TaxTMI 
TaxTMI 
2019 (10) TMI 459
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....09 dated 28.04.2008 20. In view of facts and circumstances and the discussions made in the earlier Paras, I pass the following orders; a) the declare value of Rs. 286 for goods imported vide AWB No 857876186521/13.01.08, and Bill Of Entry 42778 dated 13.01.08, is rejected and the same shall be assessed at Rs. 6,49,182/- (Rupees six lakhs forty nine thousand one hundred eighty two only) b) the good imported vide AWB No 857876186521/13.01.08, and Bill Of Entry 45009 dated 27.01.08, valued Rs. 6,49,182/- are confiscated under Section 111 (m) of the Customs Act, 1962. However, I allow redemption of the same in lieu of confiscation, on a fine of Rs. 1,75,000/- (Rupees One Lakh Seventy Five Thousand only) in addition to payment applicable duties within thirty days of receipt of this order. c) I order imposition of personal penalty of Rs. 75,000/- (Rupees Seventy Thousand only) for the said imports on M/s Moser Baer India Ltd, under Section 112(a) of the Customs Act, 1962. d) I order imposition of personal penalty of Rs. 50,000/- (Rupees Seventy Thousand only) for the said imports on M/s Federal Express (India) Pvt Ltd., under Section 112(a) of....
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....he appeals are identical, they have been taken up together. 2.1 Appellant is engaged in the business of providing entertainment contents on DVD/VCD to customers in India. For foreign movies, they enter into contract production houses acquiring the rights to reproduce and distribute the said movies in India. 2.2 They had imported the content of Digi Beta Tape through Courier by declaring the value of media only and not of the license fees/ royalty payable against the said imports towards the reproduction and distribution rights. 2.3 Revenue was of the view that these amounts paid by the appellants to the foreign production houses were to be added to the assessable value and accordingly investigations were undertaken the appellants. As result of investigations undertaken, two show cause notices both dated 13.02.2008, were issued to the appellant, one for the imports made through courier Federal Express (India) Pvt Ltd and second for imports made through DHL Express (India) Pvt Ltd. 2.4 Both the show cause notices have been adjudicated by the Joint Commissioner as per the order in original indicated in para 1.2, supra. 2.5 On appeal Commissioner (Appeal) has by the impu....
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....yment of Customs duty, has always been the contentious issue. The offer for payment of disputed duty therefore is enough to show their bonafide intentions. • Appreciating the complexities involved they had deposited the duty under protest during the course of investigation on 16.10.2007. • In view of the bonafide intentions the appellant had throughout imposition of fines and penalties on them cannot be sustained. They rely on the decision in case of S S Gupta [2001 (132) ELT 41 (T)]. 4.1 We have heard Shri Prasad Paranjape, Advocate for the Appellant and Ms Trupti Chavan, Assistant Commissioner, Authorized Representative for the revenue. 4.2 Arguing for the appellant learned counsel while reiterating the submissions made in the appeal stated that- • The Digi Beta Tapes containing movies imported by them, could not have been used for viewing. These master tapes could only be used for the purpose of replicating/ reproduction of the content on multiple VCD/DVD, to be sold by them in India. • Under the agreement executed with the overseas Licensors, the appellant were granted the copyright in the form of receiving right to repr....
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....hat- • Appellants contention that addition of license fee for the "reproduction right", is specifically excluded from the value in terms of interpretative note (1) to Rule 10(1)(c) was rejected by the Commissioner (Appeal), as he found that payments were not made for the right of reproduction. Since the agreement is styled as distribution agreement, it would be governed by interpretative note (2) to Rule 10(1)(c). Further this payment was a condition for sale and hence the amount is to be included in the assessable value. • Payments in the present case were made prior to actual import of tangible goods and made as condition of sale- • For Bill of Entry No 45009 dated 27.01.2008 the payments were made in terms of "Outright Distribution Agreement dated 05.09.2007 for the movie "Highlander - The Search for Vengance" with Neo Mad Intellectual Properties Licensing BV. The total payment under this agreement i.e. US$ 15,000/- out of which US$ 7,500/- made on execution of the agreement and balance US$ 7,500/- made on notice of initial delivery. The entire amount is attributable to only Cinematic Rights as is evidenced from Part IIIC (Financial Terms o....
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....rted goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable; (d) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues, directly or indirectly, to the seller; (e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable. Explanation.- Where the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods. Interpretative Notes: Rule 10(l)(c) 1. The royalties and licence fees referred to in rule 10(l)(c) may include among other t....
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....o Imagi Services (USA) Limited, directly to the Licensor approved lab, or as otherwise directed by Licensor. C. Location of License Fee If no allocation is indicated below, then the entire License Fee will be allocated to Cinematic Rights. Otherwise License Fee will be allocated among the Licensed Rights as follows: Licensed Right License Fee Allocation % Amount Cinematic Ancillary Video Pay Per View Pay TV Free TV IFTATM International Outright Standard Terms" 3. Licensed Rights and Reserved Rights 3.2 Vesting: Each Licensed Right will only vest in the Distributor after the following is met in accordance with the Deal Terms: (1) Distributor accepts Initial Delivery of the Picture; and (ii) Distributor pays Licensor the entire License Fee. B. Distribution Agreement dated 21st May 2007 between Appellant and Lakeshore Entertainment Group LLC (Movie "Feast of Love") 5. Financial Terms: a) Guarantee: Eighteen Thousand U S Dollars (US$ 18,000) ("Guarantee") b) ....
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....ies Licensor otherwise in writing within fourteen days after delivery. Title to all materials delivered to Distributor or created by Distributor (including but not limited to all language tracks) shall at all times remain vested with Licensor. Licensor shall at all times have free and unimpeded access to these materials, The guarantee is a Minimum Net Sum and no other charges may be deducted from it. 8. Disposition of Gross Receipts: Gross Receipts from the distribution of the Picture (s) shall be calculated "at the source" and shall be shared as follows: Licensed Rights Licensor Distributor Licensed Rights Licensor Distributor Theatrical (before recoupment) N/A % N/A % Free TV 50 % 50 % Theatrical (after recoupment) N/A % N/A % Pay TV 50 % 50 % Non Theatrical N/A % N/A % Pay Per View 50 % 50 % Home Video Rental N/A % N/A % Video on Demand N/A % N/A % Home Video Sell Through N/A % N/A % Commercial Video N/A % N/A %  ....
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.... Silence - AIDS" in 35 mm print of 2569 Mtrs along with one trailer in 35 mm of 35 Mtr length and declared the value for the purpose of assessment as US $ 1000 and US $ 20 respectively totalling US $ 1020. It was noticed that the appellants paid US $ 12,500 towards Royalty including one brand new print and one Trailer (Rights of reproduction and distribution for public performance for the territories of India) - US $ 12,500/-. The appellants contended that in terms of Rule 9(1)(c) of the Customs Valuation Rules 1988 it is obvious that the charges made for the right to reproduce the imported goods in the country of importation are not to be added to the price paid or payable for the imported goods and also payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of sale for export to the country of importation of the imported goods and in their case the film remains exclusive property of M/s. Euro Film International and what is assigned is the distribution rights of the film and what is sold are new prints along with trailers of the film and....
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....in the territory i.e. India for the period upto December 31, 2002. Which confers theatrical as well as home video and commercial video rights. The payment of US $12500 covers licence fees, one brand new print and one Brand new trailer. The invoice for the import of the impugned goods shows royalty including one brand new print and one Trailer (Rights of re-production and distribution for public performance for the territories of India) - $ 12,500 and cost of movie material-$1,020. Under Rule 9(1)(c) of the Valuation Rules, royalties and licence fees related to the imported goods that the buyer is required to pay directly or indirectly as a condition of sale of the goods being valued to the extent such royalties and fees are not included in the price actually paid or payable. In the instant case, the appellant had to pay not only the cost of movie materials but also the royalty for the rights specified in the Distribution Agreement as a condition of sale, for, without the right of re-production and distribution, the impugned goods viz. the print and the trailer will not be of any use to the appellant at all to enjoy the theatrical and video rights conferred on him. ....
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....e decisions/opinions cited by the appellant are not relevant and cannot come to his rescue. Accordingly, the lower authority's order is maintainable and the appeal is rejected." 5. Shri M. Murugappan, ..... 6. Shri A. Jayachandran, ....... 7. On consideration of the submissions made, we notice that the aspect pertaining to includibility of "royalty charges" cannot be disputed in view of the ruling rendered by the Hon'ble Supreme Court and the Tribunal decision noted above. The learned Counsel has made fervent appeal for the exclusion clause of the interpretative rules which according to him has been accepted by the Commissioner (Appeals). The learned Counsel relied upon the typed papers in the paper book which is said to be the ruling of US and Finland export valuation book. The authenticity of these is not proved. It does not have persuasive value as in the case of HSN explanatory notes. The Customs valuation rules require includibility of royalty charges which has been paid in the present case in terms of the invoice. Therefore, the burden of proof for seeking exclusion of certain charges is on the appellants which has not been discharged. Ther....
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.... or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for export to the country of importation of the imported goods. 6.It could be seen from the invoice made available at page No.3 of the typed set of papers that the petitioner has imported the feature film - "Web of Silence - AIDS". The cost of the materials, i.e., one 35 mm (2569 meters length) is valued at 1000 US $ and in 35 mm of trailer (35 mm length) of the said film is 20 US $. So, the value of the imported goods, i.e., feature film is 1020 US $. Apart from that royalty including one new print and one trailer with the right of reproduction and distribution of public performance for the territories of India had been valued at 12500 US $. The payment of 1020 US $ for the print and trailer and 12500 US $ towards royalty for exploitation of the film is condition precedent in the importation. Though the value has been splitted out as royalty and the cost of materials, as per the agreement, the petitioner imported the feature film for exploitation only and without exploitation there is no purpose for importing the fe....
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....le property constituted goods. This Court held as follows : "27. According to Section 12 of the Customs Act, duty is payable on goods imported into India. The word "goods" has been defined in Section 2(22) of the Customs Act and it includes in clause (c) "baggage" and clause (e) "any other kind of movable property". It is clear from a mere reading of the said provision that any movable article brought into India by a passenger as part of his baggage can make him liable to pay customs duty as per the Customs Tariff Act. An item which does not fall within clause (a), (b), (c) or (d) of Section 2(22) will be regarded as coming under Section 2(22)(e). Even though the definition of the goods purports to be an inclusive one, in effect it is so worded that all tangible moveable articles will be the goods for the purposes of the Act by residuary clause (e) of Section 2(22). Whether moveable article comes as a part of a baggage, or is imported into the country by any other manner, for the purpose of the Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas woul....
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....agazine is not only the value of the paper. The value of the paper is in fact negligible as compared to the value or price of an encyclopedia. Therefore, the intellectual input in such items greatly enhances the value of the paper and ink in the aforesaid examples. This means that the charge of a duty is on the final product, whether it be the encyclopedia or the engineering or architectural drawings or any manual. 43. Similar would be the position in the case of a programme of any kind loaded on a disc or a floppy. For example in the case of music the value of a popular music cassette is several times more than the value of a blank cassette. However, if a pre-recorded music cassette or a popular film or a musical score is imported into India duty will necessarily have to be charged on the value of the final product. In this behalf we may note that in State Bank of India v. Collector of Customs [(2000) 1 SCC 727 : (2000) 1 Scale 72] the Bank had, under an agreement with the foreign company, imported a computer software and manuals, the total value of which was US Dollars 4,084,475. The Bank filed an application for refund of customs duty on the ground that the basic cost o....
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....id GATT protocol and WTO agreement. The shift from the concept of price of goods, as was classically understood, is clearly discernible in the new principles. Transaction value may be entirely different from the classic concept of price of goods. Full meaning has to be given to the rules and the transaction value may include many items which may not classically have been understood to be part of the sale price. 46. The concept that it is only chattel sold as chattel, which can be regarded as goods, has no role to play in the present statutory scheme as we have already observed that the word "goods" as defined under the Customs Act has an inclusive definition taking within its ambit any movable property. The list of goods as prescribed by the law are different items mentioned in various chapters under the Customs Tariff Act, 1997 or 1999. Some of these items are clearly items containing intellectual property like designs, plans, etc. 47. In the case of St Albans City and District Council v. International Computers Ltd. [(1996) 4 All ER 481)]. Sir Ian Glidewell in relation to whether computer programme on a disc would be regarded as goods observed at p. 493 as follo....
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....ilable in the marketplace. The fact that some programs may be tailored for specific purposes need not alter their status as 'goods' because the Code definition includes 'specially manufactured goods'." 49. We are in agreement with the aforesaid observations and hold that the value of the goods imported would depend upon the quality of the same and would be represented by the transaction value in respect of the goods imported." 22. To be noted that this authority is directly dealing with the question in issue. Even though the definition of the term "goods" in the Customs Act is not as wide or exhaustive as the definition of the term "goods" in the said Act, it has still been held that the intellectual property when it is put on a media becomes goods. Mr. Sorabjee submitted that whilst referring to the case of St. Albans City and District Council v. International Computers Ltd. [1996 (4) All ER 481] this Court missed the express finding of that Court to the effect "clearly, a disk is within this definition. Equally clearly, a program, of itself, is not". Mr. Sorabjee submitted that the English case clearly holds that software programes are not goods. He further subm....
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....poses of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes." In the concurring judgment, Hon'ble Justice S B Sinha, recorded as follows: "71. A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an article of value. It is sold in various forms like - floppies, disks, CD-ROMs, punch cards, magnetic tapes, etc. Each one of the mediums in which the intellectual property is contained i....
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....erty or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be goods. Unlike the American Courts, Supreme Court of India have also not gone into the question of severability. 75. Recently, in Commnr. Of Central Excise, Pondicherry v. M/s. Acer India Ltd. [2004 (8) SCALE 169] this Court has held that operational software loaded in the hard disk does not lose its character as tangible goods. 76. If a canned software otherwise is 'goods', the Court cannot say it is not because it is an intellectual property which would tantamount to rewriting the judgment. In Madan Lal Fakirchand Dudhediya v. Shree Changdeo Sugar Mills Ltd. [(1962) Suppl. 3 SCR 973], this Court held that the court cannot rewrite the provisions of law which clearly is the function of the Legislature which interprets them." 5.9 In our view the issue of inclusion of the License Fee in terms of Distributor Agreement, had been settled ....
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....gs or to the number of targeted 'eyeballs'. We find from the contract that the royalties are related to the number of episodes. There is also no justification to conclude that the said royalty/licence fee may include consideration for reproduction or distribution rights. The Hon'ble High Court of Madras in Indo Overseas Films v. Union of India [2007 (210) E.L.T. 348 (Mad.)] by '6. It could be seen from the invoice made available at page No. 3 of the typed set of papers that the petitioner has imported the feature film - "Web of Silence - AIDS". The cost of the materials, i.e., one 35 mm (2569 meters length) is valued at 1000 US $ and in 35 mm of trailer (35 mm length) of the said film is 20 US $. So, the value of the imported goods, i. e., feature film is 1020 US $. Apart from that royalty including one new print and one trailer with the right of reproduction and distribution of public performance for the territories of India had been valued at 12500 US $. The payment of 1020 US $ for the print and trailer and 12500 US $ towards royalty for exploitation of the film is condition precedent in the importation. Though the value has been splitted out as royalty and the cost of ....
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.... Court of Bombay in re Star Entertainment Pvt. Ltd. which noted the decision of the Hon'ble Supreme Court in Continental Foundation Joint Venture v. Commissioner of Central Excise, Chandigarh-I [2007 (216) E.L.T. 177 (S.C.)] that '10. The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct. 11. Factual position goes to show the Revenue relied on the circular dated 23-5-1997 and dated 1....