TaxTMI 
TaxTMI 
TaxTMI 
2016 (3) TMI 510
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....8.2.2005 and another OIO No.7171/2008 dt. 8.2.2008. From 1991 till 2008, renewal orders has been issued accepting the declared price for the purpose of transaction value. Subsequently, it was reviewed and the Deputy Commissioner of Customs, SVB, Seaport, Chennai in OIO No.14432/2011 dt. 4.2.2011 accepted the declared price and the said order was valid for a period of 3 years upto 8.2.2014. 3. Revenue reviewed the said DCs order dt.4.2.2011 and preferred appeal before Commissioner (Appeals) on the grounds that adjudicating authority has erred in accepting the declared price and also holding that royalty paid is not a condition of sale of imported goods. Revenue also in their grounds of appeal contended that royalty is addable in the imported goods under Rule 10 (1) (c) of Customs Valuation Rules, 2007. The LAA in his impugned order dt. 30.8.2013 upheld the OIO and rejected the Revenue's appeal. Hence the Revenue filed the present appeal before Tribunal. 4. The respondent filed writ petition before Hon'ble High Court of Madras seeking writ of mandamus and the Hon'ble High Court in their order dated 9/12/2014 in Writ Petition No. 29902/2014 directed this Tribunal to proceed wit....
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....vision & Audio (I) Ltd. Vs CC-2007 (211) ELT 200 (SC) (3) Excel Production Audio Visuals P. Ltd. Vs Commissioner-2015 (321) ELT A49 (SC) She pleaded to set aside the orders and to remand the matter to original authority in view of pending investigation. 9. Learned Advocate representing the respondent submitted two written synopsis and also copy of Profit & Loss Account, Annual Reports for the years 2008 to 2011 and the case laws and reiterated the same. She submits that both the original authority and the Commissioner (Appeals) correctly held and given their findings and rejected the Revenue appeal and reiterated the findings of LAA and the adjudicating authority which is in their favour. She submits that Revenue reviewed the DC order and filed appeal before Commissioner (Appeals). The Commissioner (Appeals) has discussed in detail and examined all the relevant clauses of the Intellectual Property Agreement including the Nature of Royalty Clause 5.3 of the agreement and accepted the transaction as there is no nexus between the royalty paid and the imported goods under Rule 10 (1) (c) of CVR. She further explained in detail the relevant clause of agreement dt. 1.7.2006 and....
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..... 9.1. Ld. counsel further submits that after the termination of the waiver agreement, they started paying royalty and submitted P&L Account for the subsequent periods i.e. 2009-10, 2010-11, 2011-12 and also submitted an Abstract and the worksheet showing the royalty payments for each year and particularly for the year 2009 which clearly indicates royalty payments for July-Sep 2009, Oct-Dec 2009 and also for the period January to March 2010 showing a total payment of Rs. 5,15,63,747 for all the three quarters which is as per the Profit & Loss Account indicated at page 52 of the Annual Report for 2009-10. The same worksheet was also provided for the subsequent periods. She further submits that for all these royalty payments they have paid service tax under reverse charge mechanism. She produced copy of invoice, T.R.6 challan showing proof of payment of service tax and R&D Cess. She also drew our attention to clause 5.3 of the agreement which was discussed by both the adjudicating authority and the LAA. She therefore, submits that Commissioner (Appeals) has correctly held that as per clause 5.3 which is annexed at page 26 of the agreement, clearly shows that as per sub-clause (a) of....
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....upreme Court also said that if the department finds that the importer/buyer has misled the department then the adjudicating authority would be right in including the cost of royalty/licence fees payment in the price of the imported goods. Ld. AR submits that in the present case this very aspect is under investigation. 11. Countering the argument of Ld. AR, the counsel submits that adjudicating authority has investigated in detail before finalizing the renewal order dt. 4.2.2011. She drew our attention to page 5 (internal page 26) of the OIO to show that documents, records submitted by the respondent were examined and showed comparison of prices of same products exported out of US to other subsidiaries including other related subsidiaries which is clearly brought out in the OIO and concluded that the appellant followed uniform price policy. 12. We have carefully considered the submissions of both sides and examined the records and the Hon'ble High Court of Madras Order dated 9.12.2014. The issue for consideration in the Revenue Appeal is whether Commissioner (Appeals) Order is legal and proper in rejecting the Department appeal and upholding the Order-In-Original accepting the tra....
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.... Paint Polishes 5. Abrasives 6. Others (individually less than 10% of the total stock) Traded Items : 1. Self Adhesive Labels 2. Surgical and Dental Products 3. Paint Polishes 4. Abrasives 5. Others (individually less than 10% of the total stock) 16. As seen from para (9) of the Schedule 14 of the reports, the ratio of imported and indigenous raw materials is 83% and 17% respectively and majority of imports were sourced from their own related overseas suppliers and their associated subsidiaries. It is pertinent to see from the said Annual Report that their principal company 3M USA has more than 100 Related Fellow Subsidiary companies located across the world for carrying out sale of 3M products globally. The report also throws light on the foreign exchange earnings on exports. It is seen that majority of exports were made only to their own 3M Fellow Subsidiary companies (para-16 of report - Related party transactions). The range of products imported by the respondent relates to various sectors i.e. consumer goods, scrub pads, Health care products, Engineering products, Office use items i.e. "post it" pads, Road safety signs, graphics etc. This shows that the 3M US....
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.... of developing new and proprietary technologies, products and services, most of which are based on one or more technology platforms that have been developed by 3M following many years of investment in research and development. These technologies, products and services are continuously provided to the worldwide 3M corporate family under agreements similar to this Agreement. B. 3M IPC is a wholly-owned subsidiary of 3M. 3M IPC owns or is exclusively licensed under an international portfolio of intellectual property rights that provide the worldwide 3 M corporate family with a substantial competitive advantage in manufacturing and selling products, and providing services, around the world. 3M IPC continuously obtains new intellectual property rights from 3M, other members of the worldwide 3M Corporate family, and third parties, and licenses those intellectual property rights to 3M, other members of the worldwide 3M corporate family, and third parties in exchange for royalties or other consideration. In this manner, 3M IPC coordinates the transfer and the management of these intellectual property rights around the world for the benefit of the worldwide 3M corporate family. C. Affil....
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....roperty rights among the members of the worldwide 3M corporate family. 3M, 3M IPC, and Affiliate therefore wish to enter into this Agreement. This Agreement provides for the transfer of technologies, products and services, and for the licensing of intellectual property rights from 3M and 3M IPC to Affiliate. Other agreements among 3M, 3M IPC and Affiliate provide for the transfer to 3M and 3M IPC of intellectual property rights developed or obtained by Affiliate on behalf of 3M and 3M IPC. This enables these rights to be subsequently made available by 3M IPC to the worldwide 3M corporate family and to third parties, as appropriate. Because 3M IPC also receives intellectual property rights from other affiliated companies in the worldwide 3M corporate family and from third parties, Affiliate will continuously benefit from the creative efforts of those affiliates companies and third parties, and those affiliates companies will benefit from the corresponding efforts of Affiliate. F. Instead of negotiating separate license agreements for different technologies, products, services and intellectual property rights, the Parties wish to negotiate a single agreement that will grant a licen....
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.... mean the date on which such approval is obtained. ... ... ... 1.11 "3M Related Company" shall mean any entity in which a controlling (50% or greater) interest is owned by Licensor, either directly or indirectly, by stock ownership or otherwise, but excluding 3M IPC. ... ... ... 1.20 "Intellectual Property" shall mean Patents, Trademarks, Domain Names, Copyrights, Proprietary Information and Other Intellectual Property. ... ... ... 1.43 "Net Selling Value (Domestic 3M Products)" shall mean the amount invoiced by Licensee to any entity other than Licensor or a 3M Related Company for 3M Products intended for consumption in the Primary Territory, but excluding: (A) sales, value-added and other transaction taxes, where applied; and (B) transportation costs to customers, if invoiced se....
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....imary Territory, Licensee shall pay 3M IPC a royalty equal to : (a) five percent (5%) of the Net Selling Value (Domestic Manufactured Products) as partial consideration for Licensee's use of Production Intangibles in the production of Manufactured Products; plus (b) eight percent (8%) of the Net Selling Value (Exported Manufactured Products) as partial consideration for Licensee's use of Production Intangibles in the production of Manufactured Products; plus (c) six percent (6%) of the Net Selling Value (3M Services) as partial consideration for Licensee's use of Production Intangibles in the provision of 3M Services; plus (d) one percent (1%) of the Net Selling Value (Domestic 3M Products) as partial consideration for Licensee's use of Marketing Intangibles in conducting Licensees general business operations other than producing Manufactured Products, providing 3M Services, or relating to Software or Special Value Products; plus (e) two percent (2%) of the Net Selling Value Exported 3M Products) as partial consideration for Licensee's use of Marketing Intangibles in conducting Licensee's general business operations other than producing Manufactur....
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....any such royalty payment or defer its receipt of any such royalty payment (with or without interest). ... ... .... 5.8 Waiver. Licensor waives its right to receive royalty payments and royalty reports pursuant to Paragraphs 5.2 to 5.5 and termination of this waiver shall constitute an amendment of this Agreement under Paragraph 9.2. As seen from the scope of the agreement, the agreement is effective from 1.7.2006. 3M Company, U.S.A, which is a principal company through their affiliates sell their products in more than 180 countries and it manages and controls worldwide 3M corporate family on global basis. Whereas 3M IPC (USA) is wholly owned subsidiary of 3M who co-ordinates the transfer and management of I.P.R rights around the world for the benefit of 3M family. 21. As set out in recitals at clause (A) to (G) of the agreement, both 3M company, U.S.A and 3M IPC, grant licence IPR rights to the affiliate companies to conduct and expand its business. As set out in clause (E) of the Agreement , 3M USA, and 3M IPC (USA) and the respondent-company en....
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....5.8 of the Agreement, Licensor (3M Company and 3M Innovative Properties Company) waived its right to receive royalty payments and royalty reports for the period July 1, 2006 to June 30, 2009, pursuant to Paragraphs 5.2 to 5.5 of the Agreement. C. 3M Innovative Properties Company, 3M Company and 3M India Limited (the "Parties") have agreed that waiver should be terminated. D. 3M Company and 3m Innovative Properties Company are now wanting to reinstate the payment of royalty by 3M India Limited as per the provisions of Paragraph 5.2 In consideration of these premises, and of the mutual premises made by the Parties herein, the Parties agree as follows :- 1. This letter agreement hereby amends Paragraph 5.8 of the Agreement by terminating the waiver effective July 1, 2009. With effect from July 1,2009, Affiliate shall henceforth be obligated to make royalty payments as per the terms of the Agreement. 2. Any obligation to provide royalty reports that arose after July 1, 2009 and before the date first appearing above shall be satisfied by delivery of a single royalty report within sixty (60) days of the date of this agreement. 3. Any obligation to pay royalties that arose af....
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....en that, having set out the payment of Royalty at Clause 5.2, the same agreement at Clause 5.8 says that the Licensor waives its rights to receive the Royalty payment from the respondent company. If the overseas company wants to waive Royalty payment from respondent, it raises serious questions why the IPR agreement was signed with effect from 1.7.2006 under the terms and conditions of rights and liabilities and considerations made between the related parties. This indicates that there is a special consideration and the transactions are not at arms length as claimed by the respondents. 24. Further, it is pertinent to state that while terminating the waiver of royalty payment on 16.12.2009 by amendment to the original agreement, the payment of royalty takes effect only from 1.7.2009 and not from 1.7.2006 when the original agreement came into effect. If the transactions are at arms length and when the parties decided to make royalty payments either it should be from the date of termination i.e. 16.12.2009 or from the original effective date of agreement dt.1.7.2006, whereas we find that the payments of royalty was made retrospectively only from 1.7.2009. All these facts establishes ....
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.... Court's decision of Ferodo India Pvt. Ltd. (supra) and the Apex Court held at para 18 that if on examination of the pricing agreement in juxtaposition in EAA and if the department proves that the importers/buyer has misled the department by adjusting the price of the imported item in the guise of increased royalty/licence, then the adjudicating authority would be right in including the cost of royalty/licence fees paid in the price of the imported goods. This ruling of the Apex Court has been overlooked by the lower authorities. We find that the investigation proceedings already initiated by the D.R.I is on this very aspect. 28. In view of the above facts, we hold that both the original authority and the L.A.A. have not examined in detail, viz. agreements, amendment agreements but merely endorses the respondents view without any discussion. Therefore, there is enough justification on the Revenues contention and the Order-in-Original and the impugned order are liable to be set aside and to be remanded to the original authority. 29. Notwithstanding our findings recorded at preceding paragraphs, we are obliged to put our observations on the respondents anxiety to implement th....