2016 (9) TMI 726 - AT - Customs

Valuation - enhancement in assessable value - engineering information, drawing and design - post importation expenses or pre importation expenses - project imports - Project Import Regulations, 1986 - provisional assessment - rule 4(1) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 read with Rule 9(1)(e) - rule 9(b)(iv) of the Rules - whether the declared value of imported goods necessarily has to be subject to enhancement merely on the ground that a contract with the overseas supplier incorporates a second and distinct transaction? - Held that - rule 9 of the Rules does not confer a blanket mandate to add the value of elements of a contract merely because the supply of imported goods are covered in the same contract. The nature of each element of the contract that has a separate and distinct value, whether so segregated at the specific request of the importer or not, must be scrutinized for ascertainment as pre-importation component for addition to the assessable value. The value of engineering drawings is a post-importation cost. No evidence has been adduced to show that the provision of these drawings is conditional to placing order for equipment or that it is a pre-importation cost - mere supply of drawings at a value in the same agreement does not, ipso facto, have the support of law resort to rule 9 - cost of drawings and engineering services not included in the assessable value. Appeal of revenue dismissed - decided against Revenue.

Issues Involved:
1. Inclusion of value of "engineering information, drawing and design" in the assessable value.
2. Applicability of Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
3. Relevance of post-importation expenses in assessable value.
4. Evaluation of evidence regarding the condition of sale and the connection between imported goods and engineering drawings.

Issue-wise Detailed Analysis:

1. Inclusion of value of "engineering information, drawing and design" in the assessable value:
The Revenue challenged the decision of the Commissioner of Customs (Appeals), which excluded the value of "engineering information, drawing and design" from the assessable value of the imported goods. The first appellate authority held that the enhancement of assessable value by including the price attributable to "engineering information, drawing and design" was contrary to Rule 4(1) read with Rule 9(1)(e) of the Customs Valuation Rules, 1988. The Supreme Court in Tata Iron & Steel Co v. Commissioner of Central Excise & Customs, Bhubaneswar had decided that post-importation expenses were not to be included in assessable value.

2. Applicability of Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988:
Revenue argued that the inclusion of the value of "engineering information, drawing and design" was mandated by Rule 9(1)(e) of the Customs Valuation Rules, 1988. The original authority had included this value in the assessable value, finding that both aspects were part of the same agreement and a condition of sale. However, the first appellate authority found no nexus between the imported goods and the engineering drawings, determining that the drawings were related to goods fabricated locally for post-importation activity.

3. Relevance of post-importation expenses in assessable value:
The first appellate authority and the Tribunal both concluded that the cost of engineering drawings, intended for post-importation activity, should not be included in the assessable value. Citing Supreme Court decisions in Tata Iron & Steel Co Ltd and other cases, it was established that post-importation expenses are not includible in the assessable value.

4. Evaluation of evidence regarding the condition of sale and the connection between imported goods and engineering drawings:
Revenue contended that the sale of goods was contingent upon the payment for engineering drawings and that these drawings were necessary for the functionality of the imported parts. However, the Tribunal found no evidence in the show cause notice or the records to support this claim. The agreements and orders placed indicated separate transactions for the procurement of imported parts and engineering drawings. The Tribunal emphasized that the provision of drawings was not conditional on the equipment order and was for post-importation activities.

Conclusion:
The Tribunal concluded that Rule 9 of the Customs Valuation Rules does not mandate the inclusion of the value of elements in a contract merely because they are covered in the same agreement. Each element must be scrutinized to determine if it is a pre-importation component. In this case, the value of engineering drawings was deemed a post-importation cost, and no evidence was presented to show it was a pre-importation cost or conditional to the equipment order. Consequently, the appeal of the Revenue was dismissed, and the decision of the Commissioner of Customs (Appeals) was upheld.

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