2005 (3) TMI 201 - AT - Customs

Dispute over technical know-how fees in imported goods' value

The case involved a dispute over the inclusion of technical know-how fees in the assessable value of imported goods used in manufacturing furnace ... Valuation (Customs) Issues:1. Inclusion of technical know-how fees in the assessable value of imported goods.2. Interpretation of Rule 9(1)(c) of the Customs Valuation Rules, 1988.3. Applicability of technical know-how fees to imported goods versus licensed equipment.4. Relevance of expired technical collaboration agreements on the assessment of technical know-how fees.Issue 1: Inclusion of technical know-how fees in the assessable value of imported goodsThe case involved a dispute regarding the inclusion of technical know-how fees in the assessable value of imported parts of power supply used in the manufacture of furnace and heating equipment. Initially, the Deputy Commissioner held that the technical know-how fees should be added to the transaction value. However, the Commissioner (Appeals) set aside the order and ruled that technical know-how fees are not includible in the assessable value. The Revenue appealed to CEGAT, which remanded the matter for reconsideration. The Commissioner (Appeals) argued that the technical know-how provided by the foreign supplier was comprehensive and essential for the manufacturing process, thus justifying the addition of the fee to the value.Issue 2: Interpretation of Rule 9(1)(c) of the Customs Valuation Rules, 1988The Commissioner (Appeals) based their decision on Rule 9(1)(c) of the Customs Valuation Rules, 1988, which allows for the addition of certain costs to the transaction value. They argued that the technical know-how fee fell under this provision as it was crucial in generating the licensed product from the imported components. However, the appellants contended that the technical know-how fee was not directly related to the imported goods but to the technology transfer for manufacturing the 'Medium frequency Furnace.'Issue 3: Applicability of technical know-how fees to imported goods versus licensed equipmentThe appellants highlighted that the technical know-how fee paid to the foreign collaborator was not for importing the goods but for importing technology for manufacturing the 'Medium frequency Furnace.' They argued that the technical know-how fee should not be added to the value of the imported goods, citing established legal principles. The Tribunal agreed, emphasizing that the imported items were only parts of a furnace, and the technical know-how fee was not shown to be directly linked to the imported goods.Issue 4: Relevance of expired technical collaboration agreements on the assessment of technical know-how feesThe appellants pointed out that the original Technical Collaboration Agreement had expired, and they had entered into a new agreement for a different range of products. They stressed that the technical know-how fee paid in 1985 was no longer applicable, as they were now free to manufacture without further payment of royalty. The Tribunal considered this argument, noting that the absence of a current agreement meant that the technical know-how fee was not a condition of sale for the imported goods, further supporting their decision to allow the appeal.