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TMI Blog2004 (12) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... toms Valuation Rules, 1988 has ignored the legal fact that it is mandatory to make addition in terms of Rule 9 of Customs Valuation Rules, 1988 with regard to includability or otherwise of the technical know how fees and or royalty paid/payable by the Indian Company to the foreign collaborator. (iii) The Indian Collaborator Company manufactures and sells the licensed goods i.e. high-speed tools which are manufactured using the technical know how provided by the collaborator under their brand name. They have imported HSS blanks for taps from M/s. Dormer Tools AB, Sweden and HSS & solid carbide cutting tools such as drills taps, end mills etc. are imported from Gunther Co. GmbH, Germany. Under the collaboration agreement Indian Company is allowed to manufacture and sell products as per designs, trademarks and patents of their foreign collaborators. The technical know how and royalty are related to the imported goods because such imports are of no value unless they are processed/manufactured in accordance with the manufacturing process contained in the technical documentation supplied by the collaborator to achieve their objective. Therefore, the importer has to pay not only priced o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case is related to the imported goods as they are given for the right to Titex India Pvt. Ltd. for which payments is made. Attention is drawn to para 2.4(1)(b) of the agreement dated 10-12-1999 which is as under 2.4(1)(b):- the right for Titex to acquire equipment at prices, terms and conditions to be separately agreed upon. This clause clearly indicates that the parties have agreed upon separate terms for the price of equipments. (ii) Under the term "Consideration" of the agreement, sub section 6.2 states : "The Royalty shall be 5% (Five per cent) of the NPS (Net proceeds of sales) of products sold by Titex Royalty shall be payable for a period of seven (7) years from the effective date. Here effective date means the date of manufacturing with the help of Technical Know-how and in context of above it is pertinent to note that as per RBI's approval dated 5-4-1999 submitted by the party, they have taken approval to make payment towards Technical Know-how fees of DEM 13,00,000/- and Royalty @ 3% on domestic sales for a period of 7 years and @ 3% on exports for a period of 7 years. Subsequently they obtained RBI's approval dated 19-11-1999 to pay Royalty @ 5% to their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained R.B.I's permission to make payments towards foreign technology transfer DEM 13,00,000/- and royalty @ 3% on domestic sales and 3% on export to their collaborators, however subsequently they requested and obtained R.B.I's approval vide letter dated 19-11-1999 to pay royalty of 5% to their collaborators instead of DEM 13,00,000/- and royalty @ 6% to their collaborators. This shows that M/s. Titex India Pvt Ltd. is misleading the department by adjusting the technical know how fees in guise of only 5% royalty. Therefore, the royalty amount which is payable/paid is clearly includible in the value in terms of Rule 9(i)(c) of Customs Valuation Rules, 1988. 3.1 (a) For the sake of convenience, the Respondents are referred to as "Titex" & Titex entered into an agreement with (a) Dormer Tools AB (Swedan) and (b) Gunther GMBH (Germany) ("CTT", both of whom were part of the CTT tools business of the Sandvik group). Under this agreement, CTT allowed the benefit of the know how, patents and trade mark rights in respect of the specified products, viz., high speed steel taps, solid carbide cutting tools, etc., which Titex was manufacturing in India. Titex were under no obligation to bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia (P) Ltd. v. Commissioner of Customs, Mumbai - 2002 (142) E.L.T. 343 (Tribunal) is well placed. (c) The question of certificate of Chartered Accountants is also misconceived as merely specifies a certain amount as "payable". Titex has always maintained that no royalty was paid at the time and there is no evidence produced to show that the said contention, which is purely a question of fact was false. (d) A perusal of the agreement shows that (i) it relates solely to the use of the know how and patent and trade marks rights granted thereunder in the production and manufacture in India of the said specified finished goods. (ii) The royalty payable thereunder is only related to such local production of the said specified goods. (iii) The agreement does not relate to the import of any goods at all. (iv) It is a finding of fact that Titex has frequently imported raw materials and components from third parties, (v) It therefore has to follow that the royalty payments in this case have no connection, direct or indirect, with what is imported and that the payment of such royalty is not the condition of sale of any imported goods. Under Rule 9(1)(c) of the Customs Valuation Rules, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaon - 1987 (28) E.L.T. 390, affirmed by the Supreme Court in 1989 (41) E.L.T. A61, was not good law and was set aside by the Supreme Court in Himson Engr. Indus. Ltd. v. Commissioner of Customs, Mumbai - 2000 (117) E.L.T. 535, was recognized by the Tribunal in Vestas RRB India Ltd. v. Commissioner of Customs, Chennai [2004 (178) E.L.T. 636 (Tri.) = (2000) 41 R.L.T. 645] and Mando Brake Systems India Ltd. v. Commissioner of Customs, Chennai - 2004 (163) E.L.T. 333. It is therefore, clear that Collector of Customs (Prev.), Ahmedabad v. Essar Gujarat Ltd. has no application whatever in the present case where the royalty or licence fee relates to post importation manufacture in India, and the contention is wholly untenable. (f) State Bank of India v. Collector of Customs, Bombay - 2000 (115) E.L.T. 597 (S.C.) dealt with the licence fee payable in respect of imported software. The amount was payable, and paid, as a part of the purchase price of such imported software. This judgment has no relevance whatever in the present case. (g) In view of the facts herein as regards the nature of payments, the same cannot be added fully in Larger Bench decision in case of Hoerbiger India Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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