2008 (10) TMI 140 - AT - Customs

Inclusion of Royalty Payment in Customs Value Upheld by CESTAT

The Appellate Tribunal CESTAT MUMBAI upheld the inclusion of royalty payment in the declared invoice value for customs valuation, ruling that the payment ... Royalty – marketing of audio cassettes & CD imported - Such cassettes carry the music/song of artist who have a right over the song/music - royalty at the rate of 15% at the retail sale price of the goods paid to the foreign supplier - royalty payment is towards the money to be paid to artist and producer who have produced such cassette - royalty payable on distribution of cassettes makes clear that payment of royalty was a condition of sale – royalty is includible in the declared invoice value Issues:1. Inclusion of royalty payment in the declared invoice value for customs valuation.2. Interpretation of Rule 9(1)(c) of Customs Valuation Rules regarding royalties and license fees related to imported goods.3. Determining if royalty payment is a condition of sale for the imported goods.Analysis:1. The case involved the appellants engaged in marketing audio cassettes and CDs imported from a foreign supplier. The issue was the inclusion of royalty payment in the declared invoice value for customs valuation. The Dy. Commissioner and the Commissioner (Appeals) upheld adding 15% royalty to the invoice value. The appellant argued that the relationship with the supplier did not influence the price, and the royalty was payable only upon the sale of products, not at the time of import. They contended that the royalty was not a condition of sale for import and should not be added to the value.2. The appellant referred to Rule 9(1)(c) of Customs Valuation Rules, which states that royalties related to imported goods should be added to the transaction value if they are a condition of sale. The appellant argued that they paid royalties for distribution and resale rights, not as a condition of sale for import. They cited relevant Tribunal and High Court decisions supporting their stance that royalties for distribution rights should not be added to the transaction value.3. The Tribunal analyzed the agreement clauses related to royalties, emphasizing that royalties were payable for distribution of cassettes, making it a condition of sale. They cited a High Court decision where royalty payment was considered a condition of sale. The Tribunal differentiated the case from previous decisions involving unrecorded cassettes, clarifying that in this case, the royalty was for pre-recorded cassettes carrying music rights. Ultimately, the Tribunal rejected the appeal, stating that royalty payment was indeed a condition of sale for the imported goods.This detailed analysis covers the issues of inclusion of royalty payment in the declared invoice value, interpretation of Rule 9(1)(c) of Customs Valuation Rules, and the determination of whether royalty payment constitutes a condition of sale for the imported goods as discussed in the legal judgment by the Appellate Tribunal CESTAT MUMBAI.