TaxTMI 
TaxTMI 
2004 (12) TMI 613
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.... Authority while accepting the transaction value under Rule 4(3) of the Customs Valuation Rules, 1988 has ignored the legal fact that it is mandatory to make addition in terms of Rule 9 of Customs Valuation Rules, 1988 with regard to includability or otherwise of the technical know how fees and or royalty paid/payable by the Indian Company to the foreign collaborator. (iii) The Indian Collaborator Company manufactures and sells the licensed goods i.e. high-speed tools which are manufactured using the technical know how provided by the collaborator under their brand name. They have imported HSS blanks for taps from M/s. Dormer Tools AB, Sweden and HSS & solid carbide cutting tools such as drills taps, end mills etc. are imported from Gunther Co. GmbH, Germany. Under the collaboration agreement Indian Company is allowed to manufacture and sell products as per designs, trademarks and patents of their foreign collaborators. The technical know how and royalty are related to the imported goods because such imports are of no value unless they are processed/manufactured in accordance with the manufacturing process contained in the technical documentation supplied by th....
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....nbsp; Commissioner (Appeal) has observed that there is no condition of Sale. Hence Technical Know-how fees and Royalty is not addable. This observation is erroneous. Royalty and Technical Know-how fee in the instant case is related to the imported goods as they are given for the right to Titex India Pvt. Ltd. for which payments is made. Attention is drawn to para 2.4(1)(b) of the agreement dated 10-12-1999 which is as under 2.4(1)(b):- the right for Titex to acquire equipment at prices, terms and conditions to be separately agreed upon. This clause clearly indicates that the parties have agreed upon separate terms for the price of equipments. (ii) Under the term "Consideration" of the agreement, sub section 6.2 states : "The Royalty shall be 5% (Five per cent) of the NPS (Net proceeds of sales) of products sold by Titex Royalty shall be payable for a period of seven (7) years from the effective date. Here effective date means the date of manufacturing with the help of Technical Know-how and in context of above it is pertinent to note that as per RBI's approval dated 5-4-1999 submitted by the ....
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....000 - Rs. 893380/- Tax- Rs. 89338/- Rs. 982718/- (v) The issue of includability of technical know-how/licence fee was discussed in detail in judgement passed by the Hon'ble Supreme Court in the matter of M/s. Essar Gujarat Limited [1996 (88) E.L.T. 609 (S.C.)] and State Bank of India v. Collector of Customs, Bombay [2000 (115) E.L.T. 597 (S.C.)] and the same are clearly applicable to the present case also. In the present case M/s. Titex India Pvt. Ltd. vide letter dated 5-4-1999 had obtained R.B.I's permission to make payments towards foreign technology transfer DEM 13,00,000/- and royalty @ 3% on domestic sales and 3% on export to their collaborators, however subsequently they requested and obtained R.B.I's approval vide letter dated 19-11-1999 to pay royalty of 5% to their collaborators instead of DEM 13,00,000/- and royalty @ 6% to their collaborators. This shows that M/s. Titex India Pvt Ltd. is misleading the department by adjusting the technical know how fees in guise of only 5% royalty. Therefore, the royalty amount which is payable/paid is clearly includ....
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..... Titex) will not be in a position to generate the required funds to make the approved payments. (See the letter of Titex to the Reserve Bank of India dated 13th October, 1999). There is no evidence whatever to show that the said reason was false. (iv) The fact that the agreement was not in any way connected to the import of equipment as the collaborators did not (under the agreement or otherwise) supply any equipment but merely an agreement to assist Titex to manufacture the stated end products in India. (v) Reliance on clause 2.4(1)(b) is misconceived as the collaborators merely advised and assisted on the prices, terms and conditions of equipment and did not supply it. Reliance by the Respondent in this connection Ferodo India (P) Ltd. v. Commissioner of Customs, Mumbai - 2002 (142) E.L.T. 343 (Tribunal) is well placed. (c) The question of certificate of Chartered Accountants is also misconceived as merely specifies a certain amount as "payable". Titex has always maintained that no royalty was paid at the time and there is no evidence produced to show that the said contention, which is purely a question o....
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....eld that royalty had to be added. The Tribunal observed that the decision of the Supreme Court in Union of India v. Mahindra & Mahindra Ltd. - 1995 (76) E.L.T. 481 was under the Customs Valuation Rules, 1963, whilst the decision in Essar Gujarat case was under the 1988 Valuation Rules. In Himson Textiles Engr. Indus. Ltd. v. Commissioner of Customs, Mumbai - 2000 (117) E.L.T. 535 the Supreme Court set aside the said order of the Tribunal, observing that Essar Gujarat decision had no application to the facts, and directed the Tribunal to determine the matter afresh in the light of Mahindra & Mahindra and Collector v. Maruti Udyog Ltd. - 1987 (28) E.L.T. 390. The decision of the Tribunal in Commissioner of Customs, Mumbai v. Himson Textile Engg. Industries Ltd. - 1997 (93) E.L.T. 301 (which had relied on Collector of Customs (Prev.), Ahmedabad v. Essar Gujarat Ltd. - 1996 (88) E.L.T. 609, and not on either Union of India v. Mahindra & Mahindra Ltd. - 1995 (76) E.L.T. 481 and Collector of Customs, Bombay v. Maruti Udyog Ltd., Gurgaon - 1987 (28) E.L.T. 390, affirmed by the Supreme Court in 1989 (41) E.L.T. A61, was not good law and was set aside by the Supreme Court in Himson Engr. In....