2006 (8) TMI 186 - SC - Customs

Supreme Court upholds decision on technical service fee in Customs case

The Supreme Court dismissed the appeal filed by the Commissioner of Customs, upholding the decision of the Customs, Excise, and Service Tax Appellate ... It is only when the transaction value under Rule 4 is rejected, that under Rule 3(ii) the value shall be determined by proceeding sequentially through Rules 5 to 8 of the Rules. Conversely, if the transaction value can be determined under Rule 4(1) and does not fall under any of the exceptions in Rule 4(2), there is no question of determining the value under the subsequent rules. Department has not advanced any argument as to how the Tribunal erred in following their earlier judgments on the identical issue. When the law has been laid down by the CESTAT itself in a number of earlier judgments, it only followed the same in the facts and circumstances of the present case. Therefore, now it is not open for the Department to persuade this Court to reverse the order which is based on the earlier judgments of the CESTAT wherein correct view has been taken by it. Departmental appeal dismissed. Issues Involved:1. Relationship between the importer and foreign supplier.2. Influence of the relationship on the price of imported goods.3. Inclusion of technical service fees in the valuation of imported goods.4. Applicability of Customs Valuation Rules, 1988.Issue-Wise Detailed Analysis:1. Relationship between the importer and foreign supplier:The respondent, M/s. Prodelin India (P) Ltd. (M/s. PIPL), was set up under an agreement with M/s. Prodelin Corporation U.S.A. (M/s. PC USA). M/s. PC USA owned 75% of equity shares in M/s. PIPL and had three out of four directors on the board. The Commissioner of Customs (Appeals) held that M/s. PIPL and M/s. PC USA were related persons under Rules 2(2)(i) and 2(2)(iv) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, which was upheld by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT).2. Influence of the relationship on the price of imported goods:The Customs Department argued that the relationship between M/s. PIPL and M/s. PC USA influenced the price of imported goods. They contended that the technical service fee paid by M/s. PIPL to M/s. PC USA influenced the price of the imported goods. The CESTAT, however, found that the relationship alone was not sufficient to make additions to the sale price and that the transaction value should be accepted unless there was evidence that the relationship influenced the price.3. Inclusion of technical service fees in the valuation of imported goods:The Department argued that the technical service fee of US $25,000 per month paid by M/s. PIPL to M/s. PC USA was for pre-operative functions such as supply of design, drawing, fabrication drawing, etc., and should be included in the value of the imported goods. The CESTAT found that the technical service fee was for post-importation activities and not related to the price of the imported goods. The Supreme Court agreed with this finding, stating that the technical fee was for various functions to be carried out in India and not related to the imported goods.4. Applicability of Customs Valuation Rules, 1988:The Customs Department relied on Rules 2(2)(i), 2(2)(iv), 4(3)(a), and 4(3)(b) of the Customs Valuation Rules, 1988, to argue that the transaction value should not be accepted. The Supreme Court held that the Department did not provide evidence to show that the declared price did not reflect the true transaction value. The Court emphasized that the onus to prove that the declared price did not reflect the true transaction value was on the Department and that the transaction value should be accepted unless there was evidence to the contrary.Conclusion:The Supreme Court dismissed the appeal filed by the Commissioner of Customs, holding that the CESTAT had correctly interpreted the joint venture agreement and found that the technical service fee was for post-importation activities. The Court held that the Department failed to provide evidence that the relationship between M/s. PIPL and M/s. PC USA influenced the price of the imported goods and that the transaction value should be accepted. The appeal was dismissed with no order as to costs.