2013 (3) TMI 615 - AT - Customs

Valuation - inclusion of royalty in assessable value - import of goods from related party - Held that - The royalty can be included in the assessable value in case there are conditions for sale of the goods being valued. The department could not show that the royalty which they wanted to add to the assessable value is a condition pre-requisite for sale and the assessable value is not a true transaction value in terms of Section 14(1)(a) of the Customs Act, 1962 - royalty not to be included in assessable value - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against Order-in-Appeal No. 887/MCH/AC/GVC/2012
- Inclusion of royalty in the assessable value of imported goods

Analysis:
1. Appeal against Order-in-Appeal No. 887/MCH/AC/GVC/2012:
The case involved an appeal against the Order-in-Appeal passed by the Commissioner of Customs (Appeals), Mumbai, where the lower adjudicating authority's decision was set aside, and the appeal of the department was allowed. The appellant, engaged in importing seeds for sale in India, was registered in the Special Valuation Branch of the Customs House due to a relationship with the supplier. The dispute arose from the royalty paid by the appellant to the supplier for technology, proprietary information, and technical know-how connected to the manufacturing process. The Revenue contended that the imported raw material was sold under a trademark and patent owned by the foreign supplier, and the appellant agreed to pay royalty for the technology. The Commissioner (Appeals) set aside the lower authority's decision, leading to the appeal.

2. Inclusion of royalty in the assessable value of imported goods:
The appellant argued that the royalty paid was only for the sale of corn and sunflower seeds produced in India with technical know-how, specifically on value addition in India. The dispute centered on whether the royalty should be included in the assessable value of imported goods. Rule 10(1)(c) of the Customs Valuation Rules, 2007, was crucial, stating that royalties and license fees related to imported goods that the buyer must pay as a condition of sale can be included in the assessable value. The Tribunal analyzed the interpretation notes to Rule 10(1)(c), emphasizing that charges for reproducing imported goods in the importing country should not be added to the price paid for the goods. The Tribunal found that the department failed to establish that the royalty was a condition precedent for sale, and the assessable value did not reflect the true transaction value under the Customs Act, 1962. Citing relevant case law, including Matsushita Television and Audio India Ltd. v. Commissioner of Customs, the Tribunal concluded that the royalty payment in this case was not a condition of sale of goods, leading to the appeal being allowed and the Commissioner (Appeals)'s order being set aside.

In conclusion, the Tribunal allowed the appeal, setting aside the Commissioner (Appeals)'s decision, as the royalty payment was not deemed a condition of sale of the imported goods, based on the provisions of Rule 10(1)(c) of the Customs Valuation Rules, 2007, and relevant case law.