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2016 (3) TMI 256 - CESTAT NEW DELHI

2016 (3) TMI 256 - CESTAT NEW DELHI - 2016 (337) E.L.T. 402 (Tri. - Del.) - Valuation - Technology Transfer Agreement - Whether royalty paid in terms, is a condition of sale includible in the assessable value - Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2008 - Held that: as per Technology Transfer Agreement, the appellant was to pay royalty within such 7 days of the end of the quarterly period to the foreign suppliers and in case of failure to do so, .....

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ASHOK JINDAL, MEMBER (JUDICIAL) AND MR. R.K. SINGH, MEMBER (TECHNICAL) For the Petitioner : Shri Satyavir Singh, D.R., Shri Amresh Jain, D.R., Shri Govind Dixit, D.R. For the Respondent : Ms. Sweta Bharti, Advocate, Shri Shantanu, Advocate, Ms. Mahima Singh, Advocate ORDER PER R.K. SINGH : Revenue is in appeal against order-in-appeal dated 25.3.2008 which set aside the order-in-original dated 31.8.2006 to the extent that (O-I-O) held that the amount of royalty paid to foreign supplier was includ .....

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g the manufacturing component and technical information for the manufacture of PBXs . As per the said agreement - (i) to use in India the portion of the TECHNICAL INFORMATION designated MANUFACTURING INFORMATOIN solely for manufacture of PRODUCTS manufactured in India and solely in factories of the COMPANY. PRODUCTS manufactured hereunder shall be sold or leased for use, or put into use, in India. The aforesaid right to use the MANUFACTURING INFORMATION for the manufacture of PRODUCTS includes t .....

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ion of the fact that LUCENT wishes to protect its reputation for quality of PRODUCTS made using its TECHNICAL INFORMATION, COMPANY agrees to person the aforesaid manufacture solely with manufacturing components which, in LUCENTs sold judgment , meet LUCENT s specifications. (ii) to use the MANUFACTURING INFORMATION TO HAVE PRODUCTS manufactured in India, on a sub-contracting basis provided tha: 1) LUCENT has approved in writing the use of the sub-contractor; 2) the sub-contractor has undertaken .....

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w heen necessary, for a minimum period of six (6) months to provide training to the COMPANY personnel and to enable the COMPANY to establish its own manufacturing operations. 4.01(b) In addition to the rights granted in Section 4.01,(a), LUCENT grants to COMPANY a non-transferable and non-exclusive right to sell the PRODUCTS manufactured under this agreement in countries outside of India, solely as specified below: (i) In case COMPANY exports PRODUCTS, then such activity will be permitted solel .....

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ed to market and sell the PRODUCTS under terms and conditions which it believes are unfavourable to LUCENT. Any export sales through LUCENT channels will take place under the applicable trade marks of LUCENT s choice. As per the agreement, the appellant was required to pay royalty as per Appendix C (to the agreement), paras, 2.01 (a) and (b) of which are reproduced below: 2.01(a) In part payment for the rights granted under Section 4.01(a)(i) and (ii) of this agreement by Lucent; company shall p .....

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Lucent Technologies supplied assemblies, components, parts sub-assemblies, materials, manufacturing equipment, tools and test sets consistent with the Technology Transfer Agreement mentioned earlier. The primary adjudicating authority held that the royalty paid in terms of the technology transfer Agreement was a condition of sale of the goods by Lucent Technologies Inc. to the appellant and therefore it was includible in the assessable value, while the Commissioner (Appeals) held that it was no .....

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logy agreement it is evident that in case of non-payment of royalty the foreign supplier would terminate its obligation to supply goods and therefore payment of royalty was certainly a condition of sale. Revenue cited the advisory opinion of W.C.O. No. 4.15 Royalty and L under icense Article 8.1(c), the judgments of CESTAT in the case of Universal Music India Pvt. Ltd. - 2008-TIOL-2213-CESTAT-MUM and Star Entertainment Pvt. Ltd. - 2014-TIOL-583-CESTAT-MUM and Supreme Court in the case of Living .....

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r Motor Pvt. Ltd. -2008 (1) ELT 19 (SC). (iv) Tata Yukata Autocomp. Vs. CC - 2013 (294) ELT 111 (Tri.Mumbai). 5. We have considered the contentions of both sides and have perused the Transfer of Technology Agreement and the Supply Agreement entered into by the appellant with Lucent Technologies. We find that the Supply Agreement duly states that it is consistent with the Transfer of Technology Agreement. The facts which have been recorded by the primary adjudicating authority in para 19 of its o .....

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rds was not directly related to the goods imported and hence, did not appear to be addable to their declared invoice values. But as the manufacture of these cards in India became nonviable due to economical reasons, the importers started importing complete PCBs. This fact is also established from the study of photocopies of Price Lists and Bills of Entry submitted by the importers in respect of imports made by them from the foreign suppliers. Although there was no manufacturing of cards, the imp .....

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be activated through a particular card. Thus the royalty paid/payable is known at the time of import of these cards. Royalty is also paid to the foreign suppliers on the goods imported by the importers and sold on High Sea Sales basis to other buyers in India which clearly shows that complete goods i.e. Circuit Pack as defined in TTA are being imported and no manufacturing activity is taking place. There is nothing to show that the facts narrated in the above quoted para were disputed by the app .....

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manufacture of brake lines and brake pads. The said payments were in no way related to the imported items. But in the present case, Royalty payments on cards continued on the same basis when the cards began to be imported instead of being manufactured. In the case of J.K. Corporation Ltd. (supra) the ratio laid down by Supreme Court was that any amount paid for post-importation service or activity would not come within the purview of determination of assessable value of the imported goods. In th .....

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yable in respect of the matters governing the manufacturing activates . In the case of Tata Yutaka Autocomp Ltd. (supra) the licence fee was to be paid on all products manufactured. In the present case, as has been stated in para 19 (quoted earlier) of primary adjudication order, the royalty payment by the importers to the foreign suppliers was made not only when the appellant imported the cards (instead of manufacturing them) but also when it (i.e. the appellant) sold these cards on high sea sa .....

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es in case of non-payment of royalties. This also makes it evident that payment of royalty was a condition of sale in the present case. 6. Advisory Opinion of World Customs Organisation 4.15: Royalty and Licence Fee under Article 8.1(c) stipulates as under : 2. The Technical Committee on Customs Valuation expressed the following view..... The sales contract between M and I does not contain any clause requiring payment of a royalty. However, payment of the royalty is made a condition of sale of t .....

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(supra), CESTAT held as under : 7. Royalty is payable on distribution of cassettes and this is the only purpose for import and no other. Royalty is payable on the entire records shipped less records returned but such records returned shall not exceed 10%. It means that in the event the return exceeds 10% the royalty will still have to be paid even though some cassettes were not available for sale. In such circumstances, the only inference which can be drawn is that payment of royalty was a cond .....

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ayableis to be added to the assessable value. Thus as per the analysis above, the royalty paid by the appellant is includible in the assessable value. Once it is held that royalty payment is a condition of sale, it is immaterial how the royalty payable is computed. In the case of Living Media (I) Ltd. (supra), the Apex Court observed as under: 32. duty will necessarily have to be charged on the value of the final product. As per Rule 9, in determining the transaction value there has to be added .....

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gard to the fact that value of the royalty paid is to be included in the transaction value. 33. . There is an agreement existing in all the matters that royalty payment is towards money to be paid to artists and producers who had produced such cassettes. Such royalty becomes due and payable as soon as cassettes are distributed and sold and therefore, such royalty becomes payable on the entire records shipped less records returned. It could therefore, be concluded that the payment of royalty was .....

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