2014 (8) TMI 47 - AT - Customs

Valuation of goods - Inclusion of License fees and royalty - Held that - It is clearly evident from the agreement that Article 3 provides transfer of technology relating to Float Process. It has no relation to import of capital goods. In fact, the agreement relates to process, know-how, techniques of manufacturing of Float Glass. In terms of Rule 9(1)(C) of the CVR, 1988, the royalty fee and licence fee must be related to the sale of capital goods as a condition of importation of goods, which the appellant is required to pay directly or indirectly as addition of importation of goods. Decision in the case of Matsushita Television & Audio (I) Ltd. 2007 (4) TMI 5 - SUPREME COURT OF INDIA distinguished wherein it was held that, Royalty is includible in the assessable value of the imported capital goods, as the said agreement clearly includes the cost of imported goods. In the present case, there is no such clause mentioned in the agreement. Further, there is no indication in the agreement that SGV, France, will assist the appellant in respect of the imported capital goods or otherwise in any manner. In other words, SGV, France would assist the appellant in respect of manufacturing process of Float Glass - licence fee and royalty paid by the appellants to their collaborator M/s. SGV, France, would not be added to the value of the imported capital goods - Following decision of Toyota Kirloskar Motor Pvt. Ltd. 2007 (5) TMI 20 - SUPREME COURT OF INDIA - Decided in favour assessee.

Issues Involved:
1. Whether the royalty and technical know-how fees paid by the appellant to Saint Gobain Vitrage (SGV), France, should be added to the value of imported capital goods.
2. Interpretation and application of Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Issue-Wise Detailed Analysis:

1. Addition of Royalty and Technical Know-How Fees to the Value of Imported Capital Goods:
The appellant, a manufacturer of Float Glass and Mirror, entered into a Licence and Technology agreement with SGV, France. The adjudicating authority held that the royalty of 3% on internal sales and exports, and the technical know-how fees paid to SGV, France, should be added to the value of the imported capital goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The Commissioner (Appeals) upheld this decision, stating that the payment of the technical know-how fee and royalty was related to the supply of machines and materials.

The appellant contended that the royalty and licence fees were for the technical know-how and transfer of technology for manufacturing Float Glass and not related to the imported capital goods. They argued that the Commissioner (Appeals) erroneously concluded that the payment for know-how fee was related to all supplies, including machines and materials. The appellant relied on several decisions, including the Supreme Court's decision in Toyota Kirloskar Motor Pvt. Ltd., which held that royalty and technical know-how fees are not includible in the assessable value of imported goods if they are not related to the sale of the imported capital goods.

The Tribunal examined the Licence and Technology Agreement and concluded that the agreement was for the transfer of technology related to the manufacturing of Float Glass and not for the importation of capital goods. The agreement did not indicate that the licence fee and royalty were related to the importation of capital goods from SGV. The Tribunal found that the lower authorities did not establish that the licence fee and royalty were directly or indirectly related to the importation of the capital goods.

2. Interpretation and Application of Rule 9(1)(c) of the Customs Valuation Rules, 1988:
Rule 9(1)(c) of the Customs Valuation Rules, 1988, states that royalties and licence fees related to the imported goods that the buyer is required to pay as a condition of the sale of the goods being valued should be included in the assessable value. The Tribunal noted that the Commissioner (Appeals) did not clearly establish that the licence fee and royalty were related to the importation of the capital goods.

The Tribunal referred to the Supreme Court's decision in Toyota Kirloskar Motors Pvt. Ltd., which emphasized that the transaction value must be related to the import of goods and that amounts payable must be a condition of import. The Supreme Court held that technical assistance fees related to post-import activities and not to the importation of goods. The Tribunal found that the licence fee and royalty in the present case were related to the transfer of technology for manufacturing Float Glass and not to the importation of capital goods.

The Tribunal also distinguished the Supreme Court's decision in Matsushita Television & Audio (I) Ltd., where the royalty payment was connected with the imported components and included in the assessable value. In the present case, there was no clause in the agreement indicating that the royalty and licence fees were related to the importation of capital goods.

Conclusion:
The Tribunal concluded that the licence fee and royalty paid by the appellant to SGV, France, were not related to the importation of capital goods and should not be added to the value of the imported capital goods. The Tribunal set aside the impugned orders and allowed the appeal filed by the appellant with consequential relief.

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