2008 (4) TMI 113 - AT - Customs

Appellants obtained technical know-how right to use patent etc. from foreign collaborator under Franchise Agreement - in terms of Rule 9(1)(c) of the Customs Valuation Rules all the fees (franchisee fee licence fee royalty etc.) paid by the assessee to the foreign supplier in relation to the imported goods as a condition of sale of such goods are to be added to the price of the goods for the purpose of payment of Customs duty

Summary

Issues:
1. Inclusion of licence fee, franchise fee, and royalty in the assessable value of imported goods.

Detailed Analysis:

Issue 1: Inclusion of licence fee, franchise fee, and royalty in the assessable value of imported goods

The case involved a Franchise Agreement where the appellants obtained technical know-how and rights to use patents, trademarks, and brand names from a Malaysian company for their Fast Food Restaurants in India. The agreement required payment of various fees, including a franchise fee, licence fee, and royalty based on the monthly gross sales of the licensed product. The Special Valuation Branch (SVB) found the appellants related to the Malaysian company and proposed adding these fees to the transaction value of the imported goods under Rule 9(1)(c) of the Valuation Rules.

The Tribunal examined the terms of the Franchise Agreement and found that the fees paid by the appellants to the foreign supplier were related to the importation of the goods. The agreement mandated the purchase of licensed products only from the supplier and ensured that the products met specified standards. The franchise fee was for the right to use the brand name, while the licence fee was for technical know-how necessary for manufacturing the licensed products in India. These fees were considered a condition of sale of the goods and were to be added to the invoice value for duty payment under Rule 9(1)(c) of the Customs Valuation Rules.

Referring to a previous case, the Tribunal held that the appellants were not entitled to exclude the fees from the assessable value of the imported goods. Additionally, a Supreme Court case was cited where royalty collected for trademark use was included in the assessable value under the Central Excise Act. Based on these precedents and the specific terms of the Franchise Agreement, the Tribunal sustained the order to include the fees in the assessable value and dismissed the appeal.

In conclusion, the Tribunal upheld the decision to include the licence fee, franchise fee, and royalty in the assessable value of the imported goods, citing the terms of the Franchise Agreement and relevant legal precedents.