Payment to Agent as a Condition of Sale Is Part of Import Value”—Supreme Court Upholds ₹64 Lakh Duty Demand Against Coal India in P&H Shovel Spares Case

“Services Linked to Sale, Not Independent Assistance”— In a decisive ruling the Supreme Court of India upheld a customs duty demand of ₹64.47 lakhs, confirming that engineering and technical service charges paid to a local agent are includible in the assessable value of imported goods when such payment is a condition of sale. Dismissing Coal India’s appeal, the Court firmly held that where such charges are tied to the import transaction, they cannot be treated as post-import services.

Justice Ujjal Bhuyan, speaking for the Bench, stated: “Services rendered by the Indian agent were not post-importation activities… They were directly relatable to the import of the goods by way of product support service.”

The appeal arose from a contract entered into by Central Coalfields Ltd., a subsidiary of Coal India, for the supply of spare parts for P&H Shovels from Harnischfeger Corporation, USA, through its Indian distributor M/s Voltas Ltd. The contract explicitly required payment of 8% of the FOB value to Voltas in Indian rupees, in addition to the FOB value paid to the foreign supplier.

The customs authorities held that these charges were part of the transaction value, assessable under Rule 9(1)(e) of the Customs Valuation Rules, 1988, read with Section 14 of the Customs Act, 1962. They finalized provisional assessments and demanded ₹64,47,244 in customs duty for short levy. The order was upheld by the Commissioner (Appeals) and CESTAT, leading to the present appeal before the Supreme Court.

The Court meticulously reviewed the purchase orders, quotations, and supporting documents, concluding that the 8% service charge was not for maintenance or post-importation assistance, but was an inseparable part of the contract of sale. The Court noted that Voltas’s involvement was not optional and directly facilitated the sale by the US supplier.

Referring to Clause 5 of the purchase order, the Court emphasized: “Product support services shall be rendered by M/s Voltas Ltd., Calcutta… Payment of engineering and service charges at the rate of 8% of the net FOB value… will be made on pro-rata basis.”

The foreign supplier’s quotation also made the obligation clear: “You are to pay an additional eight (8) percent of the total FOB amount… to our Indian distributor M/s Voltas Ltd., Calcutta… This payment is to be made to Voltas and is not to be deducted from the FOB amount.”

Rejecting Coal India’s argument that Voltas was paid for post-import assistance, the Court held:

“There was no separate agreement between the appellant and Voltas… The services were pre-import and related to procurement, customs clearance, and shipment management.”

The Bench found that the true nature of the payment was commission and that it satisfied the test under Rule 9(1)(e) which includes: “All other payments made as a condition of sale… to a third party to satisfy an obligation of the seller.”

In a direct response to the appellant’s reliance on the Note to Rule 4, which excludes post-import services from valuation, the Court clarified: “This was not a case of post-importation activity… The Note to Rule 4 does not apply where the payment is a precondition to import.”

The Court also observed that the absence of a direct contract between Coal India and Voltas indicated that the latter acted purely as agent of the seller, and the service charge was not for separate consideration but part of the commercial structure imposed by the supplier.

Concluding that the sale was conditional on the payment of the 8% charge to the Indian agent, the Supreme Court ruled that such payment had a direct nexus with the import transaction and was correctly included in the assessable value under Rule 9(1)(e).

“We are of the considered opinion that the view taken by all the lower authorities is correct and no interference is warranted. There is no merit in the appeal.”

The judgment provides clarity on customs valuation law, particularly on how foreign supplier-imposed conditions involving Indian agents are to be treated under Rule 9(1)(e). The Court reinforced that commission payments made under a sale condition are dutiable, even if paid to a third party.

Date of Decision: May 1, 2025