2001 (4) TMI 239 - Commissioner - Customs

Court rules against inclusion of technology transfer fee in transaction value, citing incorrect assumptions and lack of relevance.

The appeal was successful as the judge found that the technology transfer fee should not have been added to the transaction value under Rule 9(1)(b)(iv) ... Inclusion of technical know-how charges in assessable value under Rule 9(1)(b)(iv) of CVR'88 - relationship between importer and supplier under Rule 2(2)(i) & (vi) of CVR'88 - distinction between charges relating to imported goods and separate technology/knowhow paymentsInclusion of technical know-how charges in assessable value under Rule 9(1)(b)(iv) of CVR'88 - distinction between charges relating to imported goods and separate technology/knowhow payments - Whether the technology transfer fee paid to BHC, Mauritius is includable in the assessable value of the imported spares under Rule 9(1)(b)(iv) of CVR'88. - HELD THAT: - The agreement shows the payment of US$25,000 per annum was for furnishing knowhow, technical advice and data in connection with development of agricultural lands and is not in any manner connected with the imported goods. Rule 9(1)(b)(iv) contemplates payments necessary for engineering development, artwork, design and plans undertaken elsewhere than in India and necessary for production of the imported goods. The payments in this case are for general technology/knowhow and not for design or engineering of the imported spares. Decisions cited by the lower authority concern capital goods where technical/design charges related directly to those imported goods; those precedents are therefore inapplicable. Because the technology transfer fee is not associated with the import of the impugned goods, its addition under Rule 9(1)(b)(iv) is not warranted. [Paras 6, 7, 8, 10]Technology transfer fee not includable in the assessable value of the imported spares under Rule 9(1)(b)(iv) of CVR'88.Relationship between importer and supplier under Rule 2(2)(i) & (vi) of CVR'88 - spares imported for demonstration project not for sale - Whether the imported spares were intended for sale in the Indian market or for use in a demonstration project, and the relevance of the parties' relationship to valuation. - HELD THAT: - The record, including the MoU with the Government of Andhra Pradesh, establishes that the imported equipment and spares were for setting up a demonstration project to develop agricultural lands and not for sale in the domestic market. Although the lower authority had concluded that the parties were related and that such relationship influenced transaction value, the assessable value question turns on whether the technology fee was linked to the imported goods. Given that the spares are not for sale and the technology payment is not connected to those goods, the addition made by the lower authority cannot be sustained. [Paras 5, 9, 10, 11]Imported spares were for a demonstration project and not for sale; the relationship finding does not justify adding the technology transfer fee to the value of the spares.Final Conclusion: The appeal is allowed; the OrderinOriginal holding that the technology transfer fee be added to the transaction value of the imported spares under Rule 9(1)(b)(iv) is set aside because the fee is not connected with the imported goods and the spares were imported for a demonstration project, not for sale. Issues:1. Determination of assessable value under Rule 8 of CVR '88 by adding technology transfer fee.2. Relatedness of the appellant with another company as per Rule 2(2)(i) & (vi) of CVR '88.3. Justification of adding technology transfer fee to the transaction value under Rule 9(1)(b)(iv) of CVR '88.4. Violation of principles of natural justice by deciding the case ex parte.Analysis:1. The appeal was filed against an Order-in-Original that added a technology transfer fee to the transaction value under Rule 9(1)(b)(iv) of CVR '88. The appellant argued that the fee was not related to the imported goods and should not be included. The lower authority held that the appellant and the supplier were related under Rule 2(2)(i) & (vi) of CVR '88, influencing the transaction value. The judge found that the fee was not associated with the import of the goods, thus the addition was deemed incorrect.2. The appellant contended that their company was affiliated with entities in Israel and the USA, entering into agreements for technology transfer. The lower authority considered the relationship between the appellant and the supplier, concluding they were related as per CVR '88 rules. However, the judge noted that the technology transfer fee was not connected to the imported goods, leading to the appeal being allowed and the original order set aside.3. The lower authority justified adding the technology transfer fee to the transaction value based on various decisions. However, the judge found that the fee was for know-how related to agricultural development, not the imported goods. The agreement did not indicate a connection between the fee and the goods, making the addition under Rule 9(1)(b)(iv) inappropriate. The judge emphasized that the fee was not for goods imported, rendering the lower authority's decision unjustifiable.4. The appellant raised concerns about the violation of natural justice principles, stating they were not given a fair opportunity to defend their case. The judge acknowledged the appellant's submissions during the personal hearing and found that the lower authority's decision, based on incorrect assumptions about the imported goods and technology transfer fee, was not maintainable. Consequently, the appeal was allowed, and the original order was set aside.