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of <h1>Royalty payments to foreign entities cannot be added to customs duty value without proof of sale condition</h1> <h3>Commissioner of Customs, Chennai Versus M/s. Michelin India Pvt. Ltd.</h3> Commissioner of Customs, Chennai Versus M/s. Michelin India Pvt. Ltd. - TMI Issues Involved:1. Whether the royalty paid by the appellant to the foreign entity is to be included in the transaction value for the purpose of payment of duty.Summary:1. Background and Facts: The Respondent requested registration in the Special Valuation Branch (SVB) for imports from M/s. Manufacture Francaise Des Pneumatiques Mechelin (MFPM), France. An order dated 31.12.2015 mandated that royalty payments made by the Respondent to the overseas supplier be included in the transaction value as per Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The Commissioner (Appeals) later set aside this order, leading the Department to appeal to the Tribunal.2. Department's Arguments: The Department, represented by Ms. Anandalakshmi Ganeshram, argued that the royalty paid to the ultimate group company and other group companies should be considered an indirect payment of royalty as per Rule 10(c) CVR, 2007. They contended that the royalty paid on the net sales value of finished goods has a nexus with the imported goods and should be included in the transaction value.3. Respondent's Arguments: The Respondent, represented by Mr. Harish Bindumadhavan, argued that the royalty paid is for post-import activities and not related to the imported goods. They cited several judicial precedents, including Commissioner of Customs, Chennai Vs. Toyota Kirlosakar Motor Pvt Ltd. and Total Finaelf India Ltd. Vs. Commissioner of Customs, Mumbai, to support their claim that such payments are not includible in the transaction value.4. Tribunal's Analysis: The Tribunal examined Rule 10(1)(c) of the Customs Valuation Rules, 2007, which requires that royalties related to the imported goods and paid as a condition of sale be included in the transaction value. The Tribunal noted that the royalty agreement was with entities not involved in supplying capital goods or raw materials to the Respondent. The capital goods and raw materials were supplied by MFPM, which procured them from third parties. The Tribunal found no evidence that the royalty payment was a condition of sale for the imported goods.5. Judicial Precedents: The Tribunal referenced several cases, including Commissioner of Customs, Mumbai Vs. Bridgestone India Pvt Ltd. and Orochem India Pvt. Ltd. Vs. Commissioner of Customs, which held that royalties paid for post-import activities and not as a condition of sale of imported goods are not includible in the transaction value.6. Conclusion: The Tribunal concluded that the royalty payments made by the Respondent were not a condition of sale for the imported goods and were related to post-import activities. Therefore, they should not be included in the transaction value. The appeal filed by the Department was dismissed.(Order pronounced in open court on 08.01.2024)
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