TMI Blog2016 (3) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant declared the transaction value of the goods imported the lower authorities are of the view that the transaction value declared needs to be rejected as the goods imported are from related party and as per the said collaboration agreement dated 19.01.1995 the appellant importer had agreed to pay lump sum amount as technical know-how fee and 5% of the net sale value as royalty. It is the case of the Revenue that this amount needs to be included in the value of the goods imported in order to discharge the appropriate customs duty. The adjudicating authority agreed with the contention raised by the appellant importer and set aside the show-cause notice for loading of the value. On an appeal, the first appellate authority set aside the impugned order and directed the value to be loaded by know-how fees and royalty paid as per the provisions of Rule 9(1)(c) of the Customs Valuation Rules, 1988. 3. Learned Counsel would take us through the agreement and the facts of the case and submit that the appellant had not paid any amount as royalty or technical assistance to their own company at Philippines for the imported goods that are components and raw materials. She would submit that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e supplier. There is not a single averment, how the proprietary goods supplied by the collaborator are not related to the know how fees / royalty fees paid by them. I find the Apex Court decision in the case of Essar Gujarat Ltd., supports the case of the department and the ratio is squarely applicable to the present case. It appears the know how fees and royalty are includible in the value of the imported goods under Rule 9(1)(c) of CVR, 1988. 6.1 It can be seen from the above reproduced findings of the first appellate authority, he has placed reliance on the decision of Essar Gujarat Ltd. and provisions of Rule 9(1)(c) of Customs Valuation Rules, 1988. 6.2 We find that the learned Counsel was correct in bringing to our notice that the Apex Court in an identical/similar set of facts in the case of Ferodo India Pvt. Ltd. (supra) was considering the scope of the Rule 9(1)(c) and Rule 9(1)(e) of the Customs Valuation Rules, 1988, we reproduce the relevant paragraphs. 3. The buyer is the manufacturer of brake liners and brake pads in India. On 8-9-1995, a technical assistance and trade mark agreement (TAA for short) was entered into between the respondent (buyer/license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in the price actually paid or payable. After reproducing the entire Valuation Rules, their Lordships in paras 18, 19, 20, 21 and 25 laid down the law as to the applicability of the Rules 9(1)(c) and 9(1)(e) and we reproduce the same. 18. Royalties and licence fees related to the imported goods is the cost which is incurred by the buyer in addition to the price which the buyer has to pay as consideration for the purchase of the imported goods. In other words, in addition to the price for the imported goods the buyer incurs costs on account of royalty and licence fee which the buyer pays to the foreign supplier for using information, patent, trade mark and know-how in the manufacture of the licensed product in India. Therefore, there are two concepts which operate simultaneously, namely, price for the imported goods and the royalties/licence fees which are also paid to the foreign supplier. Rule 9(1)(c) stipulates that payments made towards technical know-how must be a condition pre-requisite for the supply of imported goods by the foreign supplier and if such condition exists then such royalties and fees have to be included in the price of the imported goods. Under R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Department has gone by TAA alone. On reading TAA in entirety, we are of the view that there was no nexus between royalty/licence fees payable for the know-how and the goods imported for the manufacture of licensed products. The Department itself has invoked Rule 9(l)(c). 21. In the alternate, it has invoked Rule 9(1)(e). This Rule 9(e) cannot stand alone. It is a corollary to Rule 4. There is no finding in the present case that what was termed as royalty/licence fee was in fact not such royalty/licence fee but some other payment made or to be made as a condition pre-requisite to the sale of the imported goods. It is important to bear in mind that Rule 9 refer to cost and services. Under Rule 9(1), the price for the imported goods had to be enhanced/loaded by adding certain costs, royalties and licence fees and values mentioned in sub-rule 9(1)(a) to 9(1)(d). It refers to all other payments actually made or to be made as a condition of sale of the imported goods. In the present case, the Department invoked Rule 9(1)(c) on the ground that royalty was related to the imported goods, having failed it cannot fall back upon Rule 9(1)(e) because essentially we are concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt. Ltd. (supra), has noted the said judgement in para 23 and recorded as under:- 23. In the case of Matsushita Television Audio India Ltd. v. CoC reported in 2007 (211) E.L.T. 200 (S.C.) the question which arose for determination was whether royalty amount was attributable to the price of the imported goods. In that case, the appellant was a joint venture company of MEI, Japan and SIL for obtaining technical assistance and know-how. Under the agreement, the appellants were to pay MEI a royalty @ 3% on net ex-factory sale price of the colour TV receivers manufactured by the appellants for the technical assistance rendered by MEI. The appellants were to pay a lump-sum amount of U.S. $ 2 lakhs to MEI for transfer of technical know-how. It was the case of the appellant that payment of royalty was not related to imported goods as the said payment was made for supply of technical assistance and not as a condition pre-requisite for the sale of the components. 6.5 After noting the judgement of Matsushita Television Audio (I) Ltd. (supra), the Apex Court in the case of Ferodo India Pvt. Ltd. took a view that the transaction value cannot be loaded as technical know-how and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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