2004 (9) TMI 213 - AT - Customs

Summary

Issues Involved:
Whether running royalty on contract products and amount paid towards technical documentation are to be added in the assessable value under Rule 9 of the Customs Valuation Rules.

Analysis:

1. Running Royalty and Technical Documentation Fees Inclusion:
The appeal raised concerns regarding the inclusion of running royalty on contract products and the amount paid for technical documentation in the assessable value under Rule 9 of the Customs Valuation Rules. The appellant, a joint venture company, imported filtration equipment parts and products, engaging in agreements with foreign companies for manufacturing and distribution. The Deputy Commissioner initially accepted the transaction value in the invoice under Rule 4, finding no evidence of invoice value influence due to relationships. However, on appeal, the Commissioner directed the inclusion of a lump-sum amount and running royalty in the assessable value under Rule 9(1)(c). The appellant argued that Rule 9(1)(c) should not apply as the royalty and documentation fees were not related to the imported goods or a condition for their sale. They cited legal precedents to support their stance.

2. Legal Interpretation and Precedents:
The appellant contended that the royalty payment was for goods manufactured in India, not for imported goods, citing legal decisions like Tata Timken Ltd. v. CC, Hoerbiger India Pvt. Ltd. v. CC, and Panalfa Dongwon India Ltd. v. CC. These cases established that royalty related to manufacturing processes in India should not be included in the assessable value of imported goods. Similarly, the appellant argued that technical documentation fees were for products to be manufactured in India, referencing specific clauses in the agreements. Legal precedents such as S.D. Technical Service v. CC and Polar Marmo Agglomerates Ltd. v. CC supported the exclusion of technical know-how fees from the assessable value of imported goods.

3. Tribunal's Decision:
After considering arguments from both sides, the Tribunal analyzed Rule 9 of the Customs Valuation Rules, emphasizing that royalty and license fees should only be added to the assessable value if they relate to the imported goods and are a condition of their sale. The Tribunal reviewed the agreements and found that the royalty and fees paid for technical documentation were related to manufacturing contract products in India, not as a condition for the sale of imported goods. Citing previous decisions, including S.D. Technical Service and Polar Marmo Agglomerates Ltd., the Tribunal concluded that without evidence showing the fees were a condition for the sale of imported goods, they should not be included in the price of the imported goods. Consequently, the Tribunal set aside the impugned order and allowed the appeal.