2005 (3) TMI 379 - AT - Customs

Tribunal: Tech fees & royalties linked to imported goods are part of assessable value.

DAIKIN SHRIRAM AIR CONDITIONING PVT. LTD. Versus COMMR. OF CUS., MUMBAI

The Tribunal held that technology transfer fees and royalty payments made by the appellant are includible in the assessable value of the imported goods. ... Valuation (Customs) - Royalty and licence fee Issues Involved:1. Whether the technology transfer fee and royalty are includible in the value of the goods imported.Detailed Analysis:1. Technology Transfer Fee and Royalty Inclusion in Import Value:The primary issue in this appeal is whether the technology transfer fee and royalty payments made by the appellant are includible in the value of the goods imported. The appellant, a joint venture between Daikin Industries Ltd., Japan, and SIEL Ltd., New Delhi, argued that the technology transfer fee and royalty payments pertain to post-importation activities, such as manufacturing, installation, and maintenance of the licensed products in India, and thus should not be included in the assessable value of the imported goods.The appellant contended that the imported items, including components and sub-assemblies, were for local manufacturing, and the technology transfer fee was not related to these imported goods. They relied on Rule 9(1)(c) of the Customs Valuation Rules, which states that royalties and license fees should relate to the imported goods and be a condition of their sale to be included in the assessable value. The appellant cited several precedents where the Tribunal held that royalties and technical know-how fees related to manufacturing in India were not includible in the value of imported goods.2. Department's Argument:The Department argued that the agreement between the appellant and Daikin included provisions that bound the appellant to purchase components from Daikin, making the payment of royalties and license fees a condition for the sale of the imported goods. They pointed out specific clauses in the agreement that required the appellant to procure components from Daikin and obtain Daikin's approval for any substitution with local components, indicating a direct connection between the imported goods and the royalty payments.3. Tribunal's Findings:The Tribunal analyzed the provisions of the Customs Valuation Rules and the terms of the Technology Collaboration Agreement. According to Rule 9(1)(c) of the Customs Valuation Rules, royalties and license fees related to the imported goods and required as a condition of their sale must be included in the assessable value. The Tribunal found that the agreement's clauses clearly established a connection between the payment of royalties/license fees and the imported goods. The appellant was obligated to procure components from Daikin, and any substitution with local components required Daikin's prior written approval.The Tribunal concluded that the supply of technical know-how was contingent upon the procurement of KD components from Daikin, making the royalty and license fee payments related to the imported goods. Therefore, these payments were includible in the assessable value of the imported goods under Rule 9(1)(c).Conclusion:The appeal was rejected, and the Tribunal held that the technology transfer fee and royalty payments are includible in the assessable value of the imported goods. The decision was based on the clear connection between the payments and the imported goods, as established by the agreement's provisions.