2024 (7) TMI 327 - AT - Customs

Royalty for technical knowhow cannot be included in assessable value under Rule 10(1)(c) of Customs Valuation Rules 2007

M/s. AB MAURI INDIA Pvt. Ltd. Versus Commissioner of Customs, Chennai

CESTAT Chennai held that 1.75% royalty paid to foreign supplier for technical knowhow used in manufacturing yeast in India cannot be included in ... Valuation - royalty of 1.75 % paid on the yeast manufactured in India and sold using the technical knowhow provided by the foreign supplier (AB Mauri Technology Pty Ltd, Australia) is includable in the value of imported yeast culture in terms of Rule 10 (1)(c) of the Customs Valuation Rules 2007 for payment of Customs duty or not - HELD THAT:- The technical knowhow agreement entered between the appellate and the foreign supplier is furnished. On perusal of the said agreement, it is found that the royalty is payable on net sales of the products sold by the licensee. In other words, after manufacturing the finished products using the technical knowhow only if the products are sold, the royalty is payable by the appellant to the foreign supplier. So also, there is no condition that the goods have to be imported only from the foreign supplier. The Tribunal in the case of M/S. VALEO FRICTION MATERIALS INDIA LTD. VERSUS COMMISSIONER OF CUSTOMS, CHENNAI [2024 (6) TMI 61 - CESTAT CHENNAI] had occasion to consider the very same issue. In the detailed order after considering the facts and the relevant precedents it was observed that unless it is established that the royalty is paid as a condition of sale it cannot be included in the assesable value. The order passed by the Commissioner (Appeals) that royalty is to be included in the assessable value cannot sustain and requires to be set aside - the impugned order is set aside - Appeal allowed. Issues Involved:1. Whether the royalty paid on yeast manufactured in India using the technical know-how provided by the foreign supplier is includable in the value of imported yeast culture under Rule 10(1)(c) of the Customs Valuation Rules 2007 for payment of customs duty.2. Whether the extended period for demanding differential customs duty can be invoked in this case.Detailed Analysis:Issue 1: Inclusion of Royalty in the Assessable ValueArguments by the Appellant:- The appellant contended that under Rule 10(1)(c) of the Customs Valuation Rules 2007, royalty and license fees should be added to the invoice value of imported goods only if the royalty is related to the imported goods and is payable as a condition of sale of the imported goods. Both conditions must be met cumulatively.- The appellant argued that the royalty is payable only on the sale of the manufactured yeast and not on the imported yeast culture. The technical know-how agreement does not mandate the purchase of goods exclusively from the foreign supplier.- The original authority had previously concluded that the royalty is not includable in the assessable value for customs duty.Arguments by the Respondent:- The department argued that the appellant imports goods only from the related supplier to whom the royalty is paid and has not substantiated why the goods are not sourced indigenously or from other suppliers.- The department asserted that providing technical know-how is interlinked with the import of goods, indicating an indirect condition of sale.- The approach of the adjudicating authority and the Commissioner (Appeals) in examining the facts beyond the agreement was deemed legal and proper.Tribunal's Findings:- The Tribunal reviewed the technical know-how agreement and found that the royalty is payable on the net sales of products sold by the licensee, not as a condition of sale of the imported goods.- The Tribunal referred to the case of M/s. Valeo Friction Materials India Limited versus CC Chennai, which established that royalty can only be included in the assessable value if it is a condition of sale of the imported goods.- The Tribunal concluded that the royalty is not related to the imported goods and is not a condition of sale, thus Rule 10(1)(c) conditions are not satisfied.Legal Precedents:- The Tribunal cited several decisions, including Kruger Ventilation Industries (North India) Private Limited Vs. Commissioner of Customs and Commissioner of Customs, Chennai Vs. M/s. GH Induction, India Pvt. Ltd., which supported the appellant's position that royalty payments not related to the imported goods or not a condition of sale should not be included in the assessable value.Conclusion:- The Tribunal held that the royalty payment is not includable in the transaction value of the imported raw materials, setting aside the order passed by the Commissioner (Appeals).Issue 2: Invocation of Extended Period for Differential Duty DemandArguments by the Appellant:- The appellant argued that the department was aware of the technical assistance agreement from 1999-2000 onwards and had accepted the declared transaction values in previous orders without challenging them.- The appellant provided evidence that the foreign supplier waived additional royalty payable for the period from 2000-2001 to 2011-2012.Tribunal's Findings:- The Tribunal noted that the department was aware of the issue and had accepted the appellant's declared transaction values in previous orders.- The Tribunal found it legally unsustainable to invoke the extended period for demanding differential customs duty, considering that the department had not launched an investigation earlier and had accepted previous orders without challenge.Conclusion:- The Tribunal set aside the differential duty demand for the period from 2000-2001 to 2012-2013, finding the invocation of the extended period to be illegal and against the provisions of customs law.Final Judgment:- The Tribunal set aside the impugned order, ruling that the royalty is not includable in the assessable value of the imported goods and that the extended period for demanding differential customs duty cannot be invoked. The appeal was allowed with consequential reliefs as per the law.