TMI Blog2024 (3) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty or technical know how fee, but also have to examine the pricing arrangement agreed by the parties. Only if the royalty and technical know how fee is paid as a condition of sale of the machinery, it can be added to the transaction value. In the present case, there are nothing stipulated in the agreement that payment of royalty and technical know-how fee is a condition of sale of the imported machinery. The department has not been able to adduce any evidence in this regard. The Hon ble Apex Court in the case of COMMISSIONER OF CUS. (PORT), CHENNAI VERSUS TOYOTA KIRLOSKAR MOTOR P. LTD. [ 2007 (5) TMI 20 - SUPREME COURT ] had occasion to analyse the very same issue in regard to erstwhile Rule 9 (1) (c) of Customs Valuation (Determination of Price of Imported Goods), Rules, 1988. It was held that royalty and technical know how fee must be payable by the importer as a condition of import and that a distinction clearly exists between the amount payable as a condition of import and the amount payable in respect of the manufacturing activity. The royalty and technology know how fee being not a condition of sale, is not to be included in the transaction value. The issue is held in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have entered into a Patent and Technology Agreement with Royalty Clause with M/s.Hitchiner Manufacturing Co., USA. After due process of law, the original authority vide order dt. 27.08.2013 rejected the declared value under Rule 12 (1) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. (for short, CVR, 2007). Further, the original authority ordered to add the lumpsum royalty paid by appellant as one time basis to the transaction value and also ordered for adding royalties proportionately which is to be paid by the appellant subsequently at intervals as agreed by the parties. 2. Against such order, the appellant preferred an appeal before Commissioner (Appeals). The Department also filed appeal before Commissioner (Appeals) contending that though the original authority has rejected the transaction value under Rule 12 (1) of CVR, 2007, he has not redetermined the correct transaction value; that therefore the order passed by the original authority suffers from infirmity to the extent of rejecting the value, and not re-determining the transaction value. Both the appeals were taken up by the Commissioner (Appeals) together and disposed of by passing the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaken by the appellants in India and based on number of components manufactured by appellants. Further these payments are not a condition of sale of the goods imported. Hence as per Rule 10 (1) (c) of Customs Valuation Rules no additions can be made. 3.7 The issue is covered by various decisions of the Hon ble Supreme Court and the Tribunal as mentioned below : i) Commissioner of Customs Vs. Ferodo India Pvt. Ltd., reported in 2008 (224) E.L.T. 23 (S.C.) ii) Commissioner of Cus. (Port), Chennai Vs. Toyota Kirloskar Motor P. Lid. reported in 2007 (213) E.L.T. 4 (S.C) iii) Saint Gobain Glass India Ltd., Vs. Commissioner of Customs, Chennai reported in 2014 (310) ELT 757 (Tri.-Chennai) iv) India Japan Lighting Ltd., Vs. Commissioner of Customs, Chennai reported in 2008 (230) E.L.T. 172 (Tri. -Chennai). v) Denso Kirloskar Indus P. Ltd.. Vs. Commissioner of Customs., Chennai reported in 2005-TIOL-1533-CESTAT-BANG 3.8 Apart from the above, in the case of Mahindra and Mahindra Ltd. reported in 1995 (76) E.L.T. 481 the Hon ble Supreme Court has held that one has to go by the apparent tenor of the agreement and not presume anything. It is open to the Department to investigate the correctne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining 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; 8. As per the above provisions, if the royalty paid is a condition for sale of the goods, the same has to be included in the transaction value. It is argued by the appellant that the lump sum fee and the periodical royalty paid by them has no connection with the import of the goods. Such technology know how fee is related to the manufacturing activity undertaken by the appellant in India. Further, the royalty is paid on the number of components produced. These payments are not a condition for sale of the goods imported and therefore does not require to be loaded in the transaction value. We will now examine the conditions stipulated in the agreement as noticed as under : 4. FEES AND ROYALTIES 4.1 LICENSEE shall pay to HITCHINER a PATENT AND TECHNOLOGY AGREEMENT signing fee egual to five hundred thous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nteed annual minimum royalty payment to be reduced in amount by any royalties actually due and paid under the provisions of Paragraphs 4.2 and 4.3 hereinabove. In the event that LICENSEE should request a waiver of the minimum annual royalty described in either of the first two (2) calendar years of the AGREEMENT due to extraordinary and unforeseen circumstances, HITCHINER and/or MCT, in its reasonable and sole discretion,, may consider granting the requested waiver. 4.5 The parties agree that LICENSEE'S manufacture, sale and/or transfer of LICENSED COMPONENTS to MCT or HITCHINER, or any AFFILIATE of any of them, or the manufacture, sale and/or transfer of prototypes, engineering samples, and the like, do not constitute a COMMERCIAL SALE subject to the royalty provisions of Paragraphs 4.2, 4.3 and 4.4 hereinabove. 4.6 The parties specifically agree to the allocation of Royalty Rates in Paragraph 4.2 that applies when the license includes COUNTERGRAVITY CASTING PATENTS and Paragraph 4.3 that applies when the license does not include COUNTERGRAVITY CASTING PATENTS (i.e. upon the expiration or invalidation of all of the patents) and incudes only COUNTERGRAVITY CASTING KNOW-HOW. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is for using the information, patent and know how in manufacture of the licensed product in India. As per Rule 10 (1) (c), the payment in the nature of royalty or technical know how must be a condition pre-requisite for the supply of imported goods by the foreign supplier. The royalty or technical know-how fee is to be included, if directly or indirectly it is a condition of the sale of imported machinery. The department therefore has not only to look whether there is payment of royalty or technical know how fee, but also have to examine the pricing arrangement agreed by the parties. Only if the royalty and technical know how fee is paid as a condition of sale of the machinery, it can be added to the transaction value. In the present case, we do not find anything stipulated in the agreement that payment of royalty and technical know-how fee is a condition of sale of the imported machinery. The department has not been able to adduce any evidence in this regard. 10. The Hon ble Apex Court in the case of Commissioner of Cus. (Port), Chennai Vs Toyota Kirloskar Motor P. Ltd. 2007 (213) ELT 4 (SC) had occasion to analyse the very same issue in regard to erstwhile Rule 9 (1) (c) of Cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the matters governing the manufacturing activities, which may not have anything to do with the import of the capital goods. 32. Article 4 provided for additional assistance in respect of the matters specifically laid down therein. Technical assistance fees have a direct nexus with the post-import activities and not with importation of goods. 33. It is also a matter of some significance that technical assistance and know-how were required to be given not as a condition precedent, but as and when the respondent makes a request therefor and not otherwise. Appendix C of the agreement relates to manufacture of local parts which evidently has nothing to do with the import of the capital goods. Appendix D again is attributable to construction of plant; production preparation; and pilot production and production model, wherewith the import of capital goods did not have any nexus. 34. We may furthermore notice that Interpretative Note appended to Rule 4 also plays an important role in a case of this nature which reads as under : Note to Rule 4 Price actually paid or payable The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the absence of such condition, the royalty and technology know how fee cannot be said to be a condition of sale so as to be added to the transaction value. The relevant paras read as under : 5. We have carefully gone through the case records and considered the submissions of both the sides. We have perused the copies of Licence and Technology Agreement entered by the appellant with Saint Gobain Vitrage (SGV), France, dated 28-5-1999, and amendment to the said agreement, dated 1-6-2000. The preamble of the agreement reads as under:- Whereas SGV has built, owns and operates plants throughout the world which manufactures float glass through the float process (the Basic Float Process Technology ) and has also developed and possesses certain new confidendal technology and knowledge relating to the Float Process which are of the highest value as they increase productivity and reduce costs (the Additional Technology ). Whereas SGGI is desirous of obtaining access to, and the right to use, the Basic Float Process Technology as well as the Additional Technology in its plant in India and SGV is prepared to grant such access to SGGI, subject to the following terms and conditions. ARTICLE 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grant of the above Basic Float Process Technology and on the Additional Technology, the appellant shall pay to their collaborator a lump sum of two million US $ (the License Amount ) and Royalty at the rate of 3% (Three percent) both on internal sales and export sales, net of taxes for a period of 7 (Seven) years. On a plain reading of the said agreement, we are of the considered view that SGV developed technology and knowledge relating to Float Process, which they will transfer to the appellant on a consideration of payment of license fee and royalty on the goods manufactured and cleared for domestic sales as well as for export by the appellants. Nowhere in the said agreement, it is indicated that the said licence fee and royalty is also on the importation of capital goods from SGV. 7. Customs Valuation Rules, 1988 provides methods for arriving valuation on the imported goods. Since, the appellant has imported the impugned capital goods from their related group company; the lower authorities have taken the recourse to Rule 9(1)(C) of the said rules. The relevant extracts of Rule 9(1)(c) of CVR, 88 is as under :- (c) royalties and licence fees related to the imported goods that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SVB for valuation purpose. The original authority was of the view that the royalty has to be included in the transaction value. Against which the importer filed appeal before the Commissioner (Appeals) who upheld the order passed by the adjudicating authority. The matter reached the Tribunal and after considering the agreement, the Tribunal observed that the appellant has imported the components for the manufacture of Dis Brake Systems of two wheelers. The Department must establish whether royalty and other charges were a condition of sale of imported goods and if not the royalty and other charges is not includable in the assessable value. Relevant para reads as under : 5. The contention of the learned A.R appearing for the department is that after addition of explanation to Rule 10(1)(c). The situation had undergone change even if the goods are processed then the royalty/additional consideration/other charges referred in Clause (c) and (e) of the Explanation of the Rule 10(1) they are to be included in the assessable value, not-with-standing the fact that such goods may be subjected to the said powers after importation of such goods. 6. The learned Advocate in his counter submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited above, we are of the considered view that the royalty and technology know how fee being not a condition of sale, is not to be included in the transaction value. The issue is held in favour of the appellant. 14. The Commissioner (Appeals) has remanded the matter to reconsider the order of the adjudicating authority as to rejection of transition value. From the order passed by the adjudicating authority, we find that in the operative portion of the order, it is stated that the transaction value is rejected . However, there is no discussion or re-determination of transaction value. The original authority has assumed that for loading the royalty and technology know how fees, the transaction value has to be rejected. The department has filed appeal before the Commissioner (Appeals) against this order of adjudicating authority contending that if the transaction value is rejected, the same ought to have been redetermined by the original authority which he has not done. The Commissioner (Appeals) in internal page 5 of the impugned order has discussed this issue and observed that once the transaction value has been set aside, it is for the adjudicating authority to redetermine the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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