2007 (2) TMI 81 - AT - Customs

Valuation(Customs) Appellant contended that payment of lump sum fee under agreement to foreign party for transfer of technology assistance for new model not includible in the assessable value Held appellant contention is correct

Summary

Issues:
1. Whether the lump sum payment under the 'Technology and Royalty Agreement' is subject to duty by adding that amount to the imports of the appellant during the agreement period.
2. Interpretation of Rule 9(1)(c) of Customs (Valuation) Rules, 1988 regarding the addition of technical know-how fees to the assessable value of imported goods.
3. Application of the judgment in the case of M/s. J.K. Corporation to determine the customs duty payable on the purchases price of goods.
4. Dispute over the scope of Rule 9(1)(c) in determining the transaction value for imported goods.

Analysis:

1. The appellant, a manufacturer of automobiles, entered into a 'Technology and Royalty Agreement' with a foreign party, wherein a lump sum fee not exceeding US $2 million was agreed upon. The impugned order held that this payment should be subject to duty by adding it to the imports of the appellant during the agreement period. The Tribunal observed that the technical know-how fees were not solely related to manufacturing in India, as manufacturing was already ongoing before the agreement, and no new technology transfer occurred post-agreement signing. The Tribunal declined to interfere with the order at that stage due to pending import data availability.

2. The dispute centered around the interpretation of Rule 9(1)(c) of Customs (Valuation) Rules, 1988. The appellant contended that since the payment was not linked to imported goods, the provision of Rule 9(1)(c) was not applicable. The Tribunal emphasized that the addition under Rule 9(1)(c) should be to the price paid for imported goods, and in this case, the agreement was for technology assistance for new models without specific mention of imported items or related fees. Therefore, there was no legal basis for adding the know-how fee to the value of imported items for customs duty assessment.

3. Referring to the judgment in the case of M/s. J.K. Corporation, the Tribunal highlighted the principle that customs duty should be based on the value of goods payable at the time of importation. Any amount paid post-importation, such as for technical assistance, should not be included in the assessable value for customs duty calculation. The judgment emphasized the exclusion of charges for post-importation activities from the assessable value, as detailed in the interpretative notes to Rule 4.

4. The scope of Rule 9(1)(c) was further analyzed, focusing on the addition of royalties and license fees related to imported goods to the transaction value. The Tribunal clarified that the provision aimed to add costs directly related to imported goods and that authorities must establish the direct relation of royalty and license fees to imported goods for customs duty assessment. The Commissioner's finding that no new technology transfer occurred was deemed faulty, as the agreement mentioned new car models, indicating the need for advanced technology in automobile production. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellant.