2008 (2) TMI 231 - AT - Customs

Appellant, an importer - technical know-how licence imparted by foreign collaborator - They also procured the raw material from foreign collaborator since they were 100% subsidiary of foreign collaborator, they were considered as a related buyer since there is no condition in the sale agreement that the raw materials will not be sold unless and until the technical know-how is procured from them, payment of lumpsum amount royalty are not includible in assessable value of raw material

Summary

Issues:
1. Whether the technical know-how fee and royalty paid by the appellant should be added to the assessable value of imported goods.
2. Whether the relationship between the appellant and their foreign collaborator influenced the price of raw materials.
3. Whether the conditions of the agreement required the technical know-how to be procured for the sale of raw materials.

Analysis:

Issue 1:
The appellant, a joint venture company with a foreign collaborator, was engaged in manufacturing lubricants with technical know-how from the collaborator. The agreement required payment of a lumpsum amount and royalty for the transfer of technical know-how. The lower authority held that the technical know-how fee and royalty should not be added to the assessable value of imported goods. However, the Commissioner (Appeals) disagreed, stating that the technical know-how fee should be included under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The Commissioner held that the technical know-how was essential for the value of imported goods. Regarding royalty, the Commissioner ruled that it should not affect the price of imported goods as it was a post-importation activity. The appellant challenged this decision.

Issue 2:
The agreement between the appellant and the collaborator allowed the appellant to procure raw materials from any source, not limited to the collaborator. The agreement focused on the manufacture of finished goods in India, and there was no condition that technical know-how must be procured for the sale of raw materials. The appellant had procured similar items from other sources at the same price, indicating that the relationship between the parties did not influence the raw material prices. The Tribunal found that the supply of raw material was not linked to technical know-how, and the price was not affected by the relationship between the parties.

Issue 3:
The Tribunal analyzed the agreement clauses related to the procurement of products and components, emphasizing that the appellant had the freedom to purchase raw materials from any source meeting the specifications. The agreement did not mandate the purchase of raw materials only from the collaborator. The Tribunal concluded that the payment for technical know-how and royalty could not be treated differently as they both pertained to the license to manufacture finished goods. The purpose of the payments was the same, and therefore, both elements should be included in the assessable value of imported goods.

In conclusion, the Tribunal allowed the appeal, setting aside the Commissioner (Appeals) order, as the technical know-how fee and royalty should be added to the assessable value of imported goods due to their direct relation to the license for manufacturing finished goods, irrespective of post-importation activities.