Employee Cost, Rent, Repairs and Maintenance Expenses Not Post Importation Expenses: CESTAT sets aside Denial of Deduction under the Customs Act [Read Order]

The Chennai bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that Employee Cost, Rent, Repairs and Maintenance Expenses are not a post importation expenses and set aside denial of deduction under the Customs Act, 1962.                           

The appellant M/s. Heidelberg India Pvt. Ltd. had registered with the Special Valuation Branch for their imports from M/s. Heidelberger Drukmaschinen AG, Germany, that the invoice value was accepted as transaction value by the department since 2001 and the order was periodically renewed which was valid till 1.4.2016.

The department consequent to a Review Order dated 24.6.2013 filed an appeal before the Commissioner (Appeals) to remand the case back to the lower adjudicating authority to examine the records and evidence. The Commissioner (Appeals) remanded the case back to the lower adjudicating authority and the lower adjudicating authority passed an Order wherein the declared value was loaded by 20.75%.

The above Order in Original was reviewed by the department and an appeal was filed with a prayer to remand the case back to the lower adjudicating authority for re-examination of records and evidence. The lower adjudicating authority rejected the deduction of employee cost, rent, repairs and maintenance and office and miscellaneous expenses claimed by the appellant while computing the deductive value under Rule 7 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR, 2007) and passed an order by loading the declared value of spares @62.5% under Rule of the CVR, 2007.

Shri Harish Bindumadhavan appeared for the appellant and Shri Harendra Singh Pal appeared for the Revenue.

The appellant submitted the transaction value should not have been rejected merely because the Appellant and the exporter are related and that the said goods are imported by third parties at a higher rate. The onus to prove that the relationship did influence the price of the imported goods by the Appellant is on the Department as held in the case of M/S Marcus Oils & Chemicals P. Ltd. v. Commissioner of Customs (Port),

The appellant is related to their foreign supplier in terms of Rule 2(2) of CVR, 2007. The dispute pertains to the valuation of goods (spare parts) imported by the appellant from their related company. Valuation of the goods is to be done in terms of Rule 7 of CVR, 2007. The worksheet showing the deductive value of the impugned spare parts as prepared by the appellant has been accepted as correct and only the heads for which deduction has to be allowed from the unit sale price before arriving at the transaction value is disputed.

The heads of expenses disputed are employee cost, rent, repairs and maintenance and office & miscellaneous expenses are deductible as per Rule 7 of CVR, 2007. The reason that the said heads are found to be not eligible for deduction in the impugned order is that these are post-importation expenses which are internal expenses of the importer and hence cannot be deducted while arriving at the transaction value using the deductive method.

It was evident that Rule 7 of CVR 2007, permits deductions of additions usually made for profits and general expenses in connection with sales in India of imported goods of the same class or kind.

“Since the disputed expenses viz employee cost, rent, repairs and maintenance and office & miscellaneous expenses are part of ‘general expenses’ relating to the direct and indirect cost of marketing the goods in question the appeal must succeed.”, Shri P. Dinesha, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) held.

Further observed that “the department is found not to have substantiated their case. We find that from 2001 to 2013 the Department accepted the transaction value of the imports as declared by the appellant. It was only in 2013 that for the first time, the Department took a view that the declared value needed to be enhanced. Since the Department was dealing with legal issues which involved costing of the goods among other issues, it may have helped to have done a cost audit so that the matter could have been examined concerning the Cost Accounting Standards applicable to the case.” 

The CESTAT set aside the order and allowed the appeal.

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