TMI Blog2017 (2) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided against appellant. - C/705, 729, 743/04-Mum - A/85694-85696/17/CB - Dated:- 7-2-2017 - Mr. M. V. Ravindran, Member (Judicial) And Mr. Raju, Member (Technical) Shri M.I. Sethna, Sr. Advocate, with Shri Advait M. Sethna Ms. Ruju R. Thakkar, Advocates, Shri Kayomars K. Kerawalla, Advocate, for appellants Shri M.K. Sarangi, Joint Commissioner (AR), for respondent ORDER Per Raju The appellants, Warner Bros. (F.E.) Inc. Paramount Films of India Ltd. and Twentieth Century Fox India Inc., imported cineprints and were appointed as sole distributor with exclusive license to distribute, exploit and exhibit motion pictures and trailers throughout the assigned territory including India. The said imports are made under franchise agreement with an entity abroad. The impugned order deals with the specific facts of the agreement and transaction between Warner Bros. (F.E.) and Warner Bros. Pictures International Corporation (WPIL) and applies the same ratio to others on the ground that the agreements and transactions among other two are same except for the ratio in which the revenue is shared. There has been no objection to this finding and therefore we also dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Distributor, Distributor shall pay to International in the manner hereinafter specified, the following: Sixty-five percent (65%) of all gross proceeds derived and collected from the distribution, exploitation and exhibition in the territory of the feature motion pictures, trailers and short subject during each yearly period of the term hereof commencing August 30, 1959. The percentages or shares of the gross proceeds shall be paid by Distributor to International at the expiration of each and every week throughout the term of this agreement at such place or places and in such manner as International shall, from time to time, in writing direct. 2.2 Clause 7 of the said agreement to assert that there is no transfer of beneficial ownership from the foreign supplier to the appellants and therefore it does not amount to sale. He further pointed out that clause 7 of the said agreement requires the appellants to return or destroy the films. The said clause reads as under:- 7. Legal title to all negatives and positive prints delivered or manufactured hereunder shall at all times remain in International or in the party or parties designated by the contracts, pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bletting the appellantsinterest in the motion pictures or negatives or positive prints without the prior consent of the foreign supplier. He referred to clause 18 of the said agreement which reads as follows:- 18. Distributor shall not sell, assign or sublet in its entirety Distributors interest in this agreement or in any one or all of the motion pictures or negatives and positive prints, without the prior written consent of International, but nothing contained herein shall prevent International from assigning or otherwise dealing with this agreement without the consent of Distributor. 2.5 The rights of the appellant are restricted only to distribution and do not extend to the sale of the imported motion pictures/prints/trailers in India. 2.6 Clause 19 of the said agreement clearly mandates that the said agreement does not constitute a partnership between the foreign supplier and the appellants. He pointed out that the said clause clearly prescribes that distributor is not the representative or the agent of the foreign supplier. 2.7 Learned counsel pointed out that the appellants, through the branch office in India, are importing the cineprints supplied by the fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction value as stipulated under Rule 9 of the Valuation Rules. No reference to SVB would be necessary where any additions are sought to be made under Clauses (a) and (b) of Rule 9(1). Where, however, the additions sought to be made are considered to be in the nature of royalty and licence feeunder Rule 9(1)(c), or where the value of any part of proceeds of any subsequent resale, disposal or use of imported goods accrues to the seller [i.e. Rule 9(1)(d)] or where any other payments are made or are contemplated to be made in future by buyer to seller as a condition of sale of imported goods etc. [i.e. Rule 9(1)(e)], the case may be referred to the SVB after following the provisional assessment procedure. Learned counsel argued that the said provision did not apply to the appellants under the present facts and circumstances, and for the period prior to issue of this circular. Learned counsel pointed out that despite the above, the GATT Valuation Cell vide letter dated 2.8.2001 asked the appellants to file written submissions as per Boards circular No.11/2001-Cus. dated 23.2.2001 and Public Notice No.52/2001-Cus. dated 12.4.2001. Learned counsel argued that the said public noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is 1.4.1997 to 31.3.2000. Learned counsel argued that there is no reason to depart from the value approved when the notification 205/77 was in vogue, after the same is rescinded. He argued that the method adopted then was the method of valuation furnished by the appellants under Rule 8 of the Valuation Rules and there was no material for the department to resort to the valuation under Rule 7. 2.12 Learned counsel argued that the Interpretative Notes to Rule 4(c) and Rule 4(3) indicate that there is no basis to reject the value furnished by the appellants as there was no sale involved. Learned counsel pointed out that there are no grounds to reject the value furnished by the appellants in terms of Rule 4(2) of the Customs Valuation Rules, 1988. He pointed out that the appellants and the foreign supplier are not related in terms of Rule 4(3) of the Customs Valuation Rules. Learned counsel pointed out that Rule 7 will apply only in the case of goods sold in the greatest aggregate quantity. In the instant case as there is no sale, Rule 7 will not apply. He particularly highlighted the Interpretative Note to Rule 9(1)(c) which reads as follows:- 1. The royalties and licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the country of exportation; (iiia) the cost of production other than computed values which have been determined for identical or similar goods in accordance with the provisions of rule 7A. (iv) the price of the goods for the export to a country other than India; (v) minimum customs values; or (vi) arbitrary or fictitious values. The fact that the appellants seek to apply Rule 8 of the Customs Valuation Rules implies that they agree that there is no transaction value or sale value available in terms of Section 14 of the Customs Act and Rule 4 to 7A of the Customs Valuation Rules, 1988 are not applicable to the facts of the said case. The impugned order holds that even if the argument of the appellant that rule 8 needs to be applied is accepted, under rule 8,in exercise of the best judgment method rule 7 (with suitable modifications) can be applied in exercise of application of rule 8. 4.1 The appellants are seeking assessment of the goods imported by them on the value as determined by the order dated 12.12.1980 which was issued following the order dated 11.12.1980. In both these orders, the following was held:- The Indian Firm, Warner Bros., is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich process the films which consists of cost of material, processing charges etc. It is seen that while both these orders do not record that the valuation has been done with reference to the Notification 205/77, it is apparent that the valuation has been done to arrive at the value chargeable to duty in terms of the said notification. The said notification restricts the value for the purpose of assessment to be sum total of (a) the cost of the print of the cinematograph film; and (b) the freight and insurance charges incurred in respect of the print of such cinematograph film. The valuation was therefore done under rule 8 to arrive at this value, under the residuary rule. It is obvious that other rules do not apply to the case as the value for the purpose of assessment was based on special provisions built in the notification. Thus the appellantsreliance on the order of 1980 and 1988 does not hold much weight and is rejected. Notification 205/77 was withdrawn on 23.7.1996 vide Notification 47/96. Prior to the said date the valuation was done to arrive at the value for assessment to be determined in terms of the notification. It is apparent that for the period after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. To arrive at the transaction value it is needed to calculate the cost of print materials which has been excluded from the price paid at the time of the import of the film. In the context of this transaction and the terms of the agreement, the term cost of print materials would not mean the cost making of print materials (i.e. the cost of producing the film), but the cost of the print material to the appellant. The cost that the appellants are required to pay, at the time of import or otherwise. The film is distributed internationally to various countries/territories and the revenue is generated from the licensees in all the territories. The revenue of the principal from each territory will be the cost to the licensee in that territory. The total revenue of the principal worldwide from all the territories would be measured against the total cost of making the film. The excess of revenue over cost or otherwise and will yield profit or loss to the principal. Thus the term cost of print materials in the context of the agreement only means the cost of print materials to the appellant, and not the cost of producing the film. In this context we examine the terms of the contract bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds being valued, to the extent that such royalties and fees are not included in the price actually paid or payable. Rules have interpretative note and the interpretative note to Rule 9(1) is to the effect that royalties and licence fees referred to in Rule 9(1)(c) may include among other things, payments in respect to patents, trademarks and copyrights. However, the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value. It further provides that payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for export to the country of importation of the imported goods. 6. It could be seen from the invoice made available at page No.3 of the typed set of papers that the petitioner has imported the feature film - Web of Silence - AIDS . The cost of the materials, i.e., one 35 mm (2569 meters length) is valued at 1000 US $ and in 35 mm of trailer (35 mm length) of the said film is 20 US $. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Each of these provisions are examined below individually 7.1 Rule 9(1)(c ) prescribes as follows:- 9. Cost and services. (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (c) 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 included in the price actually paid or payable. It is seen that any amount of royalty or license fee paid during a transaction of sale, as a condition of such sale, would be includible in the transaction value. In the instant case there is no sale involved. The cine prints are imported for a nominal consideration, however as a condition of such import, the appellants are required to pay a percentage of the gross revenue earned by them by use of such cine prints. If the same is considered as the license fee then the same needs to form part of the assessable value, as the same is paid as a condition of import. 7.2 Proviso (a) to Rule 4(2) of the CVR reads as follows: (2) The transaction valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier orders dated 12.12.80 and 6.1.88. The dispute before the original adjudicating authority was if the amount of license fee remitted by the appellant to the supplier of cine prints needs to be included in the Assessable Value. The Original adjudicating authority has included in the Assessable Value the amount of license fee remitted by the appellant to the supplier of cine prints. For the purpose of determining assessable value the original adjudication authority has adopted Rule 7 of CVR, rejecting the contention of the appellant that rule 8 of CVR should be applied. 8.1 The dispute before the Commissioner (Appeal) was if the amount of license fee remitted by the appellant to the supplier of cine prints needs to be included in the Assessable Value. The original adjudicating authority has included in the Assessable Value the amount of license fee remitted by the appellant to the supplier of cine prints. The Commissioner (Appeal) applied rule 8 and thereafter under the best judgment rule, he upheld the method adopted by the original adjudicating authority applying rule 7 in the modified manner. 8.2 Thus in both the stages the sole dispute has been if the amount of license ..... X X X X Extracts X X X X X X X X Extracts X X X X
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