TMI Blog2014 (5) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... iability under the Customs Tariff was discharged by the appellant only on the cost of media as declared by the courier agency based on invoice submitted by the foreign supplier. As per the sale agreement under which the goods were sold to the appellant on payment of licence fee, the appellant has been given rights such as video rights. Cinematic rights, television rights and other ancillary rights. These rights also include the right to exhibit and right to broadcast. The royalty/licence fee is charged either on a flat lump sum basis or on minimum guarantee basis. As per the agreement, the payment of royalty/licence fee is a condition for sale of the goods in question. The royalties/licence fees paid for the import of beta/digibeta tapes containing films are includable in the assessable value of the said tapes. However, the demand in the present case is time barred and consequently, Customs duty demand with interest and penal consequences are not sustainable - Decided partly in favour of assessee. - Appeal Nos. C/S-1271 & 1272/10-Mum & C/486 & 487/2010 - Final Order Nos. A/158-159/2014-WZB/C-I(CSTB) - Dated:- 22-1-2014 - Shri P R Chandrasekharan, Shri Anil Choudhary and S S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 28(1) of the Customs Act, 1962 read with proviso thereto along with interest on such duty under Section 28AB ibid. The show-cause notice also proposed confiscation of the goods under Section 111(m), 111(j) and 111(l) of the Customs Act, 1962 and penalties under Section 112 (a)/(b) or 114A of the said Customs Act. The notice further proposed imposition of penalty on Shri Jiten Hemdev, Managing Director of the SEPL under Section 112(a) and (b) of the Customs Act, 1962. The case was adjudicated by the Commissioner of Customs vide the impugned order and the Commissioner of Customs re-determined the value of the goods imported at Rs.2,09,92,982/- and held the same liable for confiscation under Section 111(m) of the Customs Act, 1962. He further held that the imported digibeta tape containing Bluebird having assessable value of Rs.1,39,229/- is liable to confiscation under Section 111(j) and (l) of the Customs Act, 1962 and in lieu of confiscation, imposed redemption fine of Rs.15,000/-. The learned Commissioner also demanded differential duty amounting to Rs.79,19,049/- under the proviso to Section 28(1) of the Customs Act, 1962 along with applicable interest under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value. The declaration was based on the invoice/documents supplied by the foreign supplier and duty liability was discharged on that basis. They never declared nor were they asked to declare any price/payments made to the foreign supplier and hence there cannot be any suppression on their part. Reliance is placed on the decision of the apex court in the case of Tamil Nadu Housing Board vs. Collector of Central Excise, Madras - 1994 (74) ELT 9 (SC) wherein it was held that when the law requires an intention to evade payment of duty, then it is not mere failure to pay duty. It must be something more. That is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it. In such a situation, extended period of time can be invoked. He also relied on the judgment of the apex court in the case of Collector of Central Excise vs. Chemphar Drugs Liniments - 1989 (40) ELT 276 (S.C.) wherein the apex court held that extended period of five years is applicable only when something positive other than mere inaction or failure on the part of manufacturer is proved. In the instant case, they have not suppressed any facts with an intention to evade payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove. In the instant case the licence rights include right to manufacture, vend and sell or rent out the new goods and there is no provision for excluding the consideration paid for such rights under Rule 9 or Rule 10 of the Valuation Rules. 4.2 He further submitted that as per the agreements between various suppliers and M/s SEPL, they provided for payment of a minimum preset amount of license fee (or a minimum preset guarantee amount) as also a running license fee on additional sales/reproduction (sale in excess of the minimum set number of media/tapes). The above minimum amount of licence fee had to be paid before the supplier sent the tapes, that is, before the act of importation and thus a necessary condition in getting the rights for further manufacture and for getting broadcasting and cinematic rights, TV rights, Video and VHS conversion rights and other connected rights. All the payments for the various transactions in the instant case have been made in advance and such payments were a pre-requisite condition for the supply/sale of the goods and, therefore, they are required to be added to the invoice price under Rule 9(1)(c) and 10(1)(c) as mentioned above. He relies on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is far wider in scope and design and the same are not confined to the right to reproduction alone. The rights also include the right to exhibit and right to broadcast. Rule 9(1) (c) and 10(1) (c) excludes only the charges paid for reproduction of the imported goods. It dies not exclude the consideration paid for broadcasting the films or exhibiting or displaying the films. It is further noticed that the royalty/licence fee is charged either on a flat lump sum basis or on a minimum guarantee basis. It does not give any break up of amount payable towards each of the rights granted o the appellant and in all the cases the amounts have to be/been paid to the foreign supplier prior to the delivery of the goods in India. Therefore, the payment of royalty/licence fee is a condition or a pre-requisite for the sale/supply of the goods and hence, they form part of the transaction value in terms of the provisions of the aforesaid Rules. 5.2 A perusal of the agreement dated 1-3-2004 entered into with M/s.Lions Gate International makes this position very clear. The said agreement pertains to Video rights granted for 7 films for which a licence fee of US $10,000 is the consideration. 20% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y use to the petitioner to enjoy theatrical or video right conferred on the petitioner and hence the consideration paid for such rights have to be included in the value of the imported goods for the purposes of assessing customs duty. 5.4 A somewhat similar case came up for consideration before the hon'ble apex court in the case of State Bank of India vs. CC, Bombay [2000 (115) ELT 597 (SC)]. State Bank of India imported one set of Diskette of Software programme and manuals for use under licence. The licence fee was for use of the same software countrywide. Refund was claimed on the ground that duty was payable only on the cost of the diskette and manuals and the licence fee for single site use and no duty was payable for reproduction of the software in the country of importation for countrywide use. It was held that since no value of the software was indicated except the licence fee, licence fee paid for countrywide use cannot be considered as reproduction charges and the total cost incurred including the licence fee for countrywide use would be the transaction value. Reproduction and use are two different things and therefore, licence fee charged towards countrywide use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition pre-requisite for the supply of the imported goods and, therefore, applying the ratio of the apex court's judgment in the case of Ferodo India P. Ltd. (supra) to the facts of the present case, the licencee fee paid has to be necessarily included in the transaction value. Similarly, the ratio of the Hoerbiger India Pvt. Ltd. (supra) relied upon by the appellant will not held their cause because in that case the licence fee or royalty was not a condition precedent for the sale of the goods and, therefore, it was held that royalty and licence fee need not be included. Similarly in the case of Toyota Kirloskar and J K Corporation, the issue before the hon'ble apex court was whether royalty and know-how fees paid for post importation activities would be includible in the assessable value of the goods imported and the apex court held that since the said payments pertained to post-importation activities, they would not form part of the transaction value for supply of goods. In those cases, the payment or royalty know-how fees were not a condition of sale of the imported goods. In the present case, the payment of royalty/licence fee is relatable to the imported goods as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee agreed used to be for a fixed period and the rights were to be exploited within the licensed period. The licensor used to send the master tapes through courier agency after licence fees were remitted to the foreign supplier and the courier company used to file the bill of entry for clearance of the consignment on behalf of the SEPL and the value of the Master tape declared in the invoices was the cost of the medium. The transaction value declared at the time of customs clearance was incorrect as per Customs (Valuation) Rules, 1988, as only the material value (media cost) of the goods under importation had been declared. Thus the appellant clearly knew that the value declared by them before the customs was not the real transaction value. It thus clearly emerges that the undervaluation was resorted to only to avoid payment of appropriate customs duty. 5.9 The appellant has strongly argued that in view of this Tribunal's decisions in the case of Living Media India Ltd. and Sony BMG, the appellant was under the bona fie belief that the royalty payments need not be included in the taxable value of the goods under importation. We do not find this argument convincing as it appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd has to be rejected outright. Therefore, it has to be held that the invocation of the extended period of time for confirmation of duty demand by the department is correct in law and cannot be faulted. In view of the above factual position, reliance placed by the appellant on the judgments in Tamil Nadu Housing Board case and Chemphar Drugs Liniments case ( supra) is of no help. 5.10 The last issue for consideration is whether the penalty imposed on the appellant under section 114A and on its Managing Director under section112(a)(b) of the Customs Act is justified or not. We have already held that the appellant had suppressed the value of the goods under importation with intent to evade payment of appropriate customs duty. Therefore, the provisions of seciton114A of the Customs Act, 1962, are clearly attracted and accordingly, we uphold the penalty imposed on SEPL under the said provision. As regards the penalty imposed on Shri Jiten Hemdev, the Managing Director, we are of the view that the same is not warranted in view of the penalty imposed on the firm and accordingly we set aside the same. We also uphold confiscation of digibeta tape containing Bluebird having an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the copyright agreement, the appellant is obligated to either return the master copy or destroy it as mutually agreed. 8.1 In the aforementioned circumstances, the Revenue by the impugned order has added the lump sum amount of licence fee or royalty paid by the appellant to the import value (transaction value of the master tape) and has imposed customs duty on the same. It is relevant to mention that for the purpose of clearance, the courier agency have declared the value as per invoice of the consigner/licensor, which is nothing but token value being the cost of the media or the digibeta tape. 9. The issue for consideration is whether the lump sum licence fee paid by the appellant for acquisition of copyright for reproduction distribution can be added to the transaction value for the purpose of levy of customs duty or not? 9.1 As per Rule 9(1)(c) read with Explanatory Notes to the Customs Valuation (Determination of Price of Imported Goods)Rules, 1988, the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value. It is further provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tially related not to the imported goods, but to other goods to be manufactured or bred in the country of importation which are not in existence at the time of valuation. Indeed, when the matter is thus viewed, there was no need for the Code to mention this point, since it relates to payment for manufacturing right on products which are not imported. The mere fact that the thing imported is copyrighted, presents no problem involving an addition to the price. Where the work imported is only an exemplar intended as a basis for reproduction, only its value as a carrier of information or as a copy in itself is dutiable. Where the price of the exemplar and the royalty or licence fee for the right to reproduce (or perform) are not separately stated, there may be no TV for the tangible thing imported. Example: A publisher buys a manuscript from a foreign author for $50,000 under an agreement which given the publisher the right to translate print and sell the book with no further payment to the author. A photocopy of a typewritten text in the foreign language is shipped to the publisher. There is no separate charge or price for this copy. There is no TV, since the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance to National Film Development Corporation, wherein in the year 1985 it was clarified by the department that the royalty paid on imported film is not includable in the transaction value. 11. I further find that the learned Commissioner has mis-construed the facts in the impugned order, at para 21.1.2, wherein it has been observed that there is no mention of any payment towards manufacture or re-production of imported goods and the payment of license fee is a pre-condition of sale and is not related to any manufacturing activity subsequent to import of goods in India; and there is no mention of payment towards royalty for distribution of the imported goods. This observation is patently wrong and contrary to the facts on record. Thus, the impugned order is perverse and fit to be set aside for the ends of justice. 11.1 Further, in the facts and circumstances of the case, I find that there is no case of suppression, fraud or any contumacious conduct made out by the appellant and hence, I hold that the extended period of limitation is not available to the Revenue and the appeal also succeeds on this ground. In view of the aforementioned findings, the penalties imposed are also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d tapes in terms of Rule 9(1)(c)/ Rule 10(1)(c) of the Customs Valuation Rules, as they stood at the relevant time, inasmuch as such payments were made / required to be made prior to importation in terms of the agreement between the importer in India and the supplier abroad and consequently the demand of differential duty of Rs.79,19,049/- under the provisions of Section 28(1) of the Customs Act, 1962 is sustainable in law as held by the learned Member (Technical) relying on the decisions of the apex Court in the case of State Bank of India vs. CC, Bombay 2000 (115) ELT 597 (SC);, Commissioner of Customs vs. Ferodo India Pvt. Ltd. - 2008 (224) ELT 23 (S.C.), Living Media India Ltd. 2011 (271) ELT 3 (SC) and the decisions of this Tribunal in the case of Indo Overseas Films vs. Commissioner of Customs, Chennai 2002 (139) ELT 729 upheld by the hon'ble High Court of Madras [2007 (210) ELT 348 (Mad)] and Universal Music India P. Ltd. vs. Commissioner of Customs (Import), Mumbai - 2009 (235) ELT 829 OR Such royalties/licence fees are not includable in the assessable value of the beta/digibeta tapes as held by the learned Member (Judicial) as such charges are paid for reproducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the importers, by the Tribunal. These decisions were set aside by the Hon'ble Supreme Court in the year 2011 in the case of Living Media India Ltd. (supra). Therefore, during the period, the goods in question were imported, there were decisions which were in favour of the importers, therefore the allegation of suppression with intent to evade payment of duty is not sustainable. 19. The Revenue relied upon the decisions of the Hon'ble Supreme Court in the case of CCE, New Delhi vs. Living Media India Ltd. reported in 2011 (271) ELT 3 (SC) and submitted that royalty and licence fee relating to import of goods, which is to be paid by the buyer directly or indirectly as the condition of sale of goods, is includible in the price of the imported goods for the purpose for customs duty. The contention is that as per the conditions of the licence under which the goods were imported, the appellants are required to pay a fixed fee which is a condition for sale. The Revenue relied upon the provisions of Rule 9(1) (c) of the Customs Valuation Rules, 1988 to submit that the royalty and licence fee are liable to be included in the transaction value of the goods. In the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It could therefore, be concluded that the payment of royalty was a condition of sale. Counsel appearing for the Respondent relied upon the commentary on the GATT Customs Valuation Code. We failed to see as to how the aforesaid commentary on the GATT Customs Valuation Code could be said to be applicable to the facts of the present case. The specific sections and the rules quoted hereinbefore are themselves very clear and unambiguous. We are required only to give interpretation of the same and apply the same to the facts of the present case. As the issue is now settled by the above decision of the Hon'ble Supreme Court, therefore, I agree with the view taken by the learned Member (Technical) that the licence fee / royalty is to be includible in the assessable value of the imported goods. 22. On the issue of time bar, the contention of the appellant is that the demand is confirmed by invoking extended period of limitation on the ground of suppression of facts with intent to evade payment of duty. In this regard I find that prior to the decision of the Hon'ble Supreme Court in the case of Living Media India Ltd., there were decisions of the Tribunal in the case of Sony M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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