2015 (11) TMI 1460 - AT - Customs

Valuation of goods - Inclusion of royalty in assessable value of goods - Inclusion of lump sum fees paid/payable by the appellant to Renault under the Technical Assistance and Engineering Services Agreement - Held that - when the Agreement terminated after production of 51000 vehicles, how the royalty would be payable in terms of the Agreement. It is also not the case of Revenue that royalty was paid in respect of 51000 vehicles. The Commissioner has clearly not understood the plain language of the Agreement and has come to a conclusion that the royalty becomes due and payable and is therefore includible. This part of the demand is clearly unsustainable. - royalty is related to the spare parts manufactured by the appellant and has no relation to the parts imported by the appellant. The Commissioner has not even discussed this issue. However, since the Commissioner has set aside the Order-in-Original which had held that such royalty is not includible, we find it necessary to give our decision on this issue. We hold that the royalty on spare parts manufactured is not includible while arriving at the assessable value. Agreement provides for increasing localization of indigenous parts to reach a level of 50% by value of total imported parts and components. Therefore, it cannot be said that the lump sum payment is a condition of the sale of imported goods when the Services Agreement provides for local sourcing and procurement. - Exhibit-I to the Services Agreement titled as Description of Services which is reproduced at page 14. The purpose of this document is stated to include services for localization of parts. The Resources for localization plan are to be shared between Renault and the appellant (para 2.1.3 of Exhibit). Para 3.1.5 of the Services Agreement provides for training of company personnel. All these activities are nowhere related to import of parts. Payment for such activities cannot be included in transaction value under Section 14. Value shall be the transaction value. The second part is that the transaction value shall include engineering, design work, royalties and license fees, as specified in the Rules made. The Rules are the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Under these Rules, transaction value shall be accepted subject to certain restrictions specified in paras 2(a) to 2(d) of Rule 3. In the present case, the restrictions do not apply. We find that in the present case Revenue has not put forth any evidence to demonstrate that the invoice prices are not the real prices. Neither has it adduced any evidence to show that part of the invoice price was passed off as the lump sum payments for services provided. Coming to the second part of the law laid down in Section 14 of the Act, we find that certain additions to the value, as laid down in the Rules, are mandatory. If the importer cannot demonstrate the value of identical goods or deductive value of identical goods, or computed value of identical goods it is because there are no such identical goods. In these circumstances the onus does not shift to the importer to prove that the declared value is not the transaction value under Section 14. In such cases it is for Revenue to come up with good evidence to reject the transaction value. Revenue has no evidence to reject the transaction value, but has only resorted to Rule 10. We have already held above that, even in terms of Rule 10, the lump sum payment is not liable to be included in the price of the imported goods. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the transaction value of imported goods.
2. Inclusion of lump sum fees and royalties in the assessable value of imported goods.
3. Relationship between the importer and supplier and its influence on the price of imported goods.

Issue-Wise Detailed Analysis:

1. Validity of the Transaction Value of Imported Goods:
The appellant, a joint venture between two companies, imported parts and components from a related party, Renault, for manufacturing and assembly. The declared value of the goods was initially accepted by the Joint Commissioner but was later contested by the Commissioner (Appeals), who argued that lump sum fees and royalties should be added to the price of the imported goods. The Tribunal was tasked with reconsidering the matter after the Hon'ble Apex Court observed that the Tribunal's previous order lacked reasoning.

2. Inclusion of Lump Sum Fees and Royalties in the Assessable Value:
The appellant argued that the lump sum fees and royalties paid under various agreements were not related to the imported parts and were not a condition of their sale. The lump sum fees were for services rendered post-import, such as engineering, training, and localization services, which were distinct from the importation event. The Tribunal noted that the Services Agreement included activities like process engineering and localization, which were not connected to the import of parts. Citing the case of General Motors India Pvt. Ltd., the Tribunal held that such payments were not includible in the transaction value of imported goods.

3. Relationship Between the Importer and Supplier and Its Influence on the Price of Imported Goods:
The appellant contended that the relationship between the importer and the supplier did not influence the price of the imported goods. The Tribunal found that the Commissioner (Appeals) did not provide sufficient evidence to demonstrate that the declared value was influenced by the relationship. The Tribunal also noted that the adjudicating authority's finding that the relationship did not influence the price had attained finality as it was not challenged.

Judgment:
The Tribunal found that the Commissioner (Appeals) had not adequately analyzed the agreements or judicial pronouncements. It held that the lump sum fees and royalties were not conditions of the sale of the imported goods and were not related to the imported parts. Therefore, these payments were not includible in the assessable value of the imported goods.

The Tribunal set aside the impugned order of the Commissioner (Appeals) and allowed the appeal, ruling that the lump sum payments and royalties paid under the agreements were not includable in the price of the imported goods for the purpose of assessment of duty.