Engineering & Technical Service Fees as Dutiable Components of Transaction Value – A Commentary on M/s Coal India Ltd. v. Commissioner of Customs (Port) Kolkata, (2025) INSC 609

1. Introduction

In M/s Coal India Ltd. v. Commissioner of Customs (Port) Kolkata, the Supreme Court of India decisively held that engineering and technical service fees (ETSF) paid by an Indian buyer to the local agent of an overseas seller must be included in the assessable (transaction) value of imported goods under Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The ruling clarifies the blurred line between post-importation services, which are generally excludable, and pre-sale or sale-related services, which are includable when they constitute a condition of sale.

The dispute arose when Coal India Limited (CIL), through its subsidiary Central Coalfields Limited (CCL), imported P&H Shovel spares from Harnischfeger Corporation, USA, and separately paid 8% of the FOB value to the supplier’s Indian distributor, Voltas Limited, for “product support services.” Customs authorities added this 8% to the assessable value, resulting in a demand of ₹64.47 million. The lower forums (Assistant Commissioner, Commissioner (Appeals), and CESTAT) upheld the addition. CIL’s further appeal to the Supreme Court culminated in the present judgment.

2. Summary of the Judgment

The Supreme Court dismissed CIL’s appeal, affirming all lower-level findings.
It ruled that the 8% ETSF paid to Voltas was a condition of sale stipulated by the foreign supplier and therefore falls squarely within Rule 9(1)(e).
The Court distinguished between maintenance/technical assistance after importation (which is excludable per Note to Rule 4) and services integrally connected to the sale (includable).
By reiterating and harmonising earlier case law, the Court solidified a two-step test: (a) Was the payment a condition of sale? (b) If yes, was it already reflected in the invoice price? If not, it must be added to the transaction value.

3. Analysis

3.1 Precedents Cited and Their Influence

Collector of Customs v. Essar Gujarat Ltd. (1997) 9 SCC 738
Established that buying commissions are excludable, but selling commissions/agency fees forming part of the sale arrangement are includable. The Supreme Court referenced this principle to treat Voltas’ 8% as a selling commission.
Tata Iron & Steel Co. Ltd. v. CCE & Customs (2000) 3 SCC 472
Highlighted the relevance of Rule 9 in determining addables; aided the Court in affirming that Rule 9(1)(e) acts residually when a payment is a condition of sale but not captured in clauses (a)–(d).
Commissioner of Customs v. J.K. Corporation Ltd. (2007) 9 SCC 401
Treated post-importation licence/know-how fees as excludable. The appellant relied on this ruling, but the Court distinguished it by noting that Voltas’ services occurred pre-sale and during import clearance, not after importation was complete.
Commissioner of Customs v. Ferodo India (P) Ltd. (2008) 4 SCC 563
Re-emphasised the arm’s-length principle under Section 14 and CVR 1988, guiding the Court to examine whether the 8% fee would have arisen in an arm’s-length sale. Its answer—yes, because the seller insisted on it—fortified inclusion.

3.2 Legal Reasoning of the Court

The Court’s reasoning proceeds through four concentric steps:

Contractual Construction
Clause 5(B) of the purchase order and the foreign supplier’s quotation explicitly required payment of 8% ETSF to Voltas and forbade its deduction from the FOB price payable to the seller. This created a quid pro quo for the sale.
Statutory Nexus
• Section 14(1) of the Customs Act anchors valuation to the price at which goods are ordinarily sold.
• Section 14(1A) imports the Customs Valuation Rules.
• Rule 9(1)(e) captures “all other payments … as a condition of sale … by the buyer to a third party to satisfy an obligation of the seller.”
The 8% ETSF matched the language of Rule 9(1)(e) perfectly.
Exclusion under Note to Rule 4 Rejected
The Note excludes post-importation maintenance or technical assistance fees. Here, the services (identifying spares, facilitating customs clearance, insurance surveys, replacement coordination) are pre-import/at-import activities, so the exclusion does not apply.
Arm’s-Length & Conditionality Test
Because CIL could not import the spares unless it committed to pay Voltas, the payment was inseparable from the sale price. Hence, the arm’s-length price necessarily encompassed the 8% component.

3.3 Potential Impact of the Decision

Valuation Clarity: Customs authorities now have Supreme Court confirmation that fees camouflaged as “technical services” or “product support” are dutiable when they are prerequisites for the sale.
Contract Drafting: Importers must structure contracts to segregate genuine post-import services from sale-linked pre-import services if they wish to avoid duty loading.
Agency Relationships: Where foreign suppliers mandate payments to Indian agents, such payments will typically be treated as selling commission and included in assessable value unless demonstrably independent and post-import.
Litigation Filter: The judgment will likely deter appeals trying to rely on Note to Rule 4 when the factual matrix shows that services facilitate the sale rather than maintenance after commissioning.

4. Complex Concepts Simplified

FOB (Free on Board): Price of goods including costs up to loading on the shipping vessel but excluding insurance and freight thereafter.
Assessable Value / Transaction Value: The base value on which customs duty is calculated. It is generally the price actually paid or payable, adjusted for certain “addables” under Rule 9.
Rule 9(1)(e): A residual clause in the Customs Valuation Rules requiring addition of any payment that is a condition of sale, even if made to a third party, when the buyer is effectively satisfying the seller’s obligation.
Post-importation Services: Activities (maintenance, training, erection) performed after goods have cleared customs; generally excludable from valuation under Note to Rule 4.
Selling Commission vs. Buying Commission: Selling commission (payable by the buyer to an agent of the seller) is includable. Buying commission (paid by the buyer to its own agent for purchase facilitation) is excludable.

5. Conclusion

Coal India Ltd. crystallises a pragmatic rule: If a payment to an intermediary is tied to the very act of purchase and dictated by the seller, it is part of the customs value—even when styled as “engineering” or “technical” support. The Court draws a bright line between sale-linked services (dutiable) and post-import services (non-dutiable), thereby reducing interpretative gray zones around Rule 9(1)(e) and the Note to Rule 4. Importers, customs brokers, and revenue authorities alike must now apply this refined test to ensure accurate valuation and compliance.