2015 (2) TMI 646 - AT - Customs

Valuation of goods - Inclusion of lumpsum trademark fee and lumpsum royalty for technical knowhow - Held that - From the trade mark usage agreement, it is clear that the fee is paid for the use of trade mark on the goods/semi-finished goods manufactured in India. The payment of consideration is split into two modes; one by way of lumpsum payment of US 0.5 mn and another by way of running royalty as a percentage of sale value of the manufactured goods. Similarly, in the case of technical know-how agreement, the consideration is paid for supply of technical know-how and for training the personnel of the appellant in the manufacturing activity to be undertaken in India. The consideration is paid in two modes; one by way of lumpsum payment of US 1.5 mn and the balance by way of running royalty as a percentage of the sale value of the products manufactured. In these agreements, there is no stipulation or condition as to where from or from whom the appellant has to procure the raw materials for the manufacture of the goods. The agreements do not envisage or stipulate any condition with regard to the procurement of raw-materials for the manufacture to be undertaken in India. The appellant has entered into separate contracts for the procurement of raw-materials. Even in the contract entered into with the related foreign suppliers, it is clearly stipulated that the appellant has the freedom to procure the raw-materials from any persons, so long as the quality/standard is maintained. Thus, the agreement for the purchase of raw materials also does not impose any condition with regard to the source of procurement of raw materials. In these circumstances, it cannot be said that the relationship has influenced the supply price of the raw materials. - Following decision of Escorts Ltd. case 1995 (10) TMI 140 - CEGAT, NEW DELHI and Mahindra & Mahindra Ltd. 1995 (3) TMI 88 - SUPREME COURT OF INDIA - impugned orders are not sustainable in law. Accordingly, we set aside the same - Decided in favour of assessee.

Summary

Issues:
Appeal against Order-in-Appeal No. 15 & 16/MCH/ADC/SVBG/2012 dated 20/01/2012 regarding inclusion of lumpsum trademark fee and royalty for technical knowhow in the value of imports made by the appellant from related overseas suppliers.

Analysis:

1. The appellant, M/s. Can-Pack India Pvt. Ltd., entered agreements with related principals abroad for trademark usage and technical know-how supply. The appellant argued that the lumpsum payments were not a condition of sale for raw-materials procurement and should not be added to the assessable value of imports. Citing legal precedents, the appellant contended that royalty payments, whether lumpsum or running, should not be included in the assessable value of imported raw materials/components. The Tribunal agreed, emphasizing that the agreements did not mandate procurement from specific sources, thus rejecting the Revenue's argument.

2. The Tribunal reviewed previous cases where similar issues were addressed against the Revenue's contentions. In cases like Escorts Ltd. and Hindustan Motors Ltd., it was held that royalty payments were unrelated to the supply of components and should not be added to assessable values. The Tribunal noted the Revenue's inconsistent stance on running royalty versus lumpsum payments, ultimately ruling in favor of the appellant based on legal precedents and the lack of conditions linking payments to raw-material procurement.

3. The Tribunal concluded that the impugned orders were unsustainable in law and set them aside, allowing the appeals with consequential relief. The decision highlighted the absence of conditions in agreements linking payments to raw-material procurement and emphasized the settled legal position that royalty payments should not be included in the assessable value of imported goods. The contradictory stance of the Revenue on running royalty versus lumpsum payments further supported the decision in favor of the appellant.

This detailed analysis of the judgment highlights the legal arguments, precedents, and reasoning behind the Tribunal's decision to set aside the impugned orders and rule in favor of the appellant regarding the inclusion of lumpsum trademark fee and royalty for technical knowhow in the value of imports.