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2017 (11) TMI 551 - AT - CustomsValuation of imported goods - includibility - royalty - The claim of the appellant is that the goods such as raw materials for the manufacture of finished products as well as final products for trading were imported from other related group companies and not from AKZO Noble International BV Netherlands to whoever royalties are paid. Hence, it is their claim that the royalty cannot be held to be paid as a condition of the sale of goods by the principal. Held that - the appellant as well as the suppliers of raw materials and finished goods are both subsidiaries of the principal in Netherlands - The question of adding of royalty amount to the assessable value of the goods imported from related persons was considered by the Hon ble Supreme Court in the case of Matsushita Television & Audio (I) Ltd. Vs CC 2007 (4) TMI 5 - SUPREME COURT OF INDIA , where it was held that royalty in relation to the sale only includible in assessable value. Before adding the royalty amounts to the value of imported components, it is necessary for the department to examine both the technical assistance agreement as well as the pricing agreement. Before taking the final view in the matter, it is necessary to re-examine the matter of both license agreement as well as supply contract simultaneously, to see if the enhanced royalty was in the guise of adjustment of the price of components - matter remanded for reconsideration. Appeal allowed by way of remand.
Issues Involved:
1. Whether the royalty paid by the appellant to overseas licensors should be included in the transaction value of imported goods. 2. Whether the relationship between the appellant and the foreign suppliers affects the transaction value of the imported goods. Issue-wise Detailed Analysis: 1. Inclusion of Royalty in Transaction Value: The appellant argued that the royalty paid to overseas licensors should not be included in the transaction value of imported goods. They contended that the royalty payments are not made to the sellers of the goods but to licensors for post-importation activities, and thus, should not be added to the transaction value under Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. They cited several case laws, including CC v. Toyota Kirloskar Motor P Ltd. and Commissioner of Customs v. Ferodo India Pvt. Ltd., to support their argument that the royalty is unrelated to the imported goods. The department, however, justified the inclusion of royalty in the transaction value, arguing that the appellant and the foreign suppliers are related parties under Rule 2(2) of the Customs Valuation Rules, 2007. They emphasized that the royalty payments are directly related to the imported goods as per the global pricing policy of the Akzo Nobel group, which includes the cost of imported goods in the net sale value (NSV). They relied on the Supreme Court judgment in Matsushita Television & Audio (I) Ltd. Vs. Commissioner of Customs, which held that royalty payments related to the imported goods and included in the sale price of the finished products should be added to the transaction value. 2. Relationship Between Appellant and Foreign Suppliers: The department argued that the appellant and the foreign suppliers are related entities as defined under Rule 2(2) of the Customs Valuation Rules, 2007, due to common ownership and directorship within the Akzo Nobel group. This relationship necessitates an adjustment of the transaction value under Rule 10(1)(c) read with Rule 3(2)(d) of the Customs Valuation Rules, 2007. The department highlighted that the royalty payments are part of the global transaction/pricing policy of the Akzo Nobel group, which mandates a cost-plus 5% markup for supplies within the group. The appellant countered that the goods were imported from related group companies, not from the licensors to whom royalties were paid, arguing that the royalty payments were not a condition of sale for the imported goods. They relied on the Supreme Court decision in Ferodo India Pvt. Ltd., which emphasized examining both the technical assistance agreement and the pricing agreement to determine if the royalty payments were in the guise of adjusting the price of imported components. Judgment: The Tribunal noted that the facts of the present case were similar to those in Matsushita Television & Audio (I) Ltd. Vs. Commissioner of Customs, where the Supreme Court held that royalty payments related to the imported goods and included in the sale price of finished products should be added to the transaction value. However, the Tribunal also recognized the relevance of the Ferodo India Pvt. Ltd. decision, which required examining both the technical assistance agreement and the pricing agreement to determine if the royalty payments were in the guise of adjusting the price of imported components. The Tribunal concluded that it was necessary to re-examine the matter by considering both the license agreements and the supply contracts simultaneously. Therefore, the impugned order was set aside, and the matter was remanded to the Adjudicating Authority for reconsideration, ensuring adequate opportunities for effective hearing to all parties involved. Order Pronounced in the open court on 25/09/2017.
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