TMI Blog2007 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... for short, 'MEI'). The predecessor of the appellants was M/s. Salora International Ltd. (for short, 'SIL'). In 1993, M/s. SIL had entered into an agreement with M/s. MEI for obtaining technical assistance and know-how. The technical assistance and know-how was assigned by M/s. SIL to the appellants. This was in 1996. In terms of clause 6.01, appellants were required to pay royalty at 3% on net ex-factory sale price of the colour receiver manufactured by them towards technical assistance rendered by MEI. In addition to royalty the appellants were also required to pay U.S.$ 2 lakhs, as lump-sum payment to MEI for transfer of technical know-how. Under the agreement, MEI agreed to assist the appellants by selling the equipment at commercial prices. Under the agreement appellants' predecessor imported components of colour receiver from M/s. B.M. Nagaro Co. who in turn had procured components (bought-out items) from different manufacturers including those in Singapore. 4.By Adjudication Order No. 6/99, dated 20-5-99, the Adjudicating Authority loaded the value of the said components by 2% and 1.58% for the years 1996-97 and 1997-98 respectively. This was in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te hereinbelow the relevant provisions of the Agreement which are as follows : TECHNICAL ASSISTANCE AND KNOW-HOW AGREEMENT xxxxxxxxx 1. DEFINITIONS 1.02 The term Products shall mean one or more of such models of the Item designed by MEI, as MEI regularly manufactures at its own and/or its subsidiaries/affiliates' factories and as shall be selected from time to time during the term hereof by mutual agreement of the parties hereto in writing, provided that MEI reserves the right to finally decide in selecting such specific models as the products. 1.03 (a) The term Net-factory Sales Prices shall mean the sales prices billed by SIL of the Products to its customers in normal arm's length transaction exclusive of excise duties, custom duties, ocean freight and insurance, but including the cost of the standard brought out components (hereinafter defined) and the cost of the imported Components. (b) In relation to the products sold other than in normal arm's length transaction, used, leased or otherwise disposed of by SIL, the prices equal to the arithmetic average of the Net Ex-factory Sales prices of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2.02 hereof (including those for accommodation, transportation, and both way air coaches and salaries and allowances payable for MEI (including MEI's subsidiaries/affiliates)'s engineers and SIL's Employees) shall be paid by SIL in United States Dollars. In case any costs and expenses payable by SIL to MEI for the Technical Assistance herein contained be prepaid by MEI, SIL shall reimburse to MEI in United States Dollars promptly after receipt by SIL of MEI's invoice therefore. Details of the terms and conditions for the Technical Assistance of MEI (including MEI's subsidiaries/affiliates)'s engineers visiting SIL's factory and SIL employees visiting MEI (including MEI's subsidiaries/affiliates)'s factory, as the case may be, shall be confirmed in writing between the parties hereto prior to such visit. 4. USE OF TECHNICAL ASSISTANCE AND TECHNICAL KNOW HOW 4.01 During the term of this Agreement MEI agrees to grant to SIL a non-exclusive and non-transferable licence to use the Technical Assistance and the Technical Know-how manufacture of the Products at SIL's factory in India and for sale of such Products throughout India. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in writing the quality and the specifications of such Components. 7.03 Sale and purchase of the Production Equipment and the Components supplied by MEI pursuant hereto shall be made at commercial prices under payment and other terms to be agreed upon between MEI and SIL and subject to the necessary approval and the concerned authorities of the Japanese Government or Indian Government, as the case may be. Specifically payment of the purchase price of the Production Equipment and the components so supplied by MEI to SIL shall be made through the Japanese shippers designated by MEI under the terms and conditions to be agreed upon among the parties concerned. 7.04 Supply of the Production Equipment and Components from MEI to SIL hereinabove set forth is for the sole purpose of SIL's own manufacturing of the Products hereunder for itself, and unless otherwise agreed in writing by MEI, any item of the Production Equipment and the Components supplied by MEI hereunder, unless otherwise agreed by MEI . 6.On reading the above agreement, the following features emerge. Under Clause 1.03 the term Net-factory sale price has been defined to mean the sale price billed by the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the declared price. However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex-factory sale price of the colour T.V. exclusive of taxes, freight and insurance but including the cost of imported components. In other words, the royalty payment was to be computed not only on the domestic element of the net sale price of the colour T.V. but also on the cost of imported components. A bare reading of the agreement shows that payment under the said agreement related not only to the production of the goods in India but also to imports. In some of the decisions cited on behalf of the assessee, we find that the net ex-factory sale price of the finished products expressly excluded the cost of imported components. On the other hand, in the present case, the cost of imported components was expressly included in the net ex-factory sale price of the colour T.V. Further, when payment to MEI was at the rate of 3% of the sales turn over of the final product, including cost of imported component, it became a condition of sale of the finished goods. Hence, in this case both the conditions of Rule 9(1)(c) of the Valuation Rules, 1988, are satisfied. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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