2014 (12) TMI 809 - AT - Customs

Valuation of goods - Enhancement of value of goods - Inclusion of royalty amount - Held that - As no royalty or value of any amount over and above the invoice price has been paid by the appellant for finished goods and capital goods to the related supplier, and there is no finding of the Adjudicating Authority that the price of the said goods have been influenced being a related person. Therefore, we hold that the loading of 12% on capital goods and finished goods is incorrect. - As per the agreement, the appellant are required to pay the licence fee @ 12% on the net invoice amount of all products manufactured and sold with the trade-mark which clearly means that the licence fee is being paid by the appellant for use of the trade-mark for manufactured goods. There was no condition of sale that the appellant is required to pay this royalty on the imported goods. Inclusion of royalty paid on import of raw material - Held that - As per the agreement, the appellant are required to pay the licence fee @ 12% on the net invoice amount of all products manufactured and sold with the trade-mark which clearly means that the licence fee is being paid by the appellant for use of the trade-mark for manufactured goods. There was no condition of sale that the appellant is required to pay this royalty on the imported goods. Royalty paid by the appellant @ 12% on the sale value of the manufactured goods is not required to be loaded on the invoice price of the raw material.- Decided in favour of assessee.

Summary

Issues:
1. Rejection of declared transaction value and loading of 12% on invoice value by Commissioner (Appeals).
2. Challenge to the loading of 12% on invoice value for trading and manufacturing activities.
3. Interpretation of Customs Valuation Rules, 2007 regarding royalty payment on imported goods.
4. Application of legal precedents in determining the necessity of loading royalty on invoice value.

Issue 1:
The appellant appealed against the rejection of their declared transaction value and the imposition of a 12% loading on the invoice value by the Commissioner (Appeals). The appellant imported goods from a related supplier, and the matter was referred to SVB, which initially found no influence on the transaction value due to the relationship. However, subsequent orders required loading of 8.5% and 18.86% on the declared invoice value for specific years. The Commissioner (Appeals) mandated a 12% loading for the entire period, leading to the appellant's appeal.

Issue 2:
The appellant argued that the loading of 12% on the invoice value for trading and manufacturing activities was unjustified. They highlighted that no royalty was paid to the foreign supplier for trading activities, and on capital goods, no royalty was involved. The appellant contended that the loading was unwarranted based on the absence of royalty payments on certain goods and the licensing agreement for manufactured products.

Issue 3:
The interpretation of Rule 10(1)(c) of the Customs Valuation Rules, 2007 regarding the requirement to add 12% royalty paid on the net invoice amount of manufactured goods to the value of raw material imported by the appellant was crucial. The appellant argued that the royalty payment was specifically for manufactured goods and not a condition for the sale of imported raw material, citing legal precedents and the Tribunal's decisions in similar cases.

Issue 4:
The Tribunal analyzed previous cases, such as Tata Yutaka Autocomp Ltd. and Bridgestone India P. Ltd., to determine the applicability of royalty loading on the invoice value of imported goods. The Tribunal emphasized that the royalty payment should be related to the imported goods and a condition of the sale, which was not the case for the appellant. Relying on legal precedents and detailed analysis, the Tribunal concluded that the 12% royalty paid by the appellant on manufactured goods did not need to be loaded onto the invoice price of the raw material.

In conclusion, the Tribunal allowed the appeal, setting aside the loading of 12% on capital goods and finished goods while determining that the royalty paid by the appellant on manufactured goods did not influence the transaction value as a related person. The judgment provided consequential relief to the appellant based on the legal analysis and interpretation of Customs Valuation Rules and relevant case law.