2014 (6) TMI 300 - AT - Customs

Valuation - Classification of payment made - determination of nature of payment for the purpose of inclusion - whether the payments made under the head R&D fees pertains to design and development of imported components as claimed by the Revenue or it has nothing to do with the imported goods as claimed by the appellant - Held that - Held that - In case there is a nexus in respect of both these payments to the imported components, what are the amounts that are attributable/apportionable to the imported goods. Since the payments are made on the basis of the invoices raised by the foreign supplier, these documents need to be examined carefully to see for what purpose the payments were made. Secondly, in respect of all these payments, prior approval of the RBI/Govt. of India was necessary. Therefore, the documents submitted to these agencies for remittance of foreign exchange needs to be examined and verified. As regards, the payments made for the drawings and designs, the invoices raised for the same and examination of the said drawings and designs so as to establish any nexus with the imported product, if need be, with the assistance of technical experts needs to be undertaken. If these exercises reveal any linkage with the imported goods, then the quantum of payment attributable to the imported goods have to be determined. From the orders passed by the lower authorities, no such study seems to have been undertaken nor the appellant has led any evidence to prove that the payments made has no nexus with the imported goods, except for a bald statement to that effect - Matter remanded back - Decided in favour of assessee for remand purposes.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Justification for inclusion of R&D fees in the value of imported goods.
3. Basis of finding regarding technical assistance or R&D rendered.
4. Exemption of drawings and designs from customs duty.
5. Alleged shifting of value from electrical panels to designs and drawings.
6. Apportionment of technical fees over imported and domestically produced goods.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellant argued that the order-in-review violated principles of natural justice as the department did not issue any show cause notice proposing to include certain amounts to the value of the imported goods under Rule 10 of CVR, 2007. The tribunal noted that the stay application was not relevant as there was no quantification of duty, interest, or penalty in the impugned order.

2. Justification for Inclusion of R&D Fees:
The appellant contended that the inclusion of R&D fees under Rule 10(1)(b)(iv) was unjustified because the payment was for technical assistance and not related to any R&D services. The tribunal examined the Product Development & Purchase Agreement effective from 1-4-2007, which indicated that any payment made for engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods are liable to be added to the price of the imported goods. The tribunal found that the payments made under the head "R&D fees" were shown in the balance sheets and presumed by the department to have a nexus with the imported goods.

3. Basis of Finding Regarding Technical Assistance or R&D Rendered:
The appellant argued that there was no material basis for the finding that technical assistance or R&D were rendered in the form of engineering, designs, drawings, and/or plans. The tribunal noted that the appellant had not provided documentary evidence to support their claim that the payments were for technical consultancy and not related to the imported goods.

4. Exemption of Drawings and Designs from Customs Duty:
The appellant claimed that the drawings and designs were exempt from customs duty under notification No. 21/2002-Cus. The tribunal observed that no bills of entry were filed for such imports, and the appellant's claim needed to be verified through documentary evidence.

5. Alleged Shifting of Value:
The appellant contended that the finding of shifting value from electrical panels to designs and drawings was contrary to the order-in-original dated 20-4-2006. The tribunal emphasized the need to examine the invoices and other documents to establish any linkage between the payments made and the imported goods.

6. Apportionment of Technical Fees:
The appellant argued that the Order-in-Review should have apportioned the technical fees over the goods imported and produced in India. The tribunal directed that the matter be remitted back to the original adjudicating authority for fresh consideration, requiring the appellant to furnish all relevant documents, including invoices, RBI/Govt. of India permissions, and copies of the drawings/designs imported.

Conclusion:
The tribunal set aside the impugned order and remitted the matter back to the original adjudicating authority for fresh consideration. The appellant was directed to provide all necessary documents, and the assessing authority was instructed to examine the matter carefully and determine any additions to the invoice price of the imported goods based on objective and quantifiable data as provided in Rule 10(3) of CVR, 2007. The appeal was allowed by way of remand, and the stay petition was disposed of.