TMI Blog2017 (9) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... uch royalty is to be considered as the condition of sale of the components by EAB to the appellant. The issue is similar to the judgement of Hon’ble Supreme Court in Matsushita Television & Audio (I) Limited v/s Commissioner of Customs [2007 (4) TMI 5 - SUPREME COURT OF INDIA], where it was held that royalty in relation to the sale only includible in assessable value. Before adding the royalty amounts to the value of imported components, it is necessary for the department to examine both the technical assistance agreement as well as the pricing agreement. Before taking the final view in the matter, it is necessary to re-examine the matter of both license agreement as well as supply contract simultaneously, to see if the enhanced royalty was in the guise of adjustment of the price of components. Appeal allowed by way of remand. - C/52951 Of 2016 With C/52949/2016 & 52950/2016-CU[DB] - C/A/55841-55843/2017-CU[DB] - Dated:- 14-8-2017 - Dr. Satish Chandra, President And Mr. V. Padmanabhan, Member (Technical) Present Shri V. Lakshmikumarn, Advocate for the appellant Present Shri Govind Dixit, DR for the respondent ORDER Per: V. Padmanabhan 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract. ii. Technical co-operation agreement dated 23.12.2008 with LME, Sweden: The Appellant (licensee‟ under the agreement dated 23.12.2008 (hereinafter referred to as license agreement or TCA ) with the parent company LME, Sweden ( licensor under the agreement) for grant of non-exclusive rights and licenses to manufacture, sell, repair, and service Licensed Products (RBS, MSC, BSC and other products to be agreed) using Ericsson knowhow and Ericson IPR furnished by the Licensor. iii. On the basis of the supply contract with EAB, appellant imported various components from time to time. The Ld. Senior Counsel for the appellants submits that such import from related supplier has been examined by the Special Valuation Brach from time to time and the valuation has been accepted. SVB specially has passed orders accepting transaction values in 2007, 2010 and 2013. As per the technical cooperative agreement, TCA, the appellant was provided access to Ericson knowhow and IPR, which was made used by the appellant for purpose of manufacture of the licensed products in their factory. iv. In addition to the imported components, the appellant also procured components l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 10 (1) (c) of the Customs Valuation Rules, 2007. 7. Shri V. Lakshmikumaran, Senior Counsel, arguing the case of the appellant, submits the following main points. i. In terms of Rule 10 (1) (c), royalties may be added to the price of imported goods only if such royalties are related to the imported goods that the buyer is required to pay directly or indirectly, as a condition of the sale of goods being valued, to the extent that such royalties are not included in the price actually paid or payable. He argued that the royalties were being paid to LME, Sweden strictly for the purpose of the appellant getting access to Ericson knowhow as well as IPR which are required for the purpose of undertaking manufacture of the licensed products in their Jaipur factory. He further submitted that the license agreement was only for the purpose of availing the service on which service tax was being paid in the category of royalty service. Since such royalties are not being paid as a condition of the sale of goods by EAB, there is no justification for loading such value into the price of imported components. He also added that service tax and customs duty cannot be demanded on the same tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is that such royalty payment needs to be added to the value of components imported by the appellant as per the supply contract of EAB. 12. It is relevant to note that in terms of the erstwhile license agreement dated 23/12/2008, royalty was to be paid at the rate of 5 per cent of the net selling price of the licensed products, from which cost of imported components were to be excluded along with taxes. However, in the new license agreement w.e.f. 01/04/2012 the royalty amount of 5.75 per cent was to be paid on the sale value of the licensed products after exclusion of taxes but including the cost of the imported components. Since the significant percentage of the imported components have been procured from EAB Sweden, revenue has taken the stand that such royalty is to be considered as the condition of sale of the components by EAB to the appellant. 4. From the impugned order we find that the show cause notice as well as impugned order has relied upon the judgment of the Hon ble Supreme Court in Matsushita Television Audio (I) Limited v/s Commissioner of Customs (supra) in which the Apex Court held as follows:- 7. The question which arises for consideration i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of brake liners and brake pads (licensed products) by the licensee. Under the agreement, the licensor agreed to disclose the relevant secret processes, formula and information to the licensee. Under the agreement, the licensee was required to import/buy raw material and capital goods from the licensor. Under the agreement, 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. The Apex Court further observed as follows: 18. Royalties and licence fees related to the imported goods is the cost which is incurred by the buyer in addition to the price which the buyer has to pay as consideration for the purchase of the imported goods. In other words, in addition to the price for the imported goods the buyer incurs costs on account of royalty and licence fee which the buyer pays to the foreign supplier for using information, patent, trade mark and know-how in the manufacture of the licensed product in India. Therefore, there are two concepts which operate simultaneously, namely, price for the imported goods and the royalties/licence fees which are also paid to the fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3)(a) and Rule 4(3)(b) of the CVR, 1988 provides for different means of establishing the acceptability of a transaction value. In the case of Matsushita Television (supra) the pricing arrangement was not produced before the Department. In our view, the Consideration Clause in such circumstances is of relevance. As stated above, pricing arrangement and TAA are both to be seen by the Department. As stated above, in a given case, if the Consideration Clause indicates that the importer/buyer had adjusted the price of the imported goods in guise of enhanced royalty or if the Department finds that the buyer had misled the Department by such pricing adjustments then the adjudicating authority would be justified in adding the royalty/licence fees payment to the price of the imported goods. Therefore, it cannot be said that the Consideration Clause in TAA is not relevant. Ultimately, the test of close approximation of values require all circumstances to be taken into account. It is keeping in mind the Consideration Clause along with other surrounding circumstances that the Tribunal in the case of Matsushita Television (supra) had taken the view that royalty payment had to be added to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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