TMI Blog2019 (10) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the process of the supply of the initial materials in terms of the said agreement shall commence - In view of Interpretative Note 2 to Rule 10(1)(c), reproduced above such amounts paid towards distribution rights are to be included in the assessable value of the imported goods if they are charged as condition of sale of the goods. The issue of inclusion of the License Fee in terms of Distributor Agreement, had been settled by the Apex Court in the decision in case of ASSOCIATED CEMENT COMPANIES LTD. VERSUS CC [ 2001 (1) TMI 248 - SUPREME COURT] . Thus, there are no merits in the submissions made by the Appellant that at the relevant time there was any confusion prevailing with regards to inclusion of such value - Hence by not including the value of the License Fee or Guarantee paid by them under the agreements referred above relating to import of the Digi Beta Cam, with the movies on them they have misdeclared the said goods in terms of the value and have rendered them liable for confiscation under Section 111(m) of Customs Act, 1962 - Since the goods have been held liable for confiscation under Section 111, the appellant for their act of misdeclaration are liable to penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der imposition of personal penalty of ₹ 50,000/- (Rupees Seventy Thousand only) for the said imports on M/s Federal Express (India) Pvt Ltd., under Section 112(a) of the Customs Act, 1962. By the impugned order in Appeal No C/130/2011, Commissioner (Appeal) has reduced the total fine to ₹ 75,000/- and penalty under Section 112(a) to ₹ 50,000/-. Order in Original No JC/SK/ADJN/21/2108-09 dated 25.04.2008 20. In view of facts and circumstances and the discussions made in the earlier Paras, I pass the following orders; a) the declare value of ₹ 12,386/- for goods imported vide AWB No 7879790984, and Bill Of Entry 45009 dated 27.01.08, is rejected and the same shall be assessed at ₹ 6,13,840/- (Rupees six lakhs thirteen thousand eight hundred forty only) b) the declare value of ₹ 243/- for goods imported vide AWB No 8860603673, and Bill Of Entry 45371 dated 30.01.08, is rejected and the same shall be assessed at ₹ 7,21,990/- (Rupees seven lakhs twenty one thousand nine hundred ninety only) c) the good imported vide AWB No 7879790984, and Bill Of Entry 45009 dated 27.01.08, valued ₹ 6,13,840/- are confisca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (India) Pvt Ltd. 2.4 Both the show cause notices have been adjudicated by the Joint Commissioner as per the order in original indicated in para 1.2, supra. 2.5 On appeal Commissioner (Appeal) has by the impugned orders upheld the order of adjudicating authority to the extent of rejecting the declared value and enhancing the same. While upholding the order confiscating the goods, he reduced the redemption fines imposed as indicated above and also the penalties imposed under Section 112(a) on the Customs Act, 1962. 2.6 Aggrieved by the impugned orders of Commissioner (Appeal), appellants have preferred these appeals. 3.1 Challenging the impugned orders, appellant has in his appeals, submitted that- The Rule 10(1)(c) of Customs Valuation Rules provide royalties and license fees should be included in the transaction value if: License fees are related to the imported goods; and The payment of license fees is a condition for the sale of the imported goods. The payments made by them were for the material value (i.e. digi beta tapes in which the movie titles are imported) and for rights in relation to post importation activities such as reproduction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant were granted the copyright in the form of receiving right to reproduce the licensed contents. Rule 10(1) (c) only applies in respect of royalties and license fees related to the imported goods that buyer pays as condition of sale of goods being imported. In terms of interpretative note 10 to Rule 10(1)(c), the charges for the right to reproduce imported goods in the country of importation not includible irrespective of whether such payment is condition of sale or not. The condition of sale qualification applies only when the payment is towards right to distribute or resale the imported goods. Admittedly in the present case, royalty/ license fee is payable for receiving the right to reproduce i.e. to make VCD/DVD from the content and therefore the same is not includible in assessable value. Issue has been decided by tribunal in case of Saregama India Ltd [2017 (345) ELT 236 (T-Mum)]. They also rely on the International Commentary on the GATT Customs Valuation Code By Saul L Sherman at page 124, para 294 and page 139 para 356. European Commission has in its commentary Compendium of Customs Valuation Texts has clarified that the amounts paid by the buyers o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No 45371 dated 30.01.2008 the payments were made in terms of Outright Distribution Agreement dated 21.05.2007 for the movie Feast of Love with Lakeshore Entertainment Group LLC. The total payment under this agreement i.e. US$ 18,000/- is made on execution of the agreement. The entire amount is paid prior to actual import of Digi Beta Tapes. In case this payment was not paid the initial delivery of movie on the tangible media would not have materialized. Thus from the contracts it is clear that the right conferred for which this amount (license fees) is paid is not a mere right to reproduce the imported goods. The case of Saregama relied upon by the Appellants is clearly distinguishable as the license fees was not incumbent on manufacture and gross sales in India. Here the license fee/ amount was paid upfront for import of digi beta tapes. The issue is squarely covered by the decision of Madras High Court in case of Indo Overseas Films [2007 (210) ELT 348 (Mad)] Reliance is also placed on the decision of Supreme Court in case of Associated Cement Company [2001 (128) ELT 21 (SC)] 5.1 We have considered the impugned order along with the submissions made in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods. Interpretative Notes: Rule 10(l)(c) 1. The royalties and licence fees referred to in rule 10(l)(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. 2. 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. There can be no dispute about the fact that all the payments made by the buyer to the seller as condition of sale of goods except the payments towards right to reproduce will form the part of the assessable value to be determined for the purpose of payment of Customs duty. The decisions relied upon by the both appellant and revenue also lay down the same law. 5.4 To determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts 3.2 Vesting: Each Licensed Right will only vest in the Distributor after the following is met in accordance with the Deal Terms: (1) Distributor accepts Initial Delivery of the Picture; and (ii) Distributor pays Licensor the entire License Fee. B. Distribution Agreement dated 21st May 2007 between Appellant and Lakeshore Entertainment Group LLC (Movie Feast of Love ) 5. Financial Terms: a) Guarantee: Eighteen Thousand U S Dollars (US$ 18,000) ( Guarantee ) b) Payment Installments: The Guarantee is payable to Licensor in the following installments: 100% (US$ 18,000) payable on execution of this agreement. c) Minimum Net Sum: The Guarantee and all payments due to Licensor are minimum net sums and no deduction of any kind may be made from them. d) Vesting: Rights in the Picture shall not vest to Distributor until Licensor s receipt of full payment of the Guarantee and in accordance with the terms of this Agreement. e) Payment Method; All payments made under this Agreement shall be made by wire transfer of cleared funds to the account in Paragraph 5(f) below: f) . g) Invoices: Invoices shall not be required for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Distributor Theatrical (before recoupment) N/A % N/A % Free TV 50 % 50 % Theatrical (after recoupment) N/A % N/A % Pay TV 50 % 50 % Non Theatrical N/A % N/A % Pay Per View 50 % 50 % Home Video Rental N/A % N/A % Video on Demand N/A % N/A % Home Video Sell Through N/A % N/A % ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph, the payment of the fee/ royalty being a condition of sale of the pictures to the appellant, this note is not attracted. 5.6 Tribunal has in case of Indo Overseas Films [2002 (139) ELT 729 (T)] held as follows: 3. The facts of the case are that the appellants imported feature films titled Web of Silence - AIDS in 35 mm print of 2569 Mtrs along with one trailer in 35 mm of 35 Mtr length and declared the value for the purpose of assessment as US $ 1000 and US $ 20 respectively totalling US $ 1020. It was noticed that the appellants paid US $ 12,500 towards Royalty including one brand new print and one Trailer (Rights of reproduction and distribution for public performance for the territories of India) - US $ 12,500/-. The appellants contended that in terms of Rule 9(1)(c) of the Customs Valuation Rules 1988 it is obvious that the charges made for the right to reproduce the imported goods in the country of importation are not to be added to the price paid or payable for the imported goods and also 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the records of the case and the submissions of the appellant carefully. The issue boils down to includability of US $12500 under Rule 9(1)(c) of the Valuation Rules. As per the Distribution Agreement, the Licensor licenses exclusively to the Distributor viz. the appellant the picture in the territory i.e. India for the period upto December 31, 2002. Which confers theatrical as well as home video and commercial video rights. The payment of US $12500 covers licence fees, one brand new print and one Brand new trailer. The invoice for the import of the impugned goods shows royalty including one brand new print and one Trailer (Rights of re-production and distribution for public performance for the territories of India) - $ 12,500 and cost of movie material-$1,020. Under Rule 9(1)(c) of the Valuation Rules, 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 such royalties and fees are not included in the price actually paid or payable. In the instant case, the appellant had to pay not only the cost of movie materials but also the royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the Interpretative Rules is acceptable, the agreement does not give any break-up of the amount payable towards each of the rights/licences granted to the appellant and as such exclusion of a portion of the total amount towards reproduction charges is not feasible. In view of this, the decisions/opinions cited by the appellant are not relevant and cannot come to his rescue. Accordingly, the lower authority s order is maintainable and the appeal is rejected. 5. Shri M. Murugappan, ..... 6. Shri A. Jayachandran, ....... 7. On consideration of the submissions made, we notice that the aspect pertaining to includibility of royalty charges cannot be disputed in view of the ruling rendered by the Hon ble Supreme Court and the Tribunal decision noted above. The learned Counsel has made fervent appeal for the exclusion clause of the interpretative rules which according to him has been accepted by the Commissioner (Appeals). The learned Counsel relied upon the typed papers in the paper book which is said to be the ruling of US and Finland export valuation book. The authenticity of these is not proved. It does not have persuasive value as in the case of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the value of the imported goods, i.e., feature film is 1020 US $. Apart from that royalty including one new print and one trailer with the right of reproduction and distribution of public performance for the territories of India had been valued at 12500 US $. The payment of 1020 US $ for the print and trailer and 12500 US $ towards royalty for exploitation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of movable property. 21. It is thus to be seen that under the Customs Act, apart from what had been specified therein, any other kind of movable property constituted goods. This Court held as follows : 27. According to Section 12 of the Customs Act, duty is payable on goods imported into India. The word goods has been defined in Section 2(22) of the Customs Act and it includes in clause (c) baggage and clause (e) any other kind of movable property . It is clear from a mere reading of the said provision that any movable article brought into India by a passenger as part of his baggage can make him liable to pay customs duty as per the Customs Tariff Act. An item which does not fall within clause (a), (b), (c) or (d) of Section 2(22) will be regarded as coming under Section 2(22)(e). Even though the definition of the goods purports to be an inclusive one, in effect it is so worded that all tangible moveable articles will be the goods for the purposes of the Act by residuary clause (e) of Section 2(22). Whether moveable article comes as a part of a baggage, or is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable. 42. To put it differently, the legislative intent can easily be gathered by reference to the Customs Valuation Rules and the specific entries in the Customs Tariff Act. The value of an encyclopedia or a dictionary or a magazine is not only the value of the paper. The value of the paper is in fact negligible as compared to the value or price of an encyclopedia. Therefore, the intellectual input in such items greatly enhances the value of the paper and ink in the aforesaid examples. This means that the charge of a duty is on the final product, whether it be the encyclopedia or the engineering or architectural drawings or any manual. 43. Similar would be the position in the case of a programme of any kind loaded on a disc or a floppy. For example in the case of music the value of a popular music cassette is several times more than the value of a blank cassette. However, if a pre-recorded music cassette or a popular film or a musical score is imported into India duty will necessarily have to be charged on the value of the final product. In this behalf we may note that in State Bank of India v. Collector of Customs [(2000) 1 SCC 727 : (2000) 1 Scale 72] the Bank had, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... protocol and the WTO agreement. In fact our rules appear to be an exact copy of GATT and WTO. For the purpose of valuation under the 1988 Rules the concept of transaction value which was introduced was based on the aforesaid GATT protocol and WTO agreement. The shift from the concept of price of goods, as was classically understood, is clearly discernible in the new principles. Transaction value may be entirely different from the classic concept of price of goods. Full meaning has to be given to the rules and the transaction value may include many items which may not classically have been understood to be part of the sale price. 46. The concept that it is only chattel sold as chattel, which can be regarded as goods, has no role to play in the present statutory scheme as we have already observed that the word goods as defined under the Customs Act has an inclusive definition taking within its ambit any movable property. The list of goods as prescribed by the law are different items mentioned in various chapters under the Customs Tariff Act, 1997 or 1999. Some of these items are clearly items containing intellectual property like designs, plans, etc. 47. In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. That a computer program may be copyrightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, moveable and available in the marketplace. The fact that some programs may be tailored for specific purposes need not alter their status as goods because the Code definition includes specially manufactured goods . 49. We are in agreement with the aforesaid observations and hold that the value of the goods imported would depend upon the quality of the same and would be represented by the transaction value in respect of the goods imported. 22. To be noted that this authority is directly dealing with the question in issue. Even though the definition of the term goods in the Customs Act is not as wide or exhaustive as the definition of the term goods in the said Act, it has still been held that the intellectual property when it is put on a media becomes goods. Mr. Sorabjee submitted that whilst referring to the case of St. Albans City and District Council v. International Computers Ltd. [1996 (4) All ER 481] this Court missed the express finding of that Court to the effect clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of goods within the meaning of the term as defined in the said Act. The term all materials, articles and commodities includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes. In the concurring judgment, Hon ble Justice S B Sinha, recorded as follows: 71. A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, as noticed by my learned Brother, Variava, J., does not make any distinction between tangible property and intangible property. A goods may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be goods. Unlike the American Courts, Supreme Court of India have also not gone into the question of severability. 75. Recently, in Commnr. Of Central Excise, Pondicherry v. M/s. Acer India Ltd. [2004 (8) SCALE 169] this Court has held that operational software loaded in the hard disk does not lose its character as tangible goods. 76. If a canned software otherwise is goods , the Court cannot say it is not because it is an intellectual property which would tantamount to rewriting the judgment. In Madan Lal Fakirchand Dudhediya v. Shree Changdeo Sugar Mills Ltd. [(1962) Suppl. 3 SCR 973], this Court held that the court cannot rewrite the provisions of law which clearly is the functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in beta tapes in the assessable value since such a proposition lacked logic. In that matter, there was no requirement for rejection of the declared value in the absence of any other allegations. 10. If the licence fee was intended as a consideration solely for the right to reproduce the contents in India or was payable on account of transfer of rights for distribution in India, it is only reasonable to infer that the payment would be linked to the earnings or to the number of targeted eyeballs . We find from the contract that the royalties are related to the number of episodes. There is also no justification to conclude that the said royalty/licence fee may include consideration for reproduction or distribution rights. The Hon ble High Court of Madras in Indo Overseas Films v. Union of India [2007 (210) E.L.T. 348 (Mad.)] by 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, the value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the appeal and the same is dismissed. affirmed the decision of the Tribunal that, in the absence of discharge of burden of proof for seeking exclusion from such part of the royalty, the entire royalty would have to be added to the assessable value. The enhancement of value must sustain. 11. The claim of the appellant for not invoking the extended period does not find much favour and the reliance placed on the decision of the Hon ble High Court of Bombay in re Star Entertainment Pvt. Ltd. which noted the decision of the Hon ble Supreme Court in Continental Foundation Joint Venture v. Commissioner of Central Excise, Chandigarh-I [2007 (216) E.L.T. 177 (S.C.)] that 10. The expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as fraud or collusion and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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