Holding

The Supreme Court held that Rule 4(1) applies and the technical and installation fee, being a post‑clearance revenue‑generation agreement, is excluded from the assessable value of the imported bowling alley.

Summary

The Commissioner of Customs, Maharashtra, alleged that Galaxy Entertainment (I) Pvt. Ltd. undervalued a 20‑lane bowling alley imported from the USA by declaring a CIF price of US$15,000 per lane, whereas comparable imports were priced at US$30,000 per lane. The Department further claimed that a technical and installation fee of Rs.5.9 lacs payable to the foreign supplier’s Indian subsidiary was a disguised component of the equipment cost and invoked Rule 5(1)(c) of the Customs Valuation Rules to include it in the assessable value, resulting in a duty demand of Rs.28.33 lacs. The Customs Appellate Tribunal held that there was no undervaluation, that the declared price represented the negotiated transaction value under Rule 4(1), and that the technical and installation fee was a post‑clearance revenue‑generation agreement unrelated to the sale price. On appeal, the Supreme Court affirmed the Tribunal’s view, stating that post‑clearance agreements are excluded from valuation and that the Department erred in applying Rule 5(1)(c). Consequently, the technical and installation fee was not added to the assessable value and the appeals were dismissed.

Issues considered

Whether the technical and installation fee payable to the foreign supplier’s subsidiary should be included in the assessable value of the imported bowling alley under the Customs Valuation Rules.
Whether Rule 4(1) (transaction value) or Rule 5(1)(c) (fallback method) applies to the valuation of the imported goods.
Whether post‑clearance agreements are excluded from the valuation under the Customs Valuation Rules.
Whether there was any intentional undervaluation or bifurcation of the equipment cost.

Legislation cited

Customs Act, 1962s. 130-E
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988s. Rule 4(1), s. Rule 5(1)(c)

Subjects

Customs valuationTransaction valueTechnical and installation feePost‑clearance agreementUndervaluationRule 4(1)Rule 5(1)(c)Import duty

Judgment

'i'
.. .,._ A
COMMISSIONER OF CUSTOMS, MAHARASHTRA
v.
MIS. GALAXY ENTERTAINMENT (I) P. LTD. AND ORS.

MAYOS, 2007
B
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]

,..
~ Customs Valuation (Determination of Price of Imported Goods) Rules,
1988-Rule 4(1)-Customs Valuation-Import of 20-Lane Bowling alley-
Inclusion of Technical and Installation fee in assessable value-Department's
c
case that assessee undervalued the price of equipment and disguised part of
cost of equipment as Technical and Installation Fee payable to subsidiary
of the foreign supplier-Held: There was no undervaluation-Declared value
of equipment was the proper negotiated price-Transaction value under Rule
4(1) is to be taken-Technical and Installation fee was post-clearance D
agreement to generate revenue and not a disguise to arrive at the true value
of the import.
~

' Respondents-assessee imported 20-Lane Bowling alley from AMF Co
.based in USA. Assessee was issued show cause notice alleging that it had
< undervalued the said equipment by declaring the price at US$ 15000 CIF as
E
against the normal price of US $ 30000 for a lane; and that they had disguised
part of the cost of the equipment as Technical and Installation Fee which was
payable to the subsidiary of the foreign supplier-AMF Co. amounting to Rs.5.9
lacs payable over a period of three years, and hence was liable to confiscation
subject to payment of redemption fund. Adjudicating Authority confirmed the F
demand holding that the transaction value under Rule 4(1) of the Customs
r Valuation (Determination of Price oflmported Goods) Rules, 1988 cannot be
taken but invoked Rule 5(l)(c) of the Customs Valuation Rules and called
upon the assessee to pay duty on the price amounting tn Rs.28.33 lacs.
Assessee filed an appeal. Tribunal allowed the appeal holding that there being G
no undervaluation, there was no reason to deviate from the valuation under
Rule 4(1); that the declared value of the equipments at the rate of US $15199
per lane was the negotiated price; and there was no suppression as the
Technical and Installation Agreement was post-clearance agreement. Hence
the present appeal.
H
133
134 SUPREME COURT REPORTS [2007] 6 S.C.R.

A Dismissing the appeals, the Court ..... 'i

HELD: 1.1. The Tribunal was right in coming to the conclusion that the
cost per lane at US$ 15000 was proper negotiated price. It cannot be said
that the cost of the equipment was deliberately bifurcated and that the Technical
and Installation Charges Agreement was a disguise to arrive at the true value
B of the import. The foreign supplier had its subsidiary in India; that subsidiary
was AMF Co. It is not the case of the Department that the said subsidiary was
a bogus company. (Para 5] (137-C-E)

1.2. The equipment was suppHed by AMF Co which wanted to promote -~
f.
the game in India. 20-Lane Bowling Alley was the biggest in Asia. The foreign
c supplier wanted the said equipment to be installed properly. The said equipment
was synthetic item. To install that item required specialiud knowledge. That
expertise was available with AMF Co-subsidiary of the foreign supplier. As a
matter of promotion, the Technical and Installation Charges agreement •
stipulated raising of revenue for next three years by charging a fee of Rs.5.90
D per game for one million games bowled aggregating to Rs.59 lacs. Therefore,
that agreement had no nexus with the sale proceeds of the equipment paid by
the assessee to AMF Co. (Para 5) [137-C-F)
r
1.3. The post-clearance agreement was revenue generation agreement.
Rs.59 lacs was not a quantified amount Rs.59 lacs was calculated on the basis '
E that one million games were likely to be bowled in the next three years. That
risk was taken by AMF-Co. Even under Rules of Interpretation to the Customs •
Valuation Rules, post-clearance agreements are excluded. Further, even under
the order of the Adjudicating Authority the validity or the genuineness of the
Technical and Installation Charges Agreement is not doubted. The import by
Delhi Co. of 6-Lane Bowling Alley has been taken by the Department as the
F basis of valuation under Rule 5(1)(c). In fact, in case of Delhi Co the department
has also taken into account the cost of Technical and Installation services at
Rs.28.33 lacs which in the instant case is Rs. 59 lacs. The instant case is of
20-Lanes. One cannot compare the impugned transaction with the transaction '
which AMF Co. had with Delhi Co. It cannot be said that the Technical and
G Installation charges was a disguise to cover the true cost of the equipment.
There is no evidence of any flow-back or extra-consideration deflating the
\,
price and, therefore, there was no reason to include Rs.59 lacs in the
assessable value of the equipment. Rule 4(1) of the Customs Valuation Rules
was applicable and the Department had erred in invoking Rule 5(1)(c) of the ,,,,....
Rules. In the circumstances, there is no infirmity in the impugned judgment
H
COMM!l OF CUSTOMS, MAHARASH fRA '·GALAXY ENTERTAINMENT (Q P. LTD. [KAPADIA, J.J 135
-~
of the Tribunal [Para 5) [137-G-H; 138-A-B-CJ A
Basant Industries v. Additional Collector of Customs, (1996) 81 E.L.T.
195, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8667-8670 of2002.
B
From the Final Order No. C-11/2103-06/WZB/2002 dated 04.07.2002 in
Appeal Nos. C/886, 887, 888 & 914/01 Born Passed by the Customs, Excise and
Gold (Control) Appellate Tribunal, West Zonal Bench at Mumbai.
'\
WITH

C.A. No. 7453 of2003.
c
K. Radhakrishnan, Tufail A. Khan, B. Krishna Prasad and P. Parmeswaran
for the Appellants.

L. Nageswara Rao, Subramanium Prasad, Rohit Tandon, Tarun Mehra, D
Pavan Kumar, A.R. Madhav Rao, Monish Panda and Rajesh Kumar for the
..... Respondents .
r
The Judgment of the Court was delivered by

KAPADIA, J. I. A short question which arises for determination in E
these civil appeals filed by the Department under Section 130-E of the Customs
Act, 1962 against the decision of Customs Excise and Gold (Control) Appellate
Tribunal ("the Tribunal") dated 4. 7.2002 is: whether technical and installation
fee amounting to Rs. 59 lacs was required to be loaded in the assessable value
of a 20-Lane Bowling Alley equipment imported in October, 1998 by the
assessee-Galaxy Entertainment (I) Pvt. Ltd.? F
~
2. The assessee imported 20-Lane Bowling Alley from Mis AMF Bowling
Inc. based in USA for installation in their premises situated at Phoenix Mills
Compound, Lower Pare!, Mumbai-400013. On 18.5.1999, a show cause notice
was issued in which it was alleged that the assessee had grossly undervalued
the said equipment by declaring the price at US $ 15000 CIF as against the G
normal price of US $ 30000 for a lane. According to the show cause notice,
the assessee had disguised part of the cost of the equipment as Technical
....... and Installation Fee which was payable to the subsidiary of the foreign
supplier, Mis AMF Bowling (I) Pvt. Ltd., amounting to Rs. 59 lacs payable
over a period of three years. According to the show cause notice, prior to H
136 SUPREME COURT REPORTS [2007] 6 S.C.R.
....
A the importation of the above equipment, similar equipment was imported into
India during 1997-98 by nine different assessees. According to the show
cause notice, in those nine cases the value of the equipment worked out to
US $ 30000 per lane. Consequently, according to the Department, the said
equipment, in the present case, stood undervalued, hence, liable to confiscation
subject to payment of redemption fund.
B
3. The demand was confirmed by the Adjudicating Authority. It was
held by the Adjudicating Authority that the declared price at the rate of US
$ 15199 per lane was highly discounted price and there was no reason for t'
granting discount of 45% to the assessee. According to the Adjudicating
c Authority, the said equipment was undervalued and it was further disguised
under what is called as technical and installation fees paid at the rate of Rs.
5. 90 per game for one million customers of the assessee over a period of three
years. That agreement was dated 20.8.1998. The Adjudicating Authority arrived
at the figure of Rs. 59 lacs on the aforestated basis and included the said
amount in the assessable value of the equipment. The Adjudicating Authority . )

D came to the conclusion that the cost was artificially divided with the intention
of evading payment of customs duty. In the circumstances, the Adjudicating
'Authority held that the transaction value under Rule 4(1) of the Customs r
Valuation (Determination of Price of Imported Goods) Rules, 1988 ("Customs '
Valuation Rules") cannot be taken and accordingly, the Adjudicating Authority
invoked Rule 5(l)(c) of the Customs Valuation Rules and called upon the
E
assessee to pay duty on the price calculated at the rate of US $ 30000 x 20
+ Rs. l .41 lacs per lane as Installation Charges, which Mis Capital Leisure Pvt.
Ltd. had paid, amounting to Rs. 28.33 lacs.

4. Aggrieved by the aforesaid decision of the Adjudicating Authority,
F the matter was carried in appeal by the assessee to the Appellate Tribunal.
The Tribunal came to the conclusion that in the present case there was no
1
undervaluation and, therefore, there was no reason to deviate from the valuation
under Rule 4(1). According to the Tribunal, the declared value of the
equipments at the rate of US $ 15199 per lane was the negotiated price.
According to the Tribunal, there was no suppression as the Technical and
G Installation Agreement dated 20.8.1998 was post-clearance agreement.
According to the Tribunal, the facts of the present case stood clearly covered
by the judgment of this Court in the case of Basant Industries v. Additional
Collector of Customs, (1996) 81 E.L.T. 195. Consequently, the appeal was
allowed by the Tribunal. Hence, these civil appeals have been filed by the
H Department.
COMMR. OF CUSTOMS, MAHARASHTRA'· GALAXY ENTERTAINMENT (ij P. LTD. [KAPADIA, J.J j J7

5. We do not find any merit in these civil appeals. In the present case, A
there were nine imports of the said equipment during the year 1997-98. One
such import was made by Mis Capital Leisure Pvt. Ltd., New Delhi. In that
matter, the cost came to US $ 30000 per lane. This transaction has been taken
by the Department as the basis of valuation under Rule 5(l)(c). However, the
import from USA by Mis Capital Leisure Pvt. Ltd. was of 6-Lane Bowling
Alley. We have examined all the nine transactions. None of those transactions B
exceeded 8-Lane Bowling Alley. In the present case, the assessee has imported
20-Lane Bowling Alley. It is the largest in Asia. Mis AMF Bowling Inc., USA,
wanted to promote the game in India. The records indicate hectic bargaining
for 20-Lane Bowling Alley by the assessee. In the circumstances, the Tribunal
was right in coming to the conclusion that the cost per lane at US $ 15000 C
was a proper negotiated price. In the circumstances, in our view, the matter
is fully covered by the judgment of this Court in the case of Basant Iridustries
(supra). Further, there is no merit in the contention advanced on behalf of the
Department that the cost of the equipment was deliberately bifurcated and
that the Technical and Installation Charges Agreement dated 20.8.1998 was
a disguise to arrive at the true value of the import. In this connection we find D
that, the foreign supplier had its subsidiary in India; that subsidiary was
Mis AMF Bowling (I) Pvt. Ltd. It is not the case of the Department that the
said subsidiary was a bogus company. As stated above, the equipment was
supplied by Mis AMF Bowling Inc., USA which wanted to promote the game
in India. As stated above, 20-Lane Bowling Alley was the biggest in Asia. E
The foreign supplier wanted the said equipment to be installed properly. The
said equipment was a synthetic item. To install that item required specialized
knowledge. That expertise was available with M/s AMF Bowling (I) Pvt. Ltd.
(subsidiary of the foreign supplier). As a matter of promotion, the Technical
and Installation Charges Agreement dated 20.8.1998 stipulated raising of
revenue for next three years by charging a fee of Rs. 5.90 per game for one F
million games bowled aggregating to Rs. 59 lacs. Therefore, that agreement
had no nexus with the sale proceeds of the equipment paid by the assessee
to Mis AMF Bowling Inc., USA. The post-clearance agreement was revenue
generation agreement. Rs. 59 lacs was not a quantified amount. Rs. 59 lacs
was calculated on the basis that one million games were likely to be bowled G
in the next three years. That risk was taken by Mis AMF Bowling (I) Pvt. Ltd ..
Even under Rules of Interpretation to the Customs Valuation Rules, post-
clearance agreements are excluded. Further, even under the order of the
Adjudicating Authority the validity or the genuineness of the Agreement
dated 20.8.1998 is not doubted. In fact, in Mis Capital Leisure, the department
H
138 SUPREME COURT REPORTS [2007] 6 S.C.R.

A has also taken into account the cost of Technical and Installation services at "I
Rs. 28.33 lacs which in the present case is Rs. 59 lacs. As stated, in the case
of Mis Capital Leisure the transaction was concerning 6-Lanes Bowling Alley,
whereas here we have 20-Lanes.ln the circumstances, we do not find any
infirmity in the impugned judgment of the Tribunal. One cannot compare the
B impugned transaction with the transaction which Mis AMF Bowling Inc.,
USA had with Mis Capital Leisure Pvt. Ltd .. We find no merit in the argument
advanced on behalf of the Department that the Technical and Installation
charges was a disguise to cover the true cost of the equipment. There is no
evidence of any flow-back or extra-consideration deflating the price and, ')
therefore, there was no reason to include Rs. 59 lacs in the assessable value
C of the equipment. In our view, Rule 4(1) of the Customs Valuation Rules was
applicable and the Department had erred in invoking Rule 5(1 )( c) of the said
Rules.

6. For the aforestated reasons, we find no infirmity in the impugned
judgment of the Tribunal dated 4. 7.2002. Accordingly the civil appeals are
D dismissed with no order as to costs.
NJ. Appeals dismissed.

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