TMI Blog2013 (7) TMI 1035X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the invoice submitted by the foreign supplier. The department conducted an investigation into the matter and found that SEPL has purchased and imported the media containing feature films/serials and paid to the overseas suppliers licence fee for exploiting the intrinsic content of the said media. However, for the purpose of Customs Valuation, they had declared only the cost of material/media and suppressed the amount of licence fee paid/payable to the overseas suppliers. It was further noticed that the recorded media were imported against either fixed amount of licence fee or against minimum guarantee amount. All these amounts were paid before the importation of the goods. It was further seen that the imported beta/digibeta tapes were sub-licenced by SEPL to various companies for replication/manufacture. 2.2. Rule 9 (1) (c) of Customs Valuation Rules, 1988, / Rule 10 (1) (c) of Customs Valuation Rules, 2007, specifically provides for inclusion of royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India and the royalties and licence fee have been paid for acquiring such reproduction rights; therefore, the consideration paid for reproduction rights is not liable to be included in determining the customs value. The beta tapes, which are the subject matter of assessment, are never sold to the appellants and they have been supplied in order to enable them to exploit the right to reproduce the content therein. 3.3. The learned Counsel relied on the judgment of the apex court in the case of Commissioner of Customs vs. Ferodo India Pvt. Ltd. 2008 (224) ELT 23 (S.C.) wherein the apex court held that technical know-how cost and payment of royalty is includable in price of imported goods if said payment constitutes a condition pre-requisite for supply of imported goods by foreign supplier; if such payment has no nexus with working of imported goods, then such payment was not includable in the price of imported goods. The Larger Bench of this Tribunal in the case of Hoerbiger India Pvt. Ltd. vs. Commissioner of Customs - 2003 (156) ELT 62 (T-Larger Bench) held that the licence fee or running royalty is not relatable to the goods imported, and therefore they are not includable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded period of limitation. Since the value declared by the appellant was on bona fide belief carried through the favourable judgments of the Tribunal and long standing industry practice, imposition of penalty is not warranted. Since no seizure of goods have been effected in the present case, the question of imposition of fine in lieu of confiscation does not arise and the fine imposed is untenable in law and hence liable to be set aside. Similarly penalty on the Managing Director of the appellant firm is also not warranted as the Revenue has not brought out any positive involvement on his part in the alleged suppression or undervaluation. 4. The learned A.R. appearing for the Revenue on the other hand contended as follows:- 4.1. In the case under consideration, the licencing rights conferred by the supplier includes cinematic rights/T.V. rights/ video rights and ancillary rights as per the agreement with the foreign suppliers. The importer was required to manufacture VHS tape / VCDs / DVDs masters with translation of scripts of the movies/dialogues into Indian languages and superimposition of such scripts in the said languages in the form of subtitles to the movie VCD/DVD and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant and, therefore, the extended period of time has been rightly invoked. 5. We have carefully considered the rival submissions. 5.1. We have gone through the records of the case and have perused some of the agreements entered into by the appellant with the foreign suppliers. We find that in the case under consideration, the foreign supplier had supplied the recorded media and conferred several rights on the appellant such as cinematic rights (Theatrical, Non-theatrical and public video), Video rights (Home rental, Home sell-Thru, Commercial and Video-on-demand), Television rights (Terrestrial, cable and satellite) and Ancillary rights (for Airlines, ships and hotels). In case of cinematic rights, the rights pertain to exhibition of films; in case of Television rights the same pertains to broadcasting, that is, transmission of encrypted material contained in the tapes through TV channel, cable TVs etc. Similarly in the case of ancillary rights also, it is for exploitation of films by way of exhibition/display in airlines, ships and hotels. As regards video rights, the same are for sale/lease by way of Home Video Rental, Home Video Sell-Through and commercial videos in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount has to be paid to the Licensor before import of the films. These terms and conditions of the agreement make it abundantly clear that the royalty payments are a condition of sale/supply of the films in the prescribed format and the consideration paid has no nexus with the number of copies reproduced post- importation. As per rule 10 (1)(c )of the Customs Valuation Rules, 2007, royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable, has to be added to the price paid or payable for determining the transaction value. 5.3. This Tribunal, in the case of Indo Oversea Films vs. Commissioner of Customs, Chennai 2002 (139) ELT 729 (Tri. - Chennai) held that in the absence of break up of amount payable towards each of the rights/licences granted, no exclusion can be granted in respect of royalty charges from the total amount while determining assessable value under Rule 9(1)(c) of Customs (Valuation) Rules, 1988. The said judgment of the Tribunal was further upheld by the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (supra) case relied upon by the appellant deals with a complete different set of facts. In that case the importer buyer was a manufacturer of brake liners and brake pads and had entered into an agreement with the foreign licensor who agreed to permit manufacture of brake liners and brake pads by the licensee. Under the agreement, the licensor agreed to disclose the relevant secret processes, formula and information to the licensee. The licensee was required to import/buy raw material and capital goods from the licensor. The licensee was obliged to pay a licence fee along with royalty based on the net sales value of licensed products sold, consumed or otherwise disposed of. In that context the Hon ble Apex Court held that under Rule 9(1)(c) the cost of technical know-how and payment of royalty is includable in the price of the imported goods if the said payment constitutes a condition pre-requisite for supply of imported goods by the foreign supplier. On the other hand if such payment has no nexus with working of imported goods, then such payment was not includable in the price of imported goods. In the present case before us, as per the contract entered into by the appellant wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale . Applying the ratio of this judgment to the facts of the case under consideration, it is evident that in the instant case also the licence fee paid was a condition of sale/supply of imported goods and therefore, such payments are includible in the transaction value under Rule 9(1)(c) / 10(1)(c) of the Customs Valuation Rules and we hold accordingly. 5.8. As regards the argument that it was the courier who declared the value and the appellant did not declare nor were they asked to declare the price of the goods and hence there is no suppression, the same is without any basis what-so-ever. In this case, the importer is the appellant and the courier is only an agent of the importer. The courier agency will not know what the terms and condition of sale are and the payments made by the appellant apart from those declared in the invoices. If the appellant had made any payment over and above those shown in the invoices, it was their responsibility to declare the same before the customs authorities. The statement of Shri Jiten Hemdev, Managing Director of the appellant-company reveals the following. SEPL had been in the business of purchase of cinematic, television, video, mobi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar issue. In the Associated Cement Companies case, the apex Court clearly held that if a pre-recorded music cassette or a popular film or musical score is imported into India, 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 to the price actually paid or payable for the imported goods, royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of sale of goods. In spite of such clear judicial pronouncements, the appellant chose to believe decisions which were favourable to him and not the decisions which were in fact applicable to his case. It is the interpretation of law by the honble Supreme Court which lays down the law of the land and not that of Tribunal. The appellant, in the various agreements entered into with the foreign suppliers had agreed to pay the entire cost including the cost of intellectual input contained in the beta/digibeta tapes much before the goods were actually delivered in India. Yet they claimed that such payments were not a condition of sale. The statement of the Managing Director r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Jiten Hemdev. (Pronounced in Court on ___/05/2013) 13. In view of the difference of opinion the matter is placed before the honble President for reference to Third Member on the following points: DIFFERENCE OF OPINION (i) The royalties/licence fees paid for the import of beta / digibeta tapes containing films are includable in the value of the said tapes in terms of Rule 9(1)(c) /Rule 10(1)(c) of the Customs Valuation Rules, as they stood at the relevant time, inasmuch as such payments were made/required to be made prior to importation in terms of the agreement between the importer in India and the supplier abroad and consequently the demand of differential duty of ` 79,19,049/- under the provisions of Section 28(1) of the Customs Act, 1962 is sustainable in law as held by the learned Member (Technical) relying on the decisions of the apex Court in the case of State Bank of India vs. CC, Bombay 2000 (115) ELT 597 (SC); Commissioner of Customs vs. Ferodo India Pvt. Ltd. 2008 (224) ELT 23 (S.C.); Living Media India Ltd. 2011 (271) ELT 3 (SC) and the decisions of this Tribunal in the case of Indo Overseas Films vs. Commissioner of Customs, Chennai 2002 (139) ELT 729 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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