TaxTMI 
TaxTMI 
2024 (3) TMI 870
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.... Jockey International, USA for the products 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 ....
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....ejection. There is no such cogent reason coming forth in the impugned order. He further submits that from the provisions 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. Therefo....
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....oducts'. Ld. Counsel submits that such finding also unsustainable since it is drawn without any admissible evidence. 9. Ld. Counsel for the Appellant also draws our attention 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 ....
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....ment entered with M/s Speedo International, U.K, Ld. Counsel draws our attention to the details of the agreement where distributed products means such of the products listed in Schedule 1 under 'Distributed 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 ....
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.... of clause 18 under which 25 percent of advertising fund may be spent on the cost of co-operative advertisement programmes in the territory paid for by the licensee. Likewise, given the scale of Page's business and the amount of spend it makes 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 condi....
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.... to make any such declaration while filing the B/E for home consumption since M/s Jockey International & M/s Speedo International are not related parties of the Appellant as per Rule 2(2) of the Valuation Rules, 2007. Merely because Appellant is a sole distributor 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, furnis....
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....ale of distributed products. Relying on Para 7.1 and 24.4 reproduced below of the above agreement holds that the appellant cannot import or sell the imported goods if he fails to pay the royalty and other marketing expenses. He further holds that the net sale value on which royalty is paid 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 su....
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....other than considering the sole distributorship, there is no admissible evidence relied by adjudication authority to conclude that the appellant and supplier of goods are related person. 25. As per section 10(1)(C) of the Customs Valuation Rules 2007 royalties 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 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. ....
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....or appears to be an obligation and the part of the appellant and as per the agreement minimum advertisement spent has to be incurred by the appellant as part of a marketing strategy of the final products. Since the global marketing contribution has been incurred by the appellant towards the global brand development advertising marketing promotional sponsorship and related 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 ad....