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Saregama India Ltd. and Sony Pictures Home Entertainment India Versus Commissioner of Customs Airport, Mumbai (Vice-Versa)

2016 (9) TMI 931 - CESTAT MUMBAI

Valuation under section 14 of Customs Act, 1962 - inclusion of royalty payable to overseas entity in the assessable value - master tapes - rule 9 of Customs Valuation Rules, 1988 (or rule 10 of Customs Valuation Rules, 2007) - rejection of declared value under rule 10A of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - transaction value - cost and services - Held that: - the case Collector of Customs (Preventive) v. Essar Gujarat Ltd [1996 (11) TMI 426 - SUPREME COURT .....

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(or rule 10 of Customs Valuation Rules, 2007). It is abundantly clear from the above narration that royalty is hinged upon post-importation manufacture and not on the imported goods per se. The impugned order has erred in including the royalty amounts in the valuation of the ‘master tapes’ that were imported. - Appeal allowed - decided against Revenue. - C/01 to 03, 5, 10 & 11/2011 CROSS-OBJECTION NO: C/CO-07/2011 - A/89334-89340/16/CB - Dated:- 23-8-2016 - Shri M V Ravindran, Member (Judici .....

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ed on gross sales in India are the recompense to the overseas entities. As a matter of trade practice, a minimum guarantee amount is remitted at scheduled intervals and which is to be recouped by the appellant from the royalty payable on sales. The agreement envisages access to a finite number of titles during the term of contract which are supplied to the appellant in betacam or digital linear technology (DLT) form and these are replicated by designated entities in India in the retail form for .....

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e effected through couriers at the Mumbai Airport and duty liability discharged on the value of the media as declared by the supplier. The show cause notice dated 4th July 2008 (to be read with corrigendum dated 15th April 2009) sought to nullify the assessments, reject the declared value by invoking rule 10A of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and to include the royalties payable to overseas entities by invoking rule 9(1)(c) of the said Rules. During pend .....

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d for a part of 2007-08 straddling the governance of valuation for assessment by Customs Valuation Rules, 1988 and its successor Rules of 2007; there is not much difference between the two except in relation to numbering of the rules. The imports were of digi beta masters and stampers. Revenue is in appeal against the quantum of penalty imposed. 4. Owing to the identical nature of the dispute, we take up all the appeals for disposal by this common order. Before proceeding further, we are constra .....

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on of Customs Act, 1962 is: Section 14. Valuation of goods for purposes of assessment. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in .....

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provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf… … 6. The Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and successor Rules of 2007 were applicable during the period of the two disputes and in the context of the provision for valuation of goods supra, the relevant rules of 1998 (which are not different, except for numbering in the 20 .....

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roceeding sequentially through rules 5 to 8 of these rules. 4. Transaction value. - (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules. (2) The transaction value of imported goods under sub-rule (1) above shall be accepted: Provided that - xxxxxxxx 9. Cost and services. - (1) In determining the transaction value, there shall be added to the price a .....

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n obligation of the seller to the extent that such payments are not included in the price actually paid or payable. xxxxxx (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 7. It should be abundantly clear from the Rules that rule 9 is to be invoked for adjusting the .....

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e is sought to be rejected under ruled 10A without taking it to its logical conclusion as prescribed in rule 3 and, instead, the very same rejected price is sought to be adjusted by adding the royalty component as provided in rule 9 which applies only to the transaction value in rule 4. On this ground alone, the entire proceedings would fail. 8. Be that as it may, we proceed to examine the impugned order further. The original authority has framed three issues for determination - includibility of .....

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nai [2002 (139) ELT 729 (Tri)] affirmed by the Hon ble High Court of Madras in Indo Overseas Films v. Union of India [2007 (210) ELT 348 (Madras)] as well as that of the Hon ble Supreme Court in State Bank of India v. Collector of Customs, Mumbai [2000 (115) ELT 597 (SC)]. The adjudicating authority has also recorded a finding that, instead of using the air cargo route and seeking provisional assessment, the appellant deliberately used the courier mode to hoodwink the customs authorities for cle .....

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/ stampers loaded with feature films despatched by the overseas licensor through courier. Courier is an authorized method of carriage of import articles with the procedure for clearance, including custodianship, declaration, examination and duty payment prescribed in Courier Imports & Exports (Clearance) Regulations, 1998. We see no earthly reason for debarring the disputed import from being routed through this in the absence of a specific prohibition in the Regulation. It would appear that .....

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the importers in their appeals). It must be borne in mind that the dispute resolved by the Hon ble Supreme Court pre-dates tax on services and the streamlined regulations governing courier mode. One of the contentions raised therein pertained to taxability of transactions in trade deals that are not restricted to supply of goods. The Hon ble Supreme Court held, in the context of the Forty-Sixth amendment to the Constitution, that drawings expressed on a physical media are taxable owing to the en .....

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ot admit a significant role to the importer in the clearance of packages. We are, therefore, of the opinion that the reliance on the decision in re Associated Cement Companies in the impugned order appears to be misplaced. 11. Considering the above factual matrix and on a perusal of the licence agreements, we note an omission in the issues framed for determinants by the adjudicating authority. The agreement are for sale of feature films (or motion picture to assign it an appropriate description) .....

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uction or damage to the storage media destroys or damages the motion picture contained in it, the picture itself, however, is not erased out of existence. Indeed, as recorded in the impugned order, the motion picture can be re-sent should the need arise. And it is the motion picture that the viewing public has in mind with reference to the product - and source of revenue to render the production venture viable. Therefore, resolution of issues framed by the adjudicating authority is not possible .....

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a clear pointer to the direction that the adjudication should have taken but did not. 12. The motion picture industry is collectively described as dream merchants and is extremely complex in its structuring and operations; in recent times, the investment that goes into a single production is mind-boggling. It all begins with an idea culled from imagination or a literacy that is dramatized for performance by emotion specialists or cine stars whose credit titles can be as alluring as portrayal of .....

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or tape/stamper/ disc could encage such an experience. Given this complexity, the tax collector may be excused his reluctance to strain beyond the valuation aspect. Nevertheless, for recourse to valuation after rejection of declared value, the adjudicating authority should have necessarily undertaken this onerous burden. 13. Appellant had contended before the original authority that the import is that of a recorded storage media. They, avoiding our flight of fancy, imply that the drama emoted on .....

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referred to applicability rule 9(1)(c) of Customs Valuation Rules with the rescinding of exemption notification that had limited duty only to cost of print and cost of freight on imported cinematographic film; its context hardly advances the cause of deeming a motion picture to be inseparable from the media which carries the motion picture . That cinematographic films are goods is not in doubt and, with motion pictures no longer transported in cinematographic films, that betacam tapes are also .....

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right fees. Normally, these are a component of the box office receipts or included in the price sold in home viewing format. Unlike patented product whose royalty is determined by negotiation, the breadth of consumer market of motion pictures would required a prior fixation includible in the collection fee or market price. The adjudicating authority was prepared to accept that reproduction rights is one of the components in the contracts but was unwilling to be influenced by that acknowledgement .....

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f the levy of service tax on temporary transfer of copyright in motion pictures which has been tested for ultra vires in the Hon ble High Court of Madras in AGS Entertainment Pvt Ltd v. Union of India [2013 (32) STR 129]. Being a service, it is subject to tax when rendered by an overseas provider to recipient in India under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2005. Transfer of copyright in motion pictures is, thus, a service which, though taxable o .....

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ule 10 respectively. Learned Counsel for appellant cites Living Media India Ltd v. Commissioner of Customs [2002 9148) ELT 441 (Tri-Del)], Commissioner of Customs v. Living Media India Ltd [2011 (271) ELT 3 (SC)], Associated Cement Companies Ltd v. Commissioner of Customs [2002 (128) ELT 21 (SC)], Commissioner of Customs (Import) v. Sony BMG Entertainment (I) Pvt Ltd [2007 (218) ELT 699], Sony Music Entertainment Pvt Ltd v Commissioner of Commissioner of Customs (Import) [2005 (189) ELT 227 (Tri .....

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toms [2014-TIOL-583-CESTAT-Mum], Commissioner of Customs (Import) v. Excel Productions Audio Visuals Pvt Ltd [2014 (314) ELT 366 (Tri-Mumbai)] and Universal Music India P Ltd v. Commissioner of Customs (Import), Mumbai [2009 (128) ELT 829 (Tri-Mumbai)]. 16. Of the various decisions cited, and some of them by both sides, we have already observed supra that the decision in Associated Cement Companies Ltd is not applicable in the present set of circumstances. Nevertheless, it, along with that of Co .....

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the Hon ble High Court of Madras, has been relied upon by the adjudicating authority in support of his rejection of the claim for exclusion of the costs attributable to reproduction rights owing to inability of appellant to furnish the break-up of royalty; it has been cited by the appellant as relevant to the present dispute which is solely about cost of reproduction rights. This, too, places reliance on Essar Gujarat Ltd. While the facts relating to import in re Star Entertainment Pvt Ltd are, .....

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usic Entertainment Pvt Ltd, re Excel Productions Audio Visuals Pvt Ltd and re Universal Music India P Ltd pertaining to motion picture and music rights flow from the decision in re Essar Gujarat Ltd. There is a particular significance to the preceding observation that we shall come to at a later stage. The decisions in re Excel Productions Audio Visuals Pvt Ltd and in re Universal Music India P Ltd are in relation to pre-recorded compact discs. 17. In the present dispute, it is the import of mas .....

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orted goods are. For this reason, the decisions sought to be relied upon by Revenue do not apply to this dispute as also the decisions in re Star Entertainment Ltd and re Indo Overseas Films for reasons stated supra. 18. In a recent decision of the Tribunal, in Commissioner v. Kinetic Technology India Ltd. (Final order no. A/89229/2016/CB dated 17th August 2016 in appeal no. C/875/2004), the scope of rule 9 of Customs Valuation Rules, 1988 (rule 10 of Customs Valuation Rules, 2007), as decided u .....

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nation of Price of Imported Goods) Rules, 1988. 11. In Commissioner of Customs (Import), Mumbai v. Hindalco Industries Ltd [2015 (320) ELT 42 (SC)] it was held that: 7. It is also to be borne in mind that the respondent had purchased various capital components from other parties and the goods for which the agreement was signed with OEC constituted only 16% of thee total value. On these facts, we are of the opinion that the matter is squarely covered by the recent judgment of this Court in Commis .....

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hese agreements pertained to rendering of services which are post-import. Therefore, this case is also squarely covered by the judgment of this Court in Commissioner of Customs, Ahmedabad v. M/s Essar Steel Ltd [Civil Appeal No. 3042 of 2004] decided on 13th April, 2015 [20115 (319) ELT 202 (SC)]. 12. Accordingly, we have perused the decision of the Hon ble Supreme Court in Commissioner of Customs, Ahmedabad v. M/s Essar Steel Ltd [20115 (319) ELT 202 (SC)], in which it was held thus: 7… .....

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to be interpreted. and distinguishing the facts in Collector of Customs (Preventive) v. Essar Gujarat Ltd [1996 (88) ELT 609 (SC)] wherein the agreement covered a licence for operation of the plant which rendered it a pre-import transaction, the Hon ble Court went on to lay down the scope for resolution of such disputes thus: 8…....In the present appeal, arguments have veered around the applicability of Rule 9(1)(e). In this appeal, we are concerned only with the first part of Rule 9(1)9 .....

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rule 4 for assessment to duty. Consequently, it would appear that legislative intent did not envisage every declared transaction value to be subject to further adjustments merely because rule 9 is the adjustment provision moored to rule 4. This decision has taken note of Commissioner of Customs (Port), Kolkata v. JK Corporation Limited [(2007) 9 SCC 401 = 2007 (208) ELT 485 (SC)] to distinguished the judgment in re Essar Gujarat by drawing on Tata Iron & Steel Co. Ltd v. Commissioner of Cent .....

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2]. Reading all these agreements together, it is not possible to uphold the contention of Mr. Salve that the pre-condition of obtaining a licence from Midrex was not a condition of sale, but a clause inserted to protect EGL. Without a licence from Midrex, the plant would be of no use to EGL. That is why this overriding clause was inserted. This overriding clause was clearly a condition of sale. It was essential for EGL to have this licence from Midrex to operate this plant and use Midrex technol .....

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licence fees could not be added to the price actually paid to TIL for purchase of the plant." 17. The Court noticed several curious aspects of the Agreement stating that it started with the recital that "the Purchaser and the Seller have today respectively purchased and sold a Direct Reduction Iron Plant, on the following terms and conditions", which, according to this Court , indicated that the purchase and sale of the plant had taken place on 24th March, 1987, but in clause (2) .....

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elied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to .....

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ssment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia, by way of transfer of licence or technical know-how for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purv .....

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