TaxTMI 
TaxTMI 
2024 (3) TMI 870
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....s manufactured by the Appellant and with Speedo for both licensed and distributed products which are imported and sold by the Appellant. Alleging that the Appellant and the supplier of the goods are related persons, the royalty and the cost of advertisement incurred by the Appellant in India is added to the transaction value of import of finished goods/Distributed products in terms of Rule 10(1)(c) and Rule 10 (1)(e) of the Customs Valuation Rules 2007, demanding Rs. 37,40,81,065/- as differential duty. The Adjudicating authority vide impugned order confirmed the demand along with interest, redemption fine and penalty. Aggrieved by the order, present appeal is filed. 2. When the appeals came up for hearing, Ld. Counsel for the Appellant submits that the Appellant had paid Integrated Goods & Service Tax (IGST) on Royalty payment made by M/s Jockey International & M/s Speedo International under reverse charge mechanism considering the same to be in nature of consideration of provision of service by Jockey/Speedo to the Appellant. Since the Appellant had already paid tax on the Royalty payments made considering the same to be a service and the same has not been disputed by the Goods ....
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....s of the Customs Act, 1962 and the Customs Valuation Rules 2007, it can be inferred that the value of royalty would be included in the value of imported goods only if:- (i) Royalty is directly related to the imported goods (ii) The royalty is paid by the buyer directly or indirectly to the seller. (iii) The royalty is payable as conditions of sale of the imported goods. (iv) The royalty is not included in the value of the imported goods 5. It is further submitted that royalty which is payable directly or indirectly to the seller or to the third party on behalf of the seller, only can be included in transaction value. Any royalty which is not paid to the seller or on behalf of seller or as an obligation to the seller cannot be included in the transaction value of goods. In this regard reference is made to Commentary on the GATT Customs Valuation Code by Saul L Sherman and Hinrich Glashoff: "Art. 8.1(c) of the Code provides for the addition of the royalty or license fee whether it is paid directly or indirectly. Therefore, royalties and license fees that are paid to the third parties can also be added to the Transaction value under this provision; however, the payment of t....
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....tion to the finding of the impugned order where adjudication authority concluded that "the Noticee submitted that the raw materials in the present case are imported from third party manufacturers located across the Globe and not from M/s Jockey and hence, the import of such goods is not conditional upon payment of royalty. It is observed that, the Noticee, importer is not at liberty to import raw material of any quality and from any person as they are bound by the 'License Rights', 'Manufacturing know-how', 'Quality control', 'Condition of submission of samples' and other conditions specified in the Trade License agreement mutually agreed upon. The entire process of procurement, utilization are obviously due to the fact that the trademark "JOCKEY" is owned by the licensor, M/s Jockey International Inc, USA and upon import of such raw material, the manufacturer/noticee as per the agreed upon standard and sale of the goods, is liable to pay royalty. As such, the scheme of the things is not difficult to comprehend and the noticee is trying to move an impossible case that the Royalty is not related to the imported raw material". Ld. Counsel strongly objected to the said finding since i....
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....uted Products', bearing the Trade Marks as are purchased by the Licensee from the Licensor (or any other source approved under clause 7.1(b). Licensed Products means such of the products listed in Schedule 1 under 'Licensed Products' bearing the Trade Marks as approved by the Licensor from time to time for manufacture by the Licensee and which have been manufactured by or on behalf of the Licensee. He further submits that as per relevant clause 5 of the agreement "5.1 The Licensee shall pay the Licensor each Quarter a royalty equal to the product of the Percentage Royalty and the amount of New Sales of Licensed Products invoiced in each Quarter. 5.6 In each Contract Year and for the entire duration of the Term of the Agreement the Licensee undertakes to pay and guarantees payment of the following minimum royalties ("Minimum Royalty"). Contact Year Minimum Royalty 1 July 2011-31 December 2012 Nil 1 January 2013 - 31 December 2013 6.5% of 60% of the Target Net Sales of the Licensed Products January 2015 - 31 December 2015 7.5% of 80% of the Target Net Sales of the Licensed Products January 2016-31 December 2016 7.5% of 80% of the Target Net Sales of the Licensed Product....
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....voluntarily on advertising, Jockey has no longer applied and has consistently since 2005 waived compliance with the mandatory minimum advertising expenditure of 5 percent per each license year. The purpose of these clauses is to ensure that smaller licensees do not overlook brand development as part of their business strategy. Again, given the size of Page's business, since 2005 is has become unnecessary to apply these type of controls to Page. 18. Regarding the cost of advertisement, the Ld. Counsel also draw our attention to the Final order of the Tribunal in the matter of M/s Indo Rubber & Plastics Works Vs CC, New Delhi (2020 (273) E.L.T. 250 (Tri. Del). 16. Having considered the rival contentions, we find that in the facts and circumstances of the present case there is nothing in the agreement that a fixed amount or fixed percentage of the invoice value of the imported goods, is obliged to be spent by the appellant as a condition of sale/import. As per the stipulation in the agreement, the appellant is obliged to or responsible for sales and distribution in its territory of distribution and further to make such expenditure in consultation with the seller, does not attract ....
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....istributor in India, it will not ipso facto mean that the parties are related and substantiates his claim by relying on the decision of the Apex Court in the matter of CC (Imports), Mumbai Vs Bayer Corp Science Ltd (2015 (324) E.L.T. 17 (S.C) and submits that there is no reason or justification to invoke the penal provisions, since there is no suppression of facts at the time of import. 20. Ld. AR appearing for the Revenue reiterated the finding and also draw our attention to the following conditions in the agreement entered by the Appellant. The Learned relying on the section 14 of the Customs Act 1962 read with the Customs Valuation Rules 2007 argues that from the terms of the agreement reproduced below they are liable to pay the duties on the royalty and the advertisement expenses. a. JOCKEY shall from time to time, and to such extent that it shall consider to be necessary for the performance of this Agreement, furnish LICENSEE with Manufacturing know-how and Merchandising and Marketing Know-How and information as to any improvement or inventions that may be patentable or subject to industrial model or designs protection. JOCKEY shall have the sole right to determine whether ....
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.... by the appellant includes the value of the imported goods. "7. Purchase and sale of distributed products 7.1 the licensee shell purchase the distributor products readily packed only from the a) licensor or b) any other supplier has may be authorised from time to time in writing by the licensor; and the licensee shall not repackage any distributed products nor alter amend or modify any package packaging in which any distributed products r supplied nor remove, nor deface...... alter or modify any trademarks, brand names...... Of the distributed products or there packaging without the prior written consent of the licensor." Para 24 of the agreement states as follows 24.1: the licensor Mein terminate this agreement 4th with by giving notice of termination to the licensee upon any of the following events: a) if any sum payable to the licensor or to any authorised supplier of any distributor products here under is not paid by the due date for payment b) if the licensee commits any breach of any provisions of class 5 (royalties)----clause 7 (purchase and sale of distributor products) clause 8(marketing of the products) The license and distribution agreement entered by the ....
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....to pay directly or indirectly as a condition of the sale of the goods being valued, to the extent that such a royalties and fees are not included in the price actually paid or payable; As per the above provisions royalty can be added to the transaction value of the imported goods if the following conditions are satisfied : --Royalty is directly related to the imported goods --Royalties paid directly or indirectly by the buyer to the seller --Royalty speed as a condition of sale of the imported goods --Royalty not included in the value of the imported goods 26. The trademark license agreement between Jockey International INC. and Page Industries (the appellant) and as per this agreement royalties are paid on the net invoiced shipments specified in paragraph S.8 of schedule A and schedule B that is payable to M/s. Jockey for the rights granted to the licensee. The schedule A and B lists out the licensed products namely underwear tops and bottoms for men, women, boys, girls; sportswear for men and women; socks for men and women. From the list it is clear that royalty is being paid on the final products which are manufactured and cleared by the appellant under the brand name....
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.... costs incurred by the supplier to promote and develop the products of the supplier worldwide these expenses cannot be considered as post sale event and therefore they become part of the transaction value. 28. Rule 10(1)(e) 0f the Customs Valuation Rules 2007 provides for addition of 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 and obligation of the seller, to the extent that such payments are not included in the price actually paid (transaction value). We find that there is total absence of the prescribed condition present as the appellant is not obliged to incur any particular amount or percentage of invoice value towards sales promotion/ advertisement. Further, we find that the activity of advertisement and sales promotion is a post-import activity incurred by the appellant on its own account and not for discharge for any obligation of the seller under the terms of sale. Moreover, as held by Tribunal in the matter of INDO RUBBER AND PLASTIC WORKS (Supra) there is nothing in the agreement that a fixed amount or fixed percentage of the invoice value of the import....