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of <h1>Customs Valuation: Royalties not to be included in declared value; Judgment clarifies royalty payments and valuation rules.</h1> The Commissioner upheld the Order-in-Original, determining that non-payment of royalties by a Joint Venture Company, which became a 100% subsidiary of the ... Valuation - Related person Issues involved:1. Correct determination of certain points raised by the Dy. Commissioner of Customs.2. Legal validity of the order passed under Section 128A(3) of the Customs Act, 1962.Issue 1: Correct determination of certain points raised by the Dy. Commissioner of CustomsThe case involved a Joint Venture Company formed by a Foreign Collaborator and a local company. The Foreign Collaborator and the local company entered into various agreements for the manufacturing, selling, importing, and exporting of motor vehicles. The equity participation/share capital was divided between the parties. The Foreign Collaborator provided technology and licenses to the local company in exchange for royalty payments and lump sum amounts. A supplementary agreement was made to increase the foreign equity participation, leading to changes in royalty payment terms. The Dy. Commissioner of Customs initially accepted the transaction value declared in the invoice under Customs Valuation Rules, 1988. However, the Commissioner of Customs directed a review to determine certain points raised in the order.Issue 2: Legal validity of the order passed under Section 128A(3) of the Customs Act, 1962The Advocate representing the Joint Venture Company argued for setting aside the appeal filed by the Department and upholding the Order-in-Original. The Commissioner reviewed the case records, the impugned order, and submissions made by the appellants. It was noted that the Joint Venture Company did not pay royalty payments as it became a 100% subsidiary of the Foreign Collaborator, as per the conditions in the approval letter. This non-payment of royalties was found not to be addable to the declared value under Customs Valuation Rules, 1988. The Commissioner cited relevant judgments supporting this view. Additionally, it was observed that the prices charged by the Foreign Collaborator were fair and reasonable, and the relationship did not influence the invoice value. Consequently, the Commissioner upheld the order of the lower authority.This judgment delves into the intricacies of a Joint Venture Company's agreements with a Foreign Collaborator, addressing issues related to royalty payments, equity participation, and the valuation of imported goods. The legal analysis provided clarity on the correct determination of points raised by the Dy. Commissioner of Customs and the validity of orders passed under the Customs Act, 1962. The decision was grounded in the interpretation of relevant laws and supported by precedents, ensuring a comprehensive and legally sound resolution to the issues at hand.
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