2005 (12) TMI 183 - AT - Customs

Tribunal excludes royalty & lump-sum payment from assessable value in customs case.

The Tribunal ruled in favor of the appellant-importer, holding that the royalty for 'ordinary assistance' and lump-sum payment for 'additional assistance' ... Valuation (Customs) - Transaction value Issues Involved:1. Whether the royalty for 'ordinary assistance' should form part of the assessable value of imported goods.2. Whether the lump-sum payment for 'additional assistance' should be included in the assessable value of imported goods.Issue-wise Detailed Analysis:1. Royalty for 'Ordinary Assistance':The appellant manufactures Toyota automobiles in India under a collaboration agreement with Toyota Motor Corporation, Japan. The dispute arose regarding the valuation of capital goods and parts imported from Toyota Motor Corporation, Japan. The Commissioner held that the royalty for 'ordinary assistance' paid by the appellant should form part of the assessable value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988. This rule mandates the addition of 'royalties and license fees' to the price paid for the imported goods to determine the 'transaction value.'The royalty payment is stipulated in Article 3(a) of the agreement, which involves providing technical know-how and information necessary for manufacturing licensed products. The royalty is calculated based on the local value added to the vehicles and parts manufactured in India, not directly related to the imported goods. The appellant argued that these royalties are not related to the imported goods and are not a condition of their sale. The Tribunal agreed, noting that the technical assistance pertains to local manufacturing and not to the imported goods. Therefore, the royalty payments do not satisfy the requirement of being 'related to the imported goods' or being a condition of their sale, and thus should not be added to the transaction value of the imported parts.2. Lump-sum Payment for 'Additional Assistance':The second issue involved the lump-sum payment for 'additional assistance' under Article 4 of the agreement. This payment covers manufacturing, engineering, and other know-how not readily available in the licensor's records but developed specifically for the licensee. Appendix 'D' of the agreement specifies that this assistance includes plant construction, production preparation, and pilot production, among other areas.The Tribunal found that these payments are for assistance rendered in India for setting up the plant and are not related to the imported goods. The technical assistance fees are calculated based on man-days worked by the licensor's employees in India. The payments are for services such as engineering, instructor dispatch, and training, which are not connected to the imported goods. Therefore, these lump-sum payments do not meet the criteria under Rule 9(1)(c) of being 'related to the imported goods' or a condition of their sale. Consequently, there is no legal basis for adding these payments to the price paid to determine the transaction value.Conclusion:The Tribunal concluded that the additions made by the Commissioner under the impugned order are not sustainable under the relevant valuation rules. The appeal by the appellant-importer was allowed, and the appeal by the revenue was rejected. Both appeals were disposed of accordingly.