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.