2016 (9) TMI 726 - AT - Customs

Tribunal Upholds Decision Excluding Engineering Info Cost from Imported Goods Value

The Tribunal dismissed the Revenue's appeal and upheld the decision of the Commissioner of Customs (Appeals) regarding the exclusion of the value of ... Inclusion of post-importation costs in assessable value - pre-importation versus post-importation cost - condition of sale and nexus with imported goods - application of Rule 9(1)(e) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - interpretation of Rule 4 in conjunction with Rule 9Application of Rule 9(1)(e) of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - condition of sale and nexus with imported goods - pre-importation versus post-importation cost - Whether the value charged for 'engineering information, drawings and design' must be included in the assessable value of imported parts under the Customs Valuation Rules - HELD THAT: - The Tribunal examined whether the consideration for engineering drawings and designs formed a pre-importation component that was a condition of sale of the imported parts such as to mandate inclusion under Rule 9(1)(e) read with Rule 4. Relying on the interpretative approach in Tata Iron & Steel and the later Supreme Court decisions in Essar Steel and Hindalco, the determinative test is whether the element in question has a direct nexus with the imported goods at the time and place of importation and is a condition of sale. Mere consolidation or segregation of price into separate components does not, by itself, bring an element within Rule 9; each component must be scrutinised on its nature. On the facts, the agreements and procurement record showed the drawings related to post-importation assembly and local fabrication, there was no evidence that supply of drawings was made conditional upon the supply of imported parts, nor that the overseas supplier controlled or warranted indigenous components. The Otto India decision relied on by Revenue was found on materially different facts and not applicable. Therefore the price of the drawings was a post-importation cost without the requisite nexus to be added to assessable value under Rule 9(1)(e).The value charged for engineering drawings and design is not includible in the assessable value of the imported parts absent evidence that it was a pre importation condition of sale; the impugned order setting aside the addition is upheld.Final Conclusion: Revenue's appeal is dismissed; the addition of the amount charged for engineering drawings and design to the assessable value of the imported parts was not warranted because that charge was a post importation cost lacking the necessary nexus or condition of sale to be included under the Customs Valuation Rules. 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.