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2016 (9) TMI 569 - CESTAT MUMBAI

2016 (9) TMI 569 - CESTAT MUMBAI - 2016 (341) E.L.T. 113 (Tri. - Mumbai) - Valuation - transaction value - Rule 3 (3) (a) of Customs Valuation (Determination of value of import goods) Rules, 2007 - related party - Rule 2 of Customs Valuation (Determination of value of import goods) Rules, 2007 - the case applicable involving the similar issue is Matushita Television & Audio Ltd. Vs. CC [2007 (4) TMI 5 - SUPREME COURT OF INDIA] - Held that: - letter submitted from the related supplier certifying .....

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d in the net sale price of appellant’s manufactured goods - appeal allowed - decided in favor of Revenue. - C/86824 & 87379/15 - A/89044-89047/16/CB - Dated:- 2-8-2016 - Mr.Ramesh Nair, Member (Judicial) and Mr. Raju, Member (Technical) Shri.Mihir Deshmukh, Advocate for appellant Shri.MK Sarangi, Jt. Comm. (AR) for respondent ORDER M/s.Husco Hydraulics Pvt. Ltd. (M/s.HHPL in short) entered into agreements with M/s.Husco International, INC, USA. There were two agreements. License agreement date .....

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07. (ii) Invoice value of goods imported was enhanced by royalty equal to 3% of the importer s selling price of the licensed products defined in the license agreement dated 01/04/2007 under Rule 4 read with Rule 9 (1) (c) of the Customs Valuation Rules, 2007 for the period from 10/10/2007 till expiry of three years from the date of issue of orders. 1.1 Subsequently, M/s.HHPL approached for the periodical review of the said order-in-original dated 30/06/2008 and submitted the necessary documents .....

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e goods are at international prices which are computed on the basis of all costs and representative profit. Hence, I find that the transaction value of the goods is acceptable under Rule 3 (3) (a) of Customs Valuation (Determination of value of import goods) Rules, 2007. 16. I find that the importer has vide letter dated 31/05/2013 and 20/09/2013 submitted that in certain cases goods (Raw material/capital goods) are procured from group entities and such goods are not manufactured by the group su .....

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ever, as far as issue of addition to the assessable value of the goods under Rule 10 (1) (c)of Customs Valuation (Determination of value of import goods) Rules, 2007 or under erstwhile Rule 9 (1) (c)of Customs Valuation Rules, 1988 is concerned, I find that the importer is making payments towards royalty as per the licensing agreement. I find that the question of inclusion of the said payment in the assessable value of the goods as per the relevant provisions of Customs Valuation Rules was elabo .....

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find that the said order-in-original has not bee appealed against by the party. Further, the importer has vide affidavit confirmed that they are following consistent invoicing pattern for the Husco group products being imported by them. Hence, in the light of the above facts and circumstances, I find that the issue of addition of the payment of royalty as per the said license agreement has attained finality and hence, I dont find any reason to interfere with the said order at this stage . The m .....

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) has not stated as to how the decision of Hon ble Apex Court in the case of Matushita Television & Audio Ltd. Vs. CC - 2007 (211) ELT 200 (SC) is not applicable. In the appeal it has been argued that the royalty is paid on the ex-factory sale price of goods and that includes the cost of imported components. It has been argued in the grounds of appeal that since the cost of imported components was included in the ex-factory sale of products it becomes condition of sale of finished goods. Thu .....

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rted components. Under Rule 9(1)(c) of the Valuation Rules, 1988, only such royalty which is relatable to the imported goods and which is a condition of sale of such goods alone could be added to the declared price. However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex-factory sale price of the colour T.V. exclusive of taxes, freight and insurance but including the cost of imported components. In other words, the royalty payment was to be compute .....

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t of imported components was expressly included in the net ex-factory sale price of the colour T.V. Further, when payment to MEI was at the rate of 3% of the sales turn over of the final product, including cost of imported component, it became a condition of sale of the finished goods. Hence, in this case both the conditions of Rule 9(1)(c) of the Valuation Rules, 1988, are satisfied. 2.2 The learned AR also relied on the decision of the Hon ble Apex Court in the case of Mahindra & Mahindra .....

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lue of the imported car kits. In the instant case, no such direct evidence has been produced and thus, this case does not further the arguments of the learned AR. 2.4 The learned AR also relied on the decision of the Tribunal in the case of General Motors India Ltd. - 2009 (235) ELT 364 (T). In the said case also license fee was found not related to the imported goods and therefore, held to be not includable in the assessable value. Thus, this case also does not further the argument of the Reven .....

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of the Hon ble High Court of Delhi in the case of AGV Alfab Ltd. - 2011 (270) ELT 331 (Del). Relying on these decisions he argued that the principles of res judicata are applicable to the instant case as the HHPL have accepted the earlier order of GATT Valuation Cell dated 30/06/2008 and since nothing has changed in the terms of the agreement or otherwise it is not open to HHPL to seek a change of assessment. 2.7 The learned AR also relied on the decision of the Tribunal in the case of Fosco In .....

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icata in the SVB matters. In para 25 of the said order, the Tribunal has observed as follows: 25. This leaves us to consider the last ground on which the revenue based their appeal viz., that since the appellant had accepted the earlier SVB Circular for a number of years, it is not open in law for them to now appeal against the loading of the assessable value after a passage of some time. We are not in a position to accept this contention at all because it is very clear that the principle of res .....

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t is nobodys case that the appeal is not in time or that there is a lack of jurisdiction. The order dated 11-2-1992 which they had not contested was based under a different set of circumstances. The order currently under dispute is on different set of circumstances, and one of them is that the quantum of shareholding has changed between HP USA and HPI. In view of these discussions, we cannot accept this ground of appeal also. 3.1 The learned Counsel argued that the order-in-original clearly acc .....

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ed on the decision of the Apex Court in the case of Feroda India (supra) and in the case of Essar Steel (supra) to hold that the transaction value of the goods is acceptable under Rule 3 (3) (a) of the Customs Valuation Rules, 2007 and there is no case for addition of royalty value in assessable value. 4. We have gone through the rival submissions. We find that in the order-in-original dated 30/01/2014, the Assistant Commissioner, GATT Valuation Cell has specifically observed as follows: 15. I f .....

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uation (Determination of value of import goods) Rules, 2007. 16. I find that the importer has vide letter dated 31/05/2013 and 20/09/2013 submitted that in certain cases goods (Raw material/capital goods) are procured from group entities and such goods are not manufactured by the group suppliers but are procured from other vendors and then sold to Husco India. In respect of the same they have demonstrated that there is a price difference/margin of about 7 to 11% in prices at which goods are proc .....

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of the goods under Rule 10 (1) (c)of Customs Valuation (Determination of value of import goods) Rules, 2007 or under erstwhile Rule 9 (1) (c)of Customs Valuation Rules, 1988 is concerned, I find that the importer is making payments towards royalty as per the licensing agreement. I find that the question of inclusion of the said payment in the assessable value of the goods as per the relevant provisions of Customs Valuation Rules was elaborately discussed in the earlier order-in-original. I find .....

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against by the party. Further, the importer has vide affidavit confirmed that they are following consistent invoicing pattern for the Husco group products being imported by them. Hence, in the light of the above facts and circumstances, I find that the issue of addition of the payment of royalty as per the said license agreement has attained finality and hence, I don t find any reason to interfere with the said order at this stage . 4.2 The purpose of entire exercise is to find the correct asses .....

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ith provisions of rule 10; (2) Value of imported goods under sub-rule (1) shall be accepted : Provided that - (a) there are no restrictions as to the disposition or use of the goods by the buyer other than restrictions which - (i) are imposed or required by law or by the public authorities in India; or (ii) limit the geographical area in which the goods may be resold; or (iii) do not substantially affect the value of the goods; (b) the sale or price is not subject to some condition or considerat .....

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of sub-rule (3) below. (3) (a) Where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price. (b) In a sale between related persons, the transaction value shall be accepted, whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about t .....

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hich he and the buyer are not related; (c) substitute values shall not be established under the provisions of clause (b) of this sub-rule. (4) If the value cannot be determined under the provisions of sub-rule (1) the value shall be determined by proceeding sequentially through rule 4 to 9. 4.3 Rule 3 (1) can be invoked in respect of the transaction value accepted under Rule 3 (3) (a) as well. Rule 3 (3) deals with the transaction between related parties. The order-in-original clearly holds that .....

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thereof has been reproduced in para 3 above. It is clear that in such cases the principle of res judicata does not apply. In both the cases relied by the Revenue the decision was accepted by Revenue and principle of res judicata was applied against Revenue. In this case it is other way round. Since the decision of Tribunal in the case of Hewlett Packard is in identical circumstances. Thus, we hold principle of res judicata does not apply in the instant case. 4.5 Now we examine the various case .....

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of sale of such goods alone could be added to the declared price. However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex-factory sale price of the colour T.V. exclusive of taxes, freight and insurance but including the cost of imported components. In other words, the royalty payment was to be computed not only on the domestic element of the net sale price of the colour T.V. but also on the cost of imported components. A bare reading of the agreem .....

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% of the sales turn over of the final product, including cost of imported component, it became a condition of sale of the finished goods. Hence, in this case both the conditions of Rule 9(1)(c) of the Valuation Rules, 1988, are satisfied. 4.6 It is clear that the Hon ble Apex Court has considered that if royalty is paid on the value inclusive of the value of imported goods then it becomes a condition of sale. The learned Counsel has relied on the decision of the Hon ble Apex Court in the case of .....

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and machinery. The facts were substantially different from the facts in the case of Matushita Television & Audio Ltd. (supra). 4.8 In the instant case it is undisputed that the royalty is paid on a value inclusive of the value of the imported goods. Clause 5 of the Article of definition section of the license agreement defines net sale as follows: This agreement is made and entered into as of this first day of April, 2007, by and between Husco International, Inc. a Delaware Corporation havin .....

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marks shall be HUSCO 4. Territory shall be worldwide (non-exclusive) except for North America and Europe, unless exempted by HUSCO for special applications. 5. Net Sale shall be defined as the actual or invoice selling price EXWORKS, less any shipping, insurance, packing or excise taxes thereon, but without deduction for components purchased from HUSCO, for bad debts, nor for any alleged incompleteness or failure of the Technical Information. 2. Payments by the Licensee: The licensee agrees and .....

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