2016 (3) TMI 255 - AT - Customs

Valuation - Invokation of Rule 9(1)(c) - Royalty and Technical know-how fee paid on domestic sale - Whether includible or not in the value of goods imported - Held that by relying on the judgment of Apex Court in the case of Commissioner of Customs vs. Ferodo India Pvt. Ltd. 2008 (2) TMI 12 - Supreme Court , the transaction value cannot be loaded as technical know-how. - Decided in favour of appellant

Summary

Issues Involved:
1. Inclusion of technical know-how fees and royalty in the value of imported goods.
2. Applicability of Rule 9(1)(c) of the Customs Valuation Rules, 1988.
3. Relevance of Supreme Court judgments in similar cases.

Detailed Analysis:

1. Inclusion of technical know-how fees and royalty in the value of imported goods:
The appellant imported raw materials and components from its unit in the Philippines under a Collaboration Agreement. The lower authorities disputed the transaction value declared by the appellant, arguing that the technical know-how fees and royalty paid should be included in the value of the imported goods to determine the correct customs duty. The adjudicating authority initially agreed with the appellant and set aside the show-cause notice for loading the value. However, the first appellate authority reversed this decision, directing the inclusion of know-how fees and royalty in the value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

2. Applicability of Rule 9(1)(c) of the Customs Valuation Rules, 1988:
The core issue was whether the lump sum amount paid as technical know-how fees and royalty should be included in the value of the imported goods as per Rule 9(1)(c). The first appellate authority referenced the Supreme Court's decision in Essar Gujarat Ltd., which supported the inclusion of such fees and royalties in the value of imported goods. However, the appellant's counsel argued that the Supreme Court in Essar Steel and Commissioner of Customs vs. Ferodo India Pvt. Ltd. had distinguished the earlier judgment and ruled in favor of the assessee, indicating that such fees and royalties related to domestic sales should not be included in the value of imported goods.

3. Relevance of Supreme Court judgments in similar cases:
The Tribunal examined the Supreme Court's rulings in Essar Gujarat Ltd., Essar Steel, and Ferodo India Pvt. Ltd. The judgment in Ferodo India Pvt. Ltd. was particularly relevant, where the Supreme Court clarified that royalties and licence fees should only be included in the value of imported goods if they are a condition of the sale of those goods. The Court emphasized that the Department must examine both the technical assistance agreement and the pricing arrangement to determine if there is any price adjustment related to royalties or licence fees. In Ferodo India Pvt. Ltd., the Court found no nexus between the royalties and the imported goods, thus ruling in favor of the assessee.

The Tribunal concluded that the facts of the current case were similar to those in Ferodo India Pvt. Ltd., where the technical know-how fees and royalty payments were related to domestic sales and not the imported goods. Consequently, the Tribunal found the first appellate authority's reliance on Essar Gujarat Ltd. misplaced and determined that the impugned order was unsustainable.

Conclusion:
The Tribunal set aside the first appellate authority's order and allowed the appeal, ruling that the technical know-how fees and royalties paid by the appellant should not be included in the value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The decision was based on the Supreme Court's interpretation in Ferodo India Pvt. Ltd., which provided a clear precedent for the case at hand.