TaxTMI 
TaxTMI 
2026 (9) TMI 20
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Counsel for the Revenue, after going through the documents, has not raised any objection for admission and consideration of the same. Consequently, the miscellaneous application is allowed and these additional documents are taken on record. 2. Briefly stated the facts of the case are that the appellant, M/s. Volvo Group India Private Limited (VGIPL), is a 100% subsidiary of M/s. Volvo Truck Corporation, Sweden (hereinafter referred to as 'VTC') which is in turn a subsidiary of M/s. AB Volvo (Publ), Sweden (hereinafter referred to as 'Volvo Sweden'). The appellants are engaged in the manufacture of trucks, bus chassis, construction equipment etc. from 2001 at the factory situated at Hosekote, Bangalore, which are excisable goods and cleared on payment of duty. In addition to the manufacturing activity, the appellant has also a Central Warehouse, known as 'Regional Parts Distribution Centre (hereinafter referred to as 'RPDC') adjacent to the factory in Bangalore. The spare parts imported as well as locally procured for trucks, buses and construction equipment are warehoused in RPDC and thereafter, sold/and or stock transferred to the regional warehouses and service centres in di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y, technical fees and management fees to Volvo Sweden, only from 2004-05 adhering to the Circular No.5 dated 21.07.2003. He has further submitted that Reserve Bank of India (RBI) has restricted royalty payments at 5% of domestic sales and 8% on export sales which was subsequently removed w.e.f. 13.05.2010. They have amended the Master Agreement by signing an Addendum in 2005. The learned advocate has submitted a detailed comparison of the Master Agreement and the Addendum in advancing the argument that there is no material difference effected to the Master Agreement by the said amendment but certain clauses were clarified to avoid ambiguity. He has further submitted that after removal of the ceiling of payments of royalty of 5% of domestic sales and 8% of export sales w.e.f. 13.05.2010 by RBI, the appellant undertook the transfer pricing benchmarking study for arriving at the arm's length royalty that was payable by it for the technology, know-how and technical information provided by Volvo Sweden under the Master Agreement for manufacturing products in India, as amended by the Addendum to the Master Agreement. On the basis of recommendations of the benchmarking study, the royalty ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i) CC Vs. Autliv India Pvt. Ltd. [2024(10) TMI 686 - CESTAT BANGALORE] 5. Further, he has submitted that in the amended Para 9 of the Appendix 2 of the Addendum, the royalty is remitted by the appellant in respect of transfer of technology and technical knowhow which necessarily to be read with the license to manufacture products being granted to the appellant. The said Addendum only provided manner of computation of royalty in the Master Agreement. The learned Commissioner has observed that the Addendum has diluted the clauses of the Master Agreement by amending the conditions imposed on the appellant for utilisation of the imported goods after import. He has submitted that the finding in the impugned order itself disclosed the fact that royalty is paid for services which pertained to post-importation activities vis-à-vis use of the imported parts and components for manufacture of the products by using the technology and technical know-how transferred under the license to manufacture. 6. Assailing the finding of the learned Commissioner relating to payment of technical fees in respect of services rendered by Volvo Group @5% of the total manufacturing sales and not the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayment of management fees after 2007 onwards supported by the Chartered Accountant's certificate dated 12.08.2014 and 14.06.2025 along with affidavit dated 13.06.2025 of Mr. Laxminarayan Hegde, Head Legal & Company Secretary wherein it has been declared that the appellant had made payments only in respect of royalty and technical fees during the relevant period. In support of the submission that management fees cannot be included if not related to imported goods, he has referred to the judgment in the case of Schenck Process India Pvt. Ltd. Vs. CC [2024(9) TMI 190]. 8. Further he has submitted that though the learned Commissioner in the impugned order rendered several findings on acceptability of Addendum as evidence being after thought ; however, the Ld. Commissioner at the same time has accepted and relied upon on various clauses of the agreement contained therein which were not present in the Master Agreement to raise the duty demand by including the technical fees and management fees in the value of the imported goods. He has further submitted that a document/agreement has to be read as a whole to understand its scope and intention of the parties, by not reading few clauses ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....related entities performing same or similar functions will then take place to determine the appropriate price level applied between 3rd parties and the same level is applied to the transaction between Volvo Group entities. In the present process, a price is defined by a Suggested Retail Price and discount. The price is arrived at after considering several factors like the price at which a part is sold in European market to an end customer, the cost of the product and the expenses related to the product, market price of the comparable product of the competitors, market price of the product realizable in the purchaser Volvo entity's market and the transfer price of the product. These information are collected to arrive at the price which would ensure that the part is sold at a price which is competitive in the purchaser's i.e. Volvo entity's market and also ensures adequate profit to the selling Volvo entity adhering to the policy of arm's length basis. The Suggested Retail Price is the maximum price at which the product is sold to a retail customer in Sweden. If the suggested retail price is adopted for sale to India, the maximum retail price in India after including the post-import....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted list price, discounts up to 90+% has been extended in Sweden from the said price. Further, he has submitted that the arbitrary rejection of the discount of 62% from the suggested list price at Sweden in terms of Rule 9 of CVR is incorrect. The appellant submitted that while Rules 4 & 5 of the CVR are not applicable, the rejection of valuation under Rule 7 on the ground that details of contemporaneous imports sold in the greatest aggregate quantity in India is not available cannot be sustained. 14. Learned advocate for the appellant has submitted that the learned Commissioner has confirmed the demand invoking extended period of limitation observing that the appellant has suppressed the existence of the Addendum to the Master Agreement as well as the suggested list price of Sweden which formed the basis for import price of spare parts trading. Rebutting the said finding, he has submitted that there is no positive act on the part of the appellant which shows a mala fide intention to evade payment of duty. He has submitted that the appellant being under the single jurisdiction of LTU did not suppress any information. They have come under the LTU established in Bangalore w.e.f. 0....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 940-CESTAT AHMEDABAD iv. Sakar Industries Pvt. Ltd. v. Commissioner of Customs, Ahmedabad -2024 (10) TMI 1141 - CESTAT AHMEDABAD. 16. Per contra, reiterating the findings of the adjudicating authority, the learned Special Counsel on the issue of includability of amounts on account of royalty, technical fees and management fees, has submitted the following:- (i) The so called 'Addendum' to the Master Agreement was not disclosed/submitted to the SVB till DRI investigation commenced. No reference was made to the Addendum in their correspondence with SVB. The reply to the questionnaire bears testimony to this fact. It was submitted only on 22/10/2012. Thus, prior to this date orders passed by SVB did not consider the provisions of the Addendum. (ii) Since Addendum is undated it appeared that it never came into effect. (iii) Addendum seeks to make substantive amendments/alterations without any provision in the Agreement to that effect. It seeks to ratify itself. (iv) Addendum seeks to change the very nature of the Agreement from one of license to manufacture, distribute and provision of service by VGIPL to that of services agreeme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ils of technical information received by them to incur such cost. If the technical fee was a payment towards new technology, unlike royalty, the quantum thereof should be related to cost of new technology and not total sales turnover. (xv) Payment is said to be in terms of Addendum but the Addendum lays down no requirement of new technology for payment of this fee. (xvi) From the conditions of the Agreement and Addendum, payment of technical know-how is a pre-requisite for granting the license to VGIPL to manufacture, distribute, perform certain services including supply of components, materials and production equipments required for manufacture and sale by VGIPL. VGIPL are the exclusive and sole licensee of the technical know-how for the assembly and manufacture of the products and therefore the amount remitted by VGIPL to VOLVO on account of technical know-how fees is in the nature of a flow-back and is required to be added to the declared Assessable Value for the parts & components imported by VGIPL from VOLVO for the manufacture of Trucks and Bus chassis. (xvii) As regards Management Fees for the manufacturing & construction equipment division, VGIPL ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... implicit requirement of having to pay the royalty fee for the sale of parts and components to the manufacturers, because the said sale would not have taken place if the Master Agreement has not been entered into. (xxiii) On the question of payment of Royalty & License fee directly or indirectly observations in Para 300 of the Commentary are relevant. Where the royalty fee is paid to third parties, it is covered by virtue of the third party requirement as above. In the instant case, the payment of royalty fee becomes an essential requirement as the Technology provided by Volvo is very much used. For the first condition to be satisfied, it has to be seen whether VGIPL could have imported the goods without the license to manufacture. In terms of the Agreement the answer has to be in the negative. For the second condition to be satisfied, it has to be seen whether VGIPL could have imported the goods according to their choice or from other sources or replaced imported goods with local parts. On both counts, VGIPL did not have any other alternative but to go by the directions of Volvo. In sum, therefore, the requirements under Rule 10 (1) (c) are fully satisfied in the present ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....il List Price was being extended to VGIPL for the parts and accessories of automobiles imported for trade (Distribution). (vii) VGIPL were also unable to give details of how the average 62% discount on the Suggested List Price was being arrived at for the goods being imported in India for Trading Purposes. VGIPL were not able to explain satisfactorily the various components taken into consideration for arriving at the said discount being provided by Volvo, for the imports effected by VIPL. 18. Further supporting the finding of the Commissioner that extended period of limitation is rightly invoked, learned Special Counsel has submitted the following:- (i) VGIPL did not produce before SVB/Customs a very critical document, namely the 'Addendum', though the copy of the document produced is undated and its validity is questionable. Through submission of additional documents, it is sought to substantiate that the Addendum was signed in July, 2005. If this was true, answer to the Questionnaire at Page 1088 of Vol. IV tells a different story. (ii) In explaining the nature of various payments, VGIPL have contradicted themselves and have suppressed the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emblies, components etc. used in the manufacture of products viz. trucks, buses etc. during the relevant period by the manufacturing unit. As per the Addendum, the appellant also paid lumpsum technical fees of USD 2 million during 2007-08 and 2008-09 and management fees was paid before the disputed period, the Department proposed to add the same to the transaction value. 22. In relation to the distribution of parts imported for resale, the Department's allegation is that though there was a Suggested List Price maintained by the exporter M/s. AB Volvo at Sweden for sale in the European market, from which 62% has been deducted in arriving at the import price, the Department was of the view that the transaction value arrived at from the Suggested List Price after deduction of 62% is liable for rejection under Rule 10A / 12 and the assessable value be determined under Rule 8 /9 of the CVR 1988 /2007. 23. Before proceeding to address both the issues relating to determination of assessable value of parts meant for distribution and the parts used in the manufacture of products, it is necessary to refer to the relevant provisions of Customs Act, 1962 and Customs Valuation Rules, 1988....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amendment in 2007) SECTION 14. Valuation of goods. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf: Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf: Provided further that the rules mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lays down that the imported goods shall be the 'transaction value' of such goods i.e. to say, the price actually paid or payable for the goods when sold for export to India for delivery, at the time of importation where the buyer and seller of the goods are not related and the price is the sole consideration for sale. 24. The relevant provisions of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988/2007 are reproduced below:- Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 1. Short title, commencement and application. ... ... ... 2. Definitions. (1) In these rules, unless the context otherwise requires,- (a) "computed value" means the value of imported goods determined in accordance with rule 7A of these rules; (aa) "deductive value" means the value determined in accordance with rule 7 of these rules;] (b) to (e) ... ... (f) "transaction value" means the value determined in accordance with Rule 4 of these rules. (2) ... ... ... 3. Determination of the method of valuation. For the purpose of these rules,- (i) subject to rules 9....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time- (i) the transaction value of identical goods or similar goods, in sales to unrelated buyers in India; (ii) the deductive value for identical goods or similar goods; (iii) the computed value for identical goods or similar goods.] Provided that in applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of Rule 9 of these rules and cost incurred by the seller in sales in which he and the buyer are not related; (c) substitute value shall not be established under the provisions of clause (b) of this sub-rule. 5. Transaction value of identical goods.... ... ... 6. Transaction value of similar goods. ... ... ... 6A. Determination of value when transaction value is not available. ... ... 7. Deductive value. ............ 7A. Computed value. ... .... ... 8. Residual method. -(1) Subject to the provisions of Rule 3 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es, - (a) "computed value" means the value of imported goods determined in accordance with rule 8. (b) "deductive value" means the value determined in accordance with rule 7. (c) to (f) ... ... .... (g) "transaction value" means the value referred to in sub-section (1) of section 14 of the Customs Act, 1962; ... .... ... ... ... ... Explanation I. - The term "person" also includes legal persons. Explanation II. - Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other shall be deemed to be related for the purpose of these rules, if they fall within the criteria of this sub-rule. Rule 3. Determination of the method of valuation.- (1) Subject to rule 12, the value of imported goods shall be the transaction value adjusted in accordance with provisions of rule 10; (2) Value of imported goods under sub-rule (1) shall be accepted: Provided that - (a) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e determined under rules 3, 4 and 5.- ... ... ... Rule 7. Deductive value.- ... ... ... Rule 8. Computed value.- ... ... ... Rule 9. Residual method.- (1) Subject to the provisions of rule 3, where the value of imported goods cannot be determined under the provisions of any of the preceding rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and on the basis of data available in India; Provided that the value so determined shall not exceed the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation in the course of international trade, when the seller or buyer has no interest in the business of other and price is the sole consideration for the sale or offer for sale. (2) No value shall be determined under the provisions of" this rule on the basis of - (i) the selling price in India of the goods produced in India; (ii) a system which provides for the acceptance for customs purposes of the highest of the two alternative values; (iii) the price of the goods on the domesti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le quantities in a comparable commercial transaction were assessed; (b) the sale involves an abnormal discount or abnormal reduction from the ordinary competitive price; (c) the sale involves special discounts limited to exclusive agents; (d) the misdeclaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture or production; (e) the non declaration of parameters such as brand, grade, specifications that have relevance to value; (f) the fraudulent or manipulated documents. Rule 13. Interpretative notes.- ... ... ... 25. Under the CVR, 1988, Rule 3 lays down that the value of the imported goods be the 'transaction value' and in the event the transaction value cannot be determined, the value shall be determined proceeding sequentially from Rule 5 to 8 of the said Rules. Rule 4(2)(h) prescribes that the transaction value shall be accepted if the buyer and seller are not related; where the buyer and seller are related, the transaction value is acceptable for Customs purposes under the provisions of sub-rule (3) of the said Rules. Clause (a) of sub-rule(3) prescribed that where bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in India; (ii) the deductive value for identical goods or similar goods and (iii) the computed value for identical goods or similar goods. The proviso lays down that in determining the values by comparative methods, due account should be taken of the difference in commercial levels, quantity levels etc. in accordance with provisions of Rule 10 and cost incurred by the seller in sales in which the buyer and seller are not related. 27. The learned advocate for the appellant, in relation to rejection of transaction value of imported parts meant for distribution in India, has submitted that the basis on which the learned Commissioner rejected the transaction value and then proceeded to redetermine the value adopting the residuary method under Rule 8/9 of the CVR 1988/2007 is a method prohibited under the CVR. Further, it is their contention that without any basis, the learned Commissioner has rejected the transaction value solely on the ground that the Suggested List Price maintained at the exporter's level in Sweden i.e. M/s. AB Volvo Sweden was not disclosed to SVB and known to the department, but retrieved during the course of investigation by DRI. Transaction value was not reje....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ermination of value but provides the procedure or mechanism in cases where declared value can be rejected when there is a reasonable doubt that the declared transaction value does not represent the actual transaction value. In such cases the transaction value is to be sequentially determined in accordance with Rules 4 to 9 of the 2007 Rules. Sub-rule (2) of Rule 12 stipulates that on request of an importer, the proper officer shall intimate to the importer in writing the grounds, i.e. the reason for doubting the truth or accuracy of the value declared in relation to the imported goods. Further, the proper officer shall provide a reasonable opportunity of being heard to the importer before he makes the valuation in the form of final decision under sub-rule (1). 15. The requirements of Rule 12, therefore, can be summarised as under : (a) The proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of the value declared in relation to the imported goods. (b) Proper officer must ask the importer of such goods further information which may include documents or evidence; (c) On receiving such in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or lower declaration of the transaction value. The expression "reason to doubt" as a sequitur would require a different threshold and examination. It cannot be equated with the requirements of positive reasons to believe, for the word 'doubt' refers to un-certainty and irresolution reflecting suspicion and apprehension. However, this doubt must be reasonable i.e. have a degree of objectivity and basis/foundation for the suspicion must be based on 'certain reasons' 29. We find that the Ld. Commissioner in the impugned Order rejected the declared value on the ground that the Appellant has not disclosed the existence of the suggested list price to the department. Applying the above principle, the ground on which the transaction value has been rejected cannot be sustained. There is no evidence referred to in the Order doubting the correctness of the Transaction value declared, which is explained to have been arrived at from the Suggested List Price meant for sale in the Country of exportation by the supplier. It is brought on record by the Appellant that from the said suggested List price discount upto 90+% is allowed in the country of exportation, hence, there is no abnormality in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cribes the price at which goods are sold in the country of import as the basis, not the price at which the goods are sold in the domestic market of the exporter. Adoption of the price of the goods at which the goods are sold in the domestic market of the exporter is specifically prohibited under Rule 9(2)(iii) of CVR. Therefore, rejection of the transaction value and also adoption of residuary method under Rule 9 of CVR, in our considered opinion, is bad in law, hence cannot be sustained. 32. On the second issue of loading the value of the imported goods under Rule 9/10 of CVR 1988/2007 to the extent of Royalty, Technical fees paid during the period August 2007 to March 2012 and notional management fees, which was paid prior to the said period, to the imported price of the goods, we find that the learned Commissioner has resorted to Rule 9(1)(c) / 10(1)(c) of CVR 1988 /2007 to add these costs and service to the transaction value. The said rules are more or less similarly worded and are reproduced below:- CVR, 1998 Rule 9 Cost and Services. -- (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported go....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... WHEREAS, VOLVO owns or has acquired the ownership rights and the right to use various Intangibles in the manufacture of the Product; WHEREAS, VIPL has the experience, expertise, facilities and personnel 10 (a) Manufacture and assemble the Products, (b) market, sell and distribute the Products and (c) provide services to VOLVO WHEREAS, .. ... ... DEFINITIONS: "Territory" means India, and all of the states a political subdivisions thereof and SAARC countries other than Pakistan: Group companies or corporation refer to all the Companies or corporation as mentioned in Appendix-I "License to manufacture" means the right granted to VIPL, to manufacture the "Products" through transfer of technology is the territory with the specifications and guidance from VOLVO as mentioned in Appendix 2 "Distribution" means the promotion and sale, of the: Products in the Territory as mentioned in Appendix 3 "Services" refers to all such services requested by VOLVO VIPL and mentioned in Appendix 4; "Local Parts" means the parts, components and materials for the Products, which may be manufactured or purchased from third pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... WITNESSETH WHEREAS THE MASTER AGREEMENT read with the appendices form the complete arrangement, this addendum substitutes, alters, amends and includes the presents hereinbelow: DEFINITIONS: "Local parts" means the parts, components and materials for products, which may be manufactured or purchased from third parties by VIPL. "Technical Information" means and includes technical know-how, information and other relevant data relating to the manufacturing, assembly and quality control of the products, which are owned by Volvo and which Volvo has the right to furnish to VIPL without restriction from third parties, and which VOLVO deems necessary and applicable to VIPL's production of the Products and which are supplied to VIPL at VOLVO's discretion for the subsequent modifications of the Products during the effective term of this Agreement in addition to the above technical Information. "Management support services" shall mean and include various kinds of marketing activities, customer relationship support, usage of trademark, brand and guidelines and background material for all kind of activities related to such services. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting for same or similar services as contemplated in this Agreement under conditions which do not differ from those which would be made between independent enterprises. Clause 8 shall be substituted with the following: VIPL shall have the rights of substitution of local parts and may entrust a reliable and competent third party possessing adequate faculties in or outside the territory with the manufacture or local parts and/or purchase local parts therefrom. Clause 9 shall be substituted with the following: VOLVO may at its discretion, call for remittance of Royalty from VIPL in respect of Transfer of Technology, Technical Know-how, subject to the local regulations as prescribed. The rate of royalty shall be a percentage not exceed 5% for domestic sales and 8% for Export sales. VIPL shall keep adequate and accurate records and statements of royalties relating to the Products sold by the VIPL. VOLVO may, periodically, inspect said records and statements of royalties. Discrepancies, if any, shall be effected vide adjustments after mutual agreements and without delay. 34. The learned Commissioner in the impugned order has doubted the ver....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not included in the price. The twin conditions required to be fulfilled as laid down under the said Rule are mentioned at para 219 of page 123 in the Commentary Notes by Saul L. Sherman on GATT Customs Valuation Code, which reads as follows:- The key requirements of Article 8 para 1(c ) are that the royalty or license fee shall be included in the Transaction value only if it is • related to the goods being valued and • the buyer (importer) must pay either directly or indirectly as a condition of sale of the goods being valued. Both requirements must be satisfied separately. However, there is also a close economic connection between these requirements; a royalty or license fee that is a condition of sale is usually ( but not always) paid for rights, information or services that also relate to the imported goods. It then becomes appropriate from an economic perspective to treat the royalty as a part of the purchase price of the goods. Therefore, the royalty or licence fee should be related to the goods being valued before adding the same to the value. The author at para 293 to 295 of the said Commentary explained the tests to be applied....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that payment of the royalty is a condition of the sale within the meaning of article 8.1(c) if the buyer had a genuine choice whether to ask the goods with or without the rights 36. The learned Special Counsel for the Revenue has referred to the examples at the above Commentary at para 297 and para 300 to advance the argument that the aforesaid test is relevant to understand whether the goods would have been sold without the payment of royalty and licence fee and submitted that there is an implicit requirement of having to pay royalty for the sale of the parts and components to the manufacturers because the said sales would not have been taken place if the Master Agreement has not been entered into. Further referring to para 300 of the said Commentary, he has submitted that payment of royalty becomes an essential requirement as the technology provided by Volvo is very much used and it could not have imported without the licence to manufacture. As far as the submission relating to para 297 of the Commentary, it will be clearer when the agreements are discussed in detail in the subsequent discussion on the issue, but at this juncture it can be said that since the appellant was fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tered, amended and substituted not earlier present in the Master Agreement. Further, in Clause 8, it is clarified that the appellant shall have the rights of substitution of local parts and may entrust a reliable and competent third party with the manufacture and or procurement of local parts. In Clause 9 specifically laid down the rate of royalty shall not exceed 5% for domestic sales and 8% for export sales. 38. A deeper analysis of the various clauses of the Master Agreement, indicates that AB Volvo who possessed with the technical know-how and acquired ownership rights and the right to use various 'intangibles' in the manufacture of the products, grants the licence to manufacture the products on the terms and conditions under Appendix 2. Under the Appendix-2, the requirement of the products needs to be informed in advance and while manufacturing the product, the appellant is required to use the knocked down parts and local parts which have passed the inspection and tests. In other words, the use of the parts as per the specification of the Volvo was considered as a strict control by Volvo on the appellant which according to the Department has a bearing on the price of the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o between the respondent (buyer/licensee) and M/s. T & N International Ltd., U.K. (foreign collaborator/licensor). Under the said agreement, the licensor claimed to be in possession of certain secret processes, formula and information. Under the agreement, the licensor agreed to permit manufacture of brake liners and brake pads (licensed products) by the licensee. Under the agreement, the licensor agreed to disclose the relevant secret processes, formula and information to the licensee. Under the agreement, the licensee was required to import/buy raw material and capital goods from the licensor. Under the agreement, the licensee was obliged to pay a licence fee along with royalty, based on the net sales value of licensed products sold, consumed or otherwise disposed of. Analysing Rule 9(1)(c) / 10(1)(c), their Lordships observed as follows:- 15. Rule 9(1)(c) extends the quantum of levy under Rule 4. Rule 9(4) mandates that there can be addition to the transaction value except as provided in Rule 9(1) and (2). Hence, addition for cost can only be made in situations coming under Rule 9(1) and (2). Rule 9(1) and (2) is based on the principle of attribution. Under Customs law.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irectly, as a condition of the sale of imported goods. At this stage, we would like to emphasis the word indirectly in Rule 9(1)(c). As stated above, the buyer/importer makes payment of the price of the imported goods. He also incurs the cost of technical know-how. Therefore, the Department in every case is not only required to look at TAA, it is also required to look at the pricing arrangement/agreement between the buyer and his foreign collaborator. For example if on examination of the pricing arrangement in juxtaposition with the TAA, the Department finds that the importer/buyer has misled the Department by adjusting the price of the imported item in guise of increased royalty/licence fees then the adjudicating authority would be right in including the cost of royalty/licence fees payment in the price of the imported goods. In such cases the principle of attribution of royalty/licence fees to the price of imported goods would apply. This is because every importer/buyer is obliged to pay not only the price for the imported goods but he also incurs the cost of technical know-how which is paid to the foreign supplier. Therefore, such adjustments would certainly attract Rule 9(l))(c....