2007 (11) TMI 205 - AT - Customs

Exclusion of technical fees from customs valuation under Rule 9(1)(C) | Post-import activities not included

The Tribunal held that the technical know-how fees and royalties paid were not to be included in the assessable value of imported goods under Rule 9(1)(C) ... Whether technical know-how fee/royalty/technical assistance fee paid by the buyer (importer) to the seller (foreign collaborator) is liable to be added to A.V. of the goods u/r 9(1)(C) – technical fee & technical assistance fee paid for activity post-import of raw material, not includible – royalty paid as fixed % of net sale had no nexus with import of raw material so not includible – drawings/design pertaining to technical assistance were goods is immaterial – assessee’s appeal allowed Issues Involved:1. Inclusion of technical know-how fee in the assessable value of imported goods under Rule 9(1)(C) of the Customs Valuation Rules, 1988.2. Relation of technical know-how/royalty to the imported goods.3. Condition of sale and its impact on the assessable value.4. Relevance of post-import activities to the assessable value.5. Applicability of various judgments to the factual situations.Detailed Analysis:1. Inclusion of Technical Know-How Fee in Assessable Value:The primary issue was whether the technical know-how fee paid by the appellants to foreign suppliers should be included in the assessable value of imported goods under Rule 9(1)(C) of the Customs Valuation Rules, 1988. The Tribunal examined agreements between importers and suppliers and found that technical know-how fees were paid for post-import activities and not as a condition of sale of the imported goods. Consequently, these fees should not be included in the assessable value.2. Relation of Technical Know-How/Royalty to Imported Goods:The Tribunal noted that the Special Valuation Branch (SVB) of the Department argued that technical know-how fees/royalties were related to the imported goods and were a condition of sale. However, the importers contended that these fees were for post-import activities and unrelated to the sale of the goods. The Tribunal agreed with the importers, stating that the fees were for post-import activities and not a condition of sale.3. Condition of Sale:The Tribunal emphasized that for fees to be included in the assessable value under Rule 9(1)(C), they must be a condition of sale of the imported goods. The Tribunal found no evidence that the technical know-how fees or royalties were conditions of sale. This was supported by the Supreme Court's judgment in Commissioner of Customs, New Delhi v. Prodelin India (P) Ltd., which held that fees for post-import activities are not includible in the assessable value.4. Relevance of Post-Import Activities:The Tribunal highlighted that the technical know-how fees were related to post-import activities such as setting up manufacturing plants, assembling products, and other technical assistance. These activities did not influence the sale of the imported goods, and thus, the fees should not be included in the assessable value. This was further supported by the Supreme Court's ruling in Toyota Kirloskar Motor (P) Ltd., which held that fees for post-import activities are not includible in the assessable value.5. Applicability of Various Judgments:The Tribunal referred to several judgments to support its decision:- Prodelin India (P) Ltd.: Technical fees for post-import activities are not includible in the assessable value.- Birla Tyres: Know-how fees related to manufacturing activities in India are not includible in the assessable value.- Toyota Kirloskar Motor (P) Ltd.: Technical know-how/assistance fees and royalties for post-import activities are not includible in the assessable value.- Polar Marmo Agglomerates Ltd.: Supported the non-inclusion of technical assistance fees for setting up manufacturing plants in the assessable value.- Union of India v. Mahindra & Mahindra Ltd.: Supported the non-inclusion of royalties related to production and sale of licensed products in the assessable value.The Tribunal also considered the arguments presented by the Senior Departmental Representatives but found that the cited cases did not advance the Revenue's position. For instance, the Essar Gujarat Ltd. case was distinguished by the Apex Court in Toyota Kirloskar Motor, and the Clariant (India) Ltd. case did not provide a ruling contrary to the Prodelin India case.Conclusion:The Tribunal concluded that the technical know-how fees and royalties paid by the appellants were not liable to be included in the assessable value of the imported goods under Rule 9(1)(C). The impugned orders were set aside, and all appeals were allowed.