TaxTMI 
TaxTMI 
2024 (7) TMI 327
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.... of landed imported components and thus not related to the imported goods. On the basis of this observation, the original authority held that the royalty is not to be added to the assessable value in terms of Rule 10, (1)(c) of Customs Valuation Rules 2007. 2. Against this order, the department filed appeal before the Commissioner (Appeals) who vide order dated 25.02.2014, remanded the matter to the adjudicating authority for fresh consideration. 3. After denovo proceedings, order-in-original dated 23.09.2014, was passed whereby it was held that royalty is to be added to the assesable value. 4. Against this order, the appellant filed an appeal before the Commissioner (Appeals) who vide order impugned herein dated 25-2-2015, upheld the decision of the original authority. Hence, this appeal. 5. On behalf of the appellant, the Ld. Counsel Shri Parthasarathi appeared and argued. It is submitted that in terms of Rule 10, (1)(c ) of CVR 2007, royalty and license fee are to be added to the invoice value of the imported goods, if the royalty is (i) related to the imported goods and (ii) the royalty is payable as a condition of sale of the imported goods. Both the above requirements mus....
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....show that providing the technical knowhow is interlinked with the import of goods and there is an indirect condition of sale. Merely because the agreement states that the royalty has to be calculated on the value of manufactured yeast sold, it cannot be concluded that the royalty paid is not connected to the imported goods. The approach taken by the adjudicating authority and the Commissioner (Appeals) in going beyond the agreement and ascertaining the facts from the circumstances is legal and proper. It is prayed that the appeal may be dismissed. 10. Heard both sides. 11. The issue to be analysed is whether the royalty of 1.75 % paid on the yeast manufactured in India and sold using the technical knowhow provided by the foreign supplier (AB Mauri Technology Pty Ltd, Australia) is includable in the value of imported yeast culture in terms of Rule 10 (1)(c) of the Customs Valuation Rules 2007 for payment of Customs duty. 12. For better appreciation Rule 10 (1) ( c) is reproduced as under: 10. Cost and services. - (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (a) ........... (b) .......... (c)....
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.... payable in respect of that Financial Year. (v) ...... (vi) ...... In Schedule 1 of the agreement, the products that are manufactured and sold are listed as below Compressed Yeast Active Dried Yeast Instant Active Dried Yeast Yeast Extracts Powder & Yeast Extracts Paste In Schedule 2 (Clause 1.1 of the Agreement) of the agreement which lists out the activities to be carried out by The Licensee: Holding a Yeast strain bank of upto 1400 strainz Providing direction on quality and lab methods Developing new tesis to respond to customer requirements Providing micro-biology troubleshooting 14. The Tribunal in the case of M/s. Valeo Friction Materials India limited versus CC Chennai (supra) had occasion to consider the very same issue. In the detailed order after considering the facts and the relevant precedents it was observed that unless it is established that the royalty is paid as a condition of sale it cannot be included in the assesable value. The relevant paragraph reads as under:- 12. We find that as per Rule 10(1)(c) of Customs Valuation Rules, 2007 ('CVR, 2007'), there are certain essential conditions, only on fulfilment of which ....
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....inished goods i.e., Clutch Facings from the associate companies of M/s. VALEO Materiaux De friction, France are to be deducted from the net sales value. 15. From the above, it can be safely inferred that payment of royalty is not completely relatable to import of raw materials as there is no condition of sale attached for their import. Distinction which exists between an amount payable as the condition of import and amount payable in respect of sale of manufactured goods using the brand name has to be understood properly. Rule 10(1)(c) of the Customs Valuation Rules, 2007 states that royalties and licence fees related to the import goods that the buyer is required to pay directly or indirectly as a condition of sale of the goods have to be added to the transaction value of the imported goods. We find that there is no such condition that emerges from the agreement between the appellant and the VALEO, France which provides that royalty payment is a pre-condition for sale / import of raw materials. There is no evidence to establish as to how the royalty payment is linked to the import of raw materials. 16. Article 12 of the agreement relating to consideration and payment states th....
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.... royalty paid has to be included in the value of the imported raw materials. The appellant has not only imported the raw materials like fibre yarn and impregnated yarn but also various other raw materials like textured yarn, technical yarn, copper wire, resins even semi-finished clutch facings. So, linking the raw materials imported entirely to royalty payment is not legal and cannot be accepted. 18. We find that the issue of inclusion of Royalty in transaction value is no more Res Integra in view of the ratio of the decision in the case of Kruger Ventilation Industries (North India) Private Limited Vs. Commissioner of Customs, [2022 (5) TMI 496-CESTAT NEW DELHI] which was affirmed by the Hon'ble Supreme Court, as relied upon by the Ld. Counsel for the Appellant. We also find that the ratio of the following decisions supports the cause of the Appellant:- i. Commissioner of Customs, Chennai Vs. M/s. GH Induction, India Pvt. Ltd. [2023 (9) TMI 90-CESTAT CHENNAI] wherein it was held C/42211/2014 that Royalty is not addable to the Transaction Value of the imported goods as the technical knowhow was for the post import (manufacturing) activity. ii. Commissioner of Customs (Sea....
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....s after importation of such goods". From the above it is clear that the royalty and the other charges can be included: (i) In case of imported goods (ii) As condition sale of goods And the explanation only added that such royalty would be includable' in the case even if the imported goods have undergone the said process after importation of such goods. The department could not show that the royalty and other charges were for the imported goods and they were as a condition of sale of such imported goods. Undisputedly the royalty on technical know-how was paid only for the manufacture sub-assembly of Dis Brake Systems. Therefore the royalty and other charges are not includible and the impugned order is not sustainable and is set aside. The appeal is allowed." 20. Further, relying on the following decision of higher judicial fora, the appellant has argued that the royalty payment is only for providing technical assistance for manufacture and sale of licenced products and import of raw materials is incidental to such manufacture and sale. There is no condition of sale attached to importation of raw materials and having not C/42211/2014 met the required conditions of Rule ....
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....se of enhanced royalty or if the Department finds that the buyer had misled the Department by such pricing adjustments then the adjudicating authority would be justified in adding the royalty/licence fees payment to the price of the imported goods. Therefore, it cannot be said that the Consideration Clause in TAA is not relevant. Ultimately, the test of close approximation of values require all circumstances to be taken into account. It is keeping in mind the Consideration Clause along with other surrounding circumstances that the Tribunal in the case of Matsushita Television (supra) had taken the view that royalty payment had to be added to the price of the imported goods. 26. For the aforestated reasons, we find no infirmity in the impugned orders of the Tribunals. Accordingly, the civil appeals filed by the Department are hereby dismissed with no order as to costs" C/42211/2014 Further, we find that in the case of Commissioner of Customs (Port), Chennai Vs. Toyota Kirloskart Motor Pvt. Ltd. [2007 (213) ELT 4 (SC)], it was held as follows:- "31. The transaction value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condi....