2021 (8) TMI 1310 - AT - Customs

Violation of principles of natural justice - opportunity to represent the case not provided - Valuation of imported goods - loading of 3.5% towards royalty and license fee on the transaction value of goods imported from related party - Section 14(1) of the Customs Act, 1962 read with Rule 10(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 - HELD THAT - Based on the findings made in the investigation report, the department should have issued a Show Cause Notice before finalizing the provisional Bills of Entry in accordance with guidelines provided under Circular No.5/2016-Cus dated 09.02.2016 which it failed to do in the instant case - Therefore, it is found that the Appellant has not been provided an opportunity to present its case on merits and make submissions against the investigation report. The matter is remanded to the adjudicating authority with direction to follow the procedure as laid down in Circular No.5/2016 dated 09.02.2016 preferably within 3(three) months from the date of receipt of this order - Appeal allowed by way of remand.

Summary

Issues:
Loading of 3.5% towards royalty and license fee on the transaction value of goods imported from a related party under Section 14(1) of the Customs Act, 1962 read with Rule 10(1)(c) of the Customs Valuation Rules.

Analysis:
The case involved a dispute regarding the loading of 3.5% towards royalty and license fee on imported goods from a related party. The Appellant had entered into a license agreement with a Swiss company, where royalty and license fee were based on the Net Selling Price (NSP) of the final product. The matter was referred to the Special Valuation Branch for verification. The Deputy Commissioner of Customs ordered the loading of 3.5% on the transaction value, considering the dependency of royalty on NSP and the payment of license fee based on yearly sales invoices.

The Appellant challenged this decision through an appeal, arguing that royalty and license fee should only be included in the transaction value if they are related to the imported goods and paid as a condition of sale. The Appellant contended that the fees had no nexus with the imported goods based on clauses in the license agreement. The Revenue, however, supported the findings of the adjudicating authority.

Upon review, the Tribunal noted that the dispute stemmed from Investigation Report No.5/2016, which was not challenged. Both parties agreed that this report could not be appealed. The Tribunal found that the department failed to issue a Show Cause Notice before finalizing the provisional Bills of Entry, as required by Circular No.5/2016-Cus. Therefore, the Appellant was not given an opportunity to present its case against the investigation report.

Consequently, the Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for proper procedure adherence within three months. The decision highlighted the importance of following due process and providing the Appellant with a fair opportunity to present their case.

This judgment underscores the significance of procedural fairness and adherence to guidelines in customs valuation disputes involving related party transactions. It emphasizes the need for proper investigation procedures and the right of the appellant to challenge findings through a Show Cause Notice.