TaxTMI 
TaxTMI 
2022 (5) TMI 496
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....ate, back plate, tube casting, motor base and impeller for use in manufacturing its final products from (i) M/s Kruger Ventilation Industries Pte. Ltd., Singapore and (ii) M/s Kruger Ventilation Asia Co. Ltd., Thailand. As the appellant and the foreign suppliers were related persons, the Deputy Commissioner of Customs, SVB, Nhava Sheva referred the matter to SVB New Customs House, Delhi. The appellant submitted documents, requisitioned by the SVB Delhi and also participated in the proceedings before the Deputy Commissioner. The three issues considered and decided by the Deputy Commissioner are as follows: (i) Whether the buyer and seller are related persons in terms of Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [Valuation Rules ]; (ii) Whether the transaction between the buyer and seller are influenced by such relationship; and (iii) Whether any addition is required to be made to the assessable value of the imported goods under Rule 10 of the Valuation Rules. 3. On the first issue, the adjudicating authority found that the importer (appellant herein) and the overseas supplier were related persons. On the second issue, the adjudi....
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....e is based on the total net sales made by the appellant. The agreement nowhere states that the appellant cannot import any goods from Kruger, Singapore unless and until the license fee is paid to the holding company in terms of technical agreement. The agreement is neutral about the supply of raw material and does not mandate the appellant to buy the goods from the supplier of technology or any of its associate companies. The license fee is paid on the sales of the goods domestically manufactured and sold in India. No condition has been imposed in the agreement restricting import of goods from any suppliers. It is purely an independent activity and has no relationship to the raw material by the appellant; (ii) It is undisputed that there is no influence of the relationship between the appellant and exporter on the transaction value; (iii) SVB Mumbai had, under similar set of circumstances, accepted the pricing of the identical goods in case of another subsidiary company by order-in-original No. 411/AC/SVB/BRA/2007-08 dated 28.09.2007; (iv) The goods were imported by another associate enterprise and not from the holding company to which the license fee was being paid; (v) Th....
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.... customs duty. Countrywide licence fee paid by SBI is not the same as the "charges for the right to reproduce" as envisaged in the interpretative note to Rule 9(1)(c). Total cost incurred would be transaction value on which customs duty has to be charged and total cost for the purpose of assessment of customs duty would include single site licence fee as well as countrywide licence fee. Rule 3(1) of the Rules provides that value of the imported goods shall be transaction value as defined by Rule 4 and which in the present case would mean the price actually paid or payable for the goods when sold for export to India. The amount payable to the supplier was US $ 4,084,475 which was correctly taken as assessable value. (vi) Learned Departmental Representative also placed reliance on the judgment of the Supreme Court in Matsushita Television & Audio (I) Ltd. Vs. Commissioner of Customs [2007 (211) ELT 200 (SC) ]; and (vii) He also placed reliance on Commissioner of Customs Vs. Avaya Global Connect Ltd. [2016 (337) ELT 402 (Tri.-Del.)], paragraphs 5 and 6 of which are reproduced below: "5. We have considered the contentions of both sides and have perused the Transfer of Technology ....
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....the appellant was importing components to manufacture cards but subsequently the appellant started importing cards themselves. Royalty in both the circumstances remained the same and continued to be based upon the number of ports activated. In the case of Ferodo India Pvt. Ltd. (supra) cited by the appellant the Supreme Court held that payment of royalty and licence fees was entirely relatable to the manufacture of brake lines and brake pads. The said payments were in no way related to the imported items. But in the present case, Royalty payments on cards continued on the same basis when the cards began to be imported instead of being manufactured. In the case of J.K. Corporation Ltd. (supra) the ratio laid down by Supreme Court was that any amount paid for post-importation service or activity would not come within the purview of determination of assessable value of the imported goods. In the present case royalty is not paid for post-importation service or activity; only the determination of royalty was done based upon the number of ports activated. In the case of Toyota Kirloskar Motor Pvt. Ltd. (supra), the Supreme Court laid down similar ratio, i.e., that "the transaction value ....
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....records shipped less records returned but such records returned shall not exceed 10%. It means that in the event the return exceeds 10% the royalty will still have to be paid even though some cassettes were not available for sale. In such circumstances, the only inference which can be drawn is that payment of royalty was a condition of sale. This view is supported by the Madras High Court decision in the case of Indo Overseas Film (supra) wherein in similar circumstances payment of royalty was considered to be condition of sale. As per Rule 9(1)(c) of the said Rules - "Royalty and Licence Fee related to the imported 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" is to be added to the assessable value. Thus as per the analysis above, the royalty paid by the appellant is includible in the assessable value. Once it is held that royalty payment is a condition of sale, it is immaterial how the royalty payable is computed. In the case of Living Media (I) Ltd. (supra), the Apex Court observed as under : 32. .... dut....
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....ry 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 turnover 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. The ratios of the judgments of the Supreme Court in the case of Living Media (I) Ltd. and Matsushita Television & Audio (I) Ltd. v. C.C. (supra) are thus also supportive of the above analysis." 9. The Civil Appeal against this order of the Tribunal filed by the assessee was dismissed by the Supreme Court in AGC Networks Ltd. Vs. Commissioner [2017 (349) ELT A 158(SC)]. 10. He also relied on Atul Kaushik Vs. Commissioner of Customs (Export), New Delhi [2015 (330) ELT 417 (Tri.-Del.)] which was affirmed by the Supreme Court [2016 (339) ELT A136 (SC) ]. 11. He also placed reliance on Giorgio Armani India (P) Ltd. Vs. Commissioner of Customs, New Delhi [2018 (362) E....
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....r paid has to be added. 16. It is also undisputed that the ex-factory price of the goods did not include the miscellaneous charges which were indicated in the invoices and that they need to be included. The only dispute is factual - whether they were included or not in the Bill of Entry. Learned Counsel has demonstrated before us that they were indeed included in the values in the Bill of Entry. However, these charges were included under a different column and the figure "0" was indicated against the column "Miscellaneous Charges". The net effect of the valuation insofar as these charges is concerned is that the miscellaneous charges were included by the appellant in the Bill of Entry. Therefore, we find no reason or justification to add them again to the assessable value. 17. The next question is includibility of royalty/license fee paid by the appellant to its holding company as a percentage of its total sales turnover in the assessable value. Learned Departmental Representative relies on the judgment of the Supreme Court in Matsushita Television & Audio (I) Ltd. in which it was held that the royalty paid by the appellant as a percentage of the net ex-factory sale price of the ....
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.... 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 Valuation Rules, 1988, only such royalty which is relatable to the imported goods and which is a condition of sale of such goods alone could be added to the declared price. However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex-factory sale price of the colour T.V. exclusive of taxes, freight and insurance but including the cost of imported components. In other words, the royalty payment was to be computed not only on the domestic element of the net sale price of the colour T.V. but also on the cost of imported components. A bare reading of the agreement shows that payment under the said agreement related not only to the production of 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 co....
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.... of the imported goods and hence held that royalty cannot be included in the assessable value. 22. In the present case, we find that the Technical Aid Agreement entered into between the appellant and M/s Kruger Ventilation Industries Pvt. Ltd., Singapore was a technical aid agreement on a non exclusive basis to manufacture and assemble centrifugal fans, axial fans, in-line fans, roof exhaust fans and mixed flow fans (goods) and to instruct the licensee in the methods of working the processes relating to or in respect of or for the manufacture of the goods and to provide total management. The restrictions in the agreement are with respect to import or export of final products by the appellant but not with respect to imports. It is also mandated that the goods were to be manufactured strictly in accordance with the specifications provided by technology provider. A license fee @ 5% had to be paid on the total net turnover of the goods. We have gone through the agreement and do not find anything in it that it also provides import of the components. Therefore, the goods were not imported under the agreement and any royalty under the agreement cannot be related to it. Further, there is ....