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Commissioner Of Customs (Port) v. Steel Authority Of India Ltd. - (Supreme Court) (27 Apr 2020)

Rule 9 (1) (e) of Valuation Rules cannot be automatically applied to every import which has surface features of a turnkey contract



The dispute in present appeal relates to valuation under the Customs Act, 1962 of import of certain items made by the Respondent Steel Authority of India Ltd. (SAIL) under two contracts. These imports were made in connection with modernisation, expansion and modification for their plant at Durgapur in West Bengal. The 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.

The Tribunal held that, the drawings and technical documents related to post importation activities for assembly, construction, erection, operation and maintenance of the plant and those items could not be included in the value of imported goods.

It is submitted that, the design and the other items, which were the subject of dispute, were integrally linked with the equipments and supply of the services were conditions for importation of the equipments. It has also been argued on behalf of the revenue that the contracts were integrated from basic planning and designing till implementation at site and what was imported was a project and not merely equipments.

Major part of the argument on behalf of the revenue was anchored to Rule 9(1)(e) of Customs Valuation (Determination of Price) of Imported Goods Valuation Rules, 1988 ( Valuation Rules). The Revenue’s contention has been that these were turnkey contracts and hence, import of designs and drawings etc. even for post-importation activities should be treated as condition of import of the equipments.

SAIL had taken specific stand before the authority of the first instance that, it was not a condition for them to take design and engineering, which related to post importation activities from the supplier only. In terms of the schedule of the agreement, the purchaser (that is SAIL) had right to change the goods to be supplied by the supplier at any time.

An importer of equipments of a plant could always choose to obtain drawings and designs for undertaking post importation activities from an overseas consortium supplying the equipments. This may confer on such arrangements attributes of a turnkey contract, but that fact by itself would not automatically attract the “condition” clause contained in Rule 9(1) (e) of the Valuation Rules.

The disputed items on which the customs authorities intended to impose duty all related to post importation activities and could not be included in the assessable value. It has been urged on behalf of the respondent that neither clause 9 (1) b (iv), nor 9 (1) (e) could be made applicable so far as the subject items are concerned. The imported items according to the Respondent are the equipments and the engineering drawings etc. forming part of the contract were not necessary for production of the imported goods. It has also been urged that the customs authority had wrongly contended that the subject drawings etc. were purchased as the condition that the sale of the imported goods and this excluded application of clause 9 (1) (e) of the Valuation Rules.

The expression “condition”, simply put, conveys the idea that something could be done only if another thing was also done. In the given context, it would imply that import of equipments could be allowed by the other party provided the design features for post- importation activities were also obtained from the same supplier or from a firm as per the overseas supplier’s direction. But there is no material to suggest that import of equipments was effected with simultaneous obligation of SAIL that the designs relating to post- importation activities should also be obtained from the same entity. The revenue has proceeded with the understanding that since both were obtained from the same vendor, condition of obtaining designs etc., for post-importation activities was implicit in the contract. Reading such implied condition into the contracts would be impermissible in the absence of any other material to demonstrate subsistence of such condition.

The provisions of Rule 9 (1) (e) of 1988 Rules 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.

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. There is no reason to interfere with the order of the Tribunal. The appeal is dismissed.


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