2014 (9) TMI 988 - AT - Customs

Inclusion of royalty amount in assessable value Vide impugned order appellate authority set aside order passed by assessing officer by holding that royalty and licensing fee paid by appellant to related foreign supplier SI Group USA is includible in assessable value of goods imported under provisions of Customs Valuation Rules 2007 Held that - reading of rule makes it abundantly clear that to include royalties or licence fees or any other payments in assessable value of goods imported such payments should relate to goods and should be condition for sale of goods Only if these conditions are satisfied question of inclusion of these elements of cost in assessable value of goods imported would arise Tribunal had considered more or less identical facts in case of ABB Ltd. 2012 (11) TMI 571 - CESTAT MUMBAI and held that royalty payment cannot be said to have nexus with imported goods if agreement grants licensee a non-exclusive non-permissible licence technology to manufacture and sell licensed products making use of licence technology In factual and legal analysis court hold that royalty/technical know-how fee and service charges fee paid by appellant to foreign collaborators are not includible in assessable value of goods imported by appellant Accordingly court set aside impugned order Decided in favour of assesse.

Summary

Issues:
1. Inclusion of royalty and licensing fee in the assessable value of imported goods under Customs Valuation Rules, 2007.
2. Nexus between service fees paid and procurement of raw materials.
3. Influence of relationship on prices of imported goods.
4. Applicability of legal precedents in determining inclusion of royalty payments in the assessable value.

Issue 1: Inclusion of royalty and licensing fee in the assessable value of imported goods under Customs Valuation Rules, 2007:

The appeal challenged an Order-in-Appeal that included royalty and licensing fees paid by the appellant to a related foreign supplier in the assessable value of imported goods. The appellant argued that the payments were not related to the import of raw materials and should not be included in the assessable value. The Tribunal analyzed the Customs Valuation Rules, 2007, which require such payments to be directly related to the goods and a condition of sale for inclusion in the assessable value. The Tribunal examined the agreements and found no nexus between the payments and the procurement of raw materials, ultimately ruling that the payments were not includible in the assessable value.

Issue 2: Nexus between service fees paid and procurement of raw materials:

The appellant had entered into a service level agreement with a foreign entity for various services, and the Revenue argued that these service fees should be included in the assessable value of imported goods. However, the Tribunal found no clause in the agreement linking the services to the procurement of raw materials. As a result, the Tribunal concluded that the service fees paid did not influence the purchase price of raw materials and should not be added to the assessable value under the Customs Valuation Rules.

Issue 3: Influence of relationship on prices of imported goods:

The Tribunal examined the prices at which the appellant imported raw materials from related and unrelated suppliers. It was found that the prices paid to related suppliers were higher than those paid to unrelated suppliers for the same goods. However, the Tribunal determined that the relationship did not influence the prices, as evidenced by the appellant's procurement practices. Therefore, the Tribunal held that the relationship did not impact the supply price of raw materials and ruled in favor of the appellant.

Issue 4: Applicability of legal precedents in determining inclusion of royalty payments in the assessable value:

The Revenue relied on certain legal precedents to support the inclusion of royalty payments in the assessable value. However, the Tribunal distinguished the facts of those cases from the present case and found that the legal precedents cited were not applicable. Instead, the Tribunal referenced previous decisions where royalty payments were not included in the assessable value when linked to value addition in India. Based on this analysis, the Tribunal allowed the appeal and set aside the impugned order.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's reasoning in reaching its decision.