2017 (2) TMI 1027 - AT - Customs

License fees included in assessable value upheld; Rule 7 applied with modifications under Rule 8. Nature of transaction justifies Revenue's valuation.

Warner Bros. (F.E.) Inc., Paramount Films of India Ltd. And Twentieth Century Fox India Inc. Versus Commissioner of Customs (I), Mumbai

The Tribunal dismissed the appeals, upholding the inclusion of license fees in the assessable value and the application of Rule 7 with modifications under ... Valuation - import of cineprints - whether the amount of license fee remitted by the appellant to the supplier of cine prints needs to be included in the Assessable Value? - The appellants sought valuation u/r 8, whereas the Revenue sought to apply the Customs Valuation Rules and loaded the declared value furnished by the appellants - Held that: - It can be seen that the agreement is between the two foreign entities wherein one entity grants the other entity the sole and exclusive right to distribute license theatres to exhibit throughout the territory consisting of 4 countries. From the said clause of the agreement, it is obvious that the said rights are granted subject to the terms of the agreement. In other words, if the terms of the agreement are not agreed and adhered to, the said imports cannot be made or the said rights cannot be exercised. The fact is that in terms of Rule 8 the said amounts need to be included in the assessable value. Appeal dismissed - decided against appellant. Issues Involved:1. Valuation of imported cineprints.2. Applicability of Customs Valuation Rules.3. Inclusion of license fees in the assessable value.4. Relevance of previous circulars and notifications.5. Application of Rule 8 of the Customs Valuation Rules.6. Consideration of restrictions and conditions in the import agreement.7. Judicial precedents cited by the appellants.Issue-wise Detailed Analysis:1. Valuation of Imported Cineprints:The appellants imported cineprints under a franchise agreement and sought valuation under Rule 8 of the Customs Valuation Rules, relying on earlier orders dated 12.12.80 and 6.1.88. The Revenue challenged the declared value and applied the Customs Valuation Rules, leading to a dispute over the correct valuation method.2. Applicability of Customs Valuation Rules:The appellants argued for valuation under Rule 8, while the Revenue applied Rule 7. The Tribunal noted that the use of Rule 8 implies no transaction value or sale value is available, making Rules 4 to 7A inapplicable. The impugned order accepted Rule 8 but applied Rule 7 with modifications under the best judgment method.3. Inclusion of License Fees in the Assessable Value:The appellants contended that no sale occurred under the agreement, emphasizing clauses that retained ownership with the foreign supplier and required the return or destruction of prints. The Tribunal found that the payments to the foreign supplier, as a condition of import, should be included in the assessable value, aligning with Rule 9(1)(c) of the Customs Valuation Rules.4. Relevance of Previous Circulars and Notifications:The appellants relied on earlier circulars and notifications that accepted their valuation method. However, the Tribunal noted that these were issued during the currency of Notification 205/77, which was rescinded in 1996. The Tribunal held that post-rescission, valuation must align with Section 14 of the Customs Act and the Customs Valuation Rules.5. Application of Rule 8 of the Customs Valuation Rules:The Tribunal agreed with applying Rule 8 but emphasized that Rule 7 could be used with suitable modifications under Rule 8. The Tribunal rejected the appellants' reliance on earlier orders, noting that those were based on a now-rescinded notification.6. Consideration of Restrictions and Conditions in the Import Agreement:The Tribunal highlighted several clauses in the agreement that imposed restrictions on the appellants, such as prohibiting the sale, assignment, or subletting of rights without prior consent. These restrictions indicated that the declared value did not constitute the transaction or sale value, necessitating a valuation under the Customs Valuation Rules.7. Judicial Precedents Cited by the Appellants:The appellants cited various cases to support their valuation method. The Tribunal distinguished these cases, noting differences in facts and circumstances. For instance, in the case of Indo Overseas Films, the High Court of Madras held that royalties and license fees paid as a condition of sale should be included in the assessable value, which aligned with the Tribunal's decision.Conclusion:The Tribunal dismissed the appeals, upholding the inclusion of license fees in the assessable value and the application of Rule 7 with modifications under Rule 8. The Tribunal emphasized that the nature of the transaction and the conditions imposed by the agreement justified the Revenue's valuation approach.