2018 (10) TMI 1482 - AT - Customs

Valuation of imported goods - inclusion of value of know-how license and rights in the assessable value of the goods imported under EPCG scheme - primary defence of the appellant is that technology know-how is merely documentation which has been imported as goods and should be assessed as goods - Revenue neutrality. Held that - The technology know-how license agreement is essentially an agreement that permits the appellant to use the Spool Technology (VFY). The machinery imported by them is essentially a machinery which uses Spool Technology and the said machine cannot be used without a license to use the said Spool Technology . The facts are akin to the facts in the case of Essar Gujarat Ltd. 1996 (11) TMI 426 - SUPREME COURT OF INDIA . In the said case, like in instant case, the fee was for right to use the technology embedded in the capital goods. In both cases it was paid to a third party. In both the cases plant could not be made operational without license to use the technology. From the above it is apparent that these may be no express condition to pay for the license know how while purchasing the goods but there is an implicit condition in the facts of the case as the goods cannot be used without a license to use the technology in built into it. Thus, relying on the decision of Hon ble Apex Court in the case of Essar Gujarat Ltd. the appeal not maintainable on merit. Revenue neutrality - Held that - The credit would not be available immediately but over a period as the goods are not inputs but capital goods. Thus, this does not result in an revenue neutral situation. Moreover, the liability to pay would arise at the time of import but the said credit can be used only after the plant is installed and production starts. Thus, it is not a revenue neutral situation. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Inclusion of the value of know-how license and rights in the assessable value of imported goods under the EPCG scheme.
2. Classification of technical know-how as goods or services.
3. Applicability of Rule 10(1)(c) of the Customs Valuation Rules, 2007.
4. Comparison with precedents and previous case laws.
5. Revenue neutrality and Cenvat Credit availability.

Detailed Analysis:

1. Inclusion of the value of know-how license and rights in the assessable value of imported goods under the EPCG scheme:
The main issue in this appeal is whether the value of the know-how license and rights should be included in the assessable value of the machinery imported by the appellant under the EPCG scheme. The appellant argued that the technical know-how, valued at US $6 million, was imported in the form of documents and should be assessed separately as goods. The Revenue contended that the payment was not merely for documents but also for a license to manufacture using the machinery/technology.

2. Classification of technical know-how as goods or services:
The appellant argued that the know-how was imported as documents, which should be classified as goods. However, the tribunal found that the agreement between the parties was not for the sale of documents but for the grant of a license to use the technology. The parties were described as licensor and licensee, indicating that the agreement was for a license rather than a sale of goods. The tribunal concluded that the know-how license agreement was essentially a grant of a license to use the technical know-how, not a sale of documents or goods.

3. Applicability of Rule 10(1)(c) of the Customs Valuation Rules, 2007:
The appellant argued that the conditions prescribed under Rule 10(1)(c) were not fulfilled, as the royalty was not paid as a condition for the sale of the goods being valued. The tribunal, however, found that the machinery imported could not be used without the license to use the embedded technology, making the payment for the license an implicit condition for the sale. The tribunal relied on the decision in Essar Gujarat Ltd. to conclude that the fee for the right to use the technology embedded in the capital goods should be included in the assessable value.

4. Comparison with precedents and previous case laws:
The appellant cited various case laws, including decisions in Commissioner Vs. Narmada Chematur Pharmaceuticals, Punjab Tractors Ltd. Vs. CCE, and others, to support their argument. However, the tribunal found that the facts of these cases were different from the present case. The tribunal emphasized that the facts in the present case were more akin to those in Essar Gujarat Ltd., where the fee for the right to use the technology embedded in the capital goods was included in the assessable value.

5. Revenue neutrality and Cenvat Credit availability:
The appellant argued that the CVD and SAD demanded were available as Cenvat Credit, making the demand revenue-neutral. The tribunal, however, found that the credit would not be available immediately but over a period, as the goods were capital goods and not inputs. Therefore, the situation was not revenue-neutral, and the liability to pay arose at the time of import, while the credit could be used only after the plant was installed and production started.

Conclusion:
The tribunal dismissed the appeal, concluding that the value of the know-how license and rights should be included in the assessable value of the imported machinery. The tribunal found no merit in the appellant's arguments and upheld the demand for customs duty. The decision was pronounced in the open court on 22.10.2018.