2016 (9) TMI 874 - AT - Customs

Valuation - royalty/ value of designs, drawings etc. - assessable value - Rule 9(i)(b)(iv) of the Customs Valuation Rules, 1988 - collaboration agreement - whether royalty/ value of designs, drawings includible in the assessable value? - Held that - all the specifications of the shoe are supplied by the appellant to the vendor in the shape of catalogue and real shoe approved by the appellant as well as the foreign collaborator. A design need not be two dimensional it can be three dimensional piece of the product which can be copied both in respect of design and material specifications - Rule 9(i)(b)(iv) attracted - royalty/ value of designs, drawings includible. Design of the production is only one of the component of the collaboration agreement. There are many more services which are provided in respect of the goods marketed by the appellant by the foreign collaboration. Only a portion of the lump sum amount attributable to the design cost of product manufactured abroad. Matter remanded back to the original adjudicating authority for determination of appropriate quantum of the value to be added - appeal disposed off - decided against appellant.

Summary

Issues:
1. Valuation of imported goods under Rule 9 (i) (b) (iv) of the Customs Valuation Rules, 1988 based on a technical collaboration agreement.
2. Determination of the value of design in the collaboration agreement and its impact on the assessable value of the imported products.

Analysis:

Issue 1: Valuation of Imported Goods
The appeal concerned M/s.Proline Sport Systems challenging the addition of a lump sum royalty amount to the customs valuation of imported shoes under Rule 9 (i) (b) (iv). The collaboration agreement with a foreign company required the Indian company to manufacture shoes as per the foreign collaborator's specifications. The foreign collaborator provided technical information, and the Indian company selected shoe models from a catalogue, which were then manufactured by a foreign vendor. The Tribunal found that the specifications were supplied by the Indian company to the vendor through catalogues and approved samples, attracting Rule 9 (i) (b) (iv) for the addition of value.

Issue 2: Value of Design in Collaboration Agreement
The appellant argued that no design was supplied to the foreign vendor, relying on the definition of design and catalogue. The appellant contended that the lump sum royalty covered various activities beyond design. The Tribunal agreed that the lump sum amount was not solely for design and remanded the matter for determining the appropriate value to be added to the assessable value. While upholding the addition of the design cost, the Tribunal recognized that the lump sum amount encompassed multiple services beyond design, requiring a specific allocation for the design cost.

In conclusion, the Tribunal upheld the addition of the design cost to the assessable value but remanded the case for determining the specific quantum of value to be added. The appellants were given the opportunity to provide supporting documents. The judgment highlighted the importance of accurately attributing costs in technical collaboration agreements to the valuation of imported goods, ensuring compliance with customs rules and regulations.