2017 (2) TMI 608 - AT - Customs

Valuation - royalty - whether the amount of royalty to be included in assessable value? - Rule10(1)(c) of the Customs Valuation (Determination of value) of imported goods Rules, 2007 - Held that - royalty under the said Rule can be included in the assessable value if in case of imported goods, it is the condition of sale. And as per the explanation, royalty would be includable in the case even after the imported goods have undergone the process after importation of said goods - in the present case, the respondent is paying royalty to their foreign supplier for the manufacturing of goods under their license in India. The same cannot be termed as royalty paid for the imported goods. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Valuation of imported goods based on royalty payments.
2. Interpretation of Rule 10(1)(c) of the Customs Valuation Rules.
3. Consideration of royalty as a condition of sale for imported goods.

Analysis:
1. The case involved a dispute regarding the valuation of imported goods by M/s. SICPA India Pvt. Ltd. The Special Valuation Branch initially held that the importer and overseas suppliers were related persons but accepted the prices declared by the importer for assessment. Subsequently, the branch directed the importer to submit documents regarding the fairness of declared invoice values and any changes in pricing policy.

2. The respondent challenged an order enhancing the transaction value by 5% due to royalty payments made to a related foreign party for technical know-how. The Commissioner (Appeals) set aside the enhancement, noting that the royalty was paid for manufacturing goods in India and not directly related to the imported goods. The appellant cited a previous decision supporting their position.

3. The Revenue contended that the royalty paid by the respondent for goods manufactured in India should be added to the assessable value of imported goods as per Rule 10(1)(c) of the Customs Valuation Rules. The impugned order highlighted that the pricing policy of foreign suppliers was based on arm's length transactions and international trade practices. The respondent's products were high-tech security inks used by government-authorized presses, sourced from associate companies to maintain secrecy.

4. Rule 10(1)(c) addresses royalties and license fees related to imported goods that the buyer must pay as a condition of sale. The explanation to the rule clarifies that such charges should be added to the price paid or payable for the imported goods, even if the goods undergo a process after importation. The tribunal concluded that the royalty paid by the respondent was not a condition of sale for the imported goods, following a similar precedent where royalty payments were not deemed includible in the assessable value.

5. The tribunal upheld the impugned order, dismissing the Revenue's appeal. The decision emphasized that the royalty paid by the respondent was not directly linked to the imported goods' sale conditions. Therefore, the appeal was denied, and the original valuation of the imported goods stood.

This detailed analysis of the judgment addresses the valuation issues, rule interpretation, and the consideration of royalty payments in the context of imported goods, providing a comprehensive overview of the legal reasoning and conclusions reached by the tribunal.