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Commissioner of Customs, Ahmedabad v. M/s. Essar Steel Ltd.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 3042 of 2004)Decided 13 Apr 2015
Civil Appeal No. 3042 of 2004
Justice A.K. Sikri · Justice Rohinton Fali Nariman

Background

Essar Steel had engaged Met Chem Canada Inc. as a technical consultant under a 1991 agreement to provide engineering and technical services for setting up a Hot Rolled Steel Coils plant in Hazira, Gujarat. The Customs Department sought to add the fees paid to Met Chem Canada for these technical services to the assessable value of capital goods imported for the project, invoking Rule 9(1)(e) of the Customs Valuation Rules (which allows addition of certain post-importation costs/charges connected to the imported goods), raising a consequent demand for higher customs duty. Essar Steel contested this addition, arguing the technical/consultancy charges were not linked to the value of the imported capital goods themselves.

Decision Breakdown

The Supreme Court examined the terms of the technical services agreement and the scope of Rule 9(1)(e), along with prior case law on what charges can be loaded onto the assessable value of imported goods. It concluded that the technical/engineering consultancy charges paid to Met Chem Canada related to setting up and commissioning the plant and the overall production process, and did not have the necessary direct nexus with the import of the specific capital goods so as to attract Rule 9(1)(e). Finding that the facts of the case did not satisfy the rule's requirements, the Court dismissed the Revenue's appeal, with no order as to costs.

Lesson Learnt

Not every payment connected to setting up a project can be added to the customs value of imported goods, only charges that have a genuine, direct link to the specific imported goods (as defined by the valuation rules) can be loaded onto assessable value for duty purposes.

Official source (sci.gov.in)View Judgment (PDF)

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