TaxTMI 
TaxTMI 
2019 (7) TMI 778
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....f the imported goods for purpose of payment of Customs duty under Rule 10(1) and Rule 10(1)(e) of the Customs Valuation (Determination of Value Imported Goods) Rules, 2007. Following duty demands under Customs Act along with penalty have been confirmed in the impugned order against the appellants: (i) Rs. 91,75,546/- under Section 114A of the Customs Act, 1962; on the appellant No. 1 (ii) Rs. 4,27,000/- under Section 112(a)(ii) of the Customs Act, 1962; on the Appellant No. 2 (iii) Rs. 13,00,000/- on Ms. Shriti Malhotra (Director of M/s Quest Retail Private Limited); on appellant No. 3 (iv) Rs. 13,00,000/- on Mrs. Suvendu Sahu (General Manager (Legal & Finance) of M/s Quest Retail Private Limited). 2. The brief facts of the case are that the appellant No. 1 is engaged in the business of import and retail sale of the 'body shop' brand of cosmetics and toiletries (hereinafter referred as the imported goods also) through its retail stores in India. The appellant No. 1 has entered into Franchise Agreement dated 8.2.2006 (for short, Agreement) and two side letters dated 19.1.2006 and 16.3.2010 to the agreement with the brand owner M/s The Body Shop International plc. (for short....
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....es. 3. The learned Advocate submitted that the DRI which has issued the Show Cause Notice under Section 28(2) of the Act is pertaining to period after amendment of Customs Act in year 2011 and therefore the jurisdiction issue of DRI for issuance of Show Cause Notice is not disputed. Further, also, it is submitted that the royalty paid under the franchise agreement is not a consideration for sale of the imported goods and relatable to post-importation activities, which is not includible for computation of assessable value for payment of Custom duty placing reliance on the judgment of Hon'ble Supreme Court in the case of Commissioner of Customs Vs. Ferodo India Pvt. Ltd. - 2008 (224) ELT 23 (SC). It was further submitted that the payment is in the nature of running royalty as per the agreement based on a percentage of sales of imported merchandise in India and hence there is no nexus with the transaction relating to purchase of imported merchandise for from the foreign supplier placing reliance on the decision of Commissioner of Cus. (Import), Mumbai Vs. Bridgestone India Pvt. Ltd. - 2013 (292) ELT 403 (Tri.-Mumbai) and Commissioner of Customs (I) Mumbai Vs. Max Atotech Ltd. - 2014 ....
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....nce was placed on the decision of Saharsh Distributors Pvt. Ltd. Vs. Commissioner of Customs, New Delhi - 2017 (354) ELT 672 (Tri.-Del.). By concluding the argument, learned Advocate raised the issue of demand being time barred on account of the fact that there was no suppression on the part of the appellant as the Department was in complete knowledge of the business model of the appellant at the time of issuance of earlier Show Cause Notice placing reliance on the decision in the case of Nizam Sugar Factory Vs. Collector of Central Excise, AP - 2006 (197) ELT 456 (SC). It was also submitted that the appellant was under a bona fide impression that royalty fee paid by them is not related to import of the goods but pertained to post importation activities in nature of contract for service after importation and the appellant have discharged the service tax on that transaction. Therefore, it was contended that the demand is time barred and, therefore, the learned adjudicating authority has committed an error while confirming the said demand in the impugned order invoking the extended period. 4. Learned Authorised Representative on behalf of the Department reiterated the findings conta....
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....s payable. (d) It is further contended by the learned Authorised Representative that in terms of the decision of Associated Cement Companies Ltd. - 2001 (128) ELT 21 (SC), Living Media India Ltd. - 2011 (271) ELT 3 (SC) and Star Entertainment Pvt. Ltd. - 2015 (327) ELT 238 (Tri.-Mumbai), Agro Tech Foods Pvt. Ltd. - 2015 (330) ELT 448 (Tri.-Mum.) and Avaya Global Connect Ltd. - 2016 (337) ELT 402 (Tri.-Del.), wherein it is held that where royalty payment which is a condition of sale and hence is includible in the assessable value under the Customs Act, 1962/Customs Valuation Rules. (e) Learned Authorised Representative submits that there is no bar in imposition of Customs duty when the service tax is paid on the same transaction placing reliance on the decision of the judgement of this Tribunal in the case of Atul Kaushik - 2015 (330) ELT 417 (Tri.-Del.), wherein it is held that the license fee paid is includible in the assessable value of the goods in terms of Customs Act and Rules made thereunder and there is no provision warranting exclusion from the assessable value for the purpose of customs purpose on the ground that the service tax has become chargeable on license fee and....
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....g paid for. (c) Further, as per Clause 6.3 of the franchise agreement read with the side letter dated 16.3.2010, it is clear that royalty is paid for provision of management, consultation, advice, service and training provided to the appellant / its personnel, in connection with the use of Body Shop 'System' and the 'Proprietary Marks' of M/s Body Shop. (d) In response to the submissions, it is submitted that the projection range pertaining to the rate of payment of royalty is given only as a business practice so that the appellant achieves the quarterly target as provided by M/s Body Shop International PLC (hereinafter referred to as the "supplier"). It is submitted that the appellant is not disputing the fact that royalty payments are being made in relation to the local sales of the impugned goods. The submission of the appellant is that payment of royalty on such sales being in the nature of a post-importation activity, cannot be linked to the goods being imported. Further, as submitted above, method of calculation of royalty cannot be the basis for saying that such royalty payments are being made in relation to the imported goods. (d) It is also submitted that the argumen....
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....ng in this case that the royalty is paid for post importation service and hence the judgment is in support of appellant rather than the department. (h) Regarding the service tax and customs duty is mutually exclusive, it is submitted that the nature of the present transaction i.e. royalty remittance is for the technical assistance and know-how under the franchise agreement which has been treated as a service by the Service Tax Department and the payment has been made on the basis of reverse charge mechanism under the provisions of Rule (2)(1)(d) of Service Tax Rules, 1994. 5.1 The learned Advocate has submitted that the extended period is not invocable in this case, under Section 28(4) of the Customs Act on the ground that the exactly similar show cause notice has been issued to the appellant on 12.3.2012. Further, the issue is regarding one of the interpretation of law and, therefore, there is no element of collusion, willful, mis-statement or suppression of fact and hence extended period cannot be invoked. Reliance placed by learned DR in the case of Maldhari Sales Corporation (supra) is not relevant in the facts and circumstances of the present case. 5.2 Penalty, which has b....
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....ment, consultation, advice, service and training provided by the company in respect of the use of the System and the Proprietary Marks as the Company may from time to time prescribe (which at the time of signature of this Agreement is equivalent to 0% of the Gross turnover of the immediately preceding month or $0 whichever is higher). The first payment of the said royalty is to be made by the last business day of the second month after the commencement date and the last payment thereof is to be made by the last business day of the month immediately following the month in which this Agreement is terminated or the term hereof expires." I find that other than clause 6.3 of the agreement there also exists a letter dated 19.1.2006 which was addressed to Shri V.P. Sharma, Quest Retail Private Limited, Jaipur by Mr. Peter Saunders, Chief Executive Officer. The Body Shop International Plc. which was related to Franchisee Agreement confirming grant of right on an exclusive basis to the Franchisee binding them: (i) that in addition to the fee of 100,000 (Pounds) set out, Franchisee agrees to pay a further franchise fee of 5,000 (Pounds) per store opening from the date of the opening of y....
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....this projection range, the franchisee shall pay a royalty of 2.5% p.a. on total sales, and for the avoidance of any doubt, the only penalty for failing to achieve the projection range sales shall be payment of the royalty at the higher 2.5% p.a. rate: that is to say such failure shall not constitute a material breach of the Agreement. (iv) Should the total sales be in excess of this projection range, the franchisee shall pay a royalty of 1% p.a. on incremental sales above the projection range. (v) Payments of the royalty shall be made quarterly, no later than the last business day of the month following the month of each quarter subject to withholding tax as applicable from time to time. In the first three quarters of any given year, the franchisee shall pay the royalty at 2% p.a. of each quarter's sales ("Quarterly Sales"). In the final quarter of any given year, the franchisee shall pay 2% p.a. on the quarterly sales for that quarter and shall either: Where the total sales have fallen below the projection range, pay in addition another 0.5% p.a. royalty on the total sales: Where the total sales have exceeded the projection range, such excess to be notified to the company....
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....rce, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf: Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf: Provided further that the rules made in this behalf". Rule 10......... (c) royalties and license fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale....
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....dered the finalization thereof in terms of Section 18 of the Customs Act, but also imposed a penalty of equivalent amount under Section 28(4) of the Customs Act. This is clearly not permissible as per Section 18 of the Customs Act, on the ground that the relevant date for payment of duty has yet to arrive after finalization of the assessment by the proper officer in terms of the impugned order. Similarly, in case of demand pertaining to the Bills of Entry which has been finally assessed has not been re-determined by any assessment and also not permissible without filing appeal against the assessment order as has been held in Priya Blue case. 11. In view of above, the impugned order is also not sustainable. Regarding the demand hit by limitation, we find considerable force in the contention made by the appellant. It is on record that earlier show cause notice has been issued to the appellant on the similar set of facts and circumstances and in respect of same agreement and side letters. The case was adjudicated upon and the same was settled by the order of Settlement Commission dated June 2014. This indicates the fact that both the department and the appellant were aware of the ent....