Capital goods classification for second-hand service equipment and rejection of customs value enhancement without contemporaneous evidence.

Second-hand equipment used as office equipment for rendering services qualified as capital goods under the EXIM Policy and was therefore freely importable; the confiscation based on section 111(d) of the Customs Act could not stand once the import was held permissible. Customs valuation could not be enhanced merely on Internet price listings in the absence of contemporaneous evidence of comparable imports at higher prices, so the declared transaction value was accepted. The import was thus treated as lawful and the valuation enhancement was set aside, giving relief to the assessee.

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Issues: (i) Whether the imported second-hand equipment was capital goods eligible for free import as goods meant for rendering services. (ii) Whether the enhancement of value on the basis of Internet prices was sustainable.

Issue (i): Whether the imported second-hand equipment was capital goods eligible for free import as goods meant for rendering services.

Analysis: The equipment was accepted as second-hand machinery and was treated by the authorities as akin to office equipment such as a photocopying machine. Under Para 9.12 of the EXIM Policy 2004-2009, capital goods include equipment required for rendering services, and Para 2.33 of the Handbook of Import Export Procedure 2002-2003 permits free import of second-hand capital goods. Since office equipment used for rendering services falls within that description, the imported item answered the test of capital goods and could not be treated as a prohibited import. The confiscation founded on Section 111(d) of the Customs Act, 1962 could not survive once the import was held to be permissible.

Conclusion: The issue was decided in favour of the assessee and the item was held to be freely importable as capital goods.

Issue (ii): Whether the enhancement of value on the basis of Internet prices was sustainable.

Analysis: The valuation was enhanced only on the basis of Internet listings for similar goods. In the absence of contemporaneous evidence showing imports of the same goods at higher prices during the relevant time, transaction value could not be displaced. The governing principle is that customs valuation must rest on reliable evidence, not on unsupported Internet quotations.

Conclusion: The enhancement of value was rejected and the declared transaction value was accepted.

Final Conclusion: The import was held to be permissible as capital goods and the valuation enhancement was set aside, resulting in relief to the assessee.

Ratio Decidendi: Second-hand equipment used as office equipment for rendering services qualifies as capital goods for free import where the applicable policy so permits, and customs valuation cannot be enhanced without contemporaneous evidence of comparable imports.

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