2013 (12) TMI 90 - AT - Customs

Valuation of goods - Addition of Technical know how fees and royalty - Import of parts and components - Held that - as per the agreement, the technical know-how and licence related to the post importation activities to be undertaken by the appellant. The payment consisted of two components - one a lumpsum amount payable in instalments and a running royalty - The product referred to in the agreement relates to the cars manufactured in India of specific models. From this, it becomes clear that the running royalty of 2.15% is on the goods manufactured in India and sold by Maruti and has nothing to do with the imported components. Similarly, the royalty of 3% is relatable to the indigenization programme of the appellant since it is on the deleted portion of the CKD components , that is, on the value of the components which have not been imported. Thus, higher the indigenization, higher the payment of royalty. This is for the reason that, had the appellant imported these components rather than manufacturing indigenously, SMC would have been able to earn profits by way of sale of imported components. There is no mention of any specific items of import or of any royalty or licence fee payable for imported goods. In this factual position, there is no legal requirement for adding the know-how fee to the value of any imported items and assessing these imported items to customs duty based on the added value as held in the case of Hyundai Motor (India) Ltd. 2007 (2) TMI 81 - CESTAT,NEW DELHI . Technical know-how fee charged in respect of post importation activities can not be included in the assessable value of the imported goods as held by the Hon ble Apex Court in the of Prodelin India (P) Ltd. 2006 (8) TMI 186 - SUPREME COURT OF INDIA . No efforts has been made by the Department in the instant case to ascertain whether there was a price adjustment between the cost incurred by the appellant on account of royalty/licence fee and the price paid for imported items. The department has merely relied on the consideration clause in the Licence agreement only without establishing the fact that what was termed as royalty/licence fee was in fact not such royalty/licence fee but some other payment made or to be made as a condition pre-requisite to the sale of imported goods. The onus is on the Revenue to prove that the declared price did not reflect true transaction value. In the absence of any reliable evidence in this regard, the contention of the Revenue that royalty/licence fee is includible in the assessable value of the imported goods can not be accepted - Decided in favour of assessee.

Summary

Issues Involved:
1. Influence of the relationship between the appellant and SMC on the price of imported goods.
2. Inclusion of technical know-how fees and royalty in the assessable value of imported goods.

Detailed Analysis:

Influence of Relationship on Price:
The primary issue was whether the relationship between the appellant, a manufacturer of motor cars and parts, and SMC, Japan, influenced the price of imported goods. The Special Valuation Branch of Mumbai Customs examined this relationship and determined that it did not influence the price. The Dy. Commissioner of Customs, GATT Valuation Cell, concluded that the transaction value could be accepted as the relationship had not influenced the price. This decision was reviewed by the Commissioner of Customs, Mumbai, who disagreed and filed an appeal, leading to the current proceedings.

Inclusion of Technical Know-How Fees and Royalty:
The second issue was whether technical know-how fees and royalty paid by the appellant to SMC should be included in the assessable value of the imported goods. The Dy. Commissioner initially ruled that these fees were not related to the imported goods but to the goods manufactured and sold in India, thus not includible in the assessable value. However, the Commissioner (Appeals) overturned this decision, arguing that the know-how and imported goods were related, and the fees were a condition of sale.

The appellant argued that previous agreements with identical terms had been adjudicated in their favor, with the Tribunal and the Apex Court ruling that such fees and royalties were related to the manufacture of goods in India and not the imported components. They cited several cases, including General Motors India Pvt. Ltd. and Hyundai Motor (India) Ltd., where technical know-how fees were not included in the assessable value of imported goods.

The Revenue countered that the royalty was paid for technical know-how used in manufacturing finished goods from imported materials, thus related to the imported goods. They relied on the Apex Court judgment in Essar Gujarat Ltd., which linked royalty payments to the imported plant.

Tribunal's Decision:
The Tribunal examined the agreements and found that the technical know-how and royalty payments were related to post-importation activities. The running royalty was based on the value of indigenized components, not imported ones. The Tribunal noted that previous identical agreements had been ruled in favor of the appellant, and the Revenue had not provided any new legal or factual points to justify a different view.

The Tribunal emphasized consistency in tax matters and found no reason to deviate from previous rulings. They distinguished the Essar Gujarat Ltd. case, stating that there was no direct nexus between the royalty payments and the imported goods in the present case. The Tribunal concluded that the technical know-how fees and royalty were not includible in the assessable value of the imported goods.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential relief, and disposed of the stay application. The decision reinforced that technical know-how fees and royalty payments related to post-importation activities and indigenization programs are not to be included in the assessable value of imported goods.