Supreme Court upholds Inclusion of Product Support Services by Coal India in Customs Duty Valuation [Read Judgement]

In a significant ruling, the Supreme Court of India recently affirmed that product support services provided by Coal India Limited are directly connected to the importation process and must be considered when calculating the customs duty under the Customs Act.

This ruling clarifies the interpretation of Sections 14(1) and 14(1A) of the Customs Act, 1962, in conjunction with Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

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The two-judge bench of the Supreme Court comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan delivered the verdict, emphasizing the integral connection between the services rendered by the local Indian agent, Coal India, and the importation of goods.

The bench clarified that such services do not qualify as post-importation activities, as argued by Coal India. Instead, these services form an essential part of the import transaction itself, thereby justifying their inclusion in the assessable value of imported goods.

The legal proceedings originated from an appeal filed by Coal India under Section 130E of the Customs Act, challenging a decision by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata. Initially, the Assistant Commissioner of Customs had finalized the provisional assessment of several bills of entry for imported spare parts, determining that the engineering and technical service fees paid to the Indian agent of the overseas supplier were includible under Rule 9(1)(a) and Rule 9(1)(e) of the Customs Valuation Rules.

The Assistant Commissioner concluded that Coal India's failure to include these agency charges in the customs valuation resulted in an underpayment of duty amounting to Rs. 64,47,244. Consequently, Coal India was ordered to remit the deficit within 15 days, finalizing the provisional assessment.

Dissatisfied with this assessment, Coal India escalated the issue to the Commissioner of Customs (Appeals) in Kolkata, which upheld the earlier ruling. The Commissioner reinforced the applicability of Rules 9(1)(a) and 9(1)(e), asserting that the technical service fees were indeed inseparable from the value of the imported goods.

Coal India subsequently appealed to the CESTAT, contending that the payments to M/s Voltas Limited, the local agent, were unrelated to the importation process. However, CESTAT found a direct and inseparable nexus between these payments and the import contract, categorizing them explicitly as conditions of the sale, not post-importation fees. CESTAT thus dismissed the appeal, reinforcing the earlier determinations.

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Finally, the Supreme Court reviewed the case and unequivocally supported the positions of the lower judicial and customs authorities. Justice Abhay S. Oka and Justice Ujjal Bhuyan stated that the assessments correctly applied the relevant statutory provisions, and there was no legal ground warranting interference.

“The services provided were directly relatable to the import of the goods by way of product support service which is covered by Sections 14(1) and 14(1A) of the Customs Act read with Rule 9(1)(e) of the Customs Valuation Rules”, the bench observed.

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