TaxTMI 
TaxTMI 
2024 (1) TMI 470
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....oms Valuation (Determination of Value of Imported Goods) Rules, 2007. Against this order directing to add the royalty payment in the assessable value, the Respondent filed appeal before the Commissioner (Appeals) and vide order impugned herein, the Commissioner (Appeals) set aside the order of adjudicating authority to the extent of directing to add the royalty payment in the assessable value. Aggrieved by such order, the Department is now before the Tribunal. 2.1 The Ld. Authorised Representative Ms. Anandalakshmi Ganeshram appeared and argued for the Department. It is submitted by the Ld. Authorised Representative that the foreign suppliers are subsidiaries of the ultimate group parent company 'Compagnie Generale - Des - Establishments Michelin (CGEM) and Compagnie Francaise - Michelin (CFM), Switzerland which hold 99.99% shares of importer company. Thus the amount of royalty paid to their ultimate group company, and their other group company, Michelin Recherchéer Technique S.A., Switzerland (MRT) would amount to indirect payment of royalty as provided in Rule 10 (c) CVR, 2007. 2.2 The importer - Respondent had entered into a Trade Mark and Technology License Agreeme....
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....f the Annual Net Sales. Annual Net Sales means the cumulative amount of the gross invoice sale price of the Products manufactured by the licensee and related activities within the scope of this Agreement, when sold during the respective calendar year in a bona fide arm's length commercial transaction, after deduction of: - all discounts, allowances, commissions and credits of any kind, and - all invoices for tubes, flaps, internal supports, components, semi-finished, and accessories to other Licensed companies. The licensee shall pay 13/16 of the total royalties to CGEM and 3/16 to MRT" 3.3 The royalty is paid for the following post-import purposes as stated in Article 2.4 of the said agreement: i. Developing products for sale in the markets of the Territory ii. Manufacturing the products in the Territory iii. Using and Commercializing the products in and for the markets of the territory 3.4 In view of the above, it is submitted that the royalty paid as a percentage of net sale value is a post importation activity and is not to be included in the transaction value. There is no nexus between the royalty and the imported goods as the incidence of ....
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....en satisfied in the present case, as the Royalty is paid on the value of post-import activities. 3.7 Reliance is placed on case of Commissioner of Customs, Mumbai Vs. Bridgestone India Pvt Ltd. [2012-TIOL-166-CESTAT-MUM], wherein royalty paid on the net sale value of the manufactured product was said to be not includible in the transaction value of the import of raw materials and components for such manufacture. The principle applied in this case is squarely applicable to the Respondent's case. 3.8.1 The term 'condition of sale' has not been defined in the provisions of the Act or Rules. However, the same has been dealt with in various judicial precedents as follows: 3.8.2 In the case of Ortiker India Pvt Ltd. Vs. Commissioner of Customs (I), Mumbai [2014 (307) EL.T. 956 (Tri.-Mumbai)], it was held that, where as per the agreement entered into, the Appellant was required to pay license fee on the net invoice amount of all products manufactured and sold with the trademark, there was no condition of sale that Appellant was required to pay royalty on imported goods. In such situation, royalty paid on sale value of manufactured goods is not required to be loaded on the inv....
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....ods is not conditional upon supply of technical know-how, the charges paid on technical know fee is not includible. This view was upheld by Supreme Court [2006 (194) E.LT. A86 (S.C)] and maintained in [2015 (322) E.L.T. A91 (S.C.)]. 3.11 It is submitted that MFPM/ group Companies who are the suppliers are not party to the royalty agreement between CGEM, MRT and the Respondent. Where the raw material suppliers, MFPM and group entities and licensors of copyright and patent, CGEM and MRT are different and distinct entities having no contractual relationship in this regard, royalty paid to licensors has no nexus with goods imported from the said supplier. 3.12 Even if one Company is a holding company of another, they are still two separate legal entities and payment to one cannot be considered as payment to another. It has also been confirmed in the affidavit by MRT that consideration received from the Respondent is not shared with any of the group entities whatsoever. Further MFPM by way of an Affidavit has also clearly stated that the payment of royalty to CGEM or MRT is not mandated by MFPM for sale of capital goods and raw materials. 3.13 The payment for the import and the....
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....e twin conditions required to be satisfied are (i) the payment of royalty should be in relation to imported goods (ii) the payment should be as a condition of sale of the imported goods. 5.4 It would be beneficial to examine the relevant terms and conditions in the agreement. The Michelin Trade Mark of Technology License Agreement is as under:- This Trademark and Technology Licence Agreement (the "Agreement") enters into force on the 1 April 2011, between: (1) Compagnie Générale des Etablissements Michelin ("CGEM") a French company with its registered office at 12, cours Sablon, 63000 Clermont-Ferrand, France, and (2) Michelin Recherche et Technique S. A. ("MRT"), a Swiss company, with its registered office at 10, route Louis-Braille, 1763 Granges-Paccot, Switzerland, of the one part, hereinafter referred to individually and collectively as "the Licensors", and: (3) Michelin India Tamil Nadu Tyres Private Limited (MITTPL), a company incorporated under the laws of India, whose registered office is situated at 9th floor, Shyamala Towers, No. 136, Arcot Road, Saligramam, Chennai - 600 093, India. .... ....
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....iers. 5.6 The contention of the Department is that since CGEM & MRT are group companies of M/s. MFPM there is a nexus of the royalty paid to the annual net sales. It is to be seen that M/s. MFPM, France procures goods from third party suppliers and then supply to Respondent. Further royalty is paid only on the annual net sales to M/s. CGEM & MRT who have no role in supply of capital goods and are companies in Switzerland. Other than the contention that these are group companies there is no evidence adduced to establish that royalty is paid as a condition of sale of capital goods / raw materials. The Rule 10(1)(c) does not say that royalty is to be added in transaction value if the supplier is a group company. It says that if the royalty is a condition for sale, the same has to be included in the transaction value. 5.7 In the case of Commissioner of Customs, Chennai Vs. Toyota Kirlosakar Motor Pvt Ltd. [2007 (213) E.L.T. 4 S.C.], it was held that when technical assistance fees have direct nexus with post import activities and not with import of goods, the same is not to be included in the assessable value. The relevant paragraphs read as under:- "8. Indisputably, in t....
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....ith the charges at the pre-importation stage, would have to be taken into consideration towards computation of transaction value in terms of Rule 9(1)(c) of the Rules. 31. The transactional value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of import. A distinction, therefore, clearly exists between an amount payable as a condition of import and an amount payable in respect of the matters governing the manufacturing activities, which may not have anything to do with the import of the capital goods. 32. Article 4 provided for additional assistance in respect of the matters specifically laid down therein. Technical assistance fees have a direct nexus with the post-import activities and not with importation of goods. 33. It is also a matter of some significance that technical assistance and know-how were required to be given not as a condition precedent, but as and when the respondent makes a request therefor and not otherwise. Appendix C of the agreement relates to manufacture of local parts which evidently has nothing to do with the import of the capital goods. Appendix D again is attribut....
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....e manufacture of the goods in India but the royalty and the licence fee are not payable on the imported goods but on the goods manufactured and sold in India. Rule 10(1)(c) of the Customs Valuation (Determination of Value of the Imported Goods) Rules, 2007 says that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, royalties and licence fees related to the imported goods which the buyer is required to pay directly or indirectly as a condition of sale of the goods being valued to the extent that such royalties and fees are not included in the price actually paid or payable. In other words, the payments made should be related to the imported goods and such payments are condition of the sale of the goods. In the present case, from a reading of the agreement, it is evident that the payments made by way of royalty or licence fee has nothing to do with the imported goods nor is it a condition of sale for the imported goods. As already discussed earlier, these payments are required to be made in respect of the rubber products manufactured and sold by the licensee in India. 7.3 In view of the above position, th....
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....g valued, to the extent that such royalties and fees are not included in the price actually paid or payable; 10(1)(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. The royalty can be included in the assessable value in case there are condition for sale of the goods being valued and in case such royalty and fees are not includible actually paid or payable. As per Rules 10(1)(e) all other payments actually made or to be Rule 10(1)(c) royalties and licence fees 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; 10(1)(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 i....
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....hout arriving at a definiture conclusion such addition is not justifiable and to that extent the Commissioner (Appeals) has clearly erred. We find that the original authority has compared the invoice prices with the list prices of the supplier and found that they are in order. He found that the foreign supplier raises invoices Ex-works after adding mark ups. The original authority finds that 15% of marks up are added to cover the expenses and profit margin and therefore the relation has not influenced the prices. The original authority also finds that the technical know-how fees is more relatable to the technology imparted than to the goods imported and that it is not a pre-condition for import of goods. It is also pertinent to note that the Appellant are also procuring 39% of the parts/components required from the domestic market. We find that Commissioner (Appeals) has not gone into the facts of the case and has not given any reasoning for the conclusion drawn therein. We find that Chennai Bench of the Tribunal in the case of Engelhard Environmental Sys. India Ltd. 2005 (185) E.L.T. 155 (Tri. Chennai) held that "5. We have heard rival contentions. In this case the appell....