2016 (8) TMI 138 - AT - Customs

Including Royalty Payments in Assessable Value: Tribunal Rules in Favor of Revenue

The Tribunal allowed the Revenue's appeals, holding that royalty payments should be included in the assessable value of the imported goods. The ... Valuation - principle of res judicata - related persons - goods imported was enhanced by royalty equal to 3% of the importer's selling price of the licensed products - Held that:- It is clear that in such cases the principle of res judicata does not apply. In both the cases relied by the Revenue the decision was accepted by Revenue and principle of res judicata was applied against Revenue. In this case it is other way round. Since the decision of Tribunal in the case of Hewlett Packard is in identical circumstances. Thus, we hold principle of res judicata does not apply in the instant case. From the clause 5 of the agreement, it is crystal clear that the net sale price on which 3% royalty is paid by the appellant is without deduction for components imported from HUSCO, in other words the value of imported goods is included in the net sale price of appellant s manufactured goods. In view of this undisputed fact, it is apparent that the decision of the Hon’ble Apex Court in the case of Matushita Television & Audio Ltd. (2007 (4) TMI 5 - SUPREME COURT OF INDIA) is squarely applicable to the present case. - Decided against the assessee. Issues Involved:1. Relationship between M/s.HHPL and Husco International, USA.2. Enhancement of invoice value by including royalty.3. Acceptance of transaction value under Rule 3 (3) (a) of Customs Valuation Rules, 2007.4. Inclusion of royalty payments in the assessable value.5. Applicability of res judicata.6. Relevance of case laws cited by both parties.Detailed Analysis:1. Relationship between M/s.HHPL and Husco International, USA:M/s.HHPL entered into agreements with M/s.Husco International, INC, USA, and imported goods under these agreements. The Mumbai Customs (GATT) Special Valuation Branch determined that HHPL and Husco International, USA are related as per Rule 2 of the Customs Valuation (Determination of Value of Import Goods) Rules, 2007.2. Enhancement of Invoice Value by Including Royalty:The invoice value of imported goods was enhanced by adding royalty equal to 3% of the importer’s selling price of the licensed products, as defined in the license agreement dated 01/04/2007. This was done under Rule 4 read with Rule 9 (1) (c) of the Customs Valuation Rules, 2007, for a specified period.3. Acceptance of Transaction Value under Rule 3 (3) (a) of Customs Valuation Rules, 2007:The Assistant Commissioner, GATT Valuation Cell, accepted the transaction value under Rule 3 (3) (a) of the Customs Valuation Rules, 2007. It was observed that the prices charged by Husco International Ltd. UK were at international prices, computed based on all costs and representative profit. Additionally, the importer demonstrated a price difference/margin in goods procured from group entities, further validating the transaction value.4. Inclusion of Royalty Payments in the Assessable Value:Despite accepting the transaction value, the Assistant Commissioner included royalty payments in the assessable value under Rule 10 (1) (c) of the Customs Valuation Rules, 2007. This inclusion was based on the consistency of the invoicing pattern and the absence of changes in the terms of the license agreement. The earlier order, which was not appealed against, was used as a basis for this decision.5. Applicability of Res Judicata:The Revenue argued that the principle of res judicata applies since HHPL accepted the earlier order. However, the Tribunal, referencing the Hewlett Packard case, stated that res judicata does not typically apply in taxation matters. Thus, HHPL’s appeal against the subsequent order was not blocked.6. Relevance of Case Laws Cited by Both Parties:- The Revenue relied on the case of Matushita Television & Audio Ltd., where the Apex Court held that royalty payments connected to imported components and included in the ex-factory sale price should be added to the transaction value.- The Revenue also cited Mahindra & Mahindra Ltd., Skoda Auto India Ltd., General Motors India Ltd., and other cases, but these did not directly support their argument as they involved different circumstances regarding royalty payments.- The Counsel for HHPL cited the Ferodo India and Essar Steel cases, arguing that the transaction value should be accepted without adding royalty payments. The Tribunal noted that the facts in these cases differed from Matushita Television & Audio Ltd.- The Tribunal concluded that the royalty payments in the present case were indeed connected to the imported goods, as evidenced by the license agreement. Thus, the decision in Matushita Television & Audio Ltd. was applicable.Conclusion:The Tribunal allowed the Revenue’s appeals, holding that the royalty payments should be included in the assessable value of the imported goods. The cross-objections filed by HHPL were disposed of accordingly. The judgment emphasized the importance of the relationship between the parties, the consistency of the invoicing pattern, and the applicability of relevant case laws in determining the assessable value.