2017 (7) TMI 112 - AT - Customs

Valuation - includibility - royalty paid to copyright-holders of films that are imported by the appellant, M/s Saregama India Ltd, in the form of digital versatile disk (DVD) that are sold in the home video market - Held that - A post-importation implementation of the royalty agreement is not amenable to prescient crystallisation at any time before the goods are put up for sale and is contingent on the sale. Surely, it cannot be his argument that the goods should be provisionally assessed for the tenor of the agreement, that would fly in the face of the order of the original authority to finalise all assessments on the basis of his direction. It would appear that Revenue is not consistent in articulating its stand on the inclusion of royalty in the assessable value. The appellant is not wrong in contending that there is no proper finding on relationship with the foreign supplier and the consequent rejection of declared value on that ground will not meet the test of law - In the circumstances, the only option before us is to have the matter re-determined - appeal allowed by way of remand.

Issues:
1. Legality of inclusion of royalty paid to copyright-holders in imported DVDs.
2. Relationship between importer and supplier.
3. Computation of assessable value of imports.
4. Application of Customs Valuation Rules.
5. Inclusion of royalty in assessable value.
6. Re-determination of the matter.

Analysis:
1. The main issue in this appeal is the legality of including royalty paid to copyright-holders of imported DVDs in the assessable value. The dispute arises from the relationship between the importer, M/s Saregama India Ltd, and the supplier, M/s Cinram GmbH, UK, regarding the obligation to add royalty payments to the value of the imported goods.

2. The original authority held that the importer and the supplier were related, leading to the rejection of the invoice value and the levy of duty based on Customs Valuation Rules. The authority found that the invoice price did not account for expenses incurred by the producer in making the copyrighted material, leading to the inclusion of royalty payments in the assessable value.

3. The Commissioner of Customs (Appeals) upheld the decision, emphasizing the importance of royalty payments as a precondition for the sale of DVDs in India. The appellant claimed that the relationship was that of a distribution licensee and cited legal precedents, but the appellate authority held that the supplier's influence over the importer established a related person status.

4. Arguments were presented regarding the independent nature of royalty payments, the applicability of Customs Valuation Rules, and the interpretation of agreements between the parties. The revenue contended that the relationship went beyond a simple sale and purchase transaction, citing Supreme Court decisions to support their position.

5. The Tribunal noted the complexity of linking the import transaction with the licensing agreement and questioned the inclusion of payable amounts in the assessable value. The Tribunal also highlighted the need for consistent application of rules regarding royalty inclusion and emphasized the importance of scrutinizing the link between foreign suppliers and royalty payments.

6. Ultimately, the Tribunal set aside the impugned order and remanded the matter to the original authority for a re-determination in accordance with relevant legal decisions and Customs Valuation Rules. The lack of proper findings on the relationship with the foreign supplier necessitated a fresh examination of the case.

This detailed analysis covers the legal nuances and arguments presented in the judgment, providing a comprehensive understanding of the issues involved and the Tribunal's decision to remand the matter for further consideration.

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