2014 (5) TMI 713 - AT - Customs

Valuation of goods - Inclusion of royalty in assessable value of goods - Suppression of facts - Invocation of extended period of limitation - Evasion of tax duty - Difference of opinion - Decision of Third member - Bar of limitation - The royalties/licence fees paid for the import of beta / digibeta tapes containing films are includable in the value of the said tapes in terms of Rule 9(1)(c)/ Rule 10(1)(c) of the Customs Valuation Rules, as they stood at the relevant time, inasmuch as such payments were made / required to be made prior to importation in terms of the agreement between the importer in India and the supplier abroad and consequently the demand of differential duty of ₹ 79,19,049/- under the provisions of Section 28(1) of the Customs Act, 1962 is sustainable in law - Held that - appellants made import of beta tapes and digi-beta tapes falling under Chapter Heading 8523 of the Customs Tariff during the period in dispute. The recorded media in question contains feature films programmes etc. The duty liability under the Customs Tariff was discharged by the appellant only on the cost of media as declared by the courier agency based on invoice submitted by the foreign supplier. As per the sale agreement under which the goods were sold to the appellant on payment of licence fee, the appellant has been given rights such as video rights. Cinematic rights, television rights and other ancillary rights. These rights also include the right to exhibit and right to broadcast. The royalty/licence fee is charged either on a flat lump sum basis or on minimum guarantee basis. As per the agreement, the payment of royalty/licence fee is a condition for sale of the goods in question. The royalties/licence fees paid for the import of beta/digibeta tapes containing films are includable in the assessable value of the said tapes. However, the demand in the present case is time barred and consequently, Customs duty demand with interest and penal consequences are not sustainable - Decided partly in favour of assessee.

Issues Involved:
1. Inclusion of royalties and license fees in the assessable value of imported goods.
2. Applicability of the extended period of limitation for the demand of customs duty.
3. Imposition of penalties under sections 114A and 112(a)(b) of the Customs Act, 1962.
4. Confiscation and redemption fine of imported goods.

Detailed Analysis:

1. Inclusion of Royalties and License Fees in Assessable Value:
The primary issue was whether the royalties and license fees paid by the appellant for the import of beta/digibeta tapes containing films should be included in the assessable value of the said tapes under Rule 9(1)(c)/ Rule 10(1)(c) of the Customs Valuation Rules. The appellant argued that these fees were paid for acquiring reproduction rights in India and should not be included in the transaction value. The appellant relied on several judgments, including Commissioner of Customs vs. Ferodo India Pvt. Ltd., which held that royalties related to post-importation activities are not includable in the transaction value.

The Revenue, however, contended that the license fees were a condition of sale and thus includable in the transaction value. They cited the Supreme Court's decision in Commissioner of Customs vs. Living Media India Ltd., which held that royalties payable as a condition of sale must be included in the assessable value.

The judgment concluded that the royalties and license fees paid were indeed a condition of sale and thus includable in the assessable value of the imported goods. The Tribunal relied on the Supreme Court's decision in Living Media India Ltd., which clarified that such payments are part of the transaction value when they are a pre-condition for the sale.

2. Applicability of Extended Period of Limitation:
The second issue was whether the extended period of limitation could be invoked for the demand of customs duty. The appellant argued that there was no suppression of facts with intent to evade duty, as they were following industry practice and previous favorable judgments. They cited the Tamil Nadu Housing Board vs. Collector of Central Excise, which stated that mere failure to pay duty does not constitute suppression unless there is a deliberate intent to evade duty.

The Revenue argued that the appellant had suppressed the true value of the goods by not declaring the license fees, thus justifying the invocation of the extended period of limitation.

The judgment found that the appellant had indeed suppressed the value of the goods with intent to evade duty, as evidenced by their failure to declare the full transaction value, including the license fees. Therefore, the extended period of limitation was rightly invoked.

3. Imposition of Penalties:
The judgment upheld the imposition of penalties under section 114A of the Customs Act on the appellant for suppressing the value of the goods with intent to evade duty. However, the penalty on the Managing Director under section 112(a)(b) was set aside, as there was no evidence of his direct involvement in the suppression or undervaluation.

4. Confiscation and Redemption Fine:
The judgment upheld the confiscation of the digibeta tape containing the film "Bluebird" under Section 111(j) and (l) of the Customs Act, with an option for redemption on payment of a fine of Rs. 15,000.

Separate Judgment by Anil Choudhary:
Anil Choudhary, Member (Judicial), dissented, arguing that the license fees paid for reproduction rights in India should not be included in the transaction value. He emphasized that the payments were for post-importation activities and thus not a condition of sale. He also found no suppression of facts by the appellant, as they were following industry practice and previous favorable judgments. Consequently, he held that the demand was time-barred and penalties were not warranted.

Final Order:
In view of the majority decision, it was concluded that while the royalties and license fees are includable in the assessable value, the demand in the present case is time-barred. Consequently, the customs duty demand, along with interest and penalties, was set aside.

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