Inclusion erection, installation & commissioning charges in value of imported plant & machinery

PJ/Case Laws/2011-12/1426

Case: GYPCRETE BUILDING INDIA LTD Vs COMMISSIONER OF CUSTOMS (SEAPORT-EXPORT), CHENNAI

Citation: 2011-TIOL-1570-CESTAT-MAD

Issue:- Issue of including erection, installation & commissioning charges in value of imported plant & machinery – Revenue case based on conditions of agreement and statement of Management – no prima facie case made out – pre-deposit ordered.

Brief Facts:- Applicants had imported plant, machinery and chemicals for manufacture of calcined walls from three suppliers namely M/s. Rapid Building Systems Pvt. Ltd., Australia, M/s. J.H.Tester, Australia and M/s. Entoller, USA. Assessee-company was initially formed as a Joint Venture company between Shri Sudhir Kumar Gupta and M/s. Rapid Building System Pvt. Ltd. (RBS), Australia to manufacture Rapid Wall products in India and later on, the Australian company withdrew itself from the joint venture and the assessee-company converted into public limited company.

After the formation of the joint venture company, three agreements were signed between RBS, Australia and the assessees for supply of one number Rapid Wall Calciner Plant and one number of Rapid Building Manufacturing Plant. Australian company agreed to supply, install and commission one Rapid Wall Calciner Plant for a sale consideration of AU$ 18,51,850. The Rapid Building Manufacturing Plant purchase agreement was signed between the Australian company and the assessee as per which the Australian company was to supply one Rapid Building Manufacturing Plant for consideration of AU$ 31,48,150/- (totaling AU$ 50,00,000). However, the assessee-company paid only AU$ 26,00,000 as raised in an invoice and separately paid amounts to the Australian company through bank remittances towards the cost of Rapid Wall Calciner Plant and Rapid Building Manufacturing Plant by declaring the same as “charges for installation and commissioning or technical fees” in spite of the fact that there was no bifurcation between the cost of the plants and installation thereof in the agreement between the two companies.

The declared transaction value of plants and machinery imported and cleared by the assessee under EPCGH scheme under Notification No. 97/04-Cus dated 17.09.2004 was not accepted by the Department. Demand was raised rejecting the declared transaction value and for re-determining the value under Section 14 of the Customs Act, 1962 read with Rule 4 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

The Adjudicating Authority confirmed the demand of customs duty with interest and imposed equal penalty on assessee-company and imposed penalty of Rs. 1 Crore and Rs. 50 lahs on Shri Sudhir Kumar Gupta, Managing Director of assessee-company and Shri Gaurav Gupta, Genral Manager of the company.

Assessee-company is in appeal before the Tribunal. Application for stay and waiver of pre-deposit is filed.

Reasoning of Judgment:- The Tribunal noted that Shri Sudhir Kumar Gupta had admitted that erection, commission and installation of the two plants by the Australian company was a condition of sale; that no separate amount was specified for installation and commissioning and that an amount of US$ 5,00,000 equal to AU$ 8,02,542 was paid to the Australian company as advance.

It was noted on the basis of the same, the department had come to the conclusion that actual transaction value of the plants was AU$ 46,66,047 after deducting certain amounts due to short supply of goods and cost of Sumifork lift which was not part of the agreements, and re-determined the value of the goods imported on the above basis, and confirmed duty demand, by applying the extended period of limitation on the ground that the assessee-company fraudulently and deliberately misstated and suppressed facts and misdeclaration the actual transaction value of the plants in question.

It was held that the assessee-company had not made out a prima facie case for total waiver as the case of the department is based on the conditions in the agreement, on the statement of Sudhir Kumar Gupta and Gaurav Gupta, and on the fact that the erection, installation and commissioning of the plants was a condition of sale and there was no specific or separate charge therefore and therefore installation and commissioning of the plants was an integral part of the total agreed price. The Tribunal considered the plea of financial hardship on the ground that the accumulated loss is to the extent of over Rs.11 crores as seen from the provisional balance sheet as on 31.3.2011, and directed pre-deposit of a sum of Rs.80,00,000/- towards duty by assessee-company within 8 weeks from the passing of order.

Decision:- Pre-deposit ordered.

Comment:- In this decision, the Tribunal has arrived at a conclusion when the installation and commissioning of plant is integral part of agreed price then the same cannot be deducted. But we have come across under different situation where after payment of custom duty, the department is asking for the payment of service tax on installation and commissioning charges as a service recipient. They say that since the price is not differentiated in the contract, hence the abatement is available and you have to pay the service tax on complete amount. When the custom is paid on complete amount then how the service tax can be demanded on the same? There seems to be no way out for such demands. The solution lies in GST only.

Comments

PJ/Case Laws/2011-12/1426

Post a Comment

Query