2007 (5) TMI 20 - SC - Customs

Valuation(Customs) Appellant contended that Royalty and know-how fees paid not includible in the assessable value Tribunal decided that royalty and know-how fees includible in the assessable value because it has direct nexus with the supply of raw material

Issues Involved:
1. Valuation of imported capital goods and parts.
2. Inclusion of royalty and know-how fees in the transaction value.
3. Interpretation of agreements and their impact on valuation.
4. Applicability of previous judicial decisions on the current case.

Detailed Analysis:

1. Valuation of Imported Capital Goods and Parts:
The primary issue revolves around the valuation of capital goods and parts imported by the respondent from Toyota Motor Corporation for the manufacture of automobiles in India. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) had to determine whether the payments made towards royalty and technical know-how should be included in the transaction value of the imported goods as per Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

2. Inclusion of Royalty and Know-How Fees in the Transaction Value:
The Revenue argued that the payments for royalty and know-how fees should be added to the invoice value of the imported goods to determine the proper transaction value. They contended that these payments had a direct nexus to the imported goods as they were essential for the manufacture of licensed vehicles and spare parts. The Assessing Authority's Order-in-Original dated 31-1-2003 supported this view, stating that the royalty and technical know-how fees were inherently linked to the import of goods and should be included in the assessable value.

However, CESTAT disagreed, stating that the royalty payments were related to the local manufacturing activities and not to the imported goods. The Tribunal held that "there is no requirement in the present case for adding royalty payment to the price payable for the purpose of determining the transaction value of the imported parts."

3. Interpretation of Agreements and Their Impact on Valuation:
The agreements between the respondent and Toyota Motor Corporation, specifically the Technical Assistance Agreement, were scrutinized. Articles 3 and 4 of the agreement provided for ordinary and additional assistance, including technical know-how and information necessary for manufacturing activities in India. The Tribunal observed that these assistances were for local manufacturing and did not relate to the imported goods. Furthermore, the computation of royalty was based on the local value addition of the manufactured vehicles and parts, which had no bearing on the imported goods.

The Supreme Court affirmed this interpretation, noting that the technical assistance and know-how fees were related to post-import activities and not a condition of sale of the imported goods. The Court emphasized that "the transactional value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of import."

4. Applicability of Previous Judicial Decisions on the Current Case:
The Revenue relied on the decision in Collector of Customs (Preventive), Ahmedabad v. Essar Gujarat Ltd., Surat [(1997) 9 SCC 738], where the Supreme Court had included the costs of technical know-how and licence fees in the transaction value. However, the Court distinguished the current case from Essar Gujarat Ltd., noting that in Essar, the technical know-how and licence fees were essential for making the imported plant operational, and thus, were a condition of sale.

The Court also referred to Commissioner of Customs (Port), Kolkata v. M/s J.K Corporation Limited [2007 (2) SCALE 459], which clarified that post-importation services or activities should not be included in the assessable value of imported goods. The Court reiterated that "any amount paid for post-importation service or activity would not come within the purview of determination of assessable value of the imported goods."

In conclusion, the Supreme Court upheld the CESTAT's decision, stating that the royalty and technical know-how fees were not related to the imported goods and should not be included in the transaction value. The appeal was dismissed, affirming that the Tribunal had correctly interpreted the agreements and the relevant legal provisions.

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