# COMMISSIONER OF CUSTOMS (PORT) KOLKATA v. M/S STEEL AUTHORITY OF INDIA LTD

- **Citation:** [2020] 9 S.C.R. 109
- **Court:** Supreme Court of India
- **Decided:** 2020-04-27
- **Case number:** Civil Appeal No. 6398 of 2009
- **Bench:** Deepak Gupta, Aniruddha Bose
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-customs-port-kolkata-v-m-s-steel-authority-of-india-ltd-34861
- **Pages:** 27

## Headnote

Customs Valuation (Determination of Price of Imported
Goods) Rules, 1988: r.9(1)(e) - Valuation of imports of plant and
equipments and spares - Revenue included the price paid for design
and technical documents in the transaction value of the imported
goods - Plea of assessee that drawings and technical documents
related to the post importation activities for assembly, construction,
erection, operation and maintenance of the plant and these items
could not be included in the value of imported goods - Case of
revenue was that since the case involved importation of turnkey
projects, the entire contract value have to be treated as transaction
value for charging custom duty - Held: Revenue has not made out
a case that the disputed items of contract do not relate to postimportation activities - The expression "condition" contained in
r.9(1)(e) conveys the idea that something could be done only if
another thing was also done - Revenue emphasised their case on
the basis that as it was a turnkey project, importation of equipments
and post-importation project implementation exercise were mutually
dependant - Reading such implied condition into the contracts
would be impermissible in the absence of any other material to
demonstrate subsistence of such condition - No part of the contract
was shown from which such condition could be inferred - The
provisions of r.9(1)(e) cannot be automatically applied to every
import which has surface features of a turnkey contract - Just
because different components of a contract or multiple contracts
give the shape of turnkey project to the imported items, without
specific finding on existence of "condition" as contemplated in
r.9(1)(e), value of all these components could not be added to arrive
at the assessable value - Such an exercise would go against the
provisions of Interpretative Note to r.4, which is part of the Valuation
Rules in view of the provisions of r.12 thereof.
[2020] 9 S.C.R. 109
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SUPREME COURT REPORTS
[2020] 9 S.C.R.
Dismissing the appeal, the Court
HELD: 1. An importer of equipments of a plant could always
choose to obtain drawings and designs for undertaking post
importation activities from an overseas consortium supplying the
equipments. This may confer on such arrangements attributes of
a turnkey contract, but that fact by itself would not automatically
attract the "condition" clause contained in Rule 9(1) (e) of the
Valuation Rules. The revenue has proceeded with the
understanding that since both were obtained from the same
vendor, condition of obtaining designs etc., for post-importation
activities was implicit in the contract. The Revenue has sought
to emphasise their case on the basis that as it was a turnkey
project, importation of equipments and post-importation project
implementation exercise were mutually dependant. Reading such
implied condition into the contracts would be impermissible in
the absence of any other material to demonstrate subsistence of
such condition. No part of the contract has been shown from which
such condition could be inferred. [Paras 22 and 26][132-A-B, 133H; 134-A-B]
2. If a single agreement involves importation of dutiable
equipments and also services for post-importation activities, and
these two sets of items are segregable, it would be open to the
importer to claim duty-exclusion in respect of items directly
relatable to post importation activities in cases where Rule 9 of
the Valuation Rules are applicable. In the present appeal, involving
two import consignments, the authorities of First Instance and
the Appellate Authority proceeded on the basis that since all the
scheduled items formed part of the same contract and were linked
with activities at post-import stage with the imported equipments,
the provisions of Section 9(1)(e) could be invoked. Such reasoning
infers subsistence of conditions for awarding post-importation
work to the overseas consortia or makes import of both sets of
items otherwise interdependen

## Text

_Characters 0–39,969 of 59,537. This is a partial read: ask again with offset=39969 for what follows._

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COMMISSIONER OF CUSTOMS (PORT) KOLKATA
v.
M/S STEEL AUTHORITY OF INDIA LTD.
(Civil Appeal No. 6398 of 2009)
APRIL 27, 2020
[DEEPAK GUPTA AND ANIRUDDHA BOSE, JJ.]
Customs Valuation (Determination of Price of Imported
Goods) Rules, 1988: r.9(1)(e) - Valuation of imports of plant and
equipments and spares - Revenue included the price paid for design
and technical documents in the transaction value of the imported
goods - Plea of assessee that drawings and technical documents
related to the post importation activities for assembly, construction,
erection, operation and maintenance of the plant and these items
could not be included in the value of imported goods - Case of
revenue was that since the case involved importation of turnkey
projects, the entire contract value have to be treated as transaction
value for charging custom duty - Held: Revenue has not made out
a case that the disputed items of contract do not relate to postimportation activities - The expression "condition" contained in
r.9(1)(e) conveys the idea that something could be done only if
another thing was also done - Revenue emphasised their case on
the basis that as it was a turnkey project, importation of equipments
and post-importation project implementation exercise were mutually
dependant - Reading such implied condition into the contracts
would be impermissible in the absence of any other material to
demonstrate subsistence of such condition - No part of the contract
was shown from which such condition could be inferred - The
provisions of r.9(1)(e) cannot be automatically applied to every
import which has surface features of a turnkey contract - Just
because different components of a contract or multiple contracts
give the shape of turnkey project to the imported items, without
specific finding on existence of "condition" as contemplated in
r.9(1)(e), value of all these components could not be added to arrive
at the assessable value - Such an exercise would go against the
provisions of Interpretative Note to r.4, which is part of the Valuation
Rules in view of the provisions of r.12 thereof.
[2020] 9 S.C.R. 109
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SUPREME COURT REPORTS
[2020] 9 S.C.R.
Dismissing the appeal, the Court
HELD: 1. An importer of equipments of a plant could always
choose to obtain drawings and designs for undertaking post
importation activities from an overseas consortium supplying the
equipments. This may confer on such arrangements attributes of
a turnkey contract, but that fact by itself would not automatically
attract the "condition" clause contained in Rule 9(1) (e) of the
Valuation Rules. The revenue has proceeded with the
understanding that since both were obtained from the same
vendor, condition of obtaining designs etc., for post-importation
activities was implicit in the contract. The Revenue has sought
to emphasise their case on the basis that as it was a turnkey
project, importation of equipments and post-importation project
implementation exercise were mutually dependant. Reading such
implied condition into the contracts would be impermissible in
the absence of any other material to demonstrate subsistence of
such condition. No part of the contract has been shown from which
such condition could be inferred. [Paras 22 and 26][132-A-B, 133H; 134-A-B]
2. If a single agreement involves importation of dutiable
equipments and also services for post-importation activities, and
these two sets of items are segregable, it would be open to the
importer to claim duty-exclusion in respect of items directly
relatable to post importation activities in cases where Rule 9 of
the Valuation Rules are applicable. In the present appeal, involving
two import consignments, the authorities of First Instance and
the Appellate Authority proceeded on the basis that since all the
scheduled items formed part of the same contract and were linked
with activities at post-import stage with the imported equipments,
the provisions of Section 9(1)(e) could be invoked. Such reasoning
infers subsistence of conditions for awarding post-importation
work to the overseas consortia or makes import of both sets of
items otherwise interdependent. The orders in original showed
that the stand of SAIL was consistent that the subject drawings
and specifications did not relate to the equipments imported and
was meant for post importation activities and there was no
condition laid down that the import of the equipments were to be
supplemented by post-importation work. [Paras 27, 28][134-E,
G; 135-A]
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TISCO v. Commissioner of Central Excise Customs
(2000) 3 SCC 472 : [2000] 1 SCR 876; Mukund Limited
v. Commissioner of Customs 2000 (120) ELT 30 -
referred to.
CC (Prev.), Ahmedabad v. Essar Gujarat (1997) 9 SCC
738 : [1996] 8 Suppl. SCR 757; Andhra Petrochemicals
v. Collector of Customs, Madras (1988) 9 SCC 109;
Commissioner, Delhi Value Added Tax v. ABB Limited
(2016) 6 SCC 791 : [2016] 4 SCR 600 - held
inapplicable.
Case Law Reference
[2000] 1 SCR 876
referred to
Para 5
2000 (120) ELT 30
referred to
Para 11
[1996] 8 Suppl. SCR 757
held inapplicable
Para 12
(1988) 9 SCC 109
held inapplicable
Para 13
[2016] 4 SCR 600
held inapplicable
Para 13
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6398
of 2009.
From the Judgment and Order No. A/520-521/KOL/2006 dated
22.05.2006 of the Customs, Excise and Service Tax Appellate Tribunal,
Kolkata in Appeal No. C/V-537/2001 and C-01/2002.
Dhruv Agarwal, Sr. Adv., D. L. Chidananda, Ms. Sunita Rani
Singh and B. Krishna Prasad, Advs. for the Appellant.
S. K. Bagaria, Sr. Adv., Yashraj Singh Deora and Ms. Sonal
Mashankar, Advs. for the Respondent.
The Judgment of the Court was delivered by
ANIRUDDHA BOSE, J.
1. The dispute in this appeal relates to valuation under the Customs
Act, 1962 of import of certain items made by the respondent Steel
Authority of India Ltd. (SAIL) under two contracts, bearing nos. PUR/
PC/MOD/08.01/Pt.II dated 31.10.1989 and PUR/PC/MOD/08.01/Pt-I
dated 29th March 1990. These imports were made in connection with
modernisation, expansion and modification for their plant at Durgapur in
COMMISSIONER OF CUSTOMS (PORT) KOLKATA v.
M/S STEEL AUTHORITY OF INDIA LTD.
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SUPREME COURT REPORTS
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West Bengal. For this purpose, SAIL had floated seven Global Tender
Contract Packages. The two contracts were part of these Tender
Contract Packages. They were registered with the customs authorities
for the purpose of project import benefits in terms of the 1962 Act. The
first contract involved in this appeal was with a consortium consisting of
a German Company, Hoestemberghe & Kluisch, GMBH and H & K
Rolling Mills Engineering Private Limited, an Indian Corporate entity.
The second contract was also with a German Company, Siempelkamp
Pressen Systeme and the Indian entity was Escon Consultants Private
Ltd, with whom the consortium was formed. Both these contracts were
in connection with modernisation of SAIL's rolling mills at the aforesaid
plant.
2. Schedule 3 of the first contract (bearing no.544-9/91A SVB)
specified scope of supplies and service along with the price particulars.
Extracts from that schedule appears from the order of the Commissioner
of Customs being the authority of first instance, dated 3rd January 2001.
This order related to the first contract. We shall refer to this order in
greater detail later in this judgment. Relevant part of that Schedule is
reproduced below:-
Schedule No.
Description
Millions [I][M]
3.5.1A [II]

Basic design and

2.230

Engineering

3.5.2A

Plant & Equipment

 2.512

including commissioning
spares
3.5.3A

Spares for two years operations
0.537

and maintenance, insurance spares,
special tools and tackles.

3.5.4A

Foreign Supervision charges during
0.675

manufacture of Indian equipment as

well as for erection, commissioning
and performance guarantee tests.

(quoted from the order in verbatim).
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In addition to this, contract price of Rs.186,144,000/- and a royalty
of Rs.10 per tonne of thermax bars produced during first five years of
operation was also to be paid to the Indian entity of the consortium
under the contract for supplies and services made by the latter.
So far as the second contract is concerned, the scope of supplies
and services to be effected by the consortium appears from the following
part of the third schedule, which again has been reproduced in the second
order (bearing no.544-9/91A SVB) of the authority of first instance,
dated 1st June 2001:-
Schedule No.
Description
Millions [I] [M]
3.5.1.1. [ii]
basic design and engineering
6.650
3.5.1.1 [v]
technical services for Project
1.000
management like planning,
procurement, inspection,
expediting, etc.
3.5.1.1 [vi]
As built drawings
0.100
3.5.1.3
Plant & Equipment including
24.627
commissioning spares
3.5.1.4
All mechanical & electrical
spares for 2 years operation &
2.251
maintenance, insurance spares
including special tools & tackles
3.5.1.6
Foreign supervision charges
2.842
during manufacture of Indian
equipment as well as for erection,
commissioning & performance
guarantee tests
3.5.1.11
Training
0.200
Total: 37.670
 (quoted from the order in verbatim)
COMMISSIONER OF CUSTOMS (PORT) KOLKATA v.
M/S STEEL AUTHORITY OF INDIA LTD. [ANIRUDDHA BOSE, J.]
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3. The basic wording of the two contracts are more or less similar,
Clause (c) thereof stipulates:-
"The Contractor has agreed to undertake basic and detail design
and engineering, layout engineering, training services, procurement,
manufacturing, shop testing, supply and delivery of the complete
Plant and Equipment, materials both imported and indigenous at
site and carry out installation/construction of all civil works,
supervision, erection, testing and successful commissioning of the
PROJECT and demonstrate the Performance Guarantees etc.
for the Project under the Terms and Conditions mentioned
hereinafter. The CONTRACTOR has also agreed to render the
services for insurance, port clearance including stevedoring,
transportation, safe custody, handling, unloading, loading,
transportation to site and any other services required to complete
the PROJECT under this contract."
4. As would be evident from the subject heads contained in the
above-referred extracts from the third schedule to each of these contracts,
the consortia were to supply plant, equipments and spares as also certain
basic designs and supervisory services at site. SAIL wanted import duty
to be charged on the plant and equipments alone. SAIL's stand is that
the price for the plants and equipments included all design and engineering
for their manufacture. But designs and drawings specified in the schedule
were all post-importation project related and project implementation
activities. The customs authorities on the other hand added the basic
design and engineering fee of DM 2.23 million and supervision charges
during manufacture of Indian equipments and for erection, commissioning
and performance guarantee tests of 0.675 million to the invoice value. In
respect of the second contract, direction was made for addition of basic
design and engineering fee of DM 6.65 million, as built drawings of DM
0.1 million and supervision charges during manufacture of Indian
equipments and for erection, commissioning and performance guarantee
tests of DM 2.842 million to the invoice value. The dispute had reached
the Commissioner of Customs for Special Valuation Branch, the authority
of first instance, after a questionnaire was sent to SAIL, which was
responded to. The authority of first instance heard the representative of
SAIL. In the final orders, the authority of the first instance directed the
aforesaid additions. The said authority observed that the contractor was
entrusted with the work on a turnkey basis, where the entire supplies
and services were dependant on each other. On this premise, the
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provisions of Rule 4 and Rule 9 (1) (e) of the Customs Valuation
(Determination of Price of Imported Goods Valuation Rules, 1988
(hereinafter referred as the "1988 Rules") was invoked to sustain such
additions to the invoice value in respect of both the contracts. The
underlying reasoning for the said orders of the authority of first instance
was that the commercial arrangements constituted turnkey contracts
and package deal, which made it conditional for the purchaser to buy the
equipments which complied with the technical specifications of SAIL.
As a consequence, sale of the equipments was conditional as the different
aspects of the schedules of supply and service were interrelated. The
transaction value of the imported goods was directed to include the price
paid for the basic design and engineering, drawings, supervision of
erection, commissioning, performance guarantee and technical services
under Rule 4 read with Rule 9(1)(e) of the 1988 Rules.
5. Appeals by SAIL against both these orders were rejected by
the Commissioner of Customs (Appeals) by two separate orders passed
on 11th July, 2001 and 7th September 2001. We find from the orders of
the Appellate authority that the case of TISCO vs. Commissioner of
Central Excise Customs reported in (2000) 3 SCC 472 was cited
before it by SAIL. This decision was distinguished by the Appellate
authority and the findings of the authority of first instance was sustained
on the basis of Rule 9(1)(e) of the 1988 Rules.
6. Further appeals of SAIL however, was decided in their favour
by Customs, Excise and Service Tax, Appellate Tribunal, Kolkata
(CESTAT) by a common order passed on 22nd May, 2006. These appeals
were registered before the CESTAT as C/V-537/2001 and C-01/2002.
The CESTAT formulated the points for determination in the following
terms :-
"[i] whether the basic design and engineering fee of DM 2.230
million and foreign supervision charges of DM 0.675 million are
liable to be added to the invoice values of imported equipments
under Rule 9 of the Valuation Rules? [Appeal No. C/V-537/2001]
[ii] whether the charges towards basic design and engineering
fee of DM 6.650 million, fee for as built drawings of DM 0.100
million and also supervision charges of DM 2.842 million are liable
to be added to the invoice values of the imported equipments under
Rule 4 of the Valuation Rules read with Section 14 of the said
Act? [Appeal No. C-1/2002]"
COMMISSIONER OF CUSTOMS (PORT) KOLKATA v.
M/S STEEL AUTHORITY OF INDIA LTD. [ANIRUDDHA BOSE, J.]
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7. The Tribunal held that the drawings and technical documents
related to post importation activities for assembly, construction, erection,
operation and maintenance of the plant and those items could not be
included in the value of imported goods. Referring to Rules 9 (1) (b) (iv)
and 9(1) (e) of the Valuation Rules 1988, the Tribunal held:-
"Similarly reliance upon the decision of the Supreme Court in
Collector of Customs (Preventive), Ahmedabad Vs. Essar Gujarat
Ltd., 1996(88) ELT 609 (SC) is also completely misplaced. From
the judgment of the Supreme Court it would be seen that what
has been held to be added therein under Rule 9(1) (e) of the
Valuation Rules and process license fee, the payment for transfer
of technology under the process license agreement and whatever
expenditure was needed to be incurred for dismantling the plant
which was sold on "as in where is basis" in the foreign country
and making it ready for delivery on board the vessel to be exported
to India. The Supreme Court specifically held that apart from this
all other services rendered under the Engineering and Consultancy
fees cannot be added. The said decision of the Supreme Court,
contrary to the findings of the Deputy Commissioner and
Commissioner (Appeals), supports the appellant's case.
The perusal of the orders-in-original reveals that there is no dispute
whatsoever with the services as shown when the designs and
drawings and engineering/technical services were small enabled
to locate plant direction and overall project implementation for
manufacturing iron and steel projects to be commissioned in India
and the costs and charges were collected when the design and
drawings and engineering services in relation to the components
to be imported and/or imported. In such circumstances, it is to be
held that the lower authorities have heard improportionate to hold
that the said charges are to be added to the assessable value as
assessed relying upon the case of TISCO reported in 2000 (37)
RLT 239 (S.C.). Para 8, 11 and 15 to 17 thereof refer. We do not
find any reason to uphold the reasoning of the Deputy
Commissioner in this regard.
In view of the clear cut decision in the case of Tata Iron & Steel
Co. Ltd. case (supra), we find that the issue is very settled by
series of decisions of this Tribunal and heard the case referred
into Indo Gulf Corpn. Ltd. v. Commr. of Customs, 2005(182) ELT
77(T).
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Neither in Section 14 of the said Act nor in the Valuation Rules is
there any provision which provides that the cost of drawings and
technical documents required for procurement or manufacture of
goods in India by the importer or which relates to post importation
activities for assembly, construction, erection, operation and
maintenance of the plant are to be included in the price of
equipments for determining their transaction value and
consequently their assessable value for the purpose of levy of
customs duty under the said Act. On the contrary the
"Interpretative Notes" to Rule 4 of the Valuation Rules, 1988
makes it explicitly clear that value of imported goods shall not
include, inter alia, the charges for construction, erection, assembly
maintenance of technical assistance undertaken after importation
of the imported goods such as 3 of the Contract in the instant
case in determining the assessable value of the imported
equipments imported by the appellant is wholly erroneous, ultra
vires the said Act and/or the Customs Valuation Rules, 1988. This
also the Deputy Commissioner and the Commissioner (Appeals)
failed to appreciate and/or take into consideration and thereby
arrived at patently erroneous finding.
In terms of Rule 9 [1] [b] [iv] of the Valuation Rules, 1988, in
determining the transaction value the value apportioned as
appropriate of, inter alia, engineering, design and plans and
sketches undertaken elsewhere than in India and "necessary for
the production of the imported goods" which were supplied directly
or indirectly by the buyer free of charge or at a reduced cost to
the supplier or imported goods for use in producing the imported
goods being value are to be included. This is because such supply
of free of charge or at a reduced cost would result in a lower
price for the imported goods than the price that the supplier would
have charged if such goods/services were to be paid for in full.
This rule is also inapplicable in the instant case as there has been
no supply or any engineering's or drawings by the appellant to the
foreign seller. Moreover, there was no supply free of charge or at
reduced cost. Hence this rule also has no applicability whatsoever
in the present case."
 (quoted verbatim)
8. It is against this order the revenue is in appeal before us. Before
we examine the arguments advanced by Mr. Agarwal, Senior Counsel
COMMISSIONER OF CUSTOMS (PORT) KOLKATA v.
M/S STEEL AUTHORITY OF INDIA LTD. [ANIRUDDHA BOSE, J.]
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for the appellant and Mr. Bagaria, Senior Counsel for the assessee, we
shall advert to the statutory provisions which are applicable in the facts
of this case. These are Sections 12, 14 (as it stood at the time of
importation) of the Customs Act, Rules 4 and 9 of the 1988 Rules. These
provisions stipulate:-
Sections 12 and 14 of the Customs Act 1962
"12. Dutiable goods.- (1) Except as otherwise provided in this
Act, or any other law for the time being in force, duties of customs
shall be levied at such rates as may be specified under [the Customs
Tariff Act, 1975 (51 of 1975)], or any other law for the time being
in force, on goods imported into, or exported from, India.
[(2) The provisions of sub-section (1) shall apply in respect of all
goods belonging to Government as they apply in respect of goods
not belonging to Government.]
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 bethe 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, where-
(a) the seller and the buyer have no interest in the business of
each other; or
(b) one of them has no interest in the business of the other,
and the price is the sole consideration for the sale or offer for
sale:
Provided that such price shall be calculated with reference to the
rate of exchange as in force on the date on which a bill of entry is
presented under section 46, or a shipping bill or bill of export, as
the case may be, is presented under section 50;
(1A) Subject to the provisions of sub-section (1), the price referred
to in that sub-section in respect of imported goods shall be
determined in accordance with the rules made in this behalf.
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(2) Notwithstanding anything contained in sub-section (1) or subsection (1A) if the Board is satisfied that it is necessary or
expedient so to do, it may, by notification in the Official Gazette,
fix tariff values for any class of imported goods or export goods,
having regard to the trend of value of such or like goods, and
where any such tariff values are fixed, the duty shall be chargeable
with reference to such tariff value.
(3) For the purposes of this section-
(a) "rate of exchange" means the rate of exchange-
(i) determined by the Board, or
(ii) ascertained in such manner as the Board may direct,
for the conversion of Indian currency into foreign currency or
foreign currency into Indian currency;
(b) "foreign currency" and "Indian currency" have the meanings
respectively assigned to them in clause (m) and clause (q) of
section 2 of the Foreign Exchange Management Act, 1999 (42 of
1999)."
Rule 4 and Rule 9 of the 1988 Rules
4. Transaction value.
(1) The transaction value of imported goods shall be the price
actually paid or payable for the goods when sold for export to
India, adjusted in accordance with the provisions of Rule 9 of
these rules.
(2) The transaction value of imported goods under sub-rule (1)
above shall be accepted:
Provided thata. The sale is in the ordinary course of trade under fully competitive
conditions;
b. The sale does not involve any abnormal discount or reduction
from the ordinary competitive price;
c. The sale does not involve special discounts limited to exclusive
agents; or
COMMISSIONER OF CUSTOMS (PORT) KOLKATA v.
M/S STEEL AUTHORITY OF INDIA LTD. [ANIRUDDHA BOSE, J.]
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d. Objective and quantifiable data exist with regard to the
adjustments required to be made, under the provisions of rule
9, to the transaction value;
e. There are no restrictions as to the disposition or use of the
goods by the buyer other than restrictions which-
(i) are imposed or required by law or by the public authorities
in India; or
(ii) limit the geographical area in which the goods may be resold;
or
(iii) do not substantially affect the value of the goods;
f. the sale or price is not subject to same condition or consideration
for which a value cannot be determined in respect of the goods
being valued;
g. no part of the proceeds of any subsequent resale, disposal or
use of the goods by the buyer will accrue directly or indirectly
to the seller unless an appropriate adjustment can be made in
accordance with the provisions of Rule 9 of these rules; and
h. the buyer and seller are not related,
 or where the buyer and seller are related, that transaction value
is acceptable for customs purposes under the provisions of subrule (3) below.
(3) (a) Where the buyer and seller are related, the transaction
value shall be accepted provided that the examination of the
circumstances of the sale of the imported goods indicate that
the relationship did not influence the price.
(b) In a sale between related persons, the transaction value shall
be accepted, whenever the importer demonstrates that the
declared value of the goods being valued, closely approximates to
one of the following values ascertained at or about the same time-
(i) the transaction value of identical goods, or of similar goods, in
sales to unrelated buyers in India;
(ii) the deductive value for identical goods or similar goods;
(iii) the computed value for identical goods or similar goods.
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Provided that in applying the values used for comparison, due
account shall be taken of demonstrated difference in commercial
levels, quantity levels, adjustments in accordance with the
provisions of Rule 9 of these rules and cost incurred by the seller
in sales in which he and the buyer are not related;
(c) substitute value shall not be established under the provisions
of clause (b) of this sub-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;
(ii) the cost of containers which are treated as being one for
customs purposes with the goods in question;
(iii) the cost of packing whether for labour or materials;
(b) the value, apportioned as appropriate, of the following goods
and services where supplied directly or indirectly by the buyer
free of charge or at reduced cost for use in connection with the
production and sale for export of imported goods, to the extent
that such value has not been included in the price actually paid of
payable, namely :-
(i) materials, components, parts and similar items incorporated in
the imported goods;
(ii) tools, dies, moulds and similar items used in the production of
the imported goods;
(iii) materials consumed in the production of the imported goods;
(iv) engineering, development, art work, design work, and and
plans and sketches undertaken elsewhere than in India and
necessary for the production of the imported goods;
(c) royalties and license fees related to the imported goods that
the buyer is required to pay, directly or indirectly, as a condition of
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the sale of the goods being valued, to the extent that such royalties
and fees are not included in the price actually paid or payable.
(d) the value of any part of the proceeds of any subsequent resale,
disposal or use of the imported goods that accrues, directly or
indirectly, to the seller;
(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.
(2) For the purposes of sub-section (1) and sub section (1A) of
Section14 of the Customs Act, 1962 (52 of 1962) and these rules,
the value of the imported goods shall be the value of such goods,
for delivery at the time and place of importation and shall include-
(a) the cost of transport of the imported goods to the place of
importation;
(b) loading, unloading and handling charges associated with the
delivery of the imported goods at the place of importation; and
(c) the cost of insurance:
Provided that-
(i) Where the cost of transport referred to in clause (a) is not
ascertainable, such cost shall be twenty percent of the free on
board value of the goods;
(ii) The charges referred to in clause (b) shall be one per cent of
the free on board value of the goods plus the cost of transport
referred to in clause (a) plus the cost of insurance referred to in
clause (c);
(iii) Where the cost referred to in clause (c) is not ascertainable,
such cost shall be 1.125% of free on board value of the goods;
Provided further that in the case of goods imported by air, where
the cost referred to in clause (a) is ascertainable, such cost shall
not exceed twenty per cent of free on board value of the goods:
Provided also that where the free on board value of the goods is
not ascertainable, the costs referred to in clause (a) shall be twenty
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per cent of the free on board value of the goods plus cost of
insurance for clause (i) above and the cost referred to in clause
(c) shall be 1.125 % of the free on board value of the goods plus
cost of transport for clause (iii) above].
(3) Additions to the price actually paid or payable shall be made
under this rule on the bases of objective and quantifiable data.
(4) No addition shall be made to the price actually paid or payable
in determining the value of the imported goods except as provided
for in this rule."
9. The main case of the appellant is that these two cases involved
importation of turnkey projects and the entire contract value have to be
treated as the transaction value for the purpose of charging customs
duty. Mr. Agarwal has submitted that the design and the other items,
which were the subject of dispute, were integrally linked with the
equipments and supply of the services were conditions for importation
of the equipments. It has also been argued on behalf of the revenue that
the contracts were integrated from basic planning and designing till
implementation at site and what was imported was a project and not
merely equipments. On this count, our attention was drawn to Rule 9(1)(e)
of the 1988 Rules, which we have quoted earlier in this judgment.
10. The Tribunal did not accept this plea of revenue. The Tribunal
in the impugned order accepted SAIL's plea for segregating the value of
equipments and the other fees on services covered by the same contracts,
the latter charges meant for post-importation phase of the arrangement
between the contracting parties. It found that the designs and drawings
and engineering/technical services were for plant direction and overall
project implementation for manufacturing iron and steel to be
commissioned in India and charges were collected by the consortium
when the design and drawings and engineering services in relation to the
components were to be imported. It is also not the revenue's case before
us that these designs and drawings and the services were in relation to
the imported equipments and goods.
11. Major part of the argument on behalf of the revenue advanced
before us, however, was anchored to Rule 9(1)(e) of the 1988 Rules.
The revenue's contention on this point, which formed the basis of the
orders of the authority of the first instance as also the first appellate
authority has been that these were turnkey contracts and hence import
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of designs and drawings etc. even for post-importation activities should
be treated as condition of import of the equipments. Mr. Agarwal has
relied on the decision of this Court in the case of Mukund Limited vs.
Commissioner of Customs reported in [2000 (120) ELT 30] confirming
an order of the Tribunal in addition to the value of design and engineering,
imported into this country the supervision charges in India during design,
erection and performance guarantee test. This Court, in its order passed
on 8th December 1999, held:-
"1. This is a contract that contemplates the supply of basic design
and engineering drawings and the supervision of erection, testing
and commissioning based thereon. One is as much a part and a
condition of the contract as the other.
2. We find, therefore, no merit in the appeal. It is dismissed with
costs."
12. The case of Mukund Limited (supra) dealt with setting up
of a cleaning plant as part of basic oxygen furnace shop of SAIL
(coincidentally the same respondent), for their Rourkela Steel Plant. For
this purpose their contractor, Mukund Limited had entered into an
agreement with an overseas Company, Davy Mckee (Stockton) Limited.
In pursuance of that contract, Davy were to provide basic design and
drawing and also supervise the detailed engineering erection and
commissioning of the gas cleaning plant in India apart from training of
personnel abroad. The fabrication, manufacture etc. however was to be
done in India with indigenous goods based on designs supplied by Davy.
The contract amount was £20,00,000 and charges for design and
engineering, supervision in India during design, erection, commissioning
and performance guarantee test valued at £6,57,900 and training charges
of £82,600 were to be paid separately. Relying on a decision of this
Court in CC (Prev.), Ahmedabad vs. Essar Gujarat reported in [(1997)
9 SCC 738], the Tribunal found in the order reported in 1999 (112) ELT
479(T):-
"6. The payment of $ (sic) 6,57,900 noted above in the price
schedule is towards the services indicated above in the Agreement
and which is a necessary concomitant to the supply of Design
and Engineering drawings for the gas cleaning plant made by Davy
Mckee and imported by the appellants. The appellants have been
entrusted with the setting up of gas cleaning plant, and this could
only be achieved not only by purchasing the basic design and
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engineering drawings imported from Davy Mckee but also the
whole engineering package of supervision of detail drawing,
erection, commissioning and performance guarantee test. The
payment made in foreign exchange towards supervision charges
during design, erection and commissioning will necessarily have
to form part of the assessable value of the imported goods and
the value thereof will include not only the price paid for design
and engineering but also for supervision charges. This will follow
from Rule 9 of the Valuation Rules which provides for addition of
certain costs and services to the transaction value. Rule 9(1)(e)
covers all other payments actually made or to be made as a
condition of sale of imported goods by the buyer to the seller."
(quoted verbatim)
This was a case where Tribunal reached finding on fact that the
two sets of items were to be added to reach the assessable value as the
plant could be set up as per the basic design only and the second set of
designs, drawings and activities intricately interlinked. This case did not
involve importation of any equipment.
13. Another judgment of this Court in the case of Andhra
Petrochemicals vs. Collector of Customs, Madras reported in
[(1988) 9 SCC 109] was cited before us by Mr. Agarwal. But ratio of
that authority would not be applicable in the facts of this case, as the
disputed amount involved payment made by the importer to their overseas
associate towards engineering, design work, plant, sketches etc. which
were necessary for production of imported goods. This was a case
attracting Rule 9(1)(b)(iv) of the 1988 Rules. Factually, this authority is
distinguishable. The other authority on which Mr. Agarwal has placed
reliance is a decision of this Court in the case of Commissioner, Delhi
Value Added Tax vs. ABB Limited reported in (2016) 6 SCC 791. In
this case the controversy was as to whether a contract for supply,
installation, testing and commissioning of traction electrification power
supply and power distribution for the Dwarka Section of Delhi Metro
Rail Corporation Limited could be subjected to Delhi value added tax or
not. But this case dealt with the issues of works contract and movement
of goods by inter-state trade for computing value added tax. The
transaction in that case was held to be movement of goods by way of
imports or by way of inter-state trade and hence covered by the Central
Sales Tax Act. The only factual similarity in both these cases is that the
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case of ABB Limited (supra) also related to turnkey project. But
"import" under that statute and the charging section in the Customs Act
for imposing duty (under Section 12) are not the same. The mechanism
for arriving at transaction value or assessable value under the two statutes
are different and distinct. This authority can have no impact on the
subject-controversy.
14. The appellant's case in substance is that on a composite reading
of Section 14 of the Act, Rules 4 and 9(1)(e) of the 1988 Rules, the price
of drawings, design etc., should be added to the invoice value of the
imported equipments, as those intangible items formed an integral part
of the arrangement agreed upon between the two consortia and SAIL.
The revenue described such arrangement as turnkey contracts. It has
been specifically argued that such intangible items constituted conditions
of sale within the meaning of Rule 9(1)(e) of the 1988 Rules and these
are not post importation charges.
15. Stand of the respondent, on the other hand is that those items
related to post importation activities of SAIL in India for implementation
of their project. Their case is that only imported equipments could be
subjected to duty. Referring to the charging provision for levy of duty,
being Section 12 as also Section 14 of the Act, it was argued that to
reach the assessable value, Rule 9 of the 1988 Rules was the only mode.
So far as subject-dispute is concerned, Rule 9(1) (e) read with the
interpretative note did not permit addition of value of post-importation
items. Spares and other specifications concerning such equipments were
already included in the price of the equipments. In support of his argument
for exclusion of post importation services which may be obtained from a
foreign consortium, Mr. Bagaria referred to the aforesaid Note, which
reads as:-
"Note to Rule 4
Price actually paid or payable
The price actually paid or payable is the total payment made or to
be made by the buyer to or for the benefit of the seller for the
imported goods. The payment need not necessarily take the form
of a transfer of money. Payment may be made by way of letters
of credit or negotiable instruments. Payment may be made directly
or indirectly. An example of an indirect payment would be the
settlement by the buyer, whether in whole or in part, of a debt
owed by the seller.
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Activities undertaken by the buyer on his own account, other than
those for which an adjustment is provided in Rule 9, are not
considered to be an indirect payment to the seller, even though
they might be regarded as of benefit to the seller. The costs of
such activities shall not, therefore, be added to the price actually
paid or payable in determining the value of imported goods:
The value of imported goods shall not include the following charges
or costs, provided that they are distinguished from the price actually
paid or payable for the imported goods:
(a) charges for construction, erection, assembly, maintenance
or technical assistance, undertaken after importation on
imported goods such as industrial plant, machinery or equipment;
(b) the cost of transport after importation;
(c) duties and taxes in India.
The price actually paid or payable refers to the price for the
imported goods.