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TMI Blog2024 (8) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... d the food industry carrying the trademark. The quantum of MSG supplied to industrial consumers was outside the purview of royalty payments. The adjudicating authority held that in terms of Rule 10(1)(c) & (e) of the Customs Valuation Rules, 2007 (CVR 2007) appellant is liable to add royalty @1% on the net domestic sales of repacked MSG to the invoice price of the imported goods from Ajinomoto Co. Thailand Ltd. He further held that professional charges are to be added to the invoice price under Rule 10(1)(e) ibid. Aggrieved by the said order, the appellant preferred appeal before Commissioner (Appeals) who upheld the portion of the order whereby royalty of 1% was ordered addable to the invoice price of the imported goods and set aside that portion of the order allowing the addition of 'Professional charges' to the invoice price. Hence the appellant has filed this appeal against the inclusion of royalty to the invoice price. 2.1 No cross-objection has been filed by the respondent-department. 3. Shri K. Sivarajan, learned Chartered Accountant appeared for the appellant and Shri P. Narasimha Rao, learned Commissioner (AR) and Smt. O.M. Reena, learned Additional Commissioner (AR) app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly to Ajinomoto Thailand as a condition of sale of the imported MSG. Rule 10(1)(c) of CVR 2007 can be invoked only if it is a pre-condition of sale of imported goods. Hence for the stated reasons, payment of royalty @ 1% based on Trademark License Agreement by adding it to the transaction value is untenable. The appellant has further filed a Miscellaneous Application under Rule 41 of the CESTAT Procedure Rules, 1982 for admission of "Additional Grounds of Appeal". They have stated that that they had inadvertently annexed the Trademark License Agreement dated April 2011, instead of Trademark License Agreement dated 28 November 2003 in the set of documents filed for Appeal No. Customs/41402/2014 filed before on 25 June 2014. They assure that this error was unintentional and occurred due to oversight. The Ld. CA prayed that the impugned order may be set aside. 3.2 The learned ARs submitted on behalf of the respondent- department that Ajinomoto India, Thailand and Japan are related parties, so the argument that royalty on 1% net sales goes to Ajinomoto Thailand is immaterial as these are the internal financial arrangements between the three parties. Without the import of MSG the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t period and hence allow their request. We also find that the appellant has objected to certain new issue of law raised by the respondent, stating that they are beyond the observations made by the Ld. Adjudicating Authority who passed the Order in Original. A point of law which is relevant and material and can be argued without any further evidence being taken, can be allowed to be raised at any time. [see Chitturi Subbanna Vs Kudapa Subbanna & Others - 1965 AIR 1325 / 1965 SCR (2) 661]. Many a time such points arise from the averments and as a counter to legal positions that are taken at the time of making submissions. With the appellant taking the help of subsequent day judgments and legal issues that have crystalised after a passage of time, revenue cannot be asked to contest the same with one arm tied to its back, by way of denying any fresh arguments on a point of law not taken before the Original Authority. Averments on a point of law helps in giving a rounded view and in making good law. We hence permit the same. 5. Before taking up the issues involved, the relevant paragraphs of the 'Trademark License Agreement' which is at the core of the dispute is reproduced below; TR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s invoice price of the Product with the Trademark, less only discounts, accepted returns from LICENSEE's customers, breakage, transport costs, insurance and excise or other sales taxes to the extent that they are included in the gross invoice price, unless otherwise required by governmental regulations. (7) "Execution Date" shall mean the date first above written. Article 2. Grant of License 1. LICENSOR hereby grants to LICENSEE a non-exclusive and non- transferable license, with no right to sublicense, to use the Trademark on the Product in the Territory ("License"). 2. It is agreed and understood that the Trademark shall remain as the sole and exclusive property of LICENSOR and nothing herein contained shall be construed to give LICENSEE or any other party any right, title or interest, except otherwise specifically provided for herein, or to grant the right to use the Trademark or similar marks to any products other than the Product. Article 3. Consideration As consideration for the License granted hereunder, LICENSEE shall pay to LICENSOR a royalty of one percent (1.00%) of the Net Sales of the Product bearing the Trademark and sold by LICENSEE. 6. We find that, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 563], examined a similar issue involving Rule 9 of CVR 1988 which is in pari materia with Rule 10 of CVR 2007. The Hon'ble Court held; 16. Under rule 9(1)(c), the cost of technical know-how and payment of royalty is includible in the price of the imported goods if the said payment constitutes a condition pre-requisite for the supply of the imported goods by the foreign supplier. If such a condition exists then the payment made towards technical know-how and royalties has to be included in the price of the imported goods. On the other hand, if such payment has no nexus with the working of the imported goods then such payment was not includible in the price of the imported goods. 17. . . . . . 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held by the Hon'ble Karnataka High Court, in N. Govindaraju Vs I.T.O. [(2015) 377-ITR-243 (Karnataka)] that a section has to be understood and read hand in hand with the Explanation, which is only to support the main provision, like an example does to explain any situation. 10. As per the appellant 'condition of sale' of the goods arises only when the payment of royalty / license fee is insisted on for supply of goods and there is no such finding in the instant case. We find that the royalty in this case has been paid for the use of trademark and not for a process. Secondly where the royalty is includible as referred to in clauses (c) and (e) above, the use of such a process should also emanate from the condition of sale for it to be added to the price actually paid or payable. Thirdly while Rule 10(1)(c) states that royalty could be paid directly or indirectly, we find that the transaction value has been accepted and revenue has not alleged, let alone proved, that there was any financial flow back between Ajinomoto India and Japan or Thailand so as to influence the transaction value of imported MSG. Hence since royalty is not made a condition of sale for import by Ajinomot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as examined by the Apex Court in Garden Silk Mills Ltd Vs Union of India [1999 (113) E.L.T. 358 (S.C.)]. The Hon'ble Court held; "16.. . . . It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed." In the impugned case the manner of domestic sale is not part and parcel of the condition of import. Hence postponing the collection of duty to the time of domestic sale of the goods after being repacked under a trademark, amounting to manufacture, appears far too remote to retain the character of a Customs impost. The nexus between the imported goods and those being sold cannot be said to exist. As per the impugned order, the royalty is ordered to be paid for activities post customs clearance after the goods no longer retain the identity of the imported goods and are worked upon for sale domestically containing the trademark. 13. In R.C. Jall v. Union of India [AIR 1962 SC 1281 : 1962 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11) ELT 200 (SC)] 16. Royalty or payments for use of intellectual property etc, differ from business to business and there is no standard format. Hence each judgment is an authority in the setting of its own facts and terms of agreement. The Tribunal judgments in Herbalife International and Fujitsu Ten India Pvt Ltd are based on the Apex Courts Judgment in Matsushita Television & Audio. The said judgment in Matsushita was examined by the Hon'ble Supreme Court in Ferodo India Pvt. Ltd. (supra) and it was held that the pricing arrangement and TAA are both to be seen by the Department. 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. No such condition of sale is noticed by the Original Authority from the Agreement in the impugned case and hence the judgments are distinguished. Further in the case of Kruger Ventilation Indus. (North India) Pvt. Ltd. Vs Commr. of Customs (Impo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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