Case Note & Summary
The dispute arose from import of machinery by an assessee setting up a tyre manufacturing plant. The assessee had entered into two agreements with a foreign company: one for supply of technical know-how and documentation, and another for optional procurement services. Under the procurement services agreement, the assessee had the right to call upon the foreign company to procure equipment, machinery, spares, accessories and raw materials required for the plant. The foreign company was required to obtain quotations from suppliers and submit them to the assessee for approval; no order could be placed without written authorization. Purchases were to be made directly in the name of the assessee, who would pay suppliers, while the foreign company would be paid a commission of 3% of the FOB value of procured items for its services. The assessee imported ten items of equipment through this arrangement and cleared them on invoice values. Customs authorities issued a show cause notice proposing to enhance assessable value by adding 3% procurement commission to invoice values. The Collector of Customs confirmed the demand. The assessee appealed to the Central Board of Excise and Customs, which allowed the appeal and set aside the Collector's order. The Revenue appealed to the Customs, Excise and Gold (Control) Appellate Tribunal, which allowed the appeal, set aside the Board's order, and restored the Collector's order with a reduction in penalty. The Tribunal reasoned that the imported machinery was manufactured to specification and not off-the-shelf, therefore not ordinarily sold in international trade; hence assessable value could not be determined under Section 14(1)(a) and must be determined by best judgment under Rule 8 of the Customs Valuation Rules, 1988, and commission was a relevant factor. The assessee then appealed to the Supreme Court. The Supreme Court examined the agreement and found that the foreign company was appointed as the purchasing agent of the assessee. It noted that quotations were submitted for approval, purchases were made in the assessee's name, and the assessee paid suppliers directly. The 3% commission was remuneration for procurement services, not part of the price of goods. The Court held that invoice values had not been rejected and the Revenue only sought to add commission, so best judgment assessment was not called for. It concluded that the value of the items was not enhanced by the commission and the Tribunal erred. Accordingly, the Supreme Court allowed the appeal, set aside the Tribunal's order, and restored the order of the Central Board of Excise and Customs. No costs were awarded.
Headnote
A) Customs Law - Valuation of Imported Goods - Inclusion of Buying Agent's Commission - Customs Act, 1962, Section 14(1)(a) and (d); Customs Valuation Rules, 1988, Rule 8 - The assessee imported machinery through a foreign purchasing agent and paid 3% commission on FOB value; Revenue sought to add commission to assessable value. The Supreme Court examined the procurement agreement and held that the agent was appointed as purchasing agent, and commission was remuneration for services, not part of price of goods. Held that commission was not includible and the value of goods was not enhanced. (Paras Not mentioned) B) Customs Law - Best Judgment Assessment - Applicability when Invoice Values Accepted - Customs Valuation Rules, 1988, Rule 8 - Revenue did not reject invoice values but only sought to add commission; Tribunal held best judgment assessment necessary because goods made to specification. Supreme Court held that best judgment assessment was not called for since invoices were not rejected and only addition of commission was sought; Tribunal misapplied Rule 8. (Paras Not mentioned)
Issue of Consideration
Whether procurement commission paid to a foreign purchasing agent is includible in the assessable value of imported goods under Section 14 of the Customs Act, 1962; Whether best judgment assessment under Rule 8 of the Customs Valuation Rules, 1988 was applicable when invoice values were not rejected
Final Decision
Appeal allowed; order of Customs, Excise and Gold (Control) Appellate Tribunal set aside; order of Central Board of Excise and Customs restored; no order as to costs.
Law Points
- Procurement commission paid to a foreign purchasing agent is not part of the price actually paid or payable for imported goods
- Best judgment assessment under Rule 8 of Customs Valuation Rules is not applicable when invoice values are accepted and only addition of commission is sought
- An agreement appointing a foreign entity as purchasing agent with a commission clause does not enhance the value of imported goods
