2016 (6) TMI 264 - AT - Customs

Valuation - Includability - Documentation fees and royalty towards technical knowhow - Collaboration agreement for licence and technical assistance - Held that - it is clear that the agreement and the payment terms provided therein is related to the technical knowhow for the manufacture of final product at the appellants end. The agreement no where suggests that there is any link between quantum of import and the payment terms related thereto provided in the agreement. Since the agreement is, towards technical knowhow which is related to the manufacture of the final product and not related to the sale of imported goods, fees cannot be included in the assessable value of the imported goods and the same is not covered by Rule 9(1)(b)(iv) and 9(1)(c) of the Customs Valuation Rules, 1988. The impugned order do not sustain and set aside. - Decided in favour of appellant

Issues Involved:
1. Inclusion of royalty in the assessable value of imported goods.
2. Applicability of documentation fees to the import of goods.
3. Relationship between technical know-how fees and imported goods.
4. Compliance with Customs Valuation Rules, 1988.

Issue-wise Detailed Analysis:

1. Inclusion of Royalty in the Assessable Value of Imported Goods:
The core issue revolves around whether the royalty payments made by the appellant to the foreign collaborator should be included in the assessable value of the imported goods. The Commissioner of Customs (Appeals) ruled that royalty based on indigenous value addition is not includible in the assessable value of imported goods. The adjudicating authority also noted that the royalty payment is on the net ex-factory sales price of the final product, which excludes the landed cost of imported components. Therefore, it is not related to the import of goods and cannot be covered under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

2. Applicability of Documentation Fees to the Import of Goods:
The appellant was required to pay documentation charges for technical documents provided by the foreign collaborator. The adjudicating authority determined that these documentation fees are not related to the import of goods and thus are not covered under Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988. The documentation fees were for obtaining technical know-how necessary for manufacturing the final product and not for the import of goods.

3. Relationship Between Technical Know-How Fees and Imported Goods:
The agreement between the appellant and the foreign collaborator was primarily for technical know-how to manufacture the final product. The adjudicating authority concluded that the technical know-how fees have no direct relation to the imported goods. The agreement did not suggest any link between the quantum of import and the payment terms. The fees were related to the manufacture of the final product and not the sale of imported goods, thus cannot be included in the assessable value of the imported goods.

4. Compliance with Customs Valuation Rules, 1988:
The adjudicating authority and the Commissioner (Appeals) both adhered to the Customs Valuation Rules, 1988. The adjudicating authority accepted the declared price of the imported components as per Rule 4, noting that the imported components were purchased at international market prices and there was no third-party import of similar items. The adjudicating authority's findings were upheld, confirming that neither the documentation fees nor the royalty payments should be included in the assessable value of the imported goods under Rule 9(1)(b)(iv) and 9(1)(c).

Conclusion:
The appeal was allowed, and the impugned order was set aside. The adjudicating authority's view that the documentation fees and royalty payments are not related to the import of goods and thus should not be included in the assessable value of the imported goods was upheld. The decision was based on a thorough examination of the agreement terms and compliance with the Customs Valuation Rules, 1988. The operative portion of the order was pronounced in open court.

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