2017 (3) TMI 760 - AT - Customs

Method of Valuation - import of CD/DVDs - deductive value or computed value - related party transaction - royalty - inclusion of royalty in assessable value - Held that - if valuation cannot be arrived at under normal provisions of Section 14 and then further under Rules 3, 4 and 5 of CVR, 2007, then valuation of imported goods are to be determined under Rule 7 or under Rule 8, and where valuation is not determined even under Rules 7 and 8, then valuation is to done under Rule 9 of CVR, where it is called Residual Method. The Deductive value is to be arrived at by considering the unit price at which the goods were sold to institutional buyers, as these sales satisfy the provision of Rule 7 of CVR, 2007, which state that value of imported goods shall be based on the unit price at which such goods or identical/similar goods are sold in the greatest aggregates quantity to unrelated persons in India. Once this unit price at which the imported goods were institutionally sold has been decided, the deductive value is to be arrived at after giving the deductions mentioned in the Rule 7. With this finding the matter deserves to be remanded to the original adjudicating authority. Whether duty is liable to be paid on the royalty? - Held that - the royalty paid and payable for the goods imported through link is to be taken into account for the purpose of assessable value. However, there is premise that the goods imported through link, that is through internet, which are called download and which may be sold by the importer appellant cannot be subjected to the Customs duty. The downloads imported through link or through internet are not the subject matter of present proceedings - For the present proceedings when downloads through internet are not the subject matter no comments of the Tribunal on the same are called for. Appeal allowed by way of remand.

Summary

Issues:
1. Valuation of imported CDs/DVDs under Customs.
2. Levy of customs duty on royalty paid for online download of education content for replication of CDs/DVDs in India.

Analysis:

Issue 1: Valuation of imported CDs/DVDs under Customs
The case involves an appeal by Encyclopaedia Britannica India Pvt. Ltd. against the order passed by the Deputy Commissioner and Commissioner of Customs (Appeals) regarding the valuation of imported goods. The Deputy Commissioner determined the landed cost of CD/DVDs by deducting 73% from the retail sale price, considering the relationship between the importer and foreign suppliers. The appellant argued that the conditions under Rule 3(3) of Customs Valuation Rules were satisfied and that the resale price in India should not influence the valuation. The Tribunal found that the Revenue did not strictly follow Rule 7 of Customs Valuation Rules, which requires considering the unit price at which goods are sold to unrelated persons in India. The matter was remanded for fresh decision based on Rule 7 and other relevant provisions.

Issue 2: Levy of customs duty on royalty paid for online download
The second issue pertains to the inclusion of royalty paid for online downloads in the assessable value for customs duty. The Deputy Commissioner held that royalty of 5% of net sales revenue should be included in the assessable value. The Tribunal noted that the royalty agreement specified payment on net sales revenue and concluded that the royalty should be considered for duty calculation. However, it clarified that goods imported through internet downloads were not subject to customs duty, as there was no mechanism for customs to collect duty on such electronic downloads. The matter was remanded for a fresh decision within four months.

In conclusion, the Tribunal allowed the appeal by remanding the case to the original adjudication authority for a fresh decision on both valuation and royalty issues, emphasizing adherence to Customs Valuation Rules and relevant provisions.