2023 (7) TMI 589 - AT - Customs

Valuation of imported goods - inclusion of licence fee in the invoice value - licence fee payable is related to the imported goods or not - condition of sale - HELD THAT - The relevant part of the License agreement has been already noticed. It shows that the payment of licence fee is for each WTG commissioned. Thus it cannot be said that the licence fee is a condition of sale of the parts and components imported by appellant. The Explanation of Rule 10 (1) (c) was considered by the Tribunal in the case of Brembo Brake India Pvt. Ltd. Vs Commissioner of Customs (Imports) Mumbai 2014 (11) TMI 22 - CESTAT MUMBAI has held that the royalty and other charges are not includible and the impugned order is not sustainable and is set aside. It can be seen that Rule 10 (1) (c) uses the words as a condition of sale . The Explanation only states that if the licence fee paid as a condition of sale such licence fee is includable in transaction value even if the goods have undergone some process. There is no evidence to establish that the licence fee paid is a condition of sale of the goods. The Hon ble Apex Court in the case of COMMISSIONER OF CUSTOMS VERSUS M/S FERODO INDIA PVT. LTD 2008 (2) TMI 12 - SUPREME COURT had occasion to analyse the very same issue and has held that the decision in Essar Gujarat Ltd. 1996 (11) TMI 426 - SUPREME COURT is not applicable - The Tribunal in the case of Remy Electricals India Ltd. 2017 (6) TMI 32 - CESTAT CHENNAI has followed the decision of Hon ble Apex Court in Feroda India Pvt. Ltd. 2008 (2) TMI 12 - SUPREME COURT to hold that the licence fee cannot be included to the transaction value when the same is not a condition of sale. The order passed by the Commissioner (Appeals) does not require any interference. The appeal filed by Department is dismissed.

Summary

Issues Involved:
1. Whether the license fee should be added to the transaction value for customs duty.
2. The impact of the amended rules, specifically the Explanation added to Rule 10 (1) (c) of CVR 2007.

Summary:

Issue 1: Addition of License Fee to Transaction Value
The primary issue was whether the license fee should be added to the transaction value for customs duty. The respondent, engaged in manufacturing Wind Turbine Generators (WTG), imported parts and components from a related foreign supplier. The Special Valuation Branch (SVB) initially directed adding the license fee to the invoice value, but this was later set aside by the Tribunal, which held that the license fee was not related to the imported goods and was not a condition of sale. This decision was accepted by the Department.

Upon periodical review, the original authority again held that the license fee should be included in the invoice value, but this was set aside by the Commissioner (Appeals). The Department argued that the import of components was useless without the technical know-how, making the license fee a condition of sale. However, the Tribunal found no evidence that the license fee was a condition of sale for the imported parts and components, relying on the precedent set in the case of Brembo Brake India Pvt. Ltd. vs. Commissioner of Customs (Imports), Mumbai, which clarified that royalties and license fees are only includable if they are a condition of sale of the imported goods.

Issue 2: Impact of Amended Rules
The Department argued that an Explanation added to Rule 10 (1) (c) of CVR 2007 constituted a change in the law, necessitating the inclusion of the license fee in the transaction value. The Tribunal examined the Explanation, which states that royalties and license fees should be added to the transaction value if they are a condition of sale, even if the goods undergo processing after importation. The Tribunal found no evidence that the license fee was a condition of sale of the imported goods, and thus, the Explanation did not apply to the facts of the case.

Conclusion:
The Tribunal upheld the Commissioner (Appeals)' decision, stating that the license fee was not a condition of sale and therefore should not be included in the transaction value for customs duty. The appeal filed by the Department was dismissed, affirming that the license fee is unrelated to the imported goods and cannot be added to the transaction value.