2013 (4) TMI 712 - AT - Customs

Valuation - includibility - royalty - Held that - in the absence of any evidence adduced by the Revenue to prove that the technical know-how supply and the payment of royalty is a condition of sale for the goods imported by the appellant from the foreign principal - matter restored to the adjudicating authority.

Summary

Issues:
1. Whether the royalty paid for technical know-how is related to the imported goods and influences the transaction price.
2. Whether the relationship between the foreign supplier and the Indian importer affects the price and payment of royalty.

Analysis:
1. The case involved an appeal and stay application arising from an order passed by the Commissioner of Customs (Appeals), Mumbai-I. The dispute centered around the payment of royalty by M/s. BASF India Pvt. Ltd. to their foreign principal, BASF SE, Germany, for technical know-how used in manufacturing plastic products in India. The Revenue contended that the royalty was linked to the imported goods and was a condition of sale. The lower appellate authority sided with the Revenue, prompting the appellant to appeal.

2. The appellant argued that they procured raw materials from various sources, including non-related parties, and the technical know-how agreement did not mandate sourcing raw materials exclusively from the foreign supplier. They cited tribunal decisions supporting their stance that the relationship did not influence the transaction price. The Revenue, however, maintained that the royalty payment was connected to the imported raw materials' cost, forming part of the manufactured product's cost.

3. Upon review, the Tribunal found that the technical know-how agreement did not restrict the appellant from purchasing raw materials elsewhere. The appellant sourced over 50% of raw materials from non-related parties, indicating the relationship did not impact pricing. Drawing a distinction from a precedent involving Matsushita Television & Audio (I) Ltd., where royalty was a condition of sale, the Tribunal held that in this case, the absence of such conditions meant the royalty payment was not linked to the imported goods' price.

4. Citing the Bridgestone India Pvt. Ltd. case with similar circumstances, the Tribunal reiterated that royalty payment cannot be deemed a condition of sale for imported goods. As the Revenue failed to demonstrate the royalty as a condition for sale, the Tribunal set aside the lower appellate authority's decision, reinstating the adjudicating authority's order.

Therefore, based on the lack of evidence proving the royalty payment's influence on the transaction price of imported goods, the Tribunal ruled in favor of the appellant, emphasizing the absence of conditions linking royalty to the sale of goods imported from the foreign principal.