2016 (11) TMI 906 - AT - Customs

Valuation - enhancement of value - royalty - goods imported from sister/related company for supply - Held that - I find that there is no express/implied condition in the Agreement inferring that the appellant is under any contractual obligation to import the raw material for manufacturing the final products from the Licensor/Bekaert, Belgium the related supplier only. The Appellant is free to import the raw material from the licensor or any anybody else. The Licensee is liable to pay royalty to the Licensor (Bekaert, Belgium) even when the licensee (the Appellant) imports the raw material from anybody else and do not at all import the same from the related foreign supplier. In such a situation, the condition that the payment of royalty is relatable to the imported goods and is a condition for sale of goods cannot be sustained in law. Thus, there is no nexus between the royalty payment and the import of components. The finished goods are manufactured by Technical knowhow from sister/related company; nothing was brought to notice that the agreement for technical know how between the importer respondent and their related person supplying the goods or finding that raw material needs to be purchased from the related person only. In the absence of any such restrictive Clause, the first appellate authority was correct in coming to a conclusion that the loading of value by an amount paid as royalty seems to be incorrect, is the correct decision and does not require any interference. Appeal rejected.

Summary

Issues: Revenue's appeal against Order-in-Appeal regarding enhancement of value of imported goods.

Analysis:
1. Issue of Enhancement of Value: The revenue filed an appeal against Order-in-Appeal No. MUM-CUSTM-SMP-19-20/2015-16, contending that the first appellate authority did not increase the value of goods imported by the respondent despite being imported from a sister/related company for supply. The first appellate authority justified its decision by analyzing the Trademark License Agreement and the computation of royalty payment. The authority found that there was no contractual obligation for the appellant to import raw materials solely from the related supplier. The Tribunal noted that the revenue did not provide evidence to contradict the fact that the respondent imported raw materials for manufacturing finished goods. Since there was no restrictive clause mandating the purchase of raw materials from the related supplier, the Tribunal upheld the first appellate authority's decision, concluding that loading the value with royalty payment was incorrect and did not require intervention.

2. Conclusion: The Tribunal, comprising Mr. M.V. Ravindran and Mr. C.J. Mathew, dismissed the revenue's appeal, upholding the Order-in-Appeal. The judgment highlighted the absence of a contractual obligation to source raw materials exclusively from the related supplier, leading to the rejection of the revenue's claim for enhancement of the imported goods' value. The decision emphasized the necessity of a nexus between royalty payment and the import of components, ultimately affirming the first appellate authority's ruling.