Sunday, February 25, 2007
Payments in currency held for numismatic value
Wherever, payment is received in the form of currency which is held for its numismatic value, in that case, the face value (tenor) of the currency alone will not be the monetary consideration and it can not be said that service has been provided for monetary consideration alone, as the market value of such coin/currency will be different from the apparent value. If service provider receives 100 silver coins of Re 1 for the service, then the value of service is not Rs 100/= because silver coin has numismatic value and taxable value cannot be arrived based on face value of the coins. In such circumstances, value has to be determined under section 67(ii) of the Finance Act, as if money is not the sole consideration for the taxable service.
Cheque collection charges
Payment for the service received in any one or more manner i.e. currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments form part of the taxable value of the service. Some time, encashment of cheque, letter of credit etc involve some banking charges which are deducted by the bankers while giving credit for the instrument. In that case, whether the full value of the instrument is the consideration or the discounted/net value of the instrument is the consideration for the service is required to be analysed.
Relevant date for receipts of payment towards service
Encashment of cheque, letter of credit etc involve some banking charges which are levied by the bankers while giving credit for the instrument. In that case, whether the full value of the instrument is the consideration is required to be analysed. A cheque or letter of credit or any other instrument is issued by the service receiver to the service provider for the consideration of the service provided to him. Amount of the cheque represent the value of the service received by him. Therefore, cheque collection charges levied by the bankers can not be deducted from the value as charge of the service tax is on gross amount. Cheque collection charge will be an expenditure incurred by the service provider in the course of providing service and also an input service, if taxable, eligible for Cenvat credit.
When the payment is received in currency, date of the receipt of such currency is the relevant date to determine the payment of service tax. Similarly, when book adjustments are made or account is deducted for the service, date of such adjustment or deduction will be relevant date. Receipt of a cheque by service provider whether amounts to the receipt of payment is required to be analysed. Cheque is only a revocable authority issued to a bank by service receiver to pay to the service provider a sum of money. Accordingly, no payment can be considered to have been received by the service provider until the cheque is presented to the bank, honored by the payer and the proceeds of the cheque are credited to the supplier’s bank account. Further, receipts issued for cheque are subject to realization. In other words, if cheque is not realized, receipts are void. Therefore, date of the cheque or receipt thereof is not relevant date to determine tax liability. However, it is difficult in practice for the service provider to ascertain when the sum, as stipulated on the cheque, is credited to his bank account since he does not know when the bank has cleared the cheque. Furthermore, most banks only reflect the cheque presentation date instead of the cheque clearance date in their bank statement. Therefore, the question remains as to what is the relevant date. The question becomes difficult to answer in the case cheque is dishonored subsequently.
The Finance Act provides for adjustment in case of advance payments. However, there is no provision for adjustment in tax liability for any other count. Therefore, if assessee makes adjustment in the tax liability for the subsequent period for the dishonored cheque of the preceding period, it will be without authority of law and may attract penal provisions of non payment of service tax. Further, the Finance Act does not provide for any refund in such scenario. Therefore, the service provider may be loser on both counts.
In view of the complex situation as narrated above, it is desirable that the service provider opt for payment of service tax on the collection basis. As service tax is payable 5th of the subsequent month by which time, usually, one will know about dishonored cheque. However, on 31 March every year, one has to discharge his service tax liability on 31st March itself instead of 5th day of the subsequent month, therefore, it will pose difficulty in the above approach and one has to pay service tax on the cheque deposited in the bank for collection without knowing whether cheque has been collected or dishonored.
When the payment is received in currency, date of the receipt of such currency is the relevant date to determine the payment of service tax. Similarly, when book adjustments are made or account is deducted for the service, date of such adjustment or deduction will be relevant date. Receipt of a cheque by service provider whether amounts to the receipt of payment is required to be analysed. Cheque is only a revocable authority issued to a bank by service receiver to pay to the service provider a sum of money. Accordingly, no payment can be considered to have been received by the service provider until the cheque is presented to the bank, honored by the payer and the proceeds of the cheque are credited to the supplier’s bank account. Further, receipts issued for cheque are subject to realization. In other words, if cheque is not realized, receipts are void. Therefore, date of the cheque or receipt thereof is not relevant date to determine tax liability. However, it is difficult in practice for the service provider to ascertain when the sum, as stipulated on the cheque, is credited to his bank account since he does not know when the bank has cleared the cheque. Furthermore, most banks only reflect the cheque presentation date instead of the cheque clearance date in their bank statement. Therefore, the question remains as to what is the relevant date. The question becomes difficult to answer in the case cheque is dishonored subsequently.
The Finance Act provides for adjustment in case of advance payments. However, there is no provision for adjustment in tax liability for any other count. Therefore, if assessee makes adjustment in the tax liability for the subsequent period for the dishonored cheque of the preceding period, it will be without authority of law and may attract penal provisions of non payment of service tax. Further, the Finance Act does not provide for any refund in such scenario. Therefore, the service provider may be loser on both counts.
In view of the complex situation as narrated above, it is desirable that the service provider opt for payment of service tax on the collection basis. As service tax is payable 5th of the subsequent month by which time, usually, one will know about dishonored cheque. However, on 31 March every year, one has to discharge his service tax liability on 31st March itself instead of 5th day of the subsequent month, therefore, it will pose difficulty in the above approach and one has to pay service tax on the cheque deposited in the bank for collection without knowing whether cheque has been collected or dishonored.
Payment received during Transit period
There may be situations where a particular service becomes taxable during its performance. There are many service assignments which are performed over a period of time. In every budget, Central Government brings new services within the service tax net. It is a regular occurrence that during the initial period, the service is not taxable but before completion of the service it has become taxable. There may be two possible scenario regarding payment for the service, i.e. (i) Payment for the service is received after the subject service has become taxable, and (ii) payment has been received in advance for a service and during the performance of the service, it has become taxable wherein part of the service was provided to the client when it was not taxable. As per second proviso to Rule 6(1) of the Service Tax Rules, notwithstanding the time of receipt of payment towards the value of services, no service tax is payable for the part or whole of the value of services, which is attributable to services provided during the period when such services were not taxable. In other words, if the payment is for the service which became taxable during the performance of such service, tax is payable on pro-rata basis.
Therefore, in the first scenario, there is no ambiguity in law and a provision has been incorporated in the service Tax Rules that even if payment is received after service has become taxable, such service or part of such service cannot be taxed.
In the second scenario, position of law is not clear. As per Section 66 of the Finance Act, service tax is levied on the value of the taxable service at prescribed rate, whereas as per Section 68 thereof, service provider is required to pay service tax at the prescribed rate in prescribed manner. As per Rule 6 of the Service Tax Rules, payment of service tax is required to be made on the subsequent month on the basis of payment received during the month for the taxable service.
From the above, it appears service provider is required to pay service tax on the payments received for taxable services at the prescribed rate within stipulated time. Since the payment for service has been received in advance, no service tax has been paid thereon during the said period, as it was not a taxable service. As per Rule 4A of the Service Tax Rules, provider of a taxable service is required to issue Bill/Invoice/Challan within fourteen days from the date of completion of taxable service or receipt of any payment towards the value of taxable service, whichever is earlier.
In the present case, as payment has already been received, an event occurring earlier than completion of service, service provider is not required to issue any fresh Bill/Invoice/Challan for rendering service. Therefore, it appears that such advance receipts escape levy of service tax. However, that is not the case may be. The advance receipt for the services will be shown in the books of account as advance and will be adjusted in the books as and when the service is provided to the client. Such adjustments in the books of accounts have been considered as consideration for the service and therefore, it will be exigible to the service tax. Central Board of Excise and Customs (‘CBEC’) vide Circular No. 65/14/2003-S.T., dated 5 November 2003 has also clarified, although for a different logic, that where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out on pro rata basis. Relevant Para of the circular is reproduced below:
“As per the said circular, Rule 6 only prescribes the procedure of payment of tax. The liability to tax is created by Section 66 of the Finance Act, 1994. The liability to pay tax is fastened on the service provider by Section 68 of the said Act. These two sections read together imply that service tax is payable by the service provider on the value of taxable services. Thus if a service provided is taxable, tax has to be paid on its value. Section 67 also clarifies value of service as the amount charged for the taxable service by the service provider. In other words, an amount becomes value of taxable service only when it has a nexus with the service provided. That is the reason why the expression used in Rule 6 is “value of taxable services” and not amount. The implication is that the tax has to be paid on the value of taxable services attributable to the service provided in a month/quarter as and when it is received. Thus, Rule 6(1) cannot be read in isolation.”
In this context, it is interesting to note that maintenance and repair of goods and equipment service was brought within service tax in the year 2003 from 1 July 2003. Government vide Notification No. 11/2003 dated 20 June 2003 exempted service tax on maintenance and repair on the payment received prior to 1 July 2003 provided the bill or invoice for the said portion of taxable services was also raised prior to the 1 July 2003. CBEC vide circular No. 59/8/2003 dated 20 June 2003 clarified that similar will be the situation for payments made for continuing service. In other words, if the payment has been received in before 1 July 2003 but service is continuing even after 1 July 2003, after it has become taxable, no service tax is leviable.
If the similar logic is taken in respect of other service, it will appear that in case of continuing service where bill is raised and payment is received in advance, no tax is leviable on the services which subsequently become taxable. However, CBEC vide Circular No. 65/14/2003-S.T., dated 5 November 2003 has clarified that:
“Circular No. 59/8/2003, dated 20-6-2003 [2003 (155) E.L.T. T7] wherein it was clarified that in view of the Notification 11/2003-S.T., dated 20-6-2003, no service tax would be payable where maintenance contracts are entered into before 1-7-2003, provided the invoices are raised and paid prior to 1-7-2003. It was further mentioned in the circular that similar would be the situation in case of continuing services. By continuing services what was meant was continuing maintenance services where there is an ongoing contract under which regular periodical payments are made. That Para 2.3.1 was only in the context of maintenance and repair service is also quite clear from the heading, “MAINTENANCE AND REPAIR SERVICES” of Para 2.3 in that circular. No similar exemption has been granted to any other service in case of advance payments.”
It is an open question as to whether the Board can issue contrary clarifications with respect to assessment practice wherein different assessees are placed in similar situation but the liability is different.
Therefore, in the first scenario, there is no ambiguity in law and a provision has been incorporated in the service Tax Rules that even if payment is received after service has become taxable, such service or part of such service cannot be taxed.
In the second scenario, position of law is not clear. As per Section 66 of the Finance Act, service tax is levied on the value of the taxable service at prescribed rate, whereas as per Section 68 thereof, service provider is required to pay service tax at the prescribed rate in prescribed manner. As per Rule 6 of the Service Tax Rules, payment of service tax is required to be made on the subsequent month on the basis of payment received during the month for the taxable service.
From the above, it appears service provider is required to pay service tax on the payments received for taxable services at the prescribed rate within stipulated time. Since the payment for service has been received in advance, no service tax has been paid thereon during the said period, as it was not a taxable service. As per Rule 4A of the Service Tax Rules, provider of a taxable service is required to issue Bill/Invoice/Challan within fourteen days from the date of completion of taxable service or receipt of any payment towards the value of taxable service, whichever is earlier.
In the present case, as payment has already been received, an event occurring earlier than completion of service, service provider is not required to issue any fresh Bill/Invoice/Challan for rendering service. Therefore, it appears that such advance receipts escape levy of service tax. However, that is not the case may be. The advance receipt for the services will be shown in the books of account as advance and will be adjusted in the books as and when the service is provided to the client. Such adjustments in the books of accounts have been considered as consideration for the service and therefore, it will be exigible to the service tax. Central Board of Excise and Customs (‘CBEC’) vide Circular No. 65/14/2003-S.T., dated 5 November 2003 has also clarified, although for a different logic, that where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out on pro rata basis. Relevant Para of the circular is reproduced below:
“As per the said circular, Rule 6 only prescribes the procedure of payment of tax. The liability to tax is created by Section 66 of the Finance Act, 1994. The liability to pay tax is fastened on the service provider by Section 68 of the said Act. These two sections read together imply that service tax is payable by the service provider on the value of taxable services. Thus if a service provided is taxable, tax has to be paid on its value. Section 67 also clarifies value of service as the amount charged for the taxable service by the service provider. In other words, an amount becomes value of taxable service only when it has a nexus with the service provided. That is the reason why the expression used in Rule 6 is “value of taxable services” and not amount. The implication is that the tax has to be paid on the value of taxable services attributable to the service provided in a month/quarter as and when it is received. Thus, Rule 6(1) cannot be read in isolation.”
In this context, it is interesting to note that maintenance and repair of goods and equipment service was brought within service tax in the year 2003 from 1 July 2003. Government vide Notification No. 11/2003 dated 20 June 2003 exempted service tax on maintenance and repair on the payment received prior to 1 July 2003 provided the bill or invoice for the said portion of taxable services was also raised prior to the 1 July 2003. CBEC vide circular No. 59/8/2003 dated 20 June 2003 clarified that similar will be the situation for payments made for continuing service. In other words, if the payment has been received in before 1 July 2003 but service is continuing even after 1 July 2003, after it has become taxable, no service tax is leviable.
If the similar logic is taken in respect of other service, it will appear that in case of continuing service where bill is raised and payment is received in advance, no tax is leviable on the services which subsequently become taxable. However, CBEC vide Circular No. 65/14/2003-S.T., dated 5 November 2003 has clarified that:
“Circular No. 59/8/2003, dated 20-6-2003 [2003 (155) E.L.T. T7] wherein it was clarified that in view of the Notification 11/2003-S.T., dated 20-6-2003, no service tax would be payable where maintenance contracts are entered into before 1-7-2003, provided the invoices are raised and paid prior to 1-7-2003. It was further mentioned in the circular that similar would be the situation in case of continuing services. By continuing services what was meant was continuing maintenance services where there is an ongoing contract under which regular periodical payments are made. That Para 2.3.1 was only in the context of maintenance and repair service is also quite clear from the heading, “MAINTENANCE AND REPAIR SERVICES” of Para 2.3 in that circular. No similar exemption has been granted to any other service in case of advance payments.”
It is an open question as to whether the Board can issue contrary clarifications with respect to assessment practice wherein different assessees are placed in similar situation but the liability is different.
Advance payments for the taxable service
As per Rule 6 of the service Tax Rules, 1994 (‘the Service Tax Rules’), service tax is required to be paid to the Government by the 5th of the month immediately following the calendar month in which the payments are received towards the value of taxable services. The liability to pay service tax arises on receipt of the payment for the service already provided or to be provided to a client. Therefore, service provider is also required to pay service tax on the advance payment received for the services which are yet to be provided by him. However, in case, service is not provided either wholly or partly for any reason and service provider refunds the amount to the client, the service provider may adjust the excess service tax so paid by him (calculated on a pro rata basis) against his service tax liability for the subsequent period . Further, if the service provider has received payment attributable to a service provided by him during the period when such service was not taxable, he is not required to pay service tax to that extent.
Mode of Receipts for the service rendered
Payment for the service can be in any one or more manner i.e. currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance, credit cards and other similar instruments and book adjustments. It may be seen that issue of debit/credit notes and deductions from accounts or book adjustments has also been considered as monetary consideration for the purpose of valuation of service.
Statutory Provisions
As per section 66 of the Finance Act, 1994 (‘the Finance Act’), Service tax is levied ad valorem @ 12% on the value of the taxable service.
Value of the taxable service is determined in accordance with the provisions of Section 67 of the Finance Act read with Service Tax (Determination of Value) Rules, 2006 (‘the Valuation Rules’).
As per Section 67(i) of the Finance Act, the value of taxable service is the gross amount charged by the service provider for such service provided or to be provided, where the provision of service is for a monetary consideration alone.
As per the explanation (a) to the section 67 of the Finance Act, consideration includes any amount which is paid or payable for the service provided or to be provided. Further as per explanation (b) thereto “money” includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value and as per explanation (c) thereto “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment.
Value of the taxable service is determined in accordance with the provisions of Section 67 of the Finance Act read with Service Tax (Determination of Value) Rules, 2006 (‘the Valuation Rules’).
As per Section 67(i) of the Finance Act, the value of taxable service is the gross amount charged by the service provider for such service provided or to be provided, where the provision of service is for a monetary consideration alone.
As per the explanation (a) to the section 67 of the Finance Act, consideration includes any amount which is paid or payable for the service provided or to be provided. Further as per explanation (b) thereto “money” includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value and as per explanation (c) thereto “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment.
Sunday, February 11, 2007
Latest Judgment of the Apex Court
On 2 February 2007, the apex court in the case of J K Corporation Ltd in Appeal (Civil)4663 of 2006 held that:
"The basic principle of levy of customs duty, in view of the afore- mentioned provisions, is that the value of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of licence or technical knowhow for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14(1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.
Rule 12 of the Rules provides that the interpretative notes specified in the Schedule appended thereto would apply for construction thereof. They are statutory in nature being integral part of the Rules themselves. The relevant portion of Interpretative Note to Rule 4 reads as under:
"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."
What would, therefore, be excluded for computing the assessable value for the purpose of levy of custom duty, inter alia, has clearly been stated therein, namely, any amount paid for post-importation activities. The said provision, in particular, also apply to any amount paid for post- importation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for the same. On the Revenue's own showing, the sum of US $ 14, 00, 000.00 was required to be paid by way of remuneration towards services to be offered by the companies in respect of matters specified in Part-A of the said Memorandum of Agreement. The said sum represents amount of licence or amount to be paid by the respondent for the licence for the manufacturing process for production of goods which were covered by the patents held by M/s. Samsung as also for technical knowhow.
No part of the knowhow fee was to be incurred by the respondent herein either for the purpose of fabrication of the plant and machinery or for any design in respect whereof M/s. Samsung held the patent right.
It may be noticed that the said Memorandum of Agreement specifically contemplates that the plant and machinery to be supplied thereunder may be procured from other independent manufacturers and suppliers who might not have anything to do with the knowhow or licence provided thereunder by Samsung.
The part of the Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods."
Therefore, once again the apex court has upheld the GOLDEN RULE that if payment is not a condition of sale and pertains to post importation, it can not be added to the assessable value.
"The basic principle of levy of customs duty, in view of the afore- mentioned provisions, is that the value of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of licence or technical knowhow for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14(1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.
Rule 12 of the Rules provides that the interpretative notes specified in the Schedule appended thereto would apply for construction thereof. They are statutory in nature being integral part of the Rules themselves. The relevant portion of Interpretative Note to Rule 4 reads as under:
"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."
What would, therefore, be excluded for computing the assessable value for the purpose of levy of custom duty, inter alia, has clearly been stated therein, namely, any amount paid for post-importation activities. The said provision, in particular, also apply to any amount paid for post- importation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for the same. On the Revenue's own showing, the sum of US $ 14, 00, 000.00 was required to be paid by way of remuneration towards services to be offered by the companies in respect of matters specified in Part-A of the said Memorandum of Agreement. The said sum represents amount of licence or amount to be paid by the respondent for the licence for the manufacturing process for production of goods which were covered by the patents held by M/s. Samsung as also for technical knowhow.
No part of the knowhow fee was to be incurred by the respondent herein either for the purpose of fabrication of the plant and machinery or for any design in respect whereof M/s. Samsung held the patent right.
It may be noticed that the said Memorandum of Agreement specifically contemplates that the plant and machinery to be supplied thereunder may be procured from other independent manufacturers and suppliers who might not have anything to do with the knowhow or licence provided thereunder by Samsung.
The part of the Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods."
Therefore, once again the apex court has upheld the GOLDEN RULE that if payment is not a condition of sale and pertains to post importation, it can not be added to the assessable value.
Latest Judgment of the Apex Court
On 2 February 2007, the apex court in the case of J K Corporation Ltd in Appeal (Civil)4663 of 2006 held that:
"The basic principle of levy of customs duty, in view of the afore- mentioned provisions, is that the value of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of licence or technical knowhow for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14(1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.
Rule 12 of the Rules provides that the interpretative notes specified in the Schedule appended thereto would apply for construction thereof. They are statutory in nature being integral part of the Rules themselves. The relevant portion of Interpretative Note to Rule 4 reads as under:
"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."
What would, therefore, be excluded for computing the assessable value for the purpose of levy of custom duty, inter alia, has clearly been stated therein, namely, any amount paid for post-importation activities. The said provision, in particular, also apply to any amount paid for post- importation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for the same. On the Revenue's own showing, the sum of US $ 14, 00, 000.00 was required to be paid by way of remuneration towards services to be offered by the companies in respect of matters specified in Part-A of the said Memorandum of Agreement. The said sum represents amount of licence or amount to be paid by the respondent for the licence for the manufacturing process for production of goods which were covered by the patents held by M/s. Samsung as also for technical knowhow.
No part of the knowhow fee was to be incurred by the respondent herein either for the purpose of fabrication of the plant and machinery or for any design in respect whereof M/s. Samsung held the patent right.
It may be noticed that the said Memorandum of Agreement specifically contemplates that the plant and machinery to be supplied thereunder may be procured from other independent manufacturers and suppliers who might not have anything to do with the knowhow or licence provided thereunder by Samsung.
The part of the Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods."
Therefore, once again the apex court has upheld the GOLDEN RULE that if payment is not a condition of sale and pertains to post importation, it can not be added to the assessable value.
"The basic principle of levy of customs duty, in view of the afore- mentioned provisions, is that the value of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of licence or technical knowhow for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14(1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.
Rule 12 of the Rules provides that the interpretative notes specified in the Schedule appended thereto would apply for construction thereof. They are statutory in nature being integral part of the Rules themselves. The relevant portion of Interpretative Note to Rule 4 reads as under:
"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."
What would, therefore, be excluded for computing the assessable value for the purpose of levy of custom duty, inter alia, has clearly been stated therein, namely, any amount paid for post-importation activities. The said provision, in particular, also apply to any amount paid for post- importation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for the same. On the Revenue's own showing, the sum of US $ 14, 00, 000.00 was required to be paid by way of remuneration towards services to be offered by the companies in respect of matters specified in Part-A of the said Memorandum of Agreement. The said sum represents amount of licence or amount to be paid by the respondent for the licence for the manufacturing process for production of goods which were covered by the patents held by M/s. Samsung as also for technical knowhow.
No part of the knowhow fee was to be incurred by the respondent herein either for the purpose of fabrication of the plant and machinery or for any design in respect whereof M/s. Samsung held the patent right.
It may be noticed that the said Memorandum of Agreement specifically contemplates that the plant and machinery to be supplied thereunder may be procured from other independent manufacturers and suppliers who might not have anything to do with the knowhow or licence provided thereunder by Samsung.
The part of the Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods."
Therefore, once again the apex court has upheld the GOLDEN RULE that if payment is not a condition of sale and pertains to post importation, it can not be added to the assessable value.
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