Case Note & Summary
The dispute arose from the customs duty assessment of a project import of a plant for manufacturing Dimethyl Terephthalate (DMT) imported by The Bombay Dyeing & Manufacturing Co. Ltd. The appellant entered into a contract on 19 December 1978 with Hercofina, a US corporation, to purchase manufacturing equipment and machinery from its plant at Burlington, New Jersey, for US $10 million. The Government of India approved the import of capital goods at CIF value US $17 million, overseas dismantling charges US $5.5 million, and technology fee US $2.5 million. The appellant applied for registration of the contract under the Project Imports (Registration of Contract) Regulations, 1965. The Assistant Collector of Customs, Bombay, registered the contract on 24 August 1982, intimating that spares to the extent of 10% of the main machinery value were eligible for concessional assessment under Heading 84.66. In the final assessment, the adjudicating authority added certain expenses to the assessable value: inspection/dismantling/packing and forwarding charges, vendor inspection, insulation removal, insurance in USA, Tata Incorporated charges, and reimbursement to Tata Incorporated for miscellaneous expenses, totalling US $5,500,738. The Customs, Excise and Gold (Control) Appellate Tribunal upheld these additions and rejected the appellant's argument that registration of the contract under the Regulations amounted to pre-assessment of value. Before the Supreme Court, the appellant conceded that dismantling, packing, forwarding charges and insurance in USA were includible, but contested vendor inspection, insulation removal, Tata Inc charges, and reimbursement. The appellant also relied on Apollo Tyres Ltd. v. Collector of Customs, 1997 (89) E.L.T. 7 to argue that fees for services, not enhancing value, should not be included. The Revenue maintained that registration was only a provisional assessment and that final assessment under Section 14 of the Customs Act, 1962 could take into account all relevant factors including expenses flowing from the contract. The Supreme Court held that registration of the contract under the Regulations is only a provisional assessment, not a pre-assessment, and therefore the Customs authorities were not inhibited from making a final assessment under Section 14 considering all relevant factors. On the disputed additions, the Court held that inspection charges, including those for Catalytic Inc. pursuant to clause 9 of the contract, and insulation removal charges, necessitated by US environmental laws and implicit in the contractual obligation to dismantle lawfully, were rightly included. However, vendor inspection was not shown to be required for dismantling or transport and no material justified its inclusion; thus it was excluded. The fees and reimbursements paid to Tata Inc for services in the USA were not includible in view of the principle in Apollo Tyres that commission or remuneration payable to a purchasing agent does not enhance the value of goods. Consequently, the Supreme Court allowed the appeal in part, modifying the order to exclude three additions: vendor inspection (US $33,953? actual 339,253), Tata Incorporated charges (US $217,500), and reimbursement to Tata Incorporated (US $265,018). The 10% spares concession was to be recalculated on the enhanced value of the plant, with the same exchange rate applied. No order as to costs was made.
Headnote
A) Customs Law - Project Imports - Registration of Contract - Effect as Provisional Assessment - Project Imports (Registration of Contract) Regulations, 1965; Customs Act, 1962, Section 14 - The appellants contended that registration of the contract amounted to pre-assessment; the Tribunal and Supreme Court held it was only a provisional assessment. Since registration under the Regulations is provisional, the Customs authorities are not barred from making a final assessment under Section 14 taking all relevant factors into account. Held that the registration of the contract did not preclude final valuation by the Customs authorities (Paras 3-4). B) Customs Law - Valuation of Goods - Includibility of Expenses in Assessable Value - Customs Act, 1962, Section 14 - The court examined additions for dismantling, inspection, vendor inspection, insulation removal, insurance, and Tata Inc charges. It held that expenses flowing from contract terms and necessary for dismantling and transport, including inspection by Catalytic Inc. and asbestos insulation removal, were includible; vendor inspection not backed by material and Tata Inc fees/reimbursement for services were not includible. Held that only three additions, vendor inspection, Tata Inc charges and reimbursement, were not sustained, relying on Apollo Tyres Ltd. v. Collector of Customs (Paras 5-8). C) Customs Law - Project Imports Concessions - Spare Parts Valuation - Customs Tariff Heading 84.66 - The Assistant Collector had stated spares to extent of 10% of main machinery value were eligible for concessional rate. The Supreme Court directed that this percentage must be recalculated on the enhanced value of the plant and that the same exchange rate applied to the plant must be applied to this percentage of spares. Held that spares eligible for concessional assessment must be valued on par with the main plant after final assessment (Para 9).
Issue of Consideration
Whether registration of a project import contract under the Project Imports (Registration of Contract) Regulations, 1965 amounts to pre-assessment or only provisional assessment; whether certain expenses (inspection, vendor inspection, insulation removal, Tata Inc charges) can be included in the assessable value under Section 14 of the Customs Act, 1962; and whether the spares concession percentage must be recalculated on the enhanced value
Final Decision
Appeal allowed in part; additions on account of vendor inspection, Tata Incorporated charges, and reimbursement to Tata Incorporated were not sustained; other additions upheld; spares percentage to be recalculated on enhanced value with same exchange rate; no order as to costs
Law Points
- Registration of project import contract under regulations is only a provisional assessment and does not preclude final assessment under Section 14 of the Customs Act
- 1962
- expenses that flow from the terms of the contract and are necessary for dismantling
- packing
- and transport are includible in assessable value
- optional inspection charges not required by contract and not enhancing value are not includible
- fees or reimbursement paid to a service provider for post-import services are not includible in assessable value
- spares eligible for concessional rate must be valued on par with the main plant after final assessment
- using the same exchange rate
