Judgement Update | Non-inclusion of value of design, drawing and engineering services in the assessable value of imported goods
This is to apprise you on recent Supreme Court decision in the case of CC v. Steel Authority of India Limited, 2020-VIL-15-SC-CU. The Court held that the value of design, drawing and engineering services (‘services’) is not automatically includible in the assessable value of imported goods for discharging customs duty. These charges shall be includible only when they constitute to be condition of sale of imported goods.
In this case, the taxpayer executed two contracts, one for import of plant, equipment and spares (‘subject goods’) and second for services for installation, modernisation, expansion and modification of subject goods.
The revenue contended that services were integrally linked with the subject goods and procurement of services was condition of import. The two contracts formed part of a single project and were integrated from basic planning and designing till implementation at site.
The taxpayer argued that Rule 9(1)(e) of the erstwhile Customs Valuation Rules (Determination of Price of Imported Goods), 1988 read with Interpretative Notes do not permit addition of value of post-importation items and thus, value of services should not be included in value of imported goods.
The Supreme Court relied on various judgments on the issue and held as under:
- The provision of services are independent of supply of subject goods and not condition of contract of supply of subject goods which is a sine qua non for invoking Rule 9(1)(e).
- There was no evidence on record to depict that import of subject goods would have been affected in the absence of obligation of procurement of services which related to post-importation activities. Factually, taxpayer had all rights to procure services from a different supplier.
This judgment reiterates established jurisprudence and reassures taxpayers engaged in import of plant and machinery and related services from the same supplier. The revenue invariably seeks to levy customs duty on such services without actual evaluation as to whether import of services are a condition of contract or not. The Supreme Court rightly held that existence of condition of sale is a pre-requisite to add value of such services in the assessable value of imported goods for payment of customs duty.