TaxTMI 
TaxTMI 
2016 (3) TMI 510
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....2001-SVB dt. 30.3.2001, OIO No.3349/2005 dt. 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.....
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....elhi-2001 (136) ELT 1093 (Tri.-Del.) (2) Matsushita Television & 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.....
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.... the company has not made any royalty payment to their parent company till 30.6.2009. 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 whi....
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.... the respondent in the case of CC Vs Ferodo India Pvt. Ltd. (supra), particularly relied para-18 of the judgement and submits that Supreme 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 C....
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....respondent company are listed out as under :- Manufactured Items : 1. Self Adhesive Labels 2. Epoxy Resin 3. Paper and Paper Tapes 4. 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 im....
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....ates sell 3M products in more than 180 countries. 3M manages the worldwide 3M corporate family on a global basis to maximize the overall benefit to that corporate family, and thus to shareholders of 3M. 3M has a long and established history 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 thi....
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....ional structure as needed, minimize barriers between its affiliates in different countries, and enable its affiliates to grow and evolve in response to local and global business demands. To facilitate the transfer of technologies, products, services and intellectual property 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....
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....sp; ... ... 1.9. "Effective Date" shall mean July 1, 2006, unless the approval of the government of the Primary Territory is required before this Agreement may become effective, in which event the Effective Date shall 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. ... ... ....
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....emarks. ARTICLE V - COMPENSATION 5.1 General. In exchange for the licenses granted by Licensor to Licensee under Article II and Article III hereof and other benefits received by Licensor and Licensee hereunder, the Parties have agreed to the payment of reasonable compensation, as provided for in this Article V. 5.2 Royalties. In partial consideration for the rights received hereunder and to the extent permitted under applicable regulations of the Primary 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 th....
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....5.4 Royalty Payments. All royalty payments due hereunder shall be made by Licensee monthly not later than the last day of the succeeding month, or such other schedule as may be agreed to by the Parties. Paragraph 9.8 notwithstanding, the payments are subject to the applicable financial regulations of the Primary Territory. The payments shall be made or credited to the account of 3M IPC, or made in such other manner as may be directed by 3M IPC. If Licensee does not make any royalty payment due hereunder 3M IPC may, in its sole discretion, waive its right to receive 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 t....
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....ving a principal place of business at 3M Center, St. Paul, Minnesota US.A ("3M"), 3M Innovative Properties Company, a Delaware corporation having is place of business at 3M Center, St. Paul, Minnesota, U.S.A. ("3M IPC"), and 3M India Limited, a corporation organized under the laws of India having a registered office at Plot Nos. 48-51, Electronics City, Hosur Road, Bangalore 560 100, India ("Affiliate") Recitals A. 3M Innovative Properties Company, 3M Company and 3M India Limited entered into an intellectual Property Agreement effective July 1, 2006 (the "Agreement"). B. Under Paragraph 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 consid....
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.... 5.2 of Article V of the said Intellectual Property Agreement the word used in para 5 (a) to 5 (f) is "In partial consideration for the rights received" or "In partial consideration for the licensee's use of production intangibles" etc. Normally when any agreement is entered to grant licenses to Intellectual Property Rights to the user, this consideration of payment is full consideration for the transfer of know how etc. whereas the percentage of royalty payment set out in Clause 5.2 is only a partial consideration which means that there is something more to it. This itself raises serious doubt on the transactions which are not at arms length. 23. Further, it is seen 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 an....
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.... their applications made before SVB Chennai and Bangalore. The very nature of agreement as discussed in the preceding paragraphs supports our view that the detailed investigations of transactions between the related parties will throw light which is not done by the Lower Appellate Authority. 27. Considering the above facts, we hold that neither the original authority nor the lower appellate authority has considered the intricacies of the agreements and the subsequent amendment agreements, billing and pricing patterns. Instead, merely relied on this Tribunals decision of ABB Ltd. (supra). It is pertinent to see that the Tribunal in the above judgement relied on Honble Supreme 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 overlooke....