2016 (3) TMI 887 - AT - Customs

Valuation - Whether the raw materials imported by the appellant from their parent concern needs to be loaded with the value of royalty paid by them to parent concern - Import of parts and components from their collaborator under agreement - Held that - the agreement is titled as a technical know-how agreement. The entire agreement is in respect of the finished goods to be manufactured by the appellant in their factory from the technical know-how received from parent concern. The said agreement does not talk about or restrict the appellant to purchase or procure raw materials only from the parent concern. Also the first appellate authority has not brought on record any evidence to indicate that there was restriction imposed on the appellant to procure the raw materials only from the parent concern. Therefore, in absence of any such evidence, the loading of the value of by the amount of royalty paid by the appellant is not in consonance with the law settled by the higher judicial fora. - Decided in favour of appellant

Summary

Issues: Whether raw materials imported by the appellant need to be loaded with the value of royalty paid to the parent concern.

Analysis:
1. The appeal was against an Order-in-Appeal by the Commissioner of Customs (Appeals), Mumbai I. Despite the absence of the appellant, the tribunal proceeded with the case.
2. The key issue was whether the royalty paid by the appellant to their parent concern should be included in the value of imported raw materials. The Technical Agreement required the appellant to pay a lump sum fee and running royalty for technical information and know-how.
3. The lower authority accepted the declared price, stating that the royalty payment was not related to the imported goods. However, the Commissioner (Import) held that the royalty should be added to the value under Rule 9 of the Customs Valuation Rule, 1988.
4. The first appellate authority favored the revenue, claiming that the appellant had to import parts/components only from the parent concern.
5. The tribunal reviewed the agreement and found no restriction on procuring raw materials solely from the parent concern. As there was no evidence of such restriction, they concluded that loading the value with the royalty paid was not legally justified.
6. Consequently, the tribunal set aside the impugned order, upholding the adjudication order as the correct view. The appeal was allowed, ruling in favor of the appellant.