2023 (9) TMI 90 - AT - Customs

Tribunal Upholds Exclusion of Royalty Fees from Duty Calculation

The Tribunal dismissed the Department's appeal, upholding that the Royalty and Technical Knowhow fees should not be included in the assessable value of ... Inclusion of royalty/technical knowhow fees in transaction value - condition of sale - Rule 9(1)(c) of Customs Valuation Rules - addability of royalty - transaction value under SVB procedure / arm's length pricing - finality of earlier valuation order and estoppel by acceptance - precedential application of earlier Tribunal and Supreme Court decisionsInclusion of royalty/technical knowhow fees in transaction value - condition of sale - Rule 9(1)(c) of Customs Valuation Rules - addability of royalty - transaction value under SVB procedure / arm's length pricing - Whether royalty and lumpsum technical knowhow fee paid to the foreign collaborator are includable in the assessable value of imported components. - HELD THAT: - The Tribunal examined the licence and technical knowhow agreement and the facts found on SVB inquiry. The agreement provided for royalty calculated on net sale price of the licensed articles and a lumpsum fee for technical knowhow; the importer was free to procure components from other suppliers and there was no obligation to buy only from the foreign collaborator. The Tribunal applied the governing test under the Customs Valuation Rules and found that the payments did not satisfy the twin conditions required for addability under Rule 9(1)(c): they were not a condition of sale of the imported goods and were related to post import/manufacturing activity linked to the finished product. The transaction value had earlier been accepted after SVB verification and the Department had not successfully appealed that acceptance; the prior valuation order was continued and relied upon. Having regard to these factual findings and to the Tribunal's and Apex Court's earlier authorities relied upon by the Commissioner (Appeals), the Tribunal concluded that the royalty/technical knowhow fee is not includable in the assessable value.Royalty and lumpsum technical knowhow fee are not includable in the assessable value; the departmental appeal is dismissed.Final Conclusion: The departmental appeal is dismissed: on the facts and the licence terms the royalty/technical knowhow payments do not qualify as a condition of sale and hence are not addable to the transaction value; earlier acceptance of invoice value after SVB enquiry and absence of a successful earlier appeal further confirm that no interference is warranted. Issues Involved:The appeal concerns whether the Royalty or Technical Knowhow fees should be included in the assessable value of imported goods for duty calculation.Department's Argument:The Department appealed against the Commissioner (Appeals) decision upholding that the Royalty/Technical Knowhow Fee should not be included in the assessable value of imported goods. The Department argued that the terms of the existing agreement did not warrant the inclusion of these fees in the invoice value, as per Rule 10(1)(c) of the Customs Valuation Rules, 2007.Respondent's Argument:The Respondent contended that the Royalty and lumpsum fee should not be included in the assessable value of the imported goods. They highlighted that the transaction value was at arm's length, and the Technical Knowhow Fee was not a condition of sale. The Respondent provided evidence to support their claim, including the agreement terms and pricing details.Tribunal's Decision:Upon reviewing the agreement and relevant case law, the Tribunal found that the Royalty or Technical Knowhow Fee did not meet the criteria to be included in the assessable value. Citing precedents such as M/s. HIS Automotive Ltd. and M/s. Daewoo Motors India Ltd., the Tribunal concluded that the Royalty paid by the appellant did not satisfy the conditions of Rule 9(1)(c) and thus should not be added to the value of the imported goods.Final Verdict:The Tribunal dismissed the Department's appeal, noting that the Department had accepted previous valuation orders and had not appealed against them. Therefore, the impugned order was upheld, and the appeal by the Department was deemed unsustainable. The Royalty and Technical Knowhow fees were not to be included in the assessable value of the imported goods.