between the two consortia and SAIL - Stand of the respondent, on the other hand is that those items related to post importation activities of SAIL in India for implementation of their project. HELD THAT - The provisions of Rule 9 (1) (e) cannot be automatically applied to every import which has surface features of a turnkey contract. Just because different components of a contract or multiple contracts give the shape of turnkey project to the imported items, without specific finding on existence of condition as contemplated in clause 9 (1) (e), value of all these components could not be added to arrive at the assessable value. Such an exercise would go against the provisions of Interpretative Note to Rule 4, which is part of the Valuation Rules in view of the provisions of Rule 12 thereof. In the present appeal, involving two import consignments, the authorities of First Instance and the Appellate Authority proceeded on the basis that since all the scheduled items formed part of the same contract and were linked with activities at post-import stage with the imported equipments, the provisions of Section 9 (1) (e) could be invoked. Such reasoning infers subsistence of conditions for awarding post-importation work to the overseas consortia or makes import of both sets of items otherwise interdependent - the stand of SAIL was consistent that the subject drawings and specifications did not relate to the equipments imported and was meant for post importation activities and there was no condition laid down that the import of the equipments were to be supplemented by post-importation work. Appeal dismissed - decided against appellant.

Issues Involved:
1. Valuation of imported goods under the Customs Act, 1962.
2. Inclusion of design, engineering, and supervision charges in the transaction value under Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
3. Interpretation and application of Rule 4 and Rule 9(1)(e) of the 1988 Rules.
4. Distinction between pre-importation and post-importation activities.
5. Applicability of precedents in determining the assessable value.

Detailed Analysis:

1. Valuation of Imported Goods under the Customs Act, 1962:
The dispute centers on the valuation of certain imported items by the respondent, Steel Authority of India Ltd. (SAIL), under two contracts for modernizing their plant. The contracts involved both German and Indian entities and were registered for project import benefits. The crux of the dispute is whether the design, engineering, and supervision charges should be included in the transaction value of the imported goods.

2. Inclusion of Design, Engineering, and Supervision Charges:
The customs authorities added the basic design and engineering fees and supervision charges to the invoice value, arguing that these were integral to the contract and thus should be included in the transaction value. SAIL contended that these charges related to post-importation activities and should not be included in the assessable value.

3. Interpretation and Application of Rule 4 and Rule 9(1)(e) of the 1988 Rules:
The customs authorities invoked Rule 4 and Rule 9(1)(e) of the 1988 Rules to justify the additions to the transaction value. They argued that the contracts were turnkey projects and that the entire contract value should be treated as the transaction value. The Tribunal, however, found that the design and engineering fees and supervision charges were for post-importation activities and thus should not be included in the value of the imported goods. The Tribunal referred to the Interpretative Notes to Rule 4, which explicitly exclude charges for post-importation activities from the transaction value.

4. Distinction Between Pre-importation and Post-importation Activities:
The Tribunal held that the charges for design, engineering, and supervision were related to post-importation activities such as assembly, construction, erection, operation, and maintenance of the plant. These activities were distinct from the importation of the equipment itself. The Tribunal's decision was based on the principle that post-importation activities should not be included in the assessable value of the imported goods.

5. Applicability of Precedents:
The Tribunal distinguished the case from the TISCO and Essar Gujarat cases, which the customs authorities had cited. The Tribunal noted that in those cases, the charges were related to pre-importation activities or were necessary for the production of the imported goods. In contrast, the charges in SAIL's case were for post-importation activities. The Tribunal also referred to other precedents, such as the Tata Iron & Steel Co. Ltd. and Essar Steel Ltd. cases, which supported the exclusion of post-importation charges from the assessable value.

Conclusion:
The Tribunal concluded that the charges for design, engineering, and supervision related to post-importation activities and should not be included in the assessable value of the imported goods. The appeal by the customs authorities was dismissed, and the Tribunal's order in favor of SAIL was upheld. The decision emphasized the importance of distinguishing between pre-importation and post-importation activities in determining the assessable value under the Customs Act and the 1988 Rules.

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