By TIOL News Service

MUMBAI, NOV 18, 2014: THE lower appellate authority has upheld the inclusion of BU fees and legal and professional fees paid by the appellant to Alcan Packaging Singen GMBH, Germany and Pechiney Plastic Packaging Inc., USA, foreign related entities of the appellant, on the raw material imported by the appellant from Alcan, Germany , invoking rule 10(1) of the Customs Valuation Rules.

The appellant has filed an appeal in the CESTAT.

It is submitted that the BU fees was paid by the appellant to Alcan Germany in terms of the Service agreements. The agreement provided for certain support and advisory services in fields such as-human resources, legal and tax consulting, ecology risk management, accounting/reporting, IT, sales & marketing support, business development strategy, management support, govt. relations, auditing, merger and acquisition and procurement and supply chain. Similarly, the agreement with Pechiney Plastic Packaging was for deputation of staff on secondment basis for which the appellant paid emoluments to the staff deputed. That these payments made had nothing to do with the import of raw materials nor were the services received a condition for sale of the imported goods.

The A.R. had nothing to add except reiterate the findings of the lower authorities.

The Bench extracted the rule 10(1) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and observed -

++ The impugned orders do not specify under which clause of rule 10(1), the service charges are includible in the assessable value of the goods imported….Clauses (a) to (d) of Rule 10(1) have no application to the facts before us as they relate to totally different situations and operate in different fields. If at all, only clause (e) would be relevant. The crucial factor for application of the said clause is that the payment should have been made as a condition of sale of the goods imported. There is nothing in the two agreements stipulating such a condition. While the service agreement is for rendering of certain management consultancy services, the secondment agreement is for deputation of staff. These have nothing to do with the import of raw materials. There is also no restriction placed on the appellant that the raw materials should be procured only from the related foreign entity and from nobody else. In the absence of any nexus, even remotely, between these two agreements and the import of raw materials, we do not find any justification whatsoever to relate the payments made for the services received to the value of the goods imported. In the case of allegation of under valuation, it is for the Revenue to lead evidence which has not been done in the instant case.

Holding that the order is clearly unsustainable in law, the same was set aside and the appeal was allowed with consequential relief.

(See 2014-TIOL-2292-CESTAT-MUM)