TMI Blog2019 (7) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... he domestic market after importation of the goods has no connection with the import of goods. Once the goods have been cleared from the Customs area the same is not required to be treated as imported goods and all the activities of the management, consultation etc. is relatable to the goods which is ceased to be imported goods in terms of the Customs Act, 1962. While a large number of consignments which has been adjudicated upon in the impugned order, is provisionally assessed and the Commissioner has ordered the finalization thereof in terms of Section 18 of the Customs Act, but also imposed a penalty of equivalent amount under Section 28(4) of the Customs Act. This is clearly not permissible as per Section 18 of the Customs Act, on the ground that the relevant date for payment of duty has yet to arrive after finalization of the assessment by the proper officer in terms of the impugned order. Similarly, in case of demand pertaining to the Bills of Entry which has been finally assessed has not been re-determined by any assessment and also not permissible without filing appeal against the assessment order. Time Limitation - HELD THAT:- It is on record that earlier show caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Manager (Legal Finance) of M/s Quest Retail Private Limited). 2. The brief facts of the case are that the appellant No. 1 is engaged in the business of import and retail sale of the body shop brand of cosmetics and toiletries (hereinafter referred as the imported goods also) through its retail stores in India. The appellant No. 1 has entered into Franchise Agreement dated 8.2.2006 (for short, Agreement) and two side letters dated 19.1.2006 and 16.3.2010 to the agreement with the brand owner M/s The Body Shop International plc. (for short, M/s Body Shop), England, for grant of franchisee and other rights in relation of aforesaid retail business. In terms of the franchise agreement an initial franchise fees of GBP 1,00,000 was payable in addition to franchise fee @ GBP 5,000/- per store opening from the opening of second store, in terms of the said side letter dated 19.1.2006. Similarly, by side letter dated 16.3.2010 store opening fee of GBP 5,000/- per store was waived off for year 2010 and for opening of store with effect from year 2011 was also liable to be waived off only after achievement of specific target of store opening in terms of number for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Commissioner of Customs Vs. Ferodo India Pvt. Ltd. 2008 (224) ELT 23 (SC). It was further submitted that the payment is in the nature of running royalty as per the agreement based on a percentage of sales of imported merchandise in India and hence there is no nexus with the transaction relating to purchase of imported merchandise for from the foreign supplier placing reliance on the decision of Commissioner of Cus. (Import), Mumbai Vs. Bridgestone India Pvt. Ltd. 2013 (292) ELT 403 (Tri.-Mumbai) and Commissioner of Customs (I) Mumbai Vs. Max Atotech Ltd. 2014 (301) ELT 531 (Tri.-Mumbai). 3.1 The learned Advocate also states that royalty is paid for the services received by the appellant from Body Shop and the method of calculation would not determine, if royalty is required to be included in the assessable value as the said royalty has been paid for services provided by appellant to operate as a franchisee, therefore, the royalty payment is not in relation to import of goods for which reliance was placed on the decision of CC, Mumbai Vs. BASF Strenics Pvt. Ltd. 2006 (195) ELT 206 (Tri.-Mum). 3.2 It is the contention of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ELT 456 (SC). It was also submitted that the appellant was under a bona fide impression that royalty fee paid by them is not related to import of the goods but pertained to post importation activities in nature of contract for service after importation and the appellant have discharged the service tax on that transaction. Therefore, it was contended that the demand is time barred and, therefore, the learned adjudicating authority has committed an error while confirming the said demand in the impugned order invoking the extended period. 4. Learned Authorised Representative on behalf of the Department reiterated the findings contained in the impugned order. After the conclusion of hearing, as per the direction of the Bench, learned Authorised Representative made written submission dated 15.2.2019 where he is stated as under : (a) Royalty and franchise fee is includible in the assessable value of the imported goods under the provisions of Rule 10(c) and 10(e) of the Customs Valuation Rule and the plea of the appellant that the payment is related to the post importation activity is incorrect. The conditions of franchise agreement read with the side letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and hence is includible in the assessable value under the Customs Act, 1962/Customs Valuation Rules. (e) Learned Authorised Representative submits that there is no bar in imposition of Customs duty when the service tax is paid on the same transaction placing reliance on the decision of the judgement of this Tribunal in the case of Atul Kaushik 2015 (330) ELT 417 (Tri.-Del.), wherein it is held that the license fee paid is includible in the assessable value of the goods in terms of Customs Act and Rules made thereunder and there is no provision warranting exclusion from the assessable value for the purpose of customs purpose on the ground that the service tax has become chargeable on license fee and different statute. This decision has been affirmed by Hon ble Supreme Court (2016 (342) ELT A40 (SC). Therefore, the decision of Hon ble Tribunal in Multimedia case (supra) is per incurium as the Hon ble High Court was not made aware of case of Indo Overseas (supra). Hon ble Mumbai Tribunal which finds its mention in case of Warners Bros 2018 (359) ELT 546 (Tri.-Mumbai) has discussed this. (f) Learned Authorised Representative also submits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions, it is submitted that the projection range pertaining to the rate of payment of royalty is given only as a business practice so that the appellant achieves the quarterly target as provided by M/s Body Shop International PLC (hereinafter referred to as the supplier ). It is submitted that the appellant is not disputing the fact that royalty payments are being made in relation to the local sales of the impugned goods. The submission of the appellant is that payment of royalty on such sales being in the nature of a post-importation activity, cannot be linked to the goods being imported. Further, as submitted above, method of calculation of royalty cannot be the basis for saying that such royalty payments are being made in relation to the imported goods. (d) It is also submitted that the argument of the ld. DR that the imported goods and goods being sold are one and the same as there is no processing or manufacture being undertaken on any of the imported goods and they are sold as such, is legally not sustainable in light of the definition of imported goods under Section 2(25) of the Customs Act, 1962, as per which goods cease to be imported goods once th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical assistance and know-how under the franchise agreement which has been treated as a service by the Service Tax Department and the payment has been made on the basis of reverse charge mechanism under the provisions of Rule (2)(1)(d) of Service Tax Rules, 1994. 5.1 The learned Advocate has submitted that the extended period is not invocable in this case, under Section 28(4) of the Customs Act on the ground that the exactly similar show cause notice has been issued to the appellant on 12.3.2012. Further, the issue is regarding one of the interpretation of law and, therefore, there is no element of collusion, willful, mis-statement or suppression of fact and hence extended period cannot be invoked. Reliance placed by learned DR in the case of Maldhari Sales Corporation (supra) is not relevant in the facts and circumstances of the present case. 5.2 Penalty, which has been imposed under Section 112(2)(ii) is not also imposable on the appellant in case of the provisionally assessed bill of Entry placing reliance on the decision of Indian Oil Corporation Ltd. Vs. Commissioner of Cus. C. Ex., Cochin 2004 (178) ELT 713 (T), which has been affirmed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of this Agreement is equivalent to 0% of the Gross turnover of the immediately preceding month or $0 whichever is higher). The first payment of the said royalty is to be made by the last business day of the second month after the commencement date and the last payment thereof is to be made by the last business day of the month immediately following the month in which this Agreement is terminated or the term hereof expires. I find that other than clause 6.3 of the agreement there also exists a letter dated 19.1.2006 which was addressed to Shri V.P. Sharma, Quest Retail Private Limited, Jaipur by Mr. Peter Saunders, Chief Executive Officer. The Body Shop International Plc. which was related to Franchisee Agreement confirming grant of right on an exclusive basis to the Franchisee binding them: (i) that in addition to the fee of 100,000 (Pounds) set out, Franchisee agrees to pay a further franchise fee of 5,000 (Pounds) per store opening from the date of the opening of your second store. You agree to pay this fee on the opening date of each store which date is to be agreed in advance by the Company. (iv) that the renewal fee contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l pay a royalty of 2.5% p.a. on total sales, and for the avoidance of any doubt, the only penalty for failing to achieve the projection range sales shall be payment of the royalty at the higher 2.5% p.a. rate: that is to say such failure shall not constitute a material breach of the Agreement. (iv) Should the total sales be in excess of this projection range, the franchisee shall pay a royalty of 1% p.a. on incremental sales above the projection range. (v) Payments of the royalty shall be made quarterly, no later than the last business day of the month following the month of each quarter subject to withholding tax as applicable from time to time. In the first three quarters of any given year, the franchisee shall pay the royalty at 2% p.a. of each quarter s sales ( Quarterly Sales ). In the final quarter of any given year, the franchisee shall pay 2% p.a. on the quarterly sales for that quarter and shall either: Where the total sales have fallen below the projection range, pay in addition another 0.5% p.a. royalty on the total sales: Where the total sales have exceeded the projection range, such excess to be notified to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oms Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf: Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf: Provided further that the rules made in this behalf . Rule 10 (c) royalties and license fees rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that while a large number of consignments which has been adjudicated upon in the impugned order, is provisionally assessed and the Commissioner has ordered the finalization thereof in terms of Section 18 of the Customs Act, but also imposed a penalty of equivalent amount under Section 28(4) of the Customs Act. This is clearly not permissible as per Section 18 of the Customs Act, on the ground that the relevant date for payment of duty has yet to arrive after finalization of the assessment by the proper officer in terms of the impugned order. Similarly, in case of demand pertaining to the Bills of Entry which has been finally assessed has not been re-determined by any assessment and also not permissible without filing appeal against the assessment order as has been held in Priya Blue case. 11. In view of above, the impugned order is also not sustainable. Regarding the demand hit by limitation, we find considerable force in the contention made by the appellant. It is on record that earlier show cause notice has been issued to the appellant on the similar set of facts and circumstances and in respect of same agreement and side letters. The case was adjudicated u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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