TaxTMI 
TaxTMI 
2016 (3) TMI 256
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....he facts of the case are as under: The appellant entered into an agreement with M/s Lucent Technologies Inc. USA for supplying the manufacturing component and technical information for the manufacture of PBXs . As per the said agreement - (i) to use in India the portion of the TECHNICAL INFORMATION designated MANUFACTURING INFORMATOIN solely for manufacture of PRODUCTS manufactured in India and solely in factories of the COMPANY. PRODUCTS manufactured hereunder shall be sold or leased for use, or put into use, in India. The aforesaid right to use the MANUFACTURING INFORMATION for the manufacture of PRODUCTS includes the right ,upon LUCENTs prior written approval, to communicate the portions of the MANUFCATURING INFORMATION (hereinafter referred to as "procurement information") to suppliers in India, the United States of America and such other countries as may be priory approved in writing by LUCENT solely for the procurement by COMPANY of materials, manufacturing facilities, parts and components, described in such procurement information, for use in manufacture in accordance with this agreement. In consideration of the fact that LUCENT wishes to protect its reputation f....
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.... "2.01(a) In part payment for the rights granted under Section 4.01(a)(i) and (ii) of this agreement by Lucent; company shall pay to Lucent a royalty in the amount of six United States Dollars (US $ 6.00) per port of each item subject to fee, which is a circuit pack and which is sold, leased or put into use. (b) In part payment for the rights granted under Section 4.01(a)(i) and (ii) of this agreement by Lucent, company shall pay to Lucent a royalty in the amount of six United States dollars (US $ 6.0) for each item subject to fee which is terminal and which is sold, leased or put into use.". As per the Supply Agreement Lucent Technologies supplied assemblies, components, parts sub-assemblies, materials, manufacturing equipment, tools and test sets consistent with the Technology Transfer Agreement mentioned earlier. The primary adjudicating authority held that the royalty paid in terms of the technology transfer Agreement was a condition of sale of the goods by Lucent Technologies Inc. to the appellant and therefore it was includible in the assessable value, while the Commissioner (Appeals) held that it was not a condition of sale. 3. Revenue has contended that....
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....able on the number of ports sold, leased or put to use. Royalty paid on the components imported for making cards was not directly related to the goods imported and hence, did not appear to be addable to their declared invoice values. But as the manufacture of these cards in India became nonviable due to economical reasons, the importers started importing complete PCBs. This fact is also established from the study of photocopies of Price Lists and Bills of Entry submitted by the importers in respect of imports made by them from the foreign suppliers. Although there was no manufacturing of cards, the importers continued to pay royalty on the number of ports sold, leased or put to use which were activated by using these cards imported in complete form from the foreign suppliers. Thus royalty was paid by the importers when the components were imported by them for assembly/manufacturing and they have continued to pay the same when they started importing complete cards. At the time of import of complete cards, the foreign suppliers as well as the importers are aware of the number of ports that can be activated through a particular card. Thus the royalty paid/payable is known at the time ....
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....on high sea sales basis. The appellant was to pay royalty within such 7 days of the end of the quarterly period to the foreign suppliers (para 6 of the Technology Transfer Agreement refers) and in case of failure to do so, the foreign suppliers had the right to "terminate all of the foreign suppliers" obligation hereunder.." (para 6.03 of Technology Transfer Agreement). As the Supply Agreement is consistent with the Technology Transfer Agreement, it follows that the supplier had the right to terminate the supplies in case of non-payment of royalties. This also makes it evident that payment of royalty was a condition of sale in the present case. 6. Advisory Opinion of World Customs Organisation 4.15: Royalty and Licence Fee under Article 8.1(c) stipulates as under : "2. The Technical Committee on Customs Valuation expressed the following view..... The sales contract between M and I does not contain any clause requiring payment of a royalty. However, payment of the royalty is made a condition of sale of the goods, because I would not be able to buy them if it failed to make that payment to L. Non-payment of the royalty to L by I would cause not only the termination of the....
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....yalty paid is to be included in the transaction value. 33. . There is an agreement existing in all the matters that royalty payment is towards money to be paid to artists and producers who had produced such cassettes. Such royalty becomes due and payable as soon as cassettes are distributed and sold and therefore, such royalty becomes payable on the entire records shipped less records returned. It could therefore, be concluded that the payment of royalty was a condition of sale. In the present case, royalty payment was arrived at on the basis of number of ports activated by the card. The Supreme Court in the case of Matsushita Television & Audio (I) Ltd. vs. .C.C. - 2007 (211) ELT 200 (SC) held as under: 7. The question which arises for consideration in this civil appeal is : whether royalty payment was connected with the imported components. Under Rule 9(1)(c) of the Valuation Rules, 1988, only such royalty which is relatable to the imported goods and which is a condition of sale of such goods alone could be added to the declared price. However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex-factory sale price of....