2007 (4) TMI 5 - SC - Customs

Valuation(custom) Appelant pay royalty to other party for technical assistance Question arise weather royalty payment was includible in the assessable value Authority decided that royalty in relation to the sale only includible in assessable value

Summary

Issues Involved:
1. Whether the royalty payment was connected with the imported components of Colour TV.
2. Whether such royalty payment was includible in the assessable value of such components.

Issue-wise Detailed Analysis:

1. Connection of Royalty Payment with Imported Components:
The core issue in this civil appeal is the determination of whether the royalty payment was connected with the imported components of Colour TV. The appellants, a joint venture with M/s. Matsushita Electric Industrial Co. Ltd. (MEI), had an agreement requiring them to pay a 3% royalty on the net ex-factory sale price of the colour receivers manufactured, towards technical assistance from MEI. The Tribunal found that the royalty payment was related to the components due to Clause 7.02 of the agreement, which stipulated MEI's assistance in selling and approving the components (bought-out items). The Tribunal concluded that technical assistance extended to both the supply and approval of components, thus connecting the royalty payment to the imported components.

2. Inclusion of Royalty Payment in Assessable Value:
The Tribunal held that the royalty payment should be included in the assessable value of the components. Under Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, royalty payments related to imported goods and as a condition of sale must be added to the declared price. The agreement indicated that the royalty was calculated on the net ex-factory sale price, inclusive of the cost of imported components. This meant that the royalty payment was connected to the imported components and was a condition of sale of the finished goods, satisfying both conditions of Rule 9(1)(c). The Tribunal's interpretation of the agreement clauses led to the conclusion that the royalty payment constituted consideration for technical assistance and was rightly included in the assessable value of the imported components.

Conclusion:
The Supreme Court upheld the Tribunal's decision, finding no merit in the civil appeal. The royalty payment was connected with the imported components and was includible in their assessable value, as per the Valuation Rules, 1988. The appeal was dismissed with no order as to costs.