2018 (5) TMI 478

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....he appellant pointed out that M/S KCSSL are engaged in manufacture of goods in respect of which they had entered into a 'Technology Transfer Agreement' with M/S Carpenter Technology Corporation & CRS Holdings INC, overseas entities. M/S KCSSL were clearing semi-finished goods i.e. Billets/ Bars from their Mundhwa Unit to their Ranjangaon Unit where they were further processed and cleared to the markete The unit at Ranjangaon was taken credit of the duty paid on the goods received from Mundhwa unit and was paying duty on the finished goods cleared from the Ranjangaon unit. The goods manufactured by Mundhwa unit were being cleared to Ranjangaon unit on transfer basis, not involving sale and therefore, duty was being paid in terms of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 by arriving at value as per CAS-4 guidelines. For the technology transfer, M/S KCSSL had paid a fixed technology transfer fee of US$ One million and were also paying running royalty @ 3.4 to 3.9% of the Net Sale Value of the licensed products. While the fixed technology transfer fee was being included for the purpose of valuation for payment of duty unde....

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....the assessable value of the goods cleared from Mundhwa unit. It is seen that essential argument of the KCSSL is that only royalty based on production is to be included in the direct expense as per CAS-4. The running royalty being royalty on sales is not includible in the value for the purpose of CAS-4. A perusal of the techn010U transfer agreement shows that para 5.2 thereof relates to royalties, which reads as follows: "In consideration of the grant to the Venture of the rights in respect of the Liccnsed. KHT contemplated hereby the Venture shall pay to CRS a running royalty in respect of each Licensed product for the period specified under Section 10.1 commencing from Commercial Production of each Licensed Product, as follows: (i) 3.7% of Net Sales of Licensed Products by the Venture to the Indian Distribution JV (ii)3.9% of 'Net Sales or Licensed Products by the Venture to the Export Distribution Company; and (iii) 3.4% of Net Sales or Licensed Products by the Venture to all other customers wherever located, including CTC  or its other Affiliates (but excluding sales under (i) or (ii) above). Payments will be made to CRS within thirty (3....

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....bit 1                         (1) Direct Material Cost (a)                           (2) Direct Labour Cost                         (3) Direct Expenses (1)+(2)+(3)=    (4) Prime Cost                           (5) Production Overhead                         (6) Administrative Overhead                         (7) Research & Development Cost ( apportioned ) (4)+(5)+(6)+(7)= (8) Cost of Production (b)          &n....

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....brand name or trade name associated with the product. In terms of CAS-4 para 5.3. prescribed as under: Direct Expenses Direct expenses are the expenses other than direct material cost and direct employees costs which can be identified with the product. Direct expenses include: • Cost of utilities such as fuel, power, water, steam etc • Royalty based on production • Technical Assistance / know -how fees • Amortized cost of moulds, patterns, patents etc • Job charges • Hire charges for tools and equipment • Charges for a particular product designing etc Thus in terms of CAS-4 royalty of the nature of the technical knowhow is includible in the assessable value, but royalty in the nature of brand or IPR value is not includible. Ld Counsel argued that royalty in the instant case is paid on the sale price of the goods." Relying on the above decision, we hold that the running royalty is includible in the assessable value of blooms/bars cleared by the KCSSL, as the royalty is not in the nature of brand or IPR but in the nature of Techn0104' Transfer....