TaxTMI 
TaxTMI 
2025 (6) TMI 867
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.... Valuation Branch (in short SVB) Custom House, Chennai to investigate the influence on the transaction value due to the said relationship. On registration of SVB case as per CBIC Circular No.01/2010 dated 01.01.2010, the imported goods were assessed provisionally and cleared on payment of 1% EDD and applicable duties. The SVB had submitted its investigation report No.63/2018 dated 05.07.2018 the findings of which are that the M/s. Kamaz Group of companies, Russia & Vectra Group U.K. formed a Joint Venture Company during 2009-10 and started a public limited Joint Venture company namely M/s. Kamaz Vectra Motors. The supplier M/s. CJSC Kamaz Foreign Trade Company, Russia was a Joint Venture partner with the importer M/s. Kamaz Vectra Motors Ltd. Due to heavy losses M/s. Vectra group U.K. exited from the company. In the year 2013-14, Kamaz Foreign Trade Company, Russia and Mikam Holding Ltd, a KAMAZ Group of company have acquired the shares from VECTRA Group and VECTRA group had exited from Joint Venture. The company was renamed as M/s. Kamaz Motors Ltd. M/s CJSC Kamaz, main supplier of goods and M/s. Kamaz Motors Ltd., Hosur the importer, both are subsidiary of M/s. Kamaz OJSC or Kama....
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.... fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods." 3.7 It is thus the case of the Revenue that based on the interpretation of the above Rule it has been held in various rulings of Tribunal & Courts that Royalty payments are to be includable in the assessable value if the following two conditions are fulfilled: i. There is a nexus between goods imported & payment of royalty; ii. Royalty is a pre condition for sale of goods. 3.8 From a plain reading of the terms of Technology Licence Agreement paras 11.1 to 11.3, particularly para 11.2(b), it is apparent that importer is required to pay Royalty for the imported goods i.e. CKD parts and it is a precondition of sale as the importer is not allowed to import further unless a Royalty of US $ 450 is paid for each unit of the imported CKD parts. 3.9 In view of the above facts, it appeared that the royalty amount of US$ 450 per CKD kit is liable to be included in the....
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....h import of goods. 5.4 The Appellant further submits that they have imported the CKD of RHD KAMAZ-6540-1630-10 trucks for assembling in India for a total consideration of $3,00,00,000 from the Principal M/s. CJSC Kamaz Foreign Trade Company based on the agreement No.356/40096783-9433 dated 22.09.2009. The said agreement came to be amended by including CKD kits for all models of Kamaz tipper trucks. The Appellant had also entered into a separate Technology License Agreement bearing No: N 356/00231515/09033 with M/s. OJSC Kamaz Incorporation who is the parent company of the holding company. According to this agreement, right to manufacture Kamaz trucks and usage of 'KAMAZ' trade mark have been granted to the Company by Kamaz Inc. Para 11.1 of the said agreement provides for payment of royalty of US$ 450 per CKD to them [not to the Principal] for such transfer of right. 5.5 Thus, the royalty is payable to M/s. OJSC KAMAZ Inc. towards transfer of right to manufacture Kamaz trucks using the technology provided by KAMAZ Inc. and using the trade mark-"KAMAZ" and not towards the sale of CKD Kits by KFTC. The principal from whom the appellant has imported the impugned goods was n....
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....stoms vs. Ferodo India Pvt. Ltd. reported in 2008 (224) ELT 23 (SC) wherein it has been held that Rule 9(1)(C) of Customs valuation [Determination of Value of Imported goods] Rules, 1988 analogous to the present Rule 10(1)(C) of ibid 2007 would come into operation only when such royalty payment is pre-requisite for importation of goods. The Hon"ble Apex Court in the case of Commissioner of Customs [Port], Chennai vs. Toyota Kirloskar Motors Ltd. reported in 2007 (213) ELT 4 (SC), has held that the transactional value must be relatable to import of goods which a fortiori would means that the amounts must be payable as a condition of import. 7.1 Shri Raghavendra B. Hanjer, Ld. Advocate also submitted that the Show Cause Notice was issued proposing to demand differential duty on royalty payments made during the period 2013 and 2014 under Rule 10(1)(c) and (e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 read with Section 14 and 18(2) of the Customs Act, 1962. The impugned demand of differential duty is hit by the statutory period of limitation as provided under Section 28 of the Customs Act, 1962. In the present case, the longer period of limitation....
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....ning inventory of the license products after 90 business days after the expiration or termination of the agreement. 9. Thus the provision for payment of royalty becomes evident even before the import of the subject goods in CKD condition as the ultimate purpose of import was to sell, market or distribute the Licensed products; since the supplier-importer and License Holder are related as they belong to the same group company, the royalty is not paid to supplier but to the License Holder. Hence, the twin conditions of Rule 10 of Customs Valuation Rules, 2007 having been satisfied, the nexus between goods imported and payment of royalty having already been established, the importer being not allowed to import the subject goods namely CKD parts unless royalty is paid, which is a condition of sale, the amount of US$ 450 paid as royalty for the import of each CKD is rightly added to the accessible value of the goods. She would thus pray for upholding of the impugned order. 10. We have carefully considered rival contentions and we have very carefully considered the impugned order as well as the detailed Order-in-Original. Unfortunately, the First Appellate Authority has passed a very c....
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....therefore to be accepted in terms of Rule 3(3)(a) of CVR, 2007. Quite contrary to this, the Original Authority in the Order-in-Original at paragraph 27.8 proceeds to hold that the nexus stood established and the royalty has been paid by the buyer to a third-party that is the license holder and therefore he proceeds to include the royalty in the accessible value. 13. Even for an earlier period, it appears that there was a similar investigation by SVB insofar as the valuation of the imported goods in 2010 was concerned and, based on the investigation, Order-in-Original dated 02.09.2010 was passed by holding that the relationship between the appellant and its supplier did not influence the value of the imported goods. It was also contended before us that the said order was accepted by the department without filing any appeal. 14. We have also perused the financial arrangements as specified in the agreement between the parties; as per class 11.1 of the same, the royalty is payable to M/s. OJSC KAMAZ Inc. towards transfer of right to manufacture KAMAZ trucks using the technology provided by KAMAZ, Inc. and using the trademark "KAMAZ" and certainly not towards the sale of CKD kit by KF....
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.... 23 (S.C.)] wherein, the apex court has held as under: 24. One of the questions which arises for determination in this civil appeal is whether reliance could be placed by the Department only on the Consideration Clause in the TAA for arriving at the conclusion that payment for royalty was includible in the price of the important components. 25. Rule 4(3)(b) of the CVR, 1988 provides for an opportunity for the importer to demonstrate that the transaction value closely approximates to a "test" value. A number of factors, therefore, have to be taken into consideration in determining whether one value "closely approximates" to another value. These factors include the nature of the imported goods, the nature of the industry itself, the difference in values etc. As stated above, Rule 4(3)(a) and Rule 4(3)(b) of the CVR, 1988 provides for different means of establishing the acceptability of a transaction value. In the case of Matsushita Television (supra) the pricing arrangement was not produced before the Department. In our view, the Consideration Clause in such circumstances is of relevance. As stated above, pricing arrangement and TAA are both to be seen by the Department. As state....
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....ment. The Tribunal judgments in Herbalife International and Fujitsu Ten India Pvt Ltd are based on the Apex Courts Judgment in Matsushita Television & Audio. The said judgment in Matsushita was examined by the Hon"ble Supreme Court in Ferodo India Pvt. Ltd. (supra) and it was held that the pricing arrangement and TAA are both to be seen by the Department. If the "Consideration Clause" indicates that the importer/buyer had adjusted the price of the imported goods in guise 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. No such condition of sale is noticed by the Original Authority from the Agreement in the impugned case and hence the judgments are distinguished. Further in the case of Kruger Ventilation Indus. (North India) Pvt. Ltd. Vs Commr. of Customs (Import), New Delhi [2022 (382) E.L.T. 541 (Tri. - Del.)], a Coordinate Bench of this Tribunal held that, though the royalty is paid is as percentage of the net turnover of goods manufactured, which includes the imported material, it is n....