2002 (12) TMI 435 - Commissioner - Customs

Summary

Issues:
1. Whether royalty/license fees payable by the importer to the foreign supplier are addable to the value of imported components under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Detailed Analysis:
The appeal in this case was filed by the department against an Order-in-Original passed by the Deputy Commissioner, which stated that the supplier and the importer are related as per Rule 2(2)(v) of the Customs Valuation Rules, 1988. The importer and the supplier were found to be related entities, and the transaction value declared in the import invoice was suggested to be accepted under Rule 4 of the Customs Valuation Rules, 1988, subject to verification. The Order-in-Original did not consider any suppression or mis-declaration affecting the invoice value, leaving it to be addressed under the appropriate law and procedure when noticed.

The grounds of appeal highlighted that the importer had entered into a Technical Collaboration Agreement with a US-based company, and there were subsequent transfers of assets and agreements involving various parties. The dispute arose regarding the addition of royalty mentioned in the Technical Collaboration Agreement to the transaction value, as per Rule 9(1)(c) of the Customs Valuation Rules, 1988. The department argued that since the technical information supplied by the foreign entity was used in manufacturing the imported goods, the royalty payment should be included in the assessable value. However, the importer contended that the royalty was not related to the imported products but rather to the manufacture of licensed goods in India.

During the personal hearing, both parties reiterated their positions, with the department emphasizing the relevance of adding royalty to the value of imported components, while the importer maintained that the royalty was unrelated to the imported products. The Commissioner examined the submissions made by both parties and reviewed the facts of the case as per the records presented.

Upon analysis of the Technical License Agreement and the mode of calculation of royalty, it was observed that the value of the imported components was excluded from the calculation of royalty payable to the foreign supplier. Rule 9(1)(c) allows for the addition of royalty related to imported goods that the buyer is required to pay directly or indirectly. However, since the royalty payment excluded the price of the imported components used in manufacturing the licensed goods, there was no direct or indirect relationship between the royalty and the imported goods. Therefore, the Commissioner rejected the appeal, concluding that the royalty was not addable to the value of the imported components under Rule 9(1)(c) of the Customs Valuation Rules, 1988.