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2016 (3) TMI 338 - CESTAT MUMBAI

2016 (3) TMI 338 - CESTAT MUMBAI - 2015 (330) E.L.T. 448 (Tri. - Mumbai) - Eligibility for exemption under Notification 21/2002 - Import of Pop corn maize cleared under Tariff Rate Quota scheme at concessional rate of Custom duty in terms of Notification No. 21/2002, dated 1-3-2002. Exemption denied on violation of Actual User Condition - Held that:- by relying on the case of Sriven Marketing v. Union of India [2012 (1) TMI 204 - ANDHRA PRADESH HIGH COURT], the processes undertaken by the appell .....

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ncluded in the assessable value for determining the Customs duty - Held that: the royalty payments are made as percentage of the net proceeds of sale of products sold in India and abroad. It is quite obvious that maize product being an agricultural product, the price of the imported goods i.e. maize corn is included in the net proceeds of sale of finished goods which are essentially corn only and the royalty is paid on corn. Therefore, royalty paid by the appellant is includible in the value of .....

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which do not correspond in respect of any particulars with the entry made under Customs Act. Here the entry referred to is the Bill of entry and the declaration thereto. As the declaration did not declare the existence of the Agreement, the goods are liable to be confiscated under Section 111(m) of the Customs Act and penalty under Section 114A and 114AA are to be imposed . Also the import of the goods is not prohibited nor is there violation of post importation condition, therefore, goods can n .....

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eva. 2. The appellant are engaged in importing Pop corn maize falling under Tariff Item 10059000 from its subsidiary ConAgra Foods Inc., USA. The corn is utilised by them for making various corn products such as Instant Popcorn, Microwave Popcorn, All-in-one popcorn and Vending corn. The maize was cleared under Tariff Rate Quota scheme at concessional rate of Custom duty in terms of Sr. No. 21 of Notification No. 21/2002, dated 1-3-2002. Under the Foreign Trade Policy (FTP) para 2.11 import .....

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Sr. No. 21 of Notification No. 21/2002 provides concessional rate of duty if maize is imported under TRQ scheme subject to condition No. 1 specified in the notification. Condition reads as follows : Condition No. 1: The rate of duty specified in column (4) shall apply to such quantity of imports for which an importer holds a Tariff Rate Quota Allocation Certificate issued by the EXIM Facilitation Committee in the Directorate General of Foreign Trade in accordance with the procedure as may be sp .....

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e processing, the following types of Popcorn are made, marked and sold under Act II Brand (i) Instant Popcorn (ii) Microwave Popcorn, (iii) All-in-One Popcorn (iv) Vending Popcorn. Vending Popcorn made out of imported maize corn, does not undergo the processes mentioned in (e) and (f) above. 2.2 The first reason for issue of show cause notice to the appellant is that in their application to the canalizing agency NAFED for import of maize under TRQ scheme, they had declared the end product t .....

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t had not used imported goods for manufacturing vending corn but sold the same in the market in the same condition as it was imported. Therefore importer could not be termed as Actual User in terms of paras 9.4, 9.5 and 9.6 of the Foreign Trade Policy. Therefore the Commissioner held that the vending corn is liable to confiscation and confiscated the same under Section 111(d), 111(m) and 111(o) of the Customs Act. He confirmed demand of duty of ₹ 4,98,24,082/- on vending corn while denying .....

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sales for each product manufactured and sold by the appellant. The Commissioner held that royalty paid is directly related to imported popcorn maize as a condition of sale of the imported goods and hence is liable to be added to the declared invoice value of the imported goods in term of Rule 10(i)(c) and 10(i)(d) of the Customs Valuation Rules, 2007. The Commissioner relied on the Supreme Court judgment in the case of Living Media - 2011 (271) E.L.T. 3 (S.C.). The Commissioner also held that th .....

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osed penalty under Section 114AA. The amount of ₹ 5.55 crores deposited by the appellant was appropriated. 3. Heard both sides. 4. Ld. Counsel does not press the point raised in the appeal regarding lack of jurisdiction with DRI officers who issued the show cause notice. 4.1 On the issue of applicability of Actual User condition in respect of the goods imported, he referred to the affidavit submitted by the DGFT before the Hon ble High Court Andhra Pradesh in the case of Sri .....

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ich is contrary to the policy is redundant. He further argued that, in any case, the definition of manufacture in para 9.36 of the FTP is wide enough to cover processing done on maize for making vending popcorn. As they had done processing on imported maize, therefore Actual User condition has not been violated by them. He referred to judgments in the case of Hewlett Packard India Sales Pvt. Ltd. v. CCE [2009 (241) E.L.T. 545 (Tri.)], Baccorose Perfumes & Beauty Products Ltd. v. CCE [2006 (1 .....

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ual User condition in the FTP because the Customs notification only requires that a valid TRQ authorization should be submitted for import of goods under TRQ scheme. 4.2 On the issue of royalty payments, the contention is that goods are not imported from the licensor who is Con Agra Foods USA whereas the supplier is Con Agra Foods Argentine. Therefore royalty paid to the licensor is not a condition of the sale of the imported goods. Further the appellant were free to procure goods from any .....

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ller of imported goods does not receive any part of the proceeds of subsequent resale of the imported goods. On confiscation he stated that Section 111(d) is not applicable because goods are not imported contrary to any prohibition. Section 111(m) is not applicable because no value was mis-declared in the Bill of Entry. And Section 111(o) is not applicable because no post import condition has been violated. On the issue of time bar he stated that no facts were suppressed in the Bill of Entry and .....

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l User in para 9.6 and definition of manufacture in para 9.37 of the FTP, no new products having distinctive name, character or use emerged with the processing of vending corn maize. Hence manufacture has not taken place. Therefore as the vending corn is sold in the market in the condition it is imported, Actual User condition is not satisfied. Therefore as TRQ Scheme requires Actual User condition, the TRQ Allocation Certificate issued to the appellant is not valid and the appellant is not elig .....

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affidavit of DGFT relied upon by the ld. Counsel, and concluded that Actual User condition has not been deleted by Public Notice (supra). Ld. A.R. stated that the appellant had given a false declaration on the Bill of Entry that all invoices are true and correct and that they do not know of any other documents or information showing different prices. Extended time period is invokable in this case because the declaration does not reveal the existence of a Royalty Agreement with the technology su .....

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on is reproduced in para 2 above and requires a TRQ Allocation Certificate issued by DGFT. We find that appellant had four Allocation Certificates (referred as Licences) under which goods were imported during the period of dispute. The question of applicability of these licences arises because the applications submitted by the appellant have a column which reads as Address where items imported shall be used . The appellant have mentioned the address against this column. The Licenses also indicat .....

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Writ Appeal No. 228/2012 held that the Central Government has not amended the FTP or done away with the Actual User condition for the import of maize. The Court came to this conclusion for the reason that the correct procedure for issuance of TRQ Allocation Certificate (License) by EXIM Facilitation Committee was not followed and waiver of Actual User condition in FTP could not have been done by the DGFT. It requires change in FTP by the Central Government in accordance with para 1.3 of FTP rea .....

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ion No. 21/2002 does not require Actual User condition. We find that this condition has not been appreciated in the correct perspective. It is clear from the condition that TRQ Allocation Certificate must be issued in accordance with specified procedure which appears to have not been followed as explained lucidly in the interim order of the High Court. But as the matter is still pending for final decision in the High Court, we just take note of the fact that Actual User Condition is incorporated .....

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l User (Non-Industrial) means a person who utilizes the imported goods for his own use in (i) any commercial establishment carrying on any business, trade or profession; or (ii) any laboratory, Scientific or Research and Development (R & D) institution, university or other educational institution or hospital; or (iii) any service industry. And the expression manufacture has been defined under para 9.37 of FTP as under : 9.37  Manufacturer Exporter means a person who exports goods manufa .....

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floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining . Ld. A.R. contended that the appellant have not satisfied the definition, of manufacture because no new product having a distinctive name, character or use emerges in the case of processing of vending popcorn. The processes undertaken by the appellant are shown as refrigeration, gradation, packing, fumigation, etc. A plain reading of the definition of manufacture in the FTP above shows that processes such as .....

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included in the definition. In these processes, we cannot expect that a new product having a distinctive name, character or use will emerge. The reliance by ld. A.R. on the case of Maruti Suzuki (supra) is misplaced because the Apex Court was considering definition of manufacture under the Central Excise Act. Rather the decisions relied upon by the Counsel are correct because they considered the definition in the FTP which is very wide. We reject this contention of ld. AR and hold that the proc .....

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s the owner of certain rights, title and interest in and to the trademark Act II, including without limitation, C. Licensor and its affiliates are owners of certain information, specifications, formulae, recipes, patents, prototypes, drawings, diagrams, designs, technical data and instructions, descriptions, flow Sheets, work forms, manufacturing processes, procedures and other process, control and safety data, and other know-how and intellectual property (collectively, the Licensed Know-how). D .....

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nt 1. License. Subject to the provisions of this Agreement, Licensor hereby grants to Licensee an exclusive, non-transferable, recoverable, royalty-bearing right and license to use the Licensed Properties solely in connection with the manufacture, marketing, sale and distribution of the products in the territory. It is agreed that only the products listed on Exhibit B shall be manufactured, marketed sold or distributed thereunder……….. 2. Development and marketing…&hel .....

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nsee certain technical assistance, capability and know-how relating to the manufacture and production of products using the Licensed Properties. 4. Royalty 4.1 In exchange for the limited rights granted to the Licensee pursuant to this Agreement, Licensee agrees to pay Licensor, during the term of this agreement, a royalty ( Royalty ) as described on Exhibit D hereto……….. 6. Manufacturing : Quality control 6.1 Licensee agrees that its use of the Licensed Properties .....

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ications. Licensee shall permit Licensor, or its duly appointed assignee, to enter and inspect Licensee s relevant plants and business premises upon reasonable notice at all reasonable times during business hours for the purpose of determining if the Products conform to the quality standards………… 6.4 If any portion of Licensee s facilities, or any of Licensee s processes, inventories or equipment are in an unsanitary condition. Licensee shall promptly take such ac .....

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losses, demanges, costs and expenses incurred by Licensor in connection with its seizure, destruction, recall or withdrawal of such non-conforming product. 8. Packaging Advertisement and Promotional Materials 8.2 Licensor must approve al items and materials used in connection with the products or the Licensed Properties in the Territory including, without limitation, labels and packaging materials………… 9. Acknowledgment of Rights 9.1 Licensee acknow .....

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in the amounts specified below on the net proceeds of sale (defined below) for each product manufactured and sold by licensee that utilizes the licensed properties. Licensee shall be responsible to remit to the appropriate Government authority any VAT and/or Service Tax, If any, that is due and payable as a result of the royalty payment. Net proceeds of Sale is defined as the final sales amount realized by licensee after deducting all taxes and duties levied on sales, trade discounts, commissio .....

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f Sale for Products sold outside India (where permitted in writing by Licensor) AND Act II Microwave Popcorn : (a) five percent (5%) of net Proceeds of sale for products sold in India; (b) eight percent (8%) of Net Proceeds of Sale for Products sold outside India (where permitted in writing by Licensor) The salient features of the Agreement show that the appellant acquired exclusive right in connection with the manufacture, marketing, sales and distribution of the products. The products are spec .....

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he Agreement, the appellant cannot distribute any other 3rd party products which are similar to the Products. Under the Clause of manufacturing and quality control, the Agreement provides that the use of licensee s properties shall be subject to the quality control of the licensor. The products shall comply with the all the terms and condition of the Agreement including the specifications as defined. The Licensee shall conform with the quality control procedures, standard instructions, product f .....

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at licensor has complete, total and comprehensive control on the technical know-how, production facilities, auditing of plant and business premises, manufacturing process and specification of the products, to name some of the aspects of the agreement. Now the question which arises is whether the royalty payment is a condition of sale of the imported goods. Rule 10(i)(c) states that royally will be includible in the value if payments are made directly or indirectly, as a condition of the sale of .....

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and conditions laid down by the licensor. That is, licensor will not allow manufacturing of final product unless it has ensured the quality of the imported goods. Licensor has complete control of the standard or quality of entire process of manufacture from beginning to end. In such circumstances it cannot said that royalty payment is not a condition of the sale of the imported goods. 8.2 We have seen the various judgments relied upon by the appellant. We find that they are based on a diff .....

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ing. These facts are clearly distinguished in the Hon ble Supreme Court judgment in the case of Matsushita Television & Audio Ltd., 2007 (211) E.L.T. 200 (S.C.) in which Hon ble Apex Court held that the royalty payment was payable @ 3% of the net ex-factory sale price of colour TV including the cost of imported components. There the royalty was held to be relatable to the imported goods and as a condition of sale of finished goods. The situation is identical in the case before us. The royalt .....

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that whereas the Licensor is M/s. Con Agra Foods Delaware, the goods are imported from Con Agra Foods Argentine. This will not make any material difference. The show cause notice states that the supplier and appellant are subsidiaries of Con Agra Foods Inc. USA. The three entities i.e. licensor, supplier and the appellant are related in terms of Rule 4 of the Customs Valuation Rules. In any case as we have elaborated above, the licensor is having effective control on the quality of the goods be .....

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-493-HC-MUM]. We have seen this order and find that the demand for extended time period was set aside on the ground that there was confusion in the matter prior to the decision of the Hon ble High Court in the case of Living Media India Ltd. [2011 (271) E.L.T. 3 (S.C.).] In the case of the Living Media the issue was regarding royalties paid as licence fees for acquiring rights for reproduction of beta tapes imported into India. However in the present case, we find that the royalty is paid on the .....

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ppellant did not declare the contents of the Agreement which they ought to have done in the declaration filed in the Bill of entry. The clauses of declaration read as under : 1. I/We declare that the contents of invoice(s) No. (s) - dated - of M/s……… and of other documents relating to the goods covered by the said invoices(s) and presented herewith are true and correct in every respect. I/We declare that the contents of this Bill of Entry for goods imported against Bill of L .....

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ssion or otherwise), quantity or description of the said goods and that if at any time hereafter I/We discover any information showing a different state of facts. I/We will immediately make the same known to the Commissioner of Customs. 3. I/We declare that goods covered by the bill of entry have been imported on outright purchase/consignment accout. 4. I/We am/are not connected with the suppliers/manufacturers as : - (a) Agent/distributor/indentor/Branch/subsidiary/ concession-naire, and (b) Co .....

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