Customs Appeal: Assessable value revision includes P, U, R, not Q. Commissioner to allow hearing for excluded amount.

The appeal was allowed in part, determining that elements represented by P, U, and R in the amount of US $15 lakhs should be included in the assessable value of imported capital goods, while element Q (operational training) should be excluded. The Assistant Commissioner of Customs was directed to revise the valuation accordingly after providing the appellants with an opportunity to be heard on quantifying the excluded amount.

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Issues Involved:

1. Inclusion of "engineering and service charges" in the assessable value of imported capital goods.
2. Applicability of Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
3. Relevance of Supreme Court's decision in Essar Gujarat Ltd. case.

Summary:

1. Inclusion of "engineering and service charges" in the assessable value of imported capital goods:

The appellants entered into an agreement with M/s. Southwire Company, USA, for the purchase of machinery and equipment for manufacturing electrolytic copper rods and imported these capital goods in 1995. An amount of US $ 15 lakhs was charged by M/s. Southwire towards "engineering and service charges" as per invoice No. 1599-C. The Assistant Commissioner of Customs included this amount in the value of the imported capital goods for determining the assessable value u/s 14 of the Customs Act, 1962, concluding that the conditions of the contract (Items - P, Q, R, and U) signified a transfer of technology/know-how, which was a condition of sale.

2. Applicability of Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988:

The appellants contended that the price of technology was already included in the invoice value of the goods and that items P, Q, and U (engineering services, operational training, and field services & start-up assistance) were post-importation services unrelated to the imported capital goods. They argued that none of these items attracted the provisions of Rule 9(1)(c) and thus, the amount of US $ 15 lakhs should not be included in the assessable value. However, the Tribunal found that the project for manufacturing electrolytic copper rods could not be accomplished without fulfilling the requisites mentioned at P, U, and R, and thus, these items were conditions of sale.

3. Relevance of Supreme Court's decision in Essar Gujarat Ltd. case:

The Tribunal referred to the Supreme Court's decision in Essar Gujarat Ltd., where it was held that amounts paid for process licences and technical services were includible in the assessable value of imported goods, while amounts paid for theoretical and practical training were excludible. Applying this precedent, the Tribunal concluded that the amounts paid for engineering services (P), field services & start-up assistance (U), and user licence (R) should be included in the assessable value, while the amount paid for operational training (Q) should be excluded.

Conclusion:

The appeal was allowed to the extent that the elements represented by P, U, and R in the amount of US $ 15 lakhs should be included in the assessable value, while the element Q (operational training in the USA) should be excluded. The jurisdictional Assistant Commissioner of Customs was directed to revise the valuation accordingly, after affording a reasonable opportunity of hearing to the appellants on the limited question of quantification of the amount to be excluded.

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