Holding

Registration of a contract under the Project Import Regulations is only provisional, permitting customs to make a final assessment under Section 14, and only inspection/dismantling/packing, insulation removal and insurance costs are includable, whereas vendor inspection and fees/reimbursements to Tata Inc. are not.

Summary

Bombay Dyeing & Manufacturing Co. Ltd entered into a contract with a U.S. firm to import a plant for manufacturing dimethyl terephthalate and applied for registration under the Project Import (Registration of Contract) Regulations, 1965. The contract was approved for a CIF value of US$17 million plus dismantling and technical assistance charges. The Customs authority, invoking Section 14 of the Customs Act, made a final valuation that added several expenditures, including inspection, dismantling, packing, insulation removal, insurance, vendor inspection, and fees paid to Tata Inc. The appellant argued that the registration constituted a pre‑assessment and that certain additions should not be included. The Supreme Court held that registration is only provisional, allowing customs to make a final assessment under Section 14, and that only the inspection/dismantling/packing, insulation removal, and insurance costs are includable, while vendor inspection and Tata Inc. fees/reimbursements are not. It also directed that spares amounting to 10% of the enhanced plant value be valued at the same exchange rate as the plant. The appeal was allowed and the Tribunal’s order modified.

Issues considered

Whether registration of a contract under the Project Import (Registration of Contract) Regulations, 1965 amounts to a final pre‑assessment that bars further valuation under Section 14 of the Customs Act, 1962.
Which components of the incurred expenditure may be included in the assessable value of a project import for customs duty purposes.
How spares constituting 10% of the plant value should be valued in the context of a project import.

Legislation cited

Customs Act, 1962s. 14

Subjects

Customs valuationProject importSection 14Provisional assessmentAssessable valueVendor inspectionFees reimbursementSpares valuationDMT plant import

Judgment

THE BOMBAY DYEING AND MANUFACTURING CO. LTD. A
v.
COLLECTOR OF CUSTOMS, BOMBAY

FEBRUARY 18, 1997

(S.P. BHARUCHA AND S.B. MAJMUDAR, JJ.] B

Customs Act, 1962 :

S.14-f'roject impo1t-Assessment for customs duty-Project imp01t
contract-Registration of-Held, it is open to Customs authorities to make a, C
final assessment taking into account all relevant factors, and they are not
inhibited by reason of registration of the contract under the Regulations-£.x-
penditure taken into account for arriving at assessable value of project-Ad-
missibility of-Project Import (Registration of Contract) Regulations
1965--Customs Tariff-Item 84, 66(/l).
D
TI1e appellant-assessee entered into a contract with an American
Company to purchase certain capital goods, namely, manufacturing equip-
ment, apparatus, machinery, including spare parts and accessories, for
manufacturing Dimethyl Terephthlate (DMT). The assessee applied for
registration or the contract under the Project Import Registration or E
Contract Regulations, 1965. The Government approved the import or the
said capital goods for the CIF value of US £ 17.00 million, overseas
dismantling charges etc. for US £ 5.5 million, and fee for Technology and
Technical Assistance valued at US £ 2.5 million. The contract was accord-
ingly registered. Thereafter, the Joint Controller of Imports and Exports
wrote to the Collector of Customs, Bombay not to debit the dismantling F
charges to the face value of the said import licence.

It was unsuccessfully contended by the assessee before the Customs,
Excise and Gold (Control) Appellate Tribunal that the registration of the
contract by the Customs authori~ies in terms of the Regulations amounted
to pre-assessment of the value of the plant, and, therefore, the Collector G
of Customs erred in applying the provisions of s. 14 of the Customs Act,

- 1962 to the valuation of the plant for purposes of customs duty. The
Tribunal accepted the argument of the Revenue that there had only been
a prm'isional assessment and it was open to the Collector to value the plant
under s. 14 of the Act. The Tribunal also upheld the additions, in making H
117
118 SUPREME COURT REPORTS [1997] 2 S.C.R.

A the final assessment of the value of the plant, of expenditure incurred on
: (1) Inspection/dismantling/packing and forwarding; (2) Vendor inspec-
tion; (3) Insulation removal; (4) Insurance in USA; (5) Tata Incorporated
charges; and (6) Reimbursement to Tata Incorporated for miscellaneous -
expenses. Aggrieved, the assessee filed the present appeal.

B Allowing the appeal and modifying the judgment of the Tribunal, this
Court

HELD : 1. There being merely a provisional assessment at the stage
when the contract is registered under the Project Import (Registration of
C· Contract) Regulations, 1965, it is open to the Customs authorities to make
a final assessment taking into account all factors that are relevant thereto,
and they are not inhibite"d by reason of the registration of the contract
under the said Regulations. (121-D-F]

2.1. The Inspection/dismaritlinglpacking and forwarding (Item 1),
D insulation removal (Item 3), and insurance in U.S.A. (Item 4) were done,
pursuant to the terms of the contract and, therefore, the expenditure
incurred thereon was rightly taken into account in determining the asses-
sable value of the said plant. (123-C]

E 2.2. However, the additions on account of 'Vendor Inspection" (item
2), "Tata Incorporated charges" (item 5) and reimbursement to Tata
Incorporated for miscellaneous expenses such as equivalent transport etc.
(item 6) were not sustained. 'Vendor Inspection" was carried out by ~he
original supplier of the plant. It was not required for purposes of disman-
tling the plant nor for making it ready for being transported. Therefore,
--
F expenditure on 'Vendor Inspection" should not have been taken into
account for the purposes of arriving at the assessible value of the said
plant. Again, the expenditure enumerated in items 5 and 6 was payment of
fee of M/s. Tata Incorporated for rendering a service and the reimburse-
ment to them of actual expenses and, as such, this expenditure also could
G not be taken into account in arriving at the value of the plant. (123-A-B]

Appollo Tyres v. Collector of Customs, (1997) 89 E.L.T. 7, relied on.

3. Spares to the extent of 10% of the enhanced value of the plant
would form part of the project import and must be valued on par with the
H said plant, that is to say, the rate of exchange which was applied in respect
BOMBAY DYNG. AND MFG. CO. LID. ••. COLLECTOR OF CUSTOMS, BOMBAY (BHARUCHA, J.] 119

of the said plant must also be applied to this percentage of the spares. A
[124-D-E]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4439 of
1990.

From the Judgment and Order dated 19.2.90 of the Customs, Excise B
and Gold (Control) Appellate Tribunal, New Delhi in A. No. C/638/88-A
(0. No. 155/90-A).

Soli J. Sorabjee, D.B. Shroff, Ms. Nisha Bagchi, Ms. Amrita Mitra
for JBD & Co. for the Appellants.
c
Dr. R.R. Mishra, G. Prakash and V.K.. Verma for the Respondent.

The Judgment of the Court was delivered by :

BHARUCHA, J. This is an appeal against the judgment and order of
the Customs, Excise and Gold (Control) Appellate Tribunal and it con- D
cerns the assessment of project imports for the purposes of Customs duty.

'Prior to the introduction of Item 72A in the earlier Customs Tariff,
individual imports, though intended for a single project, were separately
assessed to Customs duty. To obviate the inconveniences that resulted, the E
facility of project imports was introduced and it required that the contract
relating to the project import should be registered. The Project Imports
(Registration of Contract) Regulations, 1965, were introduced as a conse-
quence. They provide that every importer claiming assessment of articles
falling under the relevant entry, being Heading 84.66 of the present Cus- F
toms Tariff, should apply to the appropriate officer of Customs at the port
where the goods are to be imported for registration of his contract. The
application in that behalf must specify "such other particulars. as may be
considered necessary by the Appropriate Officer for the purposes of
assessment under the said Heading".
G
The appellants entered into a contract on 19th December, 1978, with
corporations doing business in the United States of America in the style of
'Hercofin~' to purchase manufacturing equipment, apparatus, machinery,
including spare parts and accessories, comprised in Hercofina's plant at
Burlington, New Jersey, USA, for manufacture of Dimethyl Terephthlate H
120 SUPREME COURT REPORTS [1997) 2 S.C.R.

A (DMT) at the price of US $ 10,000,000.00 (US$ ten million). The appel-
lants applied for registration of the said contract under the Project Import
Registration of Contract Regulations, 1965, (hereinafter called "the said
Regulations"). On 11th April, 1979, the appellants were informed by the
Under Secretary to the Government of India in the Department of ln-
B dustrial Development, Ministry of Industry that the Government had ap-
proved the import by the appellants oi the aforesaid capital goods for the
production of DMT for the CIF value of US$ 17 million. It was noted in
the said letter that the appellants would be incurring as dismantling charges
the cost of US $ 5.50 million for which necessary clearance from the

-
C Reserve Bank should be obtained. On 21st. May, 1979, the Deputy
Secret~ry in the Ministry of Petroleum, Chemicals and Fertilizers required
the appellants to furnish a certificate from a firm of Chartered Engineers
regarding the soundness and reliability of the aforesaid plant before incur-
ring any expenditure for its purchase. On 1st. August, 1981, the Under
Secretary in the Department of Economic Affairs in the Ministry of
D Finance informed the Reserve Bank that the Government had approved
the procurement of capital goods, technical assistance, etc., in connection
with the DMT project of the appellants thus :

Value
I
E (i) ·Import of Capital goods US $ 17.00 million

(ii) Overseas dismantling
charges etc. US $ 5.5 million

(iii) Fee for Technology &
F
Technical Assistance. US $ 2.5 million."

On 24th August, 1982, the Assistant Collector of Customs, Bombay,
informed the appellants that the said contract had been registered and that
spares to the extent of 10 per cent of the value of the main machinery were
G eligible for the concessional rate of assessment under Heading 84.66(II).
On 30th September, 1982, the Reserve Bank informed the appellants that ..
it had agreed to the expenditure by the appellants of US $ 5.5 million ·
towards dismantling and other charges in respect of the import of the
aforesaid plant, which charges were not required to be endorsed on the
H import licence issued for that import. On 8th October, 1982, the Joint
BOMBAY DYNG. AND MFG. CO. LID. " COLLECTOR OF CUSTOMS, BOMBAY !BHARUCHA J.] 121

Controller of Imports and Exports wrote to the Collector of Customs, A

-
Bombay, asking the Collector not to debit the said dismantling charges
to the face value of the said import licence.

It was contended by the appellants before the Tribunal that there
had been a pre-assessment of the said plant and that, therefore, the
Collector of Customs was in error in applying the provisions of Section B
14 of the Customs Act to the valuation of the said plant for the
purposes of Customs duty. The Tribunal did not accept the argument
that the registration of the said contract by the Customs in terms of the
said Regulations amounted to pre- assessment of the value of the said
plant. It accepted the argument on behalf of the Revenue that there had C
only been a provisional assessment and it was open to the Collector to
value the said plant on the basis of Section 14.

Before us it was accepted that there had been only a provisionai
assessment at the stage when the said contract Was registered under t~e D
said Regulations, but it was submitted that once the value of the said
plant was determined at US $ 17 million and the said contract was
registered under the said Regulations read with Heading 84.66, then,
for the purposes of the final assessment, the value of the said plant had
to be taken to ht.: the value that had been so determined and it was open
to the Customs authorities not to accept that value only if there was E
material to indicate that it was arrived at on account of some error or
a particular item fell outside the scope of the project import. We find
it difficult to accept the submission. Once it is acc'epted that there is no
,more than a provisional assessment at the stage when the contract is
· registered under the said Regulations, it is open to the Customs p
authorities to make a final assessment taking into account all factors
that are relevant thereto, and they are not inhibited by reason of the
registration of the contract under the said Regulations.

The question now is whether the Customs authorities have taken
relevant factors into account in making the final assessment of the said G
plant.

The adjudicating authority added the following in making the final
assessment of the value of the said plant, and was upheld by the
Tribunal:
H
122 SUPREME COURT REPORTS [1997] 2 S.C.R.

A " us$
1. Inspection/dismantling/packing and forwarding 3847621
2. Vendor inspection
...
339253
3. Insulation removal 691981
B 4. Insurance in USA 139365.
5. Tata Incorporated charges 217500
6. Reimbursement to Tata Incorporated for misc.
expenses such as equivalent transport, copying, 265018
telephone, telex, postage, legal expenditure
c
5500738"

After some debate, learned counsel for the appellahts fairly stated
that he could not contest the addition of dismantling, packing and forward-
ing charges in item no. 1 above; and "Insurance in USA", being item no.-4
D above, because these expenses arose upon the terms of the said contract.

i
The amount relating to inspection in item no. 1 above is US $ 1.048
million. It was submitted by learned counsel for the appellants that these
inspection charges could not be included in the assessable value of the said
E plant as the inspection was optional. It did not flow from the terms of the
said contract nor did it enhance the value of the said plant. It was not
needed to be incurred for dismantling the said plant and making it ready
for transport. It was only for determining what parts of the said plant
needed repair. The Tribunal had been in error in emphasising clause 9 of
-
the said contract in holding that these inspection charges were includible
F for the purposes of arriving at the assessable value of the said plant. Clause
9 of the said contract records that independent certification of the condi-
tion of the said plant was required to enable the appellants to obtain an
import licence for it. It was, then.Jore, agreed that the appellants would
-.
engage, in consultation with Hercofina, an engineering contractor, at the
G appellants' expense, to inspect the major pieces of the said plant and issue
a certificate in this behalf. It seems to us clear that this inspection, carried
out by Catalytic Inc., was pursuant to the aforementioned term of the said
contract and the expenditure incurred in that behalf was rightly held by the
Tribunal to flow thereout.

H Insofar as "Vendor inspection" (item 2 above) is concerned, it ap-
BOMBAY DYNG. AND MFG. CO. LID. '· COLLECTOR OF CUSfOMS. BOMBAY {BHARUCHA, .!.] 123

pears that it was carried out by the original supplier of the said plant. It A
was not required to be incurred for the purposes of dismantling the said
plant nor for making it ready for being transported. There is no material
shown to us from the record that suggests the contrary. We are, hence, of
the view that the expenditure on this inspection should not have been taken
into account for the purposes of arriving at the assessable value of the said B
plant.

Learned counsel for the appellants submitted that the expenditure
incurred on "Insulation removal" (item 3 above) should also not. have been
taken into account for the purposes of arriving at the assessabfe value of

- the said plant. Under the terms of clause 4 of the said. contract it was the C
obligation of the appellants, at their own cost and expense, to make all
arrangements and perform all work, themselves or through agents or
contractors of their choice, necessary to effect dismantling, packing,
removal and shipment of the said plant from Burlington, New Jersey. The
said plant as installed was insulated by asbestos. Environmental laws in the D
U.S.A. required that the asbestos insulation that was removed from tije
said plant in New Jersey to enable the said plant to be transported had to
be buried at an approved site. It was, therefore, that the appellants had to
engage the services of a specialist contractor who came to the site with
protective devices and vehicles to remove the asbestos insulation and
transport it to the burial site. Learned counsel for the appellants submitted. E'
thaJ, while the said contract required the appellants to dismantle the said
plant and, therefore, to remove the asbestos insulation, it did not reqUire
the appellants to bury the asbestos. We must proceed upon the assumption
that the said contract required the appellants to carry out their obligations
thereunder in a lawful manner. It was, therefore, implicit that the appel- F
)ants should conform to the law that required the removed asbestos insula-
tion of the said plant to be buried. The obligation in this behalf flowed out
of the said contract and the expenditure incurred thereon was rightly taken
into account in determining the assessable value of the plant.

The appellants had ent.ered into a contract with M/s. Tata Projects G
for providing services in India with regard to the construction of the said
plant. They had agreed to pay the expenses in this behalf actually incurred
by M/s. Tata Inc. in the U.S.A. and their fees. Accordingly, the appellants
had paid the fees of M/s. Tata Inc. (item 5 aiJove) and reimbursed them
for the expenditure which they had actually incurred (item 6 above). H
y

124 SUPREME COURT REPORTS [1997) 2 S.C.R.

A Learned counsel for the appellants submitted that the payment of the fees
of M/s. Tata Inc. was payment for rendering a service and could not be \
taken into account in arriving at the value of the said plant. Attention was
drawn to the judgment of this Court in Apollo Tyres Ltd. v. Collector of
Customs, (1997) 89 E.L.T. 7 (to which one of us was a party) where it was
B held that the commission or remuneration payable to a purchasing agent
did not enhance the value of the items purchased. The same reasoning, it
was submitted, applied to the fees of M/s. Tata Inc. and the reimbursement
to them of actual expenses. Learned counsel for the Revenue, fairly, did
not dispute this.

C To summarise, only the additions of US$ 339253, 217500 and 265018,
being the additions on account of "Vendor Inspection" (item 2), "Tata
Incorporated charges" (item 5) and "Reimbursement to Tata Incorporated
........" (item 6) are not sustained. .

The letter dated 24th August, 1982, written by the Assistant Collector
D of Customs to the appellants intimating to them that the said contract had
been registered, stated that spares to the extent of 10 per cent of the value
of the main machinery were eligible for the concessional rate of assessment
under Item 84.66. It goes without saying that this percentage must now be
calculated on the basis of the enhanced value of the said plant. Spares to
E that extent would form part of the project import and must be valued on
par with the said plant, that is to say that the rate of exchange which is
applied in respect of the said plant must also be applied to this percentage
of the spares. --
The appeal is allowed and the order under appeal modified to the
p extent aforestated. There shall be no order as to costs.
R.P. Appeal allowed.

--