2015 (1) TMI 884 - AT - Customs

Valuation of goods - Inclusion of royalty amount - Receipt of technical know-how - Held that - Adjudicating authority while passing order dated 13/09/2001 had examined the agreement at length and had come to the conclusion that the collaboration agreement had not influenced the price of the raw-materials imported by the appellant for undertaking further manufacturing in India. The said order also does not refer to any joint venture which revenue seeks to rely upon in their appeal. We have perused the terms and conditions of the collaboration agreement. From a reading of the clauses 8.01, 11.01 and 7.05, it is abundantly clear that royalty is required to be paid only on the value addition achieved by the appellant undertakes by the activities undertaken in India. It has nothing to do with the value of the imported raw-materials procured from the related foreign supplier or value of the imported components procured irrespective of origin. Thus, the contention of the Revenue that relationship has influenced the price of imports is not borne out from terms and conditions of the agreement which the appellant had entered into with the foreign supplier. This issue has been examined at length by this Tribunal in a number of cases and in particularly in the Foseco India Ltd. case (2014 (5) TMI 203 - CESTAT MUMBAI) wherein it was held that if the royalty is computed excluding the cost of imported material and is based on the indigenous value addition which clearly shows that the payments made by the appellant for the collaboration and consultancy services has nothing to do with the imports undertaken by the appellants and therefore, the same could not be included in the assessable value of the goods imported under Rule 9 (1) (c) & 9 (1) (e) of the Customs valuation Rules. - royalty paid by the appellant for the technical know-how received has nothing to do with the imports of raw materials. Consequently, the same is not includable in the assessable value of the goods imported - Decided in favour of assessee.

Summary

Issues:
- Inclusion of royalty/licence fee in the assessable value of imported goods
- Interpretation of collaboration agreement terms
- Influence of relationship on import prices

Inclusion of Royalty/Licence Fee:
The appeal challenged an Order-in-Appeal that included royalty/licence fee paid to a foreign collaborator in the assessable value of imported goods under Rule 9 (1) (c) of the Customs Valuation Rules, 1988. The appellant argued that the lower appellate authority incorrectly referenced a joint venture agreement, which did not exist, and emphasized the collaboration agreement dated 14/08/1996. The collaboration agreement outlined the technical know-how supply by the foreign entity, royalty payment terms, and excluded elements from the net sale value. The appellant contended that royalty was only applicable to indigenous value addition, not imported goods. Citing precedents like ABB Ltd. Vs. CC (Import), Mumbai, the appellant sought to set aside the impugned order.

Interpretation of Collaboration Agreement Terms:
The Tribunal examined the collaboration agreement clauses, particularly 8.01, 11.01, and 7.05, to determine the applicability of royalty payment. It was established that royalty was solely based on the value addition achieved by the appellant in India and not on the imported raw materials' value from the foreign supplier. The Tribunal emphasized that the relationship between the parties did not influence the import prices, as the royalty was for collaboration and consultancy services, distinct from imported goods. Relying on precedents like Foseco India Ltd. case, the Tribunal concluded that the royalty paid for technical know-how did not impact the assessable value of imported goods, leading to the appeal's allowance and the impugned order's setting aside.

Influence of Relationship on Import Prices:
The Revenue contended that the collaboration agreement's clauses supported the lower appellate authority's decision to include royalty in the assessable value. However, the Tribunal found that the terms of the agreement clarified that royalty was tied to indigenous value addition, not imported material costs. The Tribunal's analysis of the agreement's terms and previous case law emphasized that the royalty payment was unrelated to import prices, thereby rejecting the Revenue's argument and upholding the appeal.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order and providing consequential relief as per the law.