2017 (12) TMI 1388 - AT - Customs

Tribunal includes royalty & fees in assessable value of imported goods; dismissal based on Customs Valuation Rules

The Tribunal upheld the lower authorities' decision to include both the royalty paid to Fujitsu Ten Limited and the patent/software usage fee in the ... Valuation - includibility - royalty - Held that: - When the cost of imported items were included in the net ex factory sale price of the manufactured goods and the importer pays royalty as a percentage of turnover of final product, which included the cost of imported components, it becomes a condition of sale of finished goods. Hence, both the conditions of Rule 9(1)(c ) of the Valuation Rules are satisfied - Tribunal in the case of Herbalife International India Pvt. Ltd. [2016 (9) TMI 830 - CESTAT MUMBAI] held that when the cost of imported goods is included in the amount, which is considered for payment of royalty, then such royalty should be added in the assessable value of imported goods. Valuation - payment of patent/software fee - the claim of the appellant is that they are reimbursing the said fee on behalf of the various patent /software owners for which agreement dated 30.05.2013 was entered into with Fujitsu Ten India Ltd., Japan - Held that: - Admittedly, these patent/softwares are required for the functional utility of the imported items as well as the finished final product. The appellants are under obligation to pay fee for the said third party patent/software. Rule 10(1)(e) of the Valuation Rules stipulates that all other payments actually made are to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to the third party to satisfy and obligation of the seller to the extent that such payments are not included in the price actually paid or payable, shall be added to the price actually paid or payable for the imported goods. Explanation to the said rule provides that whether the royalty, license fee or any other payment for a process, whether partial or otherwise, is includible. Appeal dismissed - decided against appellant. Issues:1. Inclusion of royalty paid to Fujitsu Ten Limited in the assessable value of imported goods.2. Addition of patent and software usage fee in the assessable value of imported goods.Analysis:1. The appeal challenged the inclusion of royalty paid to Fujitsu Ten Limited in the assessable value of imported goods. The appellant argued that the royalty should have been paid in relation to the imported goods and be a condition for the sale of those goods, which was not the case in this situation. The appellant contended that there was no clear nexus between the fees paid and the imported goods. The appellant's counsel cited various cases in support of this argument. However, the lower authorities and the Tribunal relied on the Customs Valuation Rules and previous judgments to determine that when the cost of imported goods is included in the amount considered for royalty payment, such royalty should be added to the assessable value of the imported goods. The Tribunal dismissed the appeal based on these findings.2. The second issue revolved around the addition of patent and software usage fee in the assessable value of imported goods. The appellant claimed that they were reimbursing these fees on behalf of various patent/software owners to obtain volume discounts. The Tribunal analyzed the agreement dated 30.05.2013 and determined that these fees were essential for the functional utility of the imported items and the final product. The Tribunal referred to Rule 10(1)(e) of the Valuation Rules, which stipulates that all payments made as a condition of sale of imported goods should be added to the price paid or payable for the goods. The Tribunal found that the appellant was under obligation to pay these fees for third-party patents/software, and therefore, upheld the lower authorities' decision to include these fees in the assessable value. Consequently, the appeal on this issue was also dismissed.In conclusion, the Tribunal upheld the lower authorities' decision to include both the royalty paid to Fujitsu Ten Limited and the patent/software usage fee in the assessable value of the imported goods, based on the Customs Valuation Rules and relevant legal provisions.