TaxTMI 
TaxTMI 
2017 (9) TMI 1138
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....ieved by the impugned order the present appeals have been filed which are being decided through this common order. 3. With the above background we heard Shri V. Lakshmikumaran, Senior Advocate on behalf of all the appellants and Shri Govind Dixit, Ld. DR on behalf of the Revenue. 4. The appellant Company is a wholly owned subsidiary of M/s Telefonaktiebolaget LM Ericsson, Sweden (hereinafter referred to as "LME"). LME is also the ultimate holding company of all Ericson group companies. The Appellant has a factory in Jaipur, Rajasthan for manufacture and supply of telecommunication equipment to various telecom service providers. The present appeal centers around whether royalty paid by the Appellant to LME for grant of access to proprietary Ericsson knowhow and Ericson IPR for undertaking the manufacture/ assembly of Radio Base Station ("RBS"), Mobile Switching Centers ("MSC") and Base Station Controllers ("BSC") used in GSM (Global System for Mobile communication) networks is includible in the value of components imported from Ericsson AB, Sweden (hereinafter referred to as "EAB"). 5. The appellant have entered into contracts with other group companies as follows: i. Supply Con....
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....customs department did not propose to load the value of components imported from EAB with such royalty. The situation changed with the execution of new technical cooperation agreement dated 27/06/2013 with LME, Sweden which was made effective from 01/04/2012. As per the new agreement royalty was paid at the rate of 5.7 per cent of the gross sale price of the licensed products. Such gross sales price was to be calculated as local sale value minus the excise duty as well as other taxes; on the manufacture and sale of licensed products. The significant difference between this TCA and the earlier one was the cost of imported components was to be included in the sale price for payment of royalty at the rate of 5.75 per cent. The appellant paid royalty for the years 2012-2013, 2013-2014. The present dispute is regarding the includability of the royalty paid for these two years on the value of components imported from EAB under rule 10(1) of the Customs Valuation Rules, 2007. 6. Directorate of Revenue Intelligence carried out investigations into the affairs of the appellant and on conclusion of such investigation issued show cause notice dated 03/08/2015 in which it was alleged that the ....
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....ost identical to the case of Ferodo India decided by the Hon'ble Supreme Court. Accordingly, he submitted that the appeals may be allowed. 9. The Ld. DR supported the impugned order. He argued that even though there are separate agreements with LME for supply of knowhow as well as with EAB for supply of components, it is to be noted that all three parties are related to one another in as much as both the appellant as well as EAB are subsidiaries of LME, Sweden. 10. The Ld. DR referred to various case laws which have been discussed by the Adjudicating Authority for confirmation of duty demand. In particular he emphasized the following case laws. 1. Matsushita Television & Audio (I) Limited v/s Commissioner of Customs [2007 (211) ELT 200 (SC)]. 2. Agro Tech Foods P. Ltd. Vs Commissioner of Customs (I), Nhavasheva, 2015 (330) ELT 448 (Tri-Mum.) 3. Commissioner of Customs, Mumbai v/s Clariant (India) Ltd. - 2007 ELT 481 (SC). The Ld. DR further submitted that the Tribunal in the case of Agro Tech foods supra has distinguished the decision of the Hon'ble Supreme Court in the Ferodo India case. Finally, Ld. DR submitted that the impugned order needs no modification. 11. We have ....
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.... the goods in India but also to imports. In some of the decisions cited on behalf of the assessee, we find that the net ex-factory sale price of the finished products expressly excluded the cost of imported components. On the other hand, in the present case, the cost of imported components was expressly included in the net ex-factory sale price of the colour T.V. Further, when payment to MEI was at the rate of 3% of the sales turn over of the final product, including cost of imported component, it became a condition of sale of the finished goods. Hence, in this case both the conditions of Rule 9(1)(c) of the Valuation Rules, 1988, are satisfied. It is to be noted that facts of case before the Apex Court was similar to the present case. Accordingly, revenue has taken the view that royalty is to be added. 13. The appellants have relied on the subsequent Apex Court decision in the case of Ferodo India (supra). It has been argued that the facts before the Apex Court in Ferodo was similar to the present case and the decision is in their favour. The facts of the Ferodo India case are as follows: "3. The buyer is the manufacturer of brake liners and brake pads in India. On 8-9-1995, a....
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....llaborator. For example if on examination of the pricing arrangement in juxtaposition with the TAA, the Department finds that the importer/buyer has misled the Department by adjusting the price of the imported item in guise of increased royalty/licence fees then the adjudicating authority would be right in including the cost of royalty/licence fees payment in the price of the imported goods. In such cases the principle of attribution of royalty/licence fees to the price of imported goods would apply. This is because every importer/buyer is obliged to pay not only the price for the imported goods but he also incurs the cost of technical know-how which is paid to the foreign supplier. Therefore, such adjustments would certainly attract Rule 9(l))(c)." The Apex Court further observes as follows : "24. One of the questions which arises for determination in this civil appeal is whether reliance could be placed by the Department only on the Consideration Clause in the TAA for arriving at the conclusion that payment for royalty was includible in the price of the important components. 25. Rule 4(3)(b) of the CVR, 1988 provides for an opportunity for the importer to demonstrate that th....