2007 (3) TMI 3 - SC - Customs

Valuation(Custom) - An importer have technical collaboration with a foreign company - Both companies are related - As per the Commissioner decision, payment of technical charges are included in cost of raw-material but not conceded by tribunal and matter remanded to adjudicating authority

Summary

Issues:
1. Valuation of raw materials imported under a Technical Collaboration Agreement.
2. Inclusion of technical know-how charges in the assessable value of raw materials.
3. Relationship between the importing company and the foreign collaborator.
4. Interpretation of Customs Valuation Rules, 1988 in the context of related parties.
5. Application of Rule 4(2)(a) and (b) of the Customs Valuation Rules, 1988.
6. De novo consideration by the adjudicating authority.

Analysis:

1. The case involves a civil appeal under Section 130E of the Customs Act, 1962 regarding the valuation of raw materials imported under a Technical Collaboration Agreement between two companies. The respondent, a manufacturer of leather chemical products, imported raw materials for upgradation of its manufacturing plant in India. The Department sought to include technical know-how charges in the assessable value of the raw materials under Rule 8 of the Customs Act, 1962.

2. Initially, the adjudicating authority ruled in favor of the respondent, holding that there was no mutuality of interest between the companies, and the fees were not includible in the assessable value. However, the Collector of Customs (A) overturned this decision, stating that the technical know-how charges should be added to the value of raw materials based on the relationship between the companies and the application of Rule 4(2)(a) and (b) of the Customs Valuation Rules, 1988.

3. The respondent appealed to CEGAT, which found that the companies were related but concluded that the addition of a specific amount to the cost of raw materials was not the issue before the appellate authority. The Tribunal held that the matter was solely about the valuation of capital goods and not the raw materials, leading to the decision that the amount should not be added to the raw material's cost.

4. The Supreme Court disagreed with the Tribunal's approach, emphasizing that the relationship between the companies changes the perspective. The Court highlighted the need for de novo reconsideration, considering the agreements and the relationship between the parties to determine if the payment of a specific amount was a condition for importing quality raw material.

5. Referring to a previous case, the Court clarified that the Department should interpret agreements based on the apparent tenor but can allege and prove discrepancies. In this case, the acknowledgment of the relationship between the parties by the respondent influenced the Court's decision to remand the matter to the adjudicating authority for a fresh evaluation in accordance with the Customs Valuation Rules, 1988.

6. The Court set aside the Tribunal's judgment, instructing a reevaluation by the adjudicating authority, emphasizing a thorough examination of facts and adherence to the law. The Court did not express a view on the applicable rule, leaving it to be determined based on the case's specifics. Ultimately, the appeal was allowed with no order as to costs.