2005 (9) TMI 125 - AT - Customs

Appellate Tribunal rules royalty payment to Sony not part of transaction value

The Appellate Tribunal CESTAT, Mumbai ruled that the royalty payment to Sony Corporation of America by the appellants, a subsidiary of Sony Music ... Valuation (Customs) Issues involved: Determination of includibility of royalty in the sale of imported recorded compact discs in India.Summary:The Appellate Tribunal CESTAT, Mumbai addressed the issue of whether royalty at the rate of 20% of MRP minus sales tax minus 6.5% packaging deduction, payable by the appellants, a subsidiary of Sony Music Entertainment (India) Inc., USA, on the sale of imported recorded compact discs in India, should be included in the transaction value. The adjudicating authority accepted the transaction value, stating that royalty is not a condition of sale, while the Commissioner (Appeals) held that royalty payment is indeed a condition of sale. The Tribunal examined the agreement between the appellants and Sony Corporation of America, specifically focusing on the clause related to record royalties. It was noted that the royalty is payable on net sales in India, and this fact was not disputed. Referring to Rule 9(1)(c) of the Customs Valuation Rules, 1988, and the interpretative notes, the Tribunal concluded that since there was no restriction on the appellants to purchase CDs from other sources and the royalty was payable on CDs manufactured in India, the payment of royalty to Sony Corporation of America cannot be included in the price of the imported goods. Therefore, the Tribunal set aside the impugned order and allowed the appeal.