Supreme Court settles inclusion of engineering and technical service charges in assessable value of imported goods: M/S. Coal India Limited vs. Commissioner of Customs (Port) (2025) INSC 609 (01 May 2025)

Date of the Judgment: 01 May 2025

Citation: (2025) INSC 609

Judges: Abhay S. Oka, J., Ujjal Bhuyan, J.

Can engineering and technical service charges paid to a local agent be included in the assessable value of imported goods? The Supreme Court addressed this question in a case involving M/S. Coal India Limited and the Commissioner of Customs (Port), Kolkata. The court examined whether such charges, related to product support services, should be considered part of the goods’ value for customs duty assessment. Justices Abhay S. Oka and Ujjal Bhuyan, JJ., delivered the judgment.

Case Background

M/S. Coal India Limited, a Government of India undertaking, has several subsidiaries. One of its subsidiaries, Central Coalfields Limited, invited tenders on 26 February 2000, for the supply of spare parts for a P&H Shovel.

On 28 March 2000, M/s Harnischfeger Corporation, USA, submitted quotations through its distributor, M/s Voltas Limited. The terms and conditions included an engineering and technical service fee of 8% of the Free on Board (FOB) amount, to be paid to M/s Voltas Limited in Indian rupees. This payment was not to be deducted from the FOB amount.

M/s Voltas Limited submitted a detailed quotation on behalf of M/s Harnischfeger Corporation, USA, on 3 April 2000. A purchase order was placed on 20 December 2000, with the foreign supplier for the required spares.

Timeline:

Course of Proceedings

The Assistant Commissioner of Customs passed an order on 3 March 2004, finalizing the provisional assessment of bills of entry for the imported goods. The Assistant Commissioner determined that the engineering and technical service fees paid to M/s Voltas Limited should be included in the assessable value of the imported spare parts, leading to a short levy of customs duty amounting to Rs. 64,47,244.00. The appellant was directed to pay this amount.

Aggrieved by this order, the appellant appealed to the Commissioner of Customs (Appeals), Kolkata. On 21 June 2004, the Commissioner (Appeals) upheld the Assistant Commissioner’s order, stating that the case fell under Rule 9(1)(a) and Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

The appellant then challenged the Commissioner’s order before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). However, on 20 April 2010, CESTAT dismissed the appeal, concluding that the payment to M/s Voltas Limited was a condition of the sale of goods, as M/s Voltas Limited acted as an agent/distributor for the foreign supplier.

Legal Framework

The legal framework considered by the Supreme Court included:

✓ Section 14 of the Customs Act, 1962, which provides the basis for valuing goods for customs duty assessment. Specifically, Section 14(1)(a) states that the value of goods should be the price at which they are ordinarily sold, provided the buyer and seller have no interest in each other’s business.

“14. Valuation of goods for purposes of assessment – (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be – the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade…”

✓ The Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, framed under Section 156 of the Customs Act, 1962.
✓ Rule 4 of the Customs Valuation Rules, which deals with transaction value, stating that the transaction value of imported goods is the price actually paid or payable, adjusted according to Rule 9.
✓ Rule 9 of the Customs Valuation Rules, concerning costs and services, particularly sub-rules (a) and (e).

“Rule 9. Cost and Services – (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, – (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely – (i) commissions and brokerage, except buying commissions;…”

“(e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.”

✓ Rule 12 of the Customs Valuation Rules, which states that the interpretative notes in the schedule apply for interpreting the rules.
✓ The Note to Rule 4, which specifies charges not included in the value of imported goods, such as charges for maintenance or technical assistance undertaken after importation.

Arguments

Appellant’s Arguments (M/S. Coal India Limited):

✓ The engineering and technical service charges paid to M/s Voltas Limited should not be included in the assessable value of the imported goods.
✓ The CESTAT’s view that the case is covered by both Rule 9(1)(a) and Rule 9(1)(e) of the Customs Valuation Rules is contradictory. Rule 9(1)(e) should only be invoked if the payment is not covered by clauses (a) to (d) of Rule 9.
✓ The Note to Rule 4 of the Customs Valuation Rules has statutory force and clearly states that the value of imported goods should not include charges for maintenance or technical assistance after importation.
✓ M/s Voltas Limited was an agent of the foreign supplier, rendering maintenance and engineering services with no direct nexus to the value of the imported goods. The 8% FOB payment was solely for these services.

Respondent’s Arguments (Commissioner of Customs (Port), Kolkata):

✓ The payment to the Indian agent was part of the FOB amount payable to the foreign supplier.
✓ The prices quoted were exclusive of engineering and technical service fees, and the 8% FOB payment to the Indian agent was a condition of the sale.
✓ M/s Voltas Limited provided various services on behalf of the foreign supplier, including identifying the requirement of spares to be imported, which had a direct nexus to the imported goods.
✓ The services provided by M/s Voltas Limited were pre-importation activities aimed at facilitating the sale of spares by the foreign supplier.

Issues Framed by the Supreme Court

1. Whether the engineering and technical service charges paid by the appellant to M/s Voltas Limited could be included in the assessable value of the imported goods.

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Authorities

The Supreme Court considered the following authorities:

✓ Collector of Customs (Preventive), Ahmedabad Vs. Essar Gujarat Ltd., Surat (1997) 9 SCC 738 – Cited by the appellant.
✓ Tata Iron & Steel Co. Ltd. Vs. Commissioner of Central Excise & Customs, Bhubaneswar (2000) 3 SCC 472 – Cited by the appellant.
✓ Commissioner of Customs (Ports), Kolkata Vs. J.K. Corpn. Ltd. (2007) 9 SCC 401 – Cited by the appellant, explaining the Note to Rule 4 regarding post-importation activities.
✓ Commissioner of Customs Vs. Ferodo India (P) Ltd. (2008) 4 SCC 563 – Cited by the appellant, explaining Section 14 of the Customs Act, 1962, and the Customs Valuation Rules, 1988.
✓ Section 14 of the Customs Act, 1962 – Considered for valuing goods for customs duty assessment.
✓ Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 – Considered for determining the transaction value of imported goods.
✓ Rule 4 of the Customs Valuation Rules – Considered for dealing with transaction value.
✓ Rule 9 of the Customs Valuation Rules – Considered for dealing with cost and services.
✓ Rule 12 of the Customs Valuation Rules – Considered for the interpretation of the rules.

Authorities Table

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Commissioner of Customs (Ports), Kolkata Vs. J.K. Corpn. Ltd. (2007) 9 SCC 401: The Court referred to this case to explain that any amount paid for post-importation activities, including technical assistance, would be excluded from the assessable value for customs duty.

✓ Commissioner of Customs Vs. Ferodo India (P) Ltd. (2008) 4 SCC 563: The Court referred to this case to reiterate that Section 14 of the Customs Act, 1962, must be read with the provisions of the Customs Valuation Rules, 1988, to determine the assessable value for the levy of customs duty on imported goods.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the direct relationship between the services provided by the Indian agent, M/s Voltas Limited, and the import of goods. The Court emphasized that these services were not post-importation activities but were integral to the import process, making the payment a condition of sale. The Court also considered the purchase order and quotation from the foreign supplier, which clearly indicated that the 8% payment to M/s Voltas Limited was a mandatory part of the transaction.

Fact:Law

Logical Reasoning

The Supreme Court’s logical reasoning can be summarized as follows:

Key Takeaways

✓ Engineering and technical service charges paid to a local agent can be included in the assessable value of imported goods if they are directly related to the import process and constitute a condition of sale.
✓ Services provided before the import of goods, which are essential for the transaction, can be considered part of the value for customs duty assessment.
✓ The terms of the purchase order and quotations play a crucial role in determining whether such charges are a condition of sale.

Development of Law

The ratio decidendi of the case is that engineering and technical service charges paid to a local agent are includible in the assessable value of imported goods if the services are directly related to the import of the goods and are a condition of the sale. This clarifies the interpretation and application of Sections 14(1) and 14(1A) of the Customs Act, 1962, read with Rule 9(1)(e) of the Customs Valuation Rules.

Conclusion

The Supreme Court dismissed the appeal, affirming that the engineering and technical service charges paid to M/s Voltas Limited were correctly included in the assessable value of the imported goods. The Court emphasized that these charges were directly related to the import process and constituted a condition of sale, as per the Customs Act and related valuation rules.

Category

• Customs Law
  • Valuation of Goods
  • Customs Act, 1962
  • Section 14, Customs Act, 1962
  • Customs Valuation Rules, 1988

FAQ

1. What are engineering and technical service charges in the context of imported goods?

   Engineering and technical service charges are payments made for services related to the import of goods, such as product support, technical assistance, and ensuring the smooth clearance of goods.

2. Can customs authorities include these charges in the value of imported goods for duty assessment?

   Yes, if the services are directly related to the import process and are a condition of the sale, customs authorities can include these charges in the assessable value of the imported goods.

3. What factors determine whether these charges are considered a condition of sale?

   Factors include the terms of the purchase order, quotations from the foreign supplier, and whether the services are essential for the import transaction.

4. What if the services are provided after the import of goods?

   Charges for services provided after the import of goods, such as maintenance or post-importation technical assistance, are generally not included in the assessable value.