2017 (1) TMI 276 - AT - Customs

Valuation - related party transaction - know how agreement for manufacture of final product between foreign supplier and the appellant - inclusion of royalty in the cost of imported goods - Rule (9)(1)(c) of Customs Valuation Rules, 1989 - Held that - It is settled legal position by Hon ble Supreme Court in case of Matsushita Television & Audio (I) Ltd. v. Commissioner of Customs 2007 (4) TMI 5 - SUPREME COURT OF INDIA where Authority decided that royalty in relation to the sale only includible in assessable value. In the present case, it was considered that royalty is not the condition of sale of the imported goods, royalty not included - appeal allowed - decided in favor of appellant.

Summary

Issues:
Valuation of imported goods based on royalty payment for technical knowhow under Customs Valuation Rules, 1988.

Analysis:
The case involved a dispute regarding the valuation of imported goods based on a royalty payment for technical knowhow under the Customs Valuation Rules, 1988. The Dy. Commissioner of Customs initially accepted the transaction value declared in the invoices for the years 1993-96, considering a know-how agreement between the foreign supplier and the appellant. The Revenue filed an appeal before the Commissioner(Appeals), arguing that the DM 60000 paid for technical knowhow should be added to the price of imported goods under Rule (9)(1)(c) of the Customs Valuation Rules, 1989.

The appellant contended that the royalty paid was not influencing the declared price of the imported goods, as it was calculated on the net selling price of the final product after deducting various costs. The Commissioner(Appeals) added the DM 60000 to the price of imported goods based on the equity participation and the relationship between the parties. However, the Appellate Tribunal observed that the royalty was not related to the imported components and was charged for the right to produce the end product in India, as per the know-how agreement.

The Tribunal noted that the Commissioner(Appeals) did not consider the reasoned findings of the Adjudicating authority, who had concluded that the declared value was acceptable. It was emphasized that the royalty was calculated based on the net sale price of the product and was not a condition of sale of the imported components. The Tribunal cited a legal precedent to support the position that royalty related to the final product's net selling price, without including the cost of imported components, was not a condition of sale of the imported goods.

Ultimately, the Tribunal set aside the impugned order of the Commissioner(Appeals) and upheld the Order of the Original Adjudicating authority, allowing the appeal in favor of the appellant. The judgment clarified the distinction between royalty payment for technical knowhow and the valuation of imported goods under the Customs Valuation Rules, emphasizing that the former should not be automatically added to the declared value without proper consideration of its relation to the imported components.