TaxTMI 
TaxTMI 
2016 (3) TMI 338
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....GFT may grant License/authorization to any other person to import. Thus DGFT may authorize any person to import through a canalizing agency like State Trade Corporation as per the procedure prescribed in para 2.59 of the policy. DGFT, on receipt of applications of importers through the STE's, allot import authorization and Tariff Rate Quota (TRQ) to the respective STE's for import on behalf of the importer. Sr. No. 21 of Notification No. 21/2002 provides concessional rate of duty if maize is imported under TRQ scheme subject to condition No. 1 specified in the notification. Condition reads as follows : Condition No. 1: The rate of duty specified in column (4) shall apply to such quantity of imports for which an importer holds a Tariff Rate Quota Allocation Certificate issued by the EXIM Facilitation Committee in the Directorate General of Foreign Trade in accordance with the procedure as may be specified by the EXIM Facilitation Committee in the Directorate General of Foreign Trade from time-to-time through a public notice. 2.1 The maize corn imported into India, undergoes the following processing to make instant popcorn : (a) Refrigeration; (b)....
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....A and the appellant, royalty was paid by the appellant on the net proceeds of sales for each product manufactured and sold by the appellant. The Commissioner held that royalty paid is directly related to imported popcorn maize as a condition of sale of the imported goods and hence is liable to be added to the declared invoice value of the imported goods in term of Rule 10(i)(c) and 10(i)(d) of the Customs Valuation Rules, 2007. The Commissioner relied on the Supreme Court judgment in the case of Living Media - 2011 (271) E.L.T. 3 (S.C.). The Commissioner also held that the appellant violated Section 46(4) of the Customs Act by making false entries in the Bills of entry in respect of value of goods and therefore held the goods liable to confiscation under Section 111(m), 111(d) and 111(o) of the Customs Act. Commissioner ordered inclusion of royalty amount in the assessable value and confirmed demand of duty amounting to Rs. 1,49,70,000/- on this count along with interest. He also imposed penalty under Section 114A equivalent to the duty demanded. Further imposed penalty under Section 114AA. The amount of Rs. 5.55 crores deposited by the appellant was appropriated. 3. Heard bo....
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....of CC v. Ferodo India Pvt. Ltd. [2008 (224) E.L.T. 23 (S.C.)] and the decision of the Tribunal in the case of CC v. Bridgestone India Pvt. Ltd. v. [2013 (292) E.L.T. 403 (Tri.)] and ABB Ltd. v. Commissioner [2013 (288) E.L.T. 296] to contend that the royalty has nothing to do with the imported goods nor was it a condition of sale of imported goods. Therefore application of Rule 10 (i)(c) is ruled out. He added that Rule 10(i)(d) is also not applicable because the seller of imported goods does not receive any part of the proceeds of subsequent resale of the imported goods. On confiscation he stated that Section 111(d) is not applicable because goods are not imported contrary to any prohibition. Section 111(m) is not applicable because no value was mis-declared in the Bill of Entry. And Section 111(o) is not applicable because no post import condition has been violated. On the issue of time bar he stated that no facts were suppressed in the Bill of Entry and the issue involves interpretation of complex FTP provisions and therefore penalties are also not imposable. 5. Ld. A.R. appearing on behalf of Revenue read through Notification No. 21/2002 and stated that in terms of Divisi....
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....ur Allocation Certificates (referred as Licences) under which goods were imported during the period of dispute. The question of applicability of these licences arises because the applications submitted by the appellant have a column which reads as "Address where items imported shall be used". The appellant have mentioned the address against this column. The Licenses also indicate under column "name of item" that they are allocated to Actual User. Revenue's contention is that in case of vending corn, the appellant are not an Actual User. We will analyze this issue later. 7.1 We first take up the contention of the appellant that the Actual User condition was deleted by Public Notice 47, dated 18-5-2011 as confirmed by the affidavit submitted by DGFT before the Hon'ble High Court of Andhra Pradesh (supra). We find that the Andhra Pradesh Division Bench interim Order in Writ Appeal No. 228/2012 held that the Central Government has not amended the FTP or done away with the Actual User condition for the import of maize. The Court came to this conclusion for the reason that the correct procedure for issuance of TRQ Allocation Certificate (License) by EXIM Facilitation Committee was ....
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....bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, re-packing, polishing, labelling, Reconditioning repair, remaking, refurbishing, testing, caliberation, re-engineering. Manufacture, for the purpose of FTP, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining". Ld. A.R. contended that the appellant have not satisfied the definition, of manufacture because no new product having a distinctive name, character or use emerges in the case of processing of vending popcorn. The processes undertaken by the appellant are shown as refrigeration, gradation, packing, fumigation, etc. A plain reading of the definition of manufacture in the FTP above shows that processes such as refrigeration, re-packing, polishing will be covered in its ambit. If the ld. A.R's arguments were to be accepted then there was no need to include processes such as polishing, labeling, refurbishing, repacking, etc. in the definition because merely undertaking such process would not result in a new product having a distinc....
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.... Agreement, Licensor hereby grants to Licensee an exclusive, non-transferable, recoverable, royalty-bearing right and license to use the Licensed Properties solely in connection with the manufacture, marketing, sale and distribution of the products in the territory. It is agreed that only the products listed on Exhibit "B" shall be manufactured, marketed sold or distributed thereunder........... 2. Development and marketing............ Licensee shall develop with Licensor a mutually acceptable business plan for the marketing, promotion and sale of the products during each year this agreement is in effect (each an "Annual Plan"). During the term of this Agreement License agrees it will not distribute any other third party's products which are similar to the products. 3. Technical Assistance. Licensee may, from time to time, requested that Licensor, either itself and/or through its affiliates, provide to Licensee certain technical assistance, capability and know-how relating to the manufacture and production of products using the Licensed Properties. 4. Royalty 4.1 ....
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.... 14. Ingredient Purchases. 14.1 Licenses may purchase bulk popcorn and other ingredients used to manufacture the Products from any source, provided that the products and all ingredients used to manufacture the Products comply with the Specification and other provisions of this Agreement........... Exhibit D 1. The royalty paid by licensee shall be in the amounts specified below on the net proceeds of sale (defined below) for each product manufactured and sold by licensee that utilizes the licensed properties. Licensee shall be responsible to remit to the appropriate Government authority any VAT and/or Service Tax, If any, that is due and payable as a result of the royalty payment. "Net proceeds of Sale" is defined as the final sales amount realized by licensee after deducting all taxes and duties levied on sales, trade discounts, commissions and schemes payable to third parties and any discounts to its sub-distributors or retailer due to damaged or non-conforming products. 2. Royalty Amounts. * Act II Sachet : (a) one percent (1%) of net Proceeds of sale for products sold in India; (b) two ....
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....al know-how, production facilities, auditing of plant and business premises, manufacturing process and specification of the products, to name some of the aspects of the agreement. Now the question which arises is whether the royalty payment is a condition of sale of the imported goods. Rule 10(i)(c) states that royally will be includible in the value if payments are made directly or indirectly, as a condition of the sale of the imported goods. The argument of the Counsel is that royalty is linked to the sale of the finished goods. We find that although the in the Agreement the appellant is free to procure the material i.e. maize from any other source, the fact is that during the period of dispute the maizecorn was purchased only from the supplier. Even otherwise we find that complete quality control is exercised by the licensor. Thus all the specifications of the imported goods will have to conform to the standards and conditions laid down by the licensor. That is, licensor will not allow manufacturing of final product unless it has ensured the quality of the imported goods. Licensor has complete control of the standard or quality of entire process of manufacture from beginning to ....
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....aid as a condition of sale of the imported goods. 8.4 On the invocation of extended time period in respect of demand of duty on royalty, ld. Counsel relied on decision of the CESTAT in Star Entertainment final order No. A/158-159/14/CSTB/C-I, dated 22-1-2014 which was affirmed by the Hon'ble Bombay High Court [2015-TIOL-493-HC-MUM]. We have seen this order and find that the demand for extended time period was set aside on the ground that there was confusion in the matter prior to the decision of the Hon'ble High Court in the case of Living Media India Ltd. [2011 (271) E.L.T. 3 (S.C.).] In the case of the Living Media the issue was regarding royalties paid as licence fees for acquiring rights for reproduction of beta tapes imported into India. However in the present case, we find that the royalty is paid on the net sale proceeds of popcorn. We also find that there is no change in the name and characteristics of the goods which are processed after importation. Essentially corn remains corn and since royalty is linked to the net sale value of the popcorn sold in India it may be said without doubt that the royalty is related to the imported goods in terms of the detailed Agreemen....