2015 (12) TMI 1201 - AT - Customs

Valuation - related parties - Import of goods at concessional rate of duty against EPCG Licence - Inclusion of Technical Knowhow fee - Invocation of extended period of limitation - Held that - technical knowhow fee is for design, drawing and technical information provided to appellant by overseas supplier for setting up of Instant Coffee plant which is purely a post-importation activity and not related to imported goods. As held by Hon ble Supreme Court in the above case, the import components procured from the supplier only 22% on the total value. As regards Revenue s relying the Hon ble Supreme Court judgement in the case of CC Ahmedabad Vs Essar Gujarat Ltd. (1996 (11) TMI 426 - SUPREME COURT OF INDIA), we find that said apex court judgement is distinguishable on facts for the reason that in the said case, licensing fee stipulates a condition for supply of plant and machinery which is not the case in the present appeal. Following the Hon ble Supreme Court judgment (supra) and the final order of Tribunal in the case of Godrej Agrovet Ltd. (2015 (11) TMI 1025-CESTAT Chennai), we hold that technical knowhow of US 1,30,000 is not addable to the value of imported goods. We set aside the demand on merits. Correspondingly, the imposition of redemption fine and penalty is also set aside. - Decided in favour of assessee.

Issues Involved:
1. Inclusion of technical knowhow fees in the assessable value of imported goods.
2. Applicability of Customs Valuation Rules, 1988.
3. Invocation of extended period of limitation under Section 28(1) of the Customs Act.
4. Imposition of penalty under Section 114A of the Customs Act.
5. Relationship between the importer and the supplier affecting the price.
6. Post-importation activities and their impact on the valuation of imported goods.

Detailed Analysis:

1. Inclusion of Technical Knowhow Fees in the Assessable Value:
The core issue was whether the technical knowhow fees paid to the supplier should be included in the assessable value of the imported goods. The appellant argued that the technical knowhow agreement was for providing technical knowhow, including design, manufacture, assembly, inspection, testing, and use of plant and machinery for instant coffee production, which is unrelated to the imported goods. The adjudicating authority included a portion of the technical knowhow fees (US$ 1,30,000) in the assessable value, invoking Rule 9(1)(b)(iv) and Rule 9(1)(c) of the Customs Valuation Rules, 1988.

2. Applicability of Customs Valuation Rules, 1988:
The appellant contended that Rule 9(1)(b)(iv) and Rule 9(1)(c) were not applicable as they had not supplied any parts to the supplier for manufacturing the imported machine, and the payment of technical knowhow was not a condition of sale of the imported goods. The Tribunal found that the technical knowhow agreement was purely related to setting up the plant for manufacturing "Spray Dried Instant Coffee" in India and not related to the imported goods. The Tribunal relied on the Supreme Court judgment in CC Mumbai Vs Hindalco Industries Ltd., which held that technical knowhow fees related to post-importation activities could not be added to the value of imported goods.

3. Invocation of Extended Period of Limitation:
The adjudicating authority invoked the extended period of limitation under Section 28(1) of the Customs Act, alleging willful misstatement and suppression of facts by the appellant. The appellant argued that there was no willful suppression as the technical knowhow fees were not includible in the value and were not declared. The Tribunal did not delve into the limitation issue as it set aside the demand on merits.

4. Imposition of Penalty under Section 114A:
The adjudicating authority imposed a penalty under Section 114A of the Customs Act. The appellant argued that Section 114A came into effect from 28.9.96, whereas the period of import was from September 1994 to March 1995, making the imposition of penalty under Section 114A inapplicable. The Tribunal set aside the penalty as the demand itself was set aside on merits.

5. Relationship between the Importer and the Supplier:
The show cause notice alleged that the supplier and the appellant were related parties, and the imported goods were sold at a preferred customer's price, warranting the inclusion of technical knowhow fees. The adjudicating authority found that the supplier held only 5.46% equity in the appellant company, which did not influence the price. The Tribunal upheld this finding, noting that the relationship did not affect the pricing of the goods.

6. Post-importation Activities and Valuation:
The Tribunal noted that the technical knowhow fees were for post-importation activities, such as setting up the plant and ensuring its operational capacity, and were not related to the imported goods. The Tribunal relied on the Supreme Court judgment in CC Mumbai Vs Hindalco Industries Ltd., which held that fees for post-importation activities could not be added to the value of imported goods. The Tribunal also referred to its previous decisions in similar cases, which supported the appellant's contention.

Conclusion:
The Tribunal set aside the demand for differential duty, redemption fine, and penalty on merits, holding that the technical knowhow fees were not addable to the value of the imported goods. The appeal was allowed with consequential relief, if any, as per law. The Tribunal did not address the limitation issue as the demand was set aside on merits.

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