The Supreme Court upheld the inclusion of engineering and technical service fees (8% of FOB value) paid to a local agent in the assessable value of imported goods under Rule 9(1)(e) of the Customs Valuation Rules, 1988. The Court ruled that such payments, being a condition of sale and linked to pre-importation services, were integral to the transaction value under Section 14 of the Customs Act, 1962. The judgment clarified that post-importation service charges are excludable, but pre-import support services directly connected to the sale attract customs duty. The appeal by Coal India was dismissed, affirming the authorities’ stance on valuation.
Facts Of The Case:
In 2000, Central Coalfields Limited (a subsidiary of Coal India) invited tenders for spare parts for P&H Shovels. M/s Harnischfeger Corporation, USA, through its Indian distributor M/s Voltas Limited, submitted a quotation requiring payment of 8% of the FOB value as engineering and technical service fees to Voltas, in addition to the FOB amount. A purchase order was issued in December 2000, specifying that 100% of the FOB value would be paid to the foreign supplier via letter of credit, while the 8% fee would be paid separately to Voltas for post-sale support services like technical assistance, customs clearance, and defect resolution.
Upon importing the goods in 2001, customs authorities provisionally assessed the consignment but later finalized the assessment by including the 8% fee in the transaction value, treating it as a condition of sale under Rule 9(1)(e) of the Customs Valuation Rules, 1988. Coal India contested this, arguing that the payment was for post-importation services and thus excludable. The Assistant Commissioner, Commissioner (Appeals), and CESTAT all ruled against Coal India, holding that the fee was intrinsically linked to the sale and pre-importation activities. The Supreme Court affirmed this view, dismissing Coal India’s appeal and confirming that such payments form part of the assessable value under Section 14 of the Customs Act, 1962.
Procedural History:
The case originated with the Assistant Commissioner of Customs, Kolkata, finalizing the provisional assessment of imported goods in 2004 and holding that the 8% engineering and technical service fee paid to M/s Voltas Limited (the foreign supplier’s agent) was includible in the assessable value under Rule 9(1)(e) of the Customs Valuation Rules, 1988. Coal India challenged this before the Commissioner of Customs (Appeals), which upheld the decision in June 2004, ruling that the payment was a condition of sale. Subsequently, Coal India appealed to the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), which dismissed the appeal in April 2010, affirming that the fee was linked to the sale of goods. The matter then reached the Supreme Court, which, in its May 2025 judgment, concurred with the lower authorities, holding that the payment was integral to the transaction value under Section 14 of the Customs Act, 1962, and dismissed Coal India’s appeal, thereby settling the legal position on the inclusion of such pre-importation charges in customs valuation.
Court Observation:
The Supreme Court observed that the 8% engineering and technical service fee paid to M/s Voltas Limited was not merely for post-importation support but constituted a condition of sale intrinsically linked to the import transaction. The Court emphasized that Rule 9(1)(e) of the Customs Valuation Rules, 1988 mandates the inclusion of all payments made as part of the sale obligation, even if directed to a third party (here, the foreign supplier’s agent). It distinguished this from post-importation services (excludable under Note to Rule 4), noting that Voltas’ activities—such as identifying spare parts, assisting in customs clearance, and coordinating replacements—were pre-importation services essential to the sale. The Court upheld the authorities’ view that the fee had a direct nexus to the imported goods’ value under Section 14 of the Customs Act, 1962, rejecting Coal India’s argument that the payment was independent of the transaction. The judgment reinforced that such charges, when tied to the sale mechanism, are not standalone service fees but part of the assessable value for customs duty.
Final Decision & Judgement:
The Supreme Court dismissed Coal India’s appeal, upholding the decisions of the Assistant Commissioner, Commissioner (Appeals), and CESTAT. The Court ruled that the 8% engineering and technical service fee paid to M/s Voltas Limited—the foreign supplier’s agent—was rightly included in the assessable value of the imported goods under Rule 9(1)(e) of the Customs Valuation Rules, 1988, read with Section 14 of the Customs Act, 1962. The Court held that the payment was a condition of sale and not merely a post-importation service charge, as it facilitated the pre-import procurement process and was inextricably linked to the transaction. The judgment clarified that such fees, when tied to the sale obligation, form part of the customs valuation, reinforcing the principle that all payments connected to the import transaction must be accounted for in duty assessment. No costs were awarded, and the appeal was disposed of accordingly.
Case Details:
Case Title: M/s. Coal India Limited vs. Commissioner of Customs (Port), Customs House, Kolkata Citation: 2025 INSC 609 (Supreme Court of India) Civil Appeal No.: Civil Appeal No. 8028 of 2010 Date of Judgment: May 1, 2025 Judges/Justice Name: Hon'ble Justices Abhay S. Oka and Ujjal Bhuyan