TaxTMI 
TaxTMI 
2024 (9) TMI 190
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.... factories at Ranchi and Gurgaon, is engaged in the business of design, manufacturing and selling of various types of Plant Sequencing, Continuous Weighing, Feeding, Proportioning and Online Data Handling, Batching Systems used exclusively for industrial applications. They also manufacture discontinuous Weighing Systems for Industrial & Commercial applications, set up of Modular Coal Preparation Plant, supply of Train Load-out System etc. The appellant imports capital goods, parts and components such as Controllers, Multicores, Centrifuges, Pneumatic Conveyors, Hydraulics, PLC, Liners, Reference and Master Load Cells etc. from related foreign entities for design, manufacturing and selling of various types of Plant Sequencing, Continuous Weighing, Feeding, Proportioning and Online Data Handling, Batching System used exclusively for industrial applications and the transactions are said to be effected at arm's length price in accordance with the transfer pricing provisions/regulations envisaged under the Income Tax Act [The I.T. Act]. 4. As the goods were imported from related foreign entities, the appellant obtained a SVB registration to ascertain that the transactions were effect....
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....for a period of three years. 6. It was submitted before the lower authorities by the appellant that there was no change in the mode of transaction for the period 2010-2013. Vide their letter dated 25.06.2014, the requisite details for "Management Fee" incurred for the period 2010-2013 along with copies of relevant invoices etc. were supplied to the authorities by the appellant. The proceedings culminated in the aforesaid Order-in-Original dated 17.07.2014, whereby it was directed that the Trademark License Fee of Rs.1,26,85,000/-, Rs.1,38,58,000/-, Rs.1,28,05,000 & Rs.1,52,29,000/- for the year 2010, 2011, 2012 & 2013 respectively and the Management Fee of Rs.2,09,40,000/-, Rs.1,31,13,000/- & Rs.1,83,11,000/- for the year 2010, 2011 & 2012 respectively paid to the Group Companies and/or associated enterprise shall be added to the transaction value of imported goods in terms of Rule 10(1)(c) and 10(1)(e) of the Valuation Rules. 7. In appeal against the said order of the adjudicating authority the Commissioner(Appeals) observed that the appellant had submitted two agreements "between M/s. Schenck Process India Limited and M/s. Schenck Process GmbH, Germany and its associates. T....
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....d suppliers and its associates/group companies plus the fact that related supplier did not supply any goods to any other unrelated buyer, (which fact was not denied by the appellant) held trade mark "License Fee" and "Management Fee" as required to be included in the transaction value and thereby upheld the Order-in-Original passed by the SVB authority. The Ld.Commissioner(Appeals) further noted in the order that the License Fee paid by Schenck Process India Limited to Schenck Process GmbH, Germany and its associates was only on account of the imported goods and directly related to the imported goods and the fact that it was not sold to group companies was indicative of the fact that the same is related to imported goods only. In respect of his findings the Ld.Commissioner(Appeals) also emphasized that as the goods were manufactured out of imported material, by using the brand name in terms of Technical License Agreement and thus the said License Fee was payable every year in respect of such goods produced. He therefore refused to interfere with the order of the lower authority. 9. The appellant however contends that the trade mark "License Fee" as per the agreement entered with....
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....ees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods, to the extent that such royalties and fees are not included in the price actually paid or payable, does constitute a component of the transaction value. It can thus be said that royalties and licence fees, necessarily required to be added to transaction value has to be relatable to the imported goods alone and should be necessarily a condition precedent for sale of the goods. 13. From the agreement provisions reproduced above, it can be noted that the said licence fee payments are not anywhere related to imported goods and are neither stated to be as a condition of the sale of the said goods. The trade mark licence fee is required to be paid for affixing the trade mark on the goods manufactured by the appellant. It is thus clear that such licence fee would be payable as and when there is sale of the finished goods produced (such as Plant Sequencing, Continuous Weighing, feeding, Proportioning, On-Line Data Handling and Batching Systems exclusively for industrial applications) and has no bearing with the import of goods. The appellant has pointed o....
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....case, no effort was made by the Department to examine the pricing arrangement. No effort was made by the Department to ascertain whether there exists a price adjustment between cost incurred by the buyer on account of royalty/licence fees payments and the price paid for imported items. No effort was made by the Department to ascertain enhancement of royalty/licence fees by reducing the price of the imported items. In the circumstances, we find no infirmity in the impugned judgment of the Tribunal. In this case, the Department has gone by TAA alone. On reading TAA in entirety, we are of the view that there was no nexus between royalty/licence fees payable for the know-how and the goods imported for the manufacture of licensed products. ..................." • The aforesaid decision of the Hon'ble Apex Court has been followed by the Mumbai Bench of the Tribunal in the case of Tata Yutaka Autocomp Ltd. v. Commr. of Cus. (Import), Mumbai [2013 (294) ELT 467 (Tri.-Mumbai)] and the Chennai Bench of the Tribunal in the case of Sundaram Dynacast Pvt.Ltd. v. Commissioner of Customs, Chennai [2009 (247) ELT 685 (Tri.-Chennai)]. 14.2 Sandvik Asia Pvt.Ltd. v. Commissioner of Cus....
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....ty proceeded to examine each one of the above conditions with reference to the facts of the present case. He held that the first and fourth conditions mentioned above are fulfilled in the present case. On the second condition regarding the payment could be direct or indirect, he relied on the decision of the Hon'ble Supreme Court in Ferodo India Pvt Ltd. (supra) to interpret the term "directly". We are in agreement with the analyses made by the Original Authority with reference to non-fulfilment of conditions No. 3 viz. payment being not direct or indirect. The payment would be considered "indirect" where the pricing arrangement is such that the price of imported goods is "adjusted" downwards and the royalty or licence fee is inflated suitably to make up for that. It is clear that payment of licence trade mark fee by the respondent to RBSOIL would not merit as "indirect" payments within the ambit of Rule 10(l)(c)." 14.4 Commissioner of Cus. (Import), Mumbai v. Bridgestone India Pvt.Ltd. [2013 (292) ELT 403 (Tri.-Mumbai)] - "7.2 A reading of the above clauses makes it absolutely clear that the royalty has to be paid @ 3% on net sale value of the rubber products manufactu....
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....pany" and that the majority of raw materials and components were procured from suppliers outside the group companies. 16. The appellant also placed reliance on the Interpretative Notes to Rule 10 of the Customs Valuation Rule 2007, to point out that even if the royalty is based partially on the imported goods and partially on other non-related factors, it would be inappropriate to make out a case for addition of royalty. As observed by us in foregoing paras, if the royalty paid is solely based on the imported goods and as a condition precedent to the sale of imported goods, then alone can it be added to the price actually paid or payable. 17. As regards the Management Fee charged as per Cost Allocation Agreement between intra-group companies of the Schenck Process Group so as to ensure that the cost of services is allocated among all companies, it is noted that the Management Fees paid by the appellant served as a mechanism for reimbursement of costs of various administrative services received from the group companies which in itself are defined in the said agreement and reiterated in Para 10 above. These services are in the nature of Management Services and cannot be held to....
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....lant was treated as a pre-condition for sale of the plant since the plant will not be workable without obtaining the patent from Midrex. According to us in the facts in the present case the ratio of the decision of the Tribunal in Ferodo India (P) Ltd. v. CC, Mumbai would be directly applicable. In the above decision it was held that the licence fee and royalty payment being entirely related to the production in India and training the personnel by the foreign shareholder, these payments are in no way related to the imported goods or materials." 19. In view of our findings above and the payment of Management Fee and the License Fee not being relatable to the imported goods and condition precedent to the sale of imported goods are therefore not includible in the transaction value. We therefore set aside the order of the lower authority and allow the appeal with consequential relief, if any, as per law. (Order pronounced in the open court on 03.09.2024.) ============= Document 1 Trademark Licensing-Agreement zwischen Schenck PROCESS GmbH Pallaswiesenstr. 100 64293 Darmstadt Im folgenden der "Lizenzgeber" - und Schenck Process India Ltd. Plot Nos. 67-....
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....izenzvereinbarung erwirbt oder anmeldet sowie Marken an denen dem Lizenzgeber seinerseits ein Nutzungsrecht mit dem Recht zur Unterlizenzierung eingeräumt wurde. Soweit der Lizenzgeber nach Unterzeichnung dieser Markenlizenzvereinbarung eine Marke veräußert oder aufgibt oder die Berechtigung zur Nutzung einer Marke verliert, sind diese automatisch nicht mehr Bestandteil dieser lizenzvereinbarung. DEEN PIN 103 08 2010 DOC Document 3 -3- 62 §2 Lizenz Der Lizenzgeber gewährt hiermit dem Lizenznehmer die nicht ausschließliche, jederzeit widerrufliche, nicht übertragbare Erlaubnis, die MARKE im Rahmen des Produktprogramms des Lizenznehmers, insbesondere für den Vertrieb und die Produktion von Waren bzw. dem Vertrieb und der Erbringung von Dienstleistungen jeweils in den durch die MARKE geschützten Klassen, zu benutzen. Der Lizenznehmer ist verpflichtet, seinen Her- stellerhinweis auf seinen Produkten anzubringen, soweit nicht durch spezielle Vereinbarungen mit den Kunden des Lizenznehmers das Anbringen eines Herstellerhinweises ausgeschlossen ist. I....
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....) Neuanmeldungen b) Anmeldungen der MARKE in anderen als den durch den Lizenzgeber angemeldeten -4- The extent of use shall be limited to the goods and services for which application has been filed. §2b New Applications The Licensee shall not without the prior written consent of the Licensor, file for any a) new applications for marks which feature the TRADEMARK, and/or b) applications for the TRADEMARK in classes other than those applied for by the Licensor. Klassen durchführen. §3 Lizenzgebühren §3 Licence Fees The licence shall be subject to payment. For the licence granted as per section 2, the Licensee shall pay to the Licensor on March 15 of each following calendar year - Der Die Lizenz ist entgeltlich. Lizenznehmer bezahlt dem Lizenzgeber für die in $2 eingeräumte Lizenz pro Kalenderjahr erstmalig für das Jahr 2010 - zum 15.03. des jeweils darauf folgenden Kalenderjahres eine pauschale netto 1 ( ein ) Lizenzgebühr in Höhe von Prozent des Außenumsatzes des des jeweiligen Lizenznehmers Kalenderjahres....
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.... 21. Schenck Process Africa (Pty) Ltd. 22. Schenck Process US Beteiligungs GmbH 23. Schenck Process Oceanien Beteiligungs GmbH 24. Provence US One, Inc. Schenck Process Cost allocation agreement 43 This agreement is concluded with effect from January 1, 2006 between 1. Schenck Process Holding GmbH 2. Schenck Process Beteiligungs GmbH 3. Schenck Process GmbH 4. Schenck Process France S.A. 5. Schenck Process Italia S.r.l. 6. Schenck Process UK Ltd. 7. Schenck Process Iberica S.A. 8. 9. Schenck Process Austria GmbH Schenck Process Polska Sp.z.o.o. 10. Schenck Slovakia spol. s r.o. 11. Schenck Process Ukraine TOW 12. Schenck Process RUS 13. Schenck Process s.r.o. 14. Schenck AccuRate Inc. 15. Schenck Process Equipamentos Industriais Ltda. 16. Schenck Austral S.A. 17. Schenck Américas S.A. 18. Schenck Process (Tianjin) Industrial Technology Co. Ltd. 19. Schenck Process Australia (Pty) Ltd. 20. Schenck Process India Ltd. 21. Schenck Process Africa (Pty) Ltd. 22. Schenck Process US Beteiligungs GmbH 23. Schenck Process Oceanien Beteiligungs GmbH 24. Provence ....
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....hat the cost of the services enumerated in section 2 of this agreement is allocated appropri- ately between all the companies in the Schenck Process Group who are parties to this agreement. Document 7 29 Die Vertragspartelen dieses Kostenumla- gevertrages können hinsichtlich der Be- stimmung dieses Vertrages bzw. der sich aus diesem Vertrag ergebenden Verpflich- tungen sowohl Leistender als auch Lel- stungsempfänger sein. Die Tätigkeiten der Vertragspartelen der Schenck Process-Gruppe sind auf bera- tende und wirtschaftliche Unterstützung beschränkt und dürfen nicht in die Ent- scheidungsbefugnisse der Geschäfts- führung oder anderer Entscheidungs- träger eingreifen. (4) Die Vertragsparteien werden alle Anstren- gungen unternehmen, um die angeforder- ten Leistungen gegenüber den Leistungs- empfänger professionell und sachgerecht zu erbringen, wie dies dem üblichen hohen Standard Innerhalb der Schenck Process- Gruppe entspricht. (5) Umlageschlüssel Außenumsatz der jeweiligen Gesell- schaft: Die Vertragsparteien definieren den Außenumsatz a....