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2019 (1) TMI 1049
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.... under Rule 9(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 up to 09.10.2007 by assessing officer after usual check, scrutiny and verification of the declared value. However, if contemporary imports at higher prices are noticed or there exists reasons other than the influence of relationships to doubt the value assessing group may evaluate the value of the imported goods under appropriate provision of the said rules. c. I order to enhance the declared invoice value by 10% under Rule 8 of the Customs Valuation Rules, 2007 with an addition mentioned in Table A of para 6.5, year wise for goods imported from the related suppliers for the imports under Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 from 10.10.2007 by assessing officer after usual check, scrutiny and verification of the declared value. However, if contemporary imports at higher prices are noticed or there exists reasons other than the influence of relationships to doubt the value assessing group may evaluate the value of the imported goods under appropriate provision of the said rules. d. All the assessments, which have been made....
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.... passed the order referred in para 1 supra. 2.3 Aggrieved by the order of Deputy Commissioner appellants filed appeal before Commissioner (Appeal). Commissioner (Appeal) initially dismissed the appeal filed by the appellant on ground of limitation as the appeal was filed 26 days beyond the prescribed period for filing the appeal. Against this dismissal appellants filed the appeal before tribunal which was allowed by order No A/695/15/CB dated 11.03.2015 and matter remanded back to Commissioner (Appeal) for decision on merits. Commissioner (Appeal) has in remand proceedings pass this order which is subject matter of the present appeal. 3.1 Appellants have in their appeal challenged the order of Commissioner (Appeal) on various grounds detailed below: a) They are not manufacturer of the goods but are engaged in providing consulting engineer/ technology based erection of water treatment plants. The shipments are based on procurement invoices with addition of handling charges. The royalty is not related to import of goods and hence cannot be added to invoice value. b) Order for addition to extent of 15% to 25% to the invoice value has been made without disclosing any quanti....
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....dition of royalty charges to the goods imported for executing the projects of later two technologies cannot be justified. o) Project values on which royalty is paid has no bearing on the import goods and source/ supplier of goods. p) Royalty herein the present case is related to domestically produced goods and hence provisions of Rule 9(1) (c) of Valuation Rules 1988/ Rule 10 (1) (c) of the Valuation Rules, 2007 are not attracted. q) There is no quantifiable basis for rejecting the 10% as margin of handling charges and this is not profit on the prices procured by them from other vendors/ suppliers. r) The order is contrary to the interpretative notes to Rule 7A and 9(1) (c) of Valuation Rules, 1988 and Rule 8 and 10(1) (c) of the Valuation Rules, 2007, hence cannot be sustained. 4.1 Have heard Shri C M Sharma Consultant on behalf of Appellants and Shri R Kumar, Assistant Commissioner (Authorized Representative) on behalf of revenue. 4.2 Arguing on the behalf of Appellants learned Consultant submitted: i. That it is now settled law that royalty charges can be added to the value of imported goods if it can be show that royalty has been paid as a condition of sale....
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....ing paid. Since the goods have been imported for the implementation of the said project, there is an implied condition for sale of the said goods, Thus addition of royalty charges to the value of imported goods is justifiable and is in accordance with the provisions of rule 9(1) (c) of Valuation Rules, 1988 and 10(1) (c) of the Valuation Rules, 2007. iii. He also submits the issue in respect of addition of royalty charges to the value of imported goods is well settled by the decisions of the Apex Court in case of Feredo India Pvt Ltd [2008 (224) ELT 23 (SC)] and Matsushita Television & Audio (I) Ltd [2007 (211) ELT 200 (SC)] iv. After analyzing the Royalty agreement in para 7 of his order Commissioner (Appeal) has concluded in para 8 that "post import expenditures shall not be included for the purpose of royalty. Therefore the royalty was paid or would be payable in future by the appellants on the imported goods only and that, not on the other expenses incurred after import. Further it has been rightly observed by the original authority under para 6.4 of the order dated 14.01.2013 that the imported goods were used in the projects using HERO technology, even those goods which ....
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....l Corporation, USA either from their local vendors in the different cities of USA or imported from other countries on CIF basis and after that the said products were supplied to M/s. Aquatech Systems (Asia) Pvt. Ltd. on CIF basis in India. On comparison of the prices of the in terms of rule 3(3)(b)(iii) ibid in column 4 & 6 of the Table I find that the supplier has taken nearly 10% margin of profit on the prices procured by them from other vendors. In a normal trade practice, if the goods are being exported to India by the suppliers, there are some addition like marketing, selling expenses, administrative and other general expenses, tax liability, depreciation of the factory investments, loading, unloading charges, handling charges, internal freight charges, insurance profit etc in determining the prices for the purpose of export. This all addition constitutes from 15% to 25% in addition to the procured prices. However, only 10% has been added by the supplier for exportation of the goods to the Indian importer. Accordingly, the invoice value may be loaded to the tune of 10% in terms of Rule 8 of Customs Valuation Rules, 2007 read with section 14 of the Customs Act, 1962 (as amended....
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....8. Royalties and licence fees related to the imported goods is the cost which is incurred by the buyer in addition to the price which the buyer has to pay as consideration for the purchase of the imported goods. In other words, in addition to the price for the imported goods the buyer incurs costs on account of royalty and licence fee which the buyer pays to the foreign supplier for using information, patent, trade mark and know-how in the manufacture of the licensed product in India. Therefore, there are two concepts which operate simultaneously, namely, price for the imported goods and the royalties/licence fees which are also paid to the foreign supplier. Rule 9(1)(c) stipulates that payments made towards technical know-how must be a condition pre-requisite for the supply of imported goods by the foreign supplier and if such condition exists then such royalties and fees have to be included in the price of the imported goods. Under Rule 9(1)(c) the cost of technical know-how is included if the same is to be paid, directly or indirectly, as a condition of the sale of imported goods. At this stage, we would like to emphasis the word indirectly in Rule 9(1)(c). As stated above, the ....
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....e technical knowhow for the manufacture of the colour T.V. at the appellants' factory in India and also for sale of such products throughout India. Under Clause 6.01, in consideration of the technical assistance to be rendered by MEI and in consideration of the licence to be granted by MEI to the appellants it was agreed that the appellants shall pay to MEI the royalty at the rate of 3% on the net ex-factory sale price of the colour T.V. manufactured and sold. Further, it was agreed that in addition to the technical assistance, MEI would assist the appellants in the manufacturing of the colour T.V. by selling the components to the appellants. Under the Agreement, the parties further agreed that if the appellant desired to make use of bought-out components it can do so provided the said components are forwarded to MEI for inspection and if MEI approves the quality and the specifications of such bought-out components then alone the appellant would be free to use such components in the manufacture of colour T.V. 7. The question which arises for consideration in this civil appeal is : whether royalty payment was connected with the imported components. Under Rule 9(1)(c) of the Valua....
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....hed goods." 6.4 Examining the terms of Royalty Agreement in the present case wherein it has been stipulated "in consideration for use of HERO Technology, ASA shall pay to AIC, Royalty @ 5% of the project value, subject to reduction towards freight outwards, commission, spare parts cost and field services, and also subject to applicable taxes in India. The project value shall be net amount, excluding any statutory levies, recoverable from the client. In case of the projects under Build, Own, Operate, and Transfer contracts, (hereinafter referred to as BOOT arrangement) the project value shall be the net amount of the total capital cost incurred on the BOOT Plant excluding any statutory levies and amounts applicable for BOOT arrangement". Appellants have given the explanation of the said clause in the Royalty agreement, in following manner: "Royalty Calculation Basis Royalty is payable @5% of the project value for use of HEROTM process license, subject to reduction towards freight outwards, commission, spare part costs and field services and also subject to applicable taxes in India. The project value shall be net amount excluding any statutory levies, recoverable, from the ....
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....agreement, the appellants were to pay MEI a royalty @ 3% on net ex-factory sale price of the colour TV receivers manufactured by the appellants for the technical assistance rendered by MEI. The appellants were to pay a lump-sum amount of U.S. $ 2 lakhs to MEI for transfer of technical know-how. It was the case of the appellant that payment of royalty was not related to imported goods as the said payment was made for supply of technical assistance and not as a condition pre-requisite for the sale of the components. 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 the transaction value closely approximates to a "test" value. A number of factors, therefore, have to be taken into consideration in determining whether one value "closely approximates" to another value. These factors include the nature of the imported goods, the nature of the industry ....
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....uation to import these goods from the related suppliers. Although they were free to import from the unrelated vendors. Now the question is whether the Royalty, which is being paid or payable as per the Royalty Agreement dated 01.11.2004, is includable to the assessable value of the imported goods or not? I find that there are various judgments viz. M/s. Ferodo India Pvt. Ltd. [2008(224)ELT 23(SC)], M/s. Toyota Kirloskar Motor Pvt. Ltd. [2007(231)ELT 4(SC)] and M/s. Steel Authority of India [2007(210)ELT150(Tri- Bang)] wherein, Hon'ble Supreme Court and CESTAT have held that Technical Know How fees and Royalty is includible in prices of imported goods, if said payments constitutes a condition pre-requisite for supply of imported goods by foreign suppliers. If such payment has no nexus with working of imported goods then such payment was not includible in prices of imported goods. Therefore, it will be relevant to examine whether there is any pre-requisite condition on the importation of goods or not? 6.3 As far as condition of sale is concerned, the terms of the any Agreement may not explicitly refer to the obligation to pay fee/royalty as a condition of sale. Hence, the entire f....
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....the last 5 years:- Loading % on Assessable Value = Royalty paidx100 (Reference column (4) below) Value of imported goods Year Amount of Royalty paid to the suppliers (in Rs.) Value of imported goods (in Rs.) % Loading (1) (2) (3) (4) 2006-07 NIL 12,33,261/- 0 2007-08 1,07,64,657/- 30,09,297/- 357.71% 2008-09 NIL 23,74,263/- 0 2009-10 50,92,162/- 33,91,842/- 150.13% 2010-11 79,76,380/- 5,19,680/- 1534.86% 2011-12 NIL 29,36,713/- 0 6.7 Appellants have in their appeal and during course of arguments raised various other issues which are listed as follows: i. Royalty payment is only in respect of the project based on HERO Technology and not in respect of the projects based on other technologies i.e. ZLD & RO ii. Royalty payments have been made also in respect of certain projects executed outside India. iii. There is no suppression of facts. 6.8 In para 7 of his order, adjudicating authority has specifically dealt with the issue of suppression in para 7 of his order which reads as follows: "7. I further find that although the importers have stated vide their letter d....