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M/s. InspirOn Engineering Private Limited (formerly known as M/s. ATE Industries Pvt Ltd) Versus Commissioner of Customs (Appeals) , JNCH, Nhava Sheva, Mumbai-II

Valuation - related party transaction - know how agreement for manufacture of final product between foreign supplier and the appellant - inclusion of royalty in the cost of imported goods - Rule (9)(1)(c) of Customs Valuation Rules, 1989 - Held that: - It is settled legal position by Hon’ble Supreme Court in case of Matsushita Television & Audio (I) Ltd. v. Commissioner of Customs [2007 (4) TMI 5 - SUPREME COURT OF INDIA] where Authority decided that royalty in relation to the sale only includib .....

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ted the transaction value declared in the invoices for the year 1993-96 under Rule 4 of Customs Valuation Rules, 1988. The matter was taken up for valuation for the reason that there is relationship between foreign supplier and the appellant and there is know how agreement for manufacture of final product between foreign supplier and the appellant. As per agreement, the appellant has undertaken to pay the DM 60000 to the foreign collaborator. The Dy. Commissioner vide Order-in-Original dated 31/ .....

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a, Ld. Counsel for the appellant submits that Adjudicating authority has discussed the agreement and found that the technical knowhow is in respect of manufacture of final product of the appellant and the royalty is on the net sale price of the product by deducting the cost of bought out components both the imported and indigenous and all taxes therefore royalty does not influence the declared price of the imported goods. Ld. Commissioner(Appeals) while reversing the Order of the Original author .....

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behalf of the Revenue reiterates the findings of the impugned order. 4. We have carefully considered the submissions made by both sides and perused the record. 5. We find that Ld. Adjudicating authority after careful considerations of the reply to the questionnaire and knowhow agreement came to very reasonable conclusion that value declared by the appellant is acceptable. The relevant findings of the Order-in-Original reproduced below:- As regards royalty, it is calculated on net selling price .....

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unt cannot be added to the value of imported components and other parts. From the above findings, we observed that as per knowhow agreement, it is for manufacture of final product at the appellant s end, the royalty is payable on the net sale price by deducting the cost of bought out components both imported as well as indigenous, all taxes and forwarding expenses therefore it is not related to the imported components. From the technical knowhow agreement nowhere it appears that the technical kn .....

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capital goods. The fact the roreign company has a 40% equity participation and has directs in the Respondent s board establishes the relationship under Rule 2(2) of the CVR, 1988. I agree with appellant that without technical knowhow, the imported goods would have no value since no manufacturing activity can take place without the technical knowhow. Therefore, the DM60000 paid in consideration for transfer of technical knowhow would be addable to the price of imported goods in terms of Rule 9(1 .....

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