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Commissioner of Customs (Port) Kolkata v. M/S. Steel Authority of India Ltd.

Civil Appeal · 2020 INSC 367Decided 27 Apr 2020
Civil Appeal No. 6398 of 2009
Justice Deepak Gupta · Justice Aniruddha Bose

Background

Steel Authority of India Ltd. (SAIL) imported plant and equipment from two foreign consortia for modernising its Durgapur plant, under contracts that also separately priced basic design/engineering fees, "as-built" drawings, and foreign supervision charges for erection and commissioning in India. Customs authorities added these design, drawing, and supervision charges to the invoice value of the imported equipment, treating the whole arrangement as a "turnkey" package where one part was a "condition" for the other. SAIL's appeals succeeded before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which held these charges related to post-importation activity and should not be added to the customs value; the Revenue appealed to the Supreme Court.

Decision Breakdown

The Supreme Court upheld the Tribunal, holding that merely because a contract has the broad shape of a "turnkey" project does not automatically mean every component is a "condition of sale" of the imported goods under Rule 9(1)(e) of the Customs Valuation Rules, 1988. Following its earlier rulings in Essar Steel and Tata Iron & Steel, the Court held that charges for design, drawings, and supervision that relate to post-importation activities (like erection, commissioning, and project implementation in India) are excluded from the assessable value unless there is specific material showing the supply of equipment was genuinely conditional on also buying those post-import services from the same supplier. Since the Revenue had not shown such a condition, SAIL could have used the designs and supervision from any source, the extra charges could not be added to the customs value, and the appeal was dismissed.

Lesson Learnt

When goods are imported along with separately priced services for installation or commissioning, customs duty can only be charged on the price of the goods themselves unless the authorities can specifically show that buying those extra services was a genuine precondition for the sale of the goods: a contract merely looking like a "turnkey" package is not, by itself, enough.

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

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