2006 (5) TMI 492 - SC - Customs

Whether the cost of the fees payable on account of the technical know-how was includible in the value of the imported goods?

Summary

Issues: Determination of whether the cost of technical know-how fees is includible in the value of imported goods under Customs Valuation Rules, 1988.

Analysis:
The appellant entered into a collaboration agreement with two Japanese companies to manufacture color TV picture tubes in India, involving the provision of technical know-how. The Customs Valuation Rules, 1988, specifically Rule 9(1)(b)(iv), address the inclusion of costs and services related to imported goods. The rule allows for the addition of value of goods and services supplied by the buyer for production and sale of imported goods, not already included in the price paid. The agreement specified that technical know-how fees were paid in installments, and the dispute arose regarding the inclusion of these fees in the value of imported goods.

The Assistant Collector initially held that the technical know-how fees were not includible in the value of imported goods. However, the Commissioner, on appeal by the Department, reversed this decision based on the argument that the technical documents were necessary for the production of the goods, and thus their value should be added to the value of the equipment. The Supreme Court found this reasoning to be illogical and unsustainable, as it did not meet the requirements of Rule 9(1)(b)(iv).

The Tribunal, affirming the Commissioner's decision, also failed to consider the fundamental elements of the rule. It concluded that the payment for know-how included the payment for drawings and designs of proprietary equipment, which were part of the know-how transfer. However, the Court found no evidence that the drawings were supplied by the appellant, as required by the rule. Additionally, the clauses of the agreement indicated that the know-how did not cover the proprietary equipment's know-how, rendering the Tribunal's reasoning baseless and erroneous.

Based on the analysis of the agreement and the provisions of the Customs Valuation Rules, the Court allowed the appeal, setting aside the Commissioner's order. The Court emphasized that the technical know-how fees were not to be included in the value of the imported goods, as the reasoning provided by the Commissioner and the Tribunal was flawed.