TMI Blog2016 (3) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... as no discussions either on facts or on legal issues in his impugned order and also it had not examined in detail the agreements and amendment agreements but merely endorses the respondent's view without any discussion. Therefore, the Commissioner (Appeals) order is set aside. - Matter remanded back to decide on merits - Appeal No. C/S/42377/2013 & C/42422/2013 - Final Order No.40420/2016 - Dated:- 8-3-2016 - SHRI R. PERIASAMI, TECHNICAL MEMBER AND SHRI P.K. CHOUDHARY, JUDICIAL MEMBER For the Petitioner : Ms. Indira Sisupal, AC (AR) For the Respondent : Ms. Rukmani Menon, Advocate ORDER PER R. PERIASAMI Revenue filed appeal against Commissioner (Appeals) order dt.30.8.2013 with application for stay of operation of the impugned order. Since we are taking up the appeal itself for disposal, the stay application filed by Revenue is disposed of. 2. The brief facts of the case are that respondents M/s.3M India Ltd., Bangalore imported capital goods, raw materials, finished products from their principal company M/s.3M USA and their related subsidiaries located in other countries. Since the respondent and the supplier are related, the issue was dealt with by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed. Adjudicating authority confirmed payment of royalty however held that same cannot be added to the import invoice on the ground that royalty payment is not a condition of sale. 7. Ld. A.R submits that after the issue of the order, the DRI initiated the investigation on the related party transactions between the respondent and M/s.3M USA and other related subsidiaries based on the specific intelligence that the transactions were not at arms length and the investigation is yet to complete. She submitted copy of DRI letter dt. 6.2.2014 and submits that DRI could not finalize investigation as the respondents were not co-operative, not submitted relevant agreements. She submits that SVB order has lapsed in Feb'2014 and produced copy of letter dt. 15.7.2015 issued by CC-III Customs House and submits that the delay of investigation is due to non-submission of required details by the respondent and it was submitted only on 13.7.2015. DRI is finalizing the investigation for issue of SCN. 8. On the merits, she reiterated the grounds of appeal as at page 13 14 and submits that flow back of money having established through receipt of royalty, both adjudicating and the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment of this agreement. Ld. counsel submits that as per this agreement there was no payment of royalty till 30.6.2009. She further submits that there was an amendment to the said agreement which was made on 16.12.2009 between the respondent and the principal company. She submits that para 5.8 of the agreement was amended to the read Agreement by terminating the waiver w.e.f. 1.7.2009 and the respondent shall henceforth be obligated to make royalty payments as per the terms of the agreement.' It is made retrospectively from 1.7.2009 though the agreement was made on 16.12.2009 and thereafter they have paid the royalty. She submits that there was no royalty payment made for the year 2008. In support of her contention, she submitted Profit Loss Account and Annual Reports of the company for the year 2008 to 2011 and drew our attention to page 48 of the P L Account and the Annual Report and submits that there is no mention of any royalty payment for the year 2008. She drew our attention that adjudicating authority mentioned in his order that there was flow back for the year 2008 onwards which is not correct. In support of her plea, they have submitted a copy of Chartered Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied on the Supreme Court decision in the case of CC Vs Ferodo India Pvt. Ltd. - 2008 (224) ELT 23 (SC) and referred to para-20 of the judgement wherein the Hon'ble Apex Court taking into account the various clauses of the agreement has clearly held that there was no nexus between the royalty payable for the knowhow and the goods imported for manufacture of licensed products. She also relied on the following case laws :- (1) Wep Peripherals Ltd. Vs CC Chennai-2008 (224) ELT 30 (SC) (2) ABB Ltd. Vs CC (Import) Mumbai-2013 (288) ELT 296 (Tri.-Mumbai) (3) Johnson Johnson Ltd. Vs CC Mumbai-2013 (292) ELT 111 (Tri.-Mumbai) (4) CC (Import) Mumbai Vs Bridgestone India Pvt. Ltd. -2013 (92) ELT 403 (Tri.-Mumbai) (5) SGL Carbon India Pvt. Ltd. Vs CC (Impots) Mumbai-2013 (290) ELT 723 (Tri.-Mumbai) (6) Foseco India Ltd. Vs Cc (Import) Nhava Sheva-2014 (310) ELT 540 (Tri.-Mumbai) 10. Ld. A.R in the rejoinder of the counter arguments of the learned counsel, again referred to page 27, 28 of the OIO wherein no amendment of the agreement has been discussed. She submits that the transaction is not at arms length. For this very reason, the DRI is investig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mity in the Assistant Commissioner s order and rejected department's appeal. We do not see any discussions either on facts or on legal issues in his impugned order. Para 3 to 5 is only the counter submissions of respondents and citations relied by them. In the absence of any clear findings on each issues raised by the Revenue, prima facie, we hold that the impugned order is not a speaking order and on this ground alone the impugned order is liable to be set aside. 15. Be that case, we now proceed to discuss the merits of the case. The fact that the respondent is related subsidiary of 3M USA and its other subsidiaries located across the world is not in dispute and the respondents started importing 3M products since 1991, various products, capital goods, raw materials, finished goods for manufacture of excisable goods or for trading. On perusal of the respondent companys Annual Report 2008 submitted by them, we find at page - 7 it is stated that 3M a company of 75000 people with a century old history produces / markets 50,000 products Globally and 5000 products for the Indian markets. As seen from the notes to accounts, Schedule 14 at Para 4 (pages 42,43, 44 of report) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent by the parties which is normally shown in any agreement. [with a phrase: on this ____ day of the ______ month of the ____year]. Even the signature of the signatories do not show the date. Only the Stamp paper issued by Govt. of Karnataka reveals the date of issue as 16.1.2006 and we can only presume that the said agreement was signed after the date or later. 19. The scope of the Intellectual Property Agreement are set out in various clauses at Recitals clause A to clause G, in Article II various definitions, Rights and Obligations between the licencee and the licensor. Article III- Software, Article IV- Organization Changes to the Worldwide 3M Corporate Family, Article V - Compensation (consideration) Article VI - Disclosure and Use of Proprietary Information, Article VII Infringement of I.P. Article VIII Term, Termination, Default and Survival Article IX - Miscellaneous. 20. The scope and the relevant extracts of the various Articles are reproduced as under :- A. 3M is an innovative multinational company with its headquarters in the United States and affiliates in more than 60 countries around the world. Collectively referred to as the worldwide 3M corporate fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts and/or have products manufactured for it by third parties. Affiliate also requires the ability to conduct its business in a manner that is consistent with the rest of the worldwide 3M corporate family and appropriate to the principal country in which Affiliate is located. To protect Affiliates investment in its general business operations, 3M IPC is willing to grant, and Affiliate wishes to obtain, a license to conduct such operations. 3M and 3M IPC support Affiliates manufacturing and other general business operations by constantly expanding and refreshing the portfolio of intellectual property rights that are provided to Affiliate. In this manner, Affiliate will continue to receive 3Ms most current developments, information, research, systems and techniques as they relate to 3Ms administrative, engineering, information technology, laboratory, management, manufacturing, marketing, selling and other functions. E. The global economy is continuously changing, and the operations of and the relationships among the individual members of the worldwide 3M corporate family must change accordingly. Consequently, 3M wishes to create and acquire new affiliates, modify its org ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Affiliate operate as separate companies. The Parties understand, however, that 3M IPC and Affiliate are controlled by 3M, and thus are members of the worldwide 3M corporate family. As such, the Parties intend that this Agreement further the interests of the worldwide 3M corporate family, and in all cases do no harm to those interests ...... The relevant definitions are reproduced as under : Article I DEFINITIONS ... ... ... 1.2 3M shall mean 3M company, a Delaware corporation having a principal place of business at 3M Center, St. Paul, Minnesota, U.S.A. 1.3 3M IPC shall mean 3m Innovative Properties Company, a Delaware Corporation having its place of business at 3M Center, St.Paul, Minnesota, U.S.A. 1.4 Licensor shall mean 3M and 3M IPC, individually and collectively. 1.5 Affiliate shall mean 3M India Limited, a corporation organized under the laws of India and having a registered office at Raheja Paramount, 138, Residency Road, Bangalore 560 025, India. ... ... ... 1.9. Effective Date shall mean July 1, 2006, unless the approval of the government of the Primary Territory is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsor rights in Licensor Trademarks in issue; (ii) claim for itself any rights in Licensor Trademarks; or (iii) do anything that might, in the opinion of Licensor, tend to disparage or lessen the significance of the Licensor Trademarks or otherwise injure Licensor property rights in Licensor Trademarks. ARTICLE V - COMPENSATION 5.1 General. In exchange for the licenses granted by Licensor to Licensee under Article II and Article III hereof and other benefits received by Licensor and Licensee hereunder, the Parties have agreed to the payment of reasonable compensation, as provided for in this Article V. 5.2 Royalties. In partial consideration for the rights received hereunder and to the extent permitted under applicable regulations of the Primary Territory, Licensee shall pay 3M IPC a royalty equal to : (a) five percent (5%) of the Net Selling Value (Domestic Manufactured Products) as partial consideration for Licensee s use of Production Intangibles in the production of Manufactured Products; plus (b) eight percent (8%) of the Net Selling Value (Exported Manufactured Products) as partial consideration for Licensee s use of Production Intan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Related Company), the compensation for which shall be reflected in the purchase price of that product. (c) There is no obligation hereunder for Licensee to purchase any goods from Licensor. 5.4 Royalty Payments. All royalty payments due hereunder shall be made by Licensee monthly not later than the last day of the succeeding month, or such other schedule as may be agreed to by the Parties. Paragraph 9.8 notwithstanding, the payments are subject to the applicable financial regulations of the Primary Territory. The payments shall be made or credited to the account of 3M IPC, or made in such other manner as may be directed by 3M IPC. If Licensee does not make any royalty payment due hereunder 3M IPC may, in its sole discretion, waive its right to receive any such royalty payment or defer its receipt of any such royalty payment (with or without interest). ... ... .... 5.8 Waiver. Licensor waives its right to receive royalty payments and royalty reports pursuant to Paragraphs 5.2 to 5.5 and termination of this waiver shall constitute an amendment of this Agreement under Paragraph 9.2. As seen from the scope of the agreement, the agreement i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as of December 16, 2009 by and among 3M Company, a Delaware corporation having a principal place of business at 3M Center, St. Paul, Minnesota US.A ( 3M ), 3M Innovative Properties Company, a Delaware corporation having is place of business at 3M Center, St. Paul, Minnesota, U.S.A. ( 3M IPC ), and 3M India Limited, a corporation organized under the laws of India having a registered office at Plot Nos. 48-51, Electronics City, Hosur Road, Bangalore 560 100, India ( Affiliate ) Recitals A. 3M Innovative Properties Company, 3M Company and 3M India Limited entered into an intellectual Property Agreement effective July 1, 2006 (the Agreement ). B. Under Paragraph 5.8 of the Agreement, Licensor (3M Company and 3M Innovative Properties Company) waived its right to receive royalty payments and royalty reports for the period July 1, 2006 to June 30, 2009, pursuant to Paragraphs 5.2 to 5.5 of the Agreement. C. 3M Innovative Properties Company, 3M Company and 3M India Limited (the Parties ) have agreed that waiver should be terminated. D. 3M Company and 3m Innovative Properties Company are now wanting to reinstate the payment of royalty by 3M India Limited as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is pertinent to see the Clause 5.2 of Article V of the said Intellectual Property Agreement the word used in para 5 (a) to 5 (f) is In partial consideration for the rights received or In partial consideration for the licensee's use of production intangibles etc. Normally when any agreement is entered to grant licenses to Intellectual Property Rights to the user, this consideration of payment is full consideration for the transfer of know how etc. whereas the percentage of royalty payment set out in Clause 5.2 is only a partial consideration which means that there is something more to it. This itself raises serious doubt on the transactions which are not at arms length. 23. Further, it is seen that, having set out the payment of Royalty at Clause 5.2, the same agreement at Clause 5.8 says that the Licensor waives its rights to receive the Royalty payment from the respondent company. If the overseas company wants to waive Royalty payment from respondent, it raises serious questions why the IPR agreement was signed with effect from 1.7.2006 under the terms and conditions of rights and liabilities and considerations made between the related parties. This indicates that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for inter-company billings and their applications made before SVB Chennai and Bangalore. The very nature of agreement as discussed in the preceding paragraphs supports our view that the detailed investigations of transactions between the related parties will throw light which is not done by the Lower Appellate Authority. 27. Considering the above facts, we hold that neither the original authority nor the lower appellate authority has considered the intricacies of the agreements and the subsequent amendment agreements, billing and pricing patterns. Instead, merely relied on this Tribunals decision of ABB Ltd. (supra). It is pertinent to see that the Tribunal in the above judgement relied on Honble Supreme Court's decision of Ferodo India Pvt. Ltd. (supra) and the Apex Court held at para 18 that if on examination of the pricing agreement in juxtaposition in EAA and if the department proves that the importers/buyer has misled the department by adjusting the price of the imported item in the guise of increased royalty/licence, then the adjudicating authority would be right in including the cost of royalty/licence fees paid in the price of the imported goods. This ruling of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o rejected and OIO was upheld by LAA and the entire proceedings were in favour of the assessee. Under normal circumstances when both OIO and OIA was in favour of the respondent, it is the Revenue who is aggrieved by the original order LAA's order, ought to have sought any remedy before Higher Judicial Forum. (v) The above acts of respondent to implement the OIO dt. 4.2.2011 and impugned OIA dt. 30.8.2013 and also to see the Revenue appeal before Tribunal get disposed immediately in spite of two of their writ petitions still pending before the High Court is something more than meets the eye. Is it that the respondent worried that certain vital intelligence and data are secured by the investigation officers of DRI who are investigating the case on all India basis against respondent's transactions with related persons 3M, 3M IPC other subsidiaries or is it they are anxious that DRI investigation will prove against their related party transaction or something else which is best known to the respondents. All these lead to raise serious doubt about the transactions shown on paper between respondent and their related 3M 3M IPC subsidiaries, are not normal transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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