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Kimberly Clark Lever Ltd. Versus Commissioner of Customs (import) , Mumbai

2016 (3) TMI 255 - CESTAT MUMBAI

Valuation - Invokation of Rule 9(1)(c) - Royalty and Technical know-how fee paid on domestic sale - Whether includible or not in the value of goods imported - Held that: by relying on the judgment of Apex Court in the case of Commissioner of Customs vs. Ferodo India Pvt. Ltd. [2008 (2) TMI 12 - Supreme Court], the transaction value cannot be loaded as technical know-how. - Decided in favour of appellant - Appeal No. C/926/04 - A/86040/16/CB - Dated:- 16-2-2016 - MR. M.V. RAVINDRAN, MEMBER (JUDIC .....

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heir own unit situated at Philippines. When the appellant 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 inclu .....

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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 the first appellate authority has only relied upon the judgement of the Honble Supreme Court in the case of Essar Gujarat Ltd. - 1996 (88) ELT 609 (SC) which has been distinguished by the Apex Court in the case of Essar Steel - 2015 (319) ELT 202 (SC .....

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their approval and was permitted to use the same. On such approval, as per clause 7.2 of the agreement which would amount the collaborator had strict control of the quality of the raw materials, components supplied, he would submit in an identical situation, the Hon ble Supreme Court in the case of Matsushita Television & Audio (I) Ltd. - 2007 (211) ELT 200(S.C.) has held that such payment of royalty as well as licence fee needs to be included in the value of the goods imported which is raw .....

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nt findings of the first appellate authority are reproduced. I have gone through the records of the case. Admittedly, the importer is paying a lump sum know how fees of US$ 3,15,000/- & royalty of 3% on domestic sales and exports for 7 years. They are importing part components and raw materials from the collaborator, which as per their own submission made in the reply filed to the department appeal, are tailor made to their specification and not sold to any other person. They have not shown .....

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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 t .....

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ses, formula and information. Under the agreement, the licensor agreed to permit manufacture of brake liners and brake pads (licensed products) by the licensee. Under the agreement, the licensor agreed to disclose the relevant secret processes, formula and information to the licensee. Under the agreement, the licensee was required to import/buy raw material and capital goods from the licensor. Under the agreement, the licensee was obliged to pay a licence fee along with royalty, based on the net .....

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Gujarat Ltd. reported in 1996 (88) E.L.T. 609 (S.C.). This order was confirmed by the Commissioner (A). However, by the impugned order dated 12-2-2002, the Tribunal held that the know-how fees and the royalty payments stood related to the brake liners and brake pads to be produced in India and not to the imported goods. Hence, this civil appeal by the Department. 5. In this case, we are required to lay down the scope of Rule 9(1)(c) and Rule 9(1)(e) of CVR, 1988, which are quoted hereinbelow : 9 .....

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ade as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included 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 th .....

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ce 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 Rule 9(1)(c) the cost of technical know-how is included if the same is to be paid, directly or indirectly, as a condi .....

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taposition with the TAA, the Department finds that the importer/buyer has misled the Department by adjusting the price of the imported item in guise of increased royalty/licence fees then the adjudicating authority would be right in including the cost of royalty/licence fees payment in the price of the imported goods. In such cases the principle of attribution of royalty/licence fees to the price of imported goods would apply. This is because every importer/buyer is obliged to pay not only the p .....

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the present case, on reading TAA we find that the payments of royalty/licence fees was entirely relatable to the manufacture of brake liners and brake pads (licensed products). The said payments were in no way related to the imported items. In the present case, no effort was made by the Department to examine the pricing arrangement. No effort was made by the Department to ascertain whether there exists a price adjustment between cost incurred by the buyer on account of royalty/licence fees paym .....

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. 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 t .....

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o the price of the imported goods. Further, in the present case, the Department has accepted the transaction value of the imported goods. 25. Rule 4(3)(b) of the CVR, 1988 provides for an opportunity for the importer to demonstrate that the transaction value closely approximates to a test value. A number of factors, therefore, have to be taken into consideration in determining whether one value closely approximates to another value. These factors include the nature of the imported goods, the .....

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in a given case, if the Consideration Clause indicates that the importer/buyer had adjusted the price of the imported goods in guise of enhanced royalty or if the Department finds that the buyer had misled the Department by such pricing adjustments then the adjudicating authority would be justified in adding the royalty/licence fees payment to the price of the imported goods. Therefore, it cannot be said that the Consideration Clause in TAA is not relevant. Ultimately, the test of close approxim .....

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