2018 (5) TMI 478 - AT - Central Excise

Valuation - inclusion of royalty in assessable value - whether running royalty paid by M/S KCSSL is includible in the assessable value of the goods cleared from Mundhwa unit? - Held that - the running royalty though measured on the basis of value of sale is in respect of techn010U provided for manufacture of goods. In article 3 of the said agreement, it is envisaged that transfer of is in respect of Specialty Alloy Facilities. Exhibit A of the said agreement listed alloy grades, which will be licensed in the agreement - it is apparent that the technology transfer is used at the stage of casting. In other words, the products manufactured in Mundhwa unit namely, Bloom and Bars, being casting product already contained the technology transfer in the shape of specialty alloy. Thus it is apparent that the transferred technology is contained in the intermediate product cleared by the Mundhwa unit. The running royalty is includible in the assessable value of blooms/bars cleared by the KCSSL, as the royalty is not in the nature of brand or IPR but in the nature of Techn0104 Transfer Fee for the purpose of Casting Specialty Alloy. Extended period of limitation - Held that - the appellant has claimed that its unit at Ranjangaon is entitled to CENVAT Credit of the duty paid at Mundhwa unit. The said claim has not been contested by the Revenue - extended period cannot be upheld. Penalty u/s 11AC - Held that - In view of the fact that no allegation of suppression/misdeclaration can be upheld, the penalty under Section 11AC is set aside. Appeal allowed.

Issues:
1. Inclusion of running royalty in the assessable value of goods cleared by M/S Kalyani Carpenter Special Steels Ltd. (KCSSL).
2. Determination of whether running royalty is includible in the assessable value under Rule 8 of the Central Excise Valuation Rules.
3. Applicability of CAS-4 guidelines in assessing the value of goods.
4. Invocation of extended period of limitation.
5. Imposition of penalty under Section 11AC.
6. Payment of duty amounting to ?9,56,332 in cash.
7. Confiscation and redemption fine imposition on unavailable goods.

Analysis:

1. The appeals were filed by both the Revenue and M/S KCSSL against conflicting orders regarding the inclusion of running royalty in the assessable value of goods. The dispute arose from a Technology Transfer Agreement between M/S KCSSL and overseas entities. The running royalty was argued to be non-includible based on CAS-4 guidelines. However, the Tribunal held that the running royalty is includible as it pertains to technical know-how transfer for casting specialty alloy, not brand or IPR value.

2. The essential issue revolved around whether the running royalty should be included in the assessable value of goods cleared by M/S KCSSL. The Tribunal analyzed the Technology Transfer Agreement and CAS-4 guidelines to determine that the running royalty, despite being based on sales value, was related to technical know-how transfer for manufacturing processes, making it includible in the value under CAS-4.

3. The Tribunal examined the CAS-4 guidelines to ascertain the treatment of royalties in the valuation process. It was established that royalties related to technical know-how were to be included in the assessable value, while those related to brand or IPR value were not includible. The decision was based on the nature of the royalty paid in the case, affirming its inclusion in the value of goods.

4. Regarding the invocation of the extended period of limitation, the Tribunal ruled in favor of M/S KCSSL, as their entitlement to CENVAT Credit at the Ranjangaon unit was undisputed. Citing precedent, the Tribunal rejected the extended limitation period due to the uncontested credit claim.

5. The imposition of penalty under Section 11AC was set aside as there was no evidence of suppression or misdeclaration by M/S KCSSL. The Tribunal found no basis for upholding the penalty, leading to its annulment.

6. The issue of payment of duty amounting to ?9,56,332 in cash was not addressed in the initial order due to the dropped demand. However, with the duty demand upheld on merit but partly allowed on limitation, the matter was directed for re-verification by the Commissioner (Appeals).

7. In the case of unavailable goods ordered for confiscation and imposition of a redemption fine, the Tribunal clarified that when goods are not available for confiscation, no redemption fine can be imposed. Consequently, the redemption fine was set aside, and the appeals were partly allowed in accordance with the findings.

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