2016 (11) TMI 1517 - AT - Customs

Valuation - includibility - value of know-how to be included in the assessable value - Held that - there is no reference of any capital goods sales under the agreement. Since the agreement does not find any mention of the supply of any material or capital goods, it cannot be stated that the technical know-how fee and technical assistance fee, are related to purchase of any material or capital goods - the royalty is linked to the value, which excludes the value of any material purchased from HONDA Foundry Ltd. In facts of the case, it cannot be said that the technical assistance fee is linked as a condition for sale of material - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Valuation of imported goods under related party transaction.
2. Inclusion of technical know-how fees in assessable value.
3. Connection between royalty payment and imported goods.

Issue 1: Valuation of imported goods under related party transaction:
The case involved the import of goods by M/s. Shriram Pistons & Rings Ltd. from M/s. Honda Foundry Co. Ltd. under a Technical Collaboration Agreement. The Customs Valuation Rules, 1988 were applied due to the related party nature of the transaction. The declared invoice value of the goods was accepted after examination, leading to a challenge by the Revenue before the Commissioner (Appeals).

Issue 2: Inclusion of technical know-how fees in assessable value:
The Revenue contended that the technical know-how provided by Honda Foundry Co. Ltd. needed to be added to the assessable value of the imported goods, citing a Supreme Court decision. The argument was based on the specific design and composition of the goods linked to the technical assistance fees paid by Shriram Pistons. However, the agreement clauses highlighted by the Commissioner (Appeals) emphasized that the technical know-how was for manufacturing processes and quality control, not for the purchase of imported components and spares.

Issue 3: Connection between royalty payment and imported goods:
The dispute also revolved around the royalty payment made by Shriram Pistons to Honda Foundry Co. Ltd. The Revenue argued that the royalty was linked to the purchase of specific materials, such as Aluminium Alloy A-135, which had a unique composition tailored for the machines. On the other hand, the respondent's counsel contended that the royalty was based on the net sales price of the products, excluding the value of imported components. The agreement clauses highlighted by the counsel emphasized that the royalty was for the supply of know-how and technical assistance, not for the purchase of materials from Honda Foundry Ltd.

In the final judgment, the Tribunal rejected the Revenue's appeal, emphasizing that the agreement did not mention the supply of any material or capital goods, thereby disconnecting the technical know-how and assistance fees from the purchase of goods. The royalty payment was deemed unrelated to the purchase of materials, as it was based on the net sales price of the products. The decision highlighted the specific clauses of the agreement to support the conclusion that the technical fees and royalty were not linked to the purchase of imported components, leading to the dismissal of the appeal.