1994 (9) TMI 161 - AT - Customs

Summary

Issues Involved:
1. Determination of assessable value under Section 14(1)(a) or 14(1)(b) of the Customs Act, 1962.
2. Inclusion of royalty payments in the invoice value under Rules 6 and 8 of the Customs Valuation Rules, 1963.
3. Relevance of the Brussels Convention and Customs Cooperation Council's advice.

Issue-wise Detailed Analysis:

1. Determination of assessable value under Section 14(1)(a) or 14(1)(b) of the Customs Act, 1962:

The appellants entered into a joint venture agreement and a technical assistance agreement with foreign collaborators for the manufacture of light commercial vehicles (LCVs). The customs authorities initially allowed the clearance of imported goods on a provisional basis, loading the invoice values by 25%. The Assistant Collector of Customs later held that due to the special relationship between the appellants and their foreign collaborators, the invoice values should be loaded by 0.25% for components and LCVs, and by 2.5% for spare parts under Rules 6 and 8 of the Customs Valuation Rules, 1963. The Collector (Appeals) confirmed this decision.

The appellants contended that there was no special relationship and the assessable value should be determined under Section 14(1)(a) based on the invoice value. They argued that the Collector (Appeals) failed to provide reasons for not applying Section 14(1)(a). The Tribunal agreed with the appellants, stating that mere holding of 15% shares and the right to nominate two Directors did not create a mutual interest in each other's business. Citing the Tribunal's decision in *Collector of Customs Bombay v. Maruti Udyog Limited*, it was held that there should be mutuality of interest, which was not present in this case. Thus, the invoice price should be the assessable value under Section 14(1)(a).

2. Inclusion of royalty payments in the invoice value under Rules 6 and 8 of the Customs Valuation Rules, 1963:

The Assistant Collector included royalty payments in the invoice value, stating that the appellants used the patent, design, and trademark of the foreign collaborators. The appellants argued that the royalty payments were related to indigenously manufactured goods and not the imported parts. They pointed out that the Technical Assistance Agreement specified that the licensing of the trademark was free of charge and the royalty was only for local parts.

The Tribunal found merit in the appellants' argument, noting that the lump sum payment was for technical assistance and not related to the imported goods. The royalty payments were to be made only for local parts, calculated at 3% of the FOB Japanese port price of similar goods. The Tribunal concluded that the provisions of the agreement did not support the inclusion of royalty payments in the invoice value for imported goods.

3. Relevance of the Brussels Convention and Customs Cooperation Council's advice:

The Collector (Appeals) relied on the Brussels Convention and the advice of the Customs Cooperation Council to support his findings. The appellants contended that these were not relevant as they were not incorporated into the statute.

The Tribunal agreed with the appellants, stating that the issues should be decided strictly based on the provisions of Section 14 of the Customs Act. The reliance on the Brussels Convention and the Customs Cooperation Council's advice was misplaced.

Conclusion:

The Tribunal set aside the impugned order, agreeing with the appellants that the assessable value of the imported goods should be determined under Section 14(1)(a) based on the invoice price. The decision to load the invoice value under Rules 6 and 8 of the Customs Valuation Rules, 1963, was found to be unsustainable. The appeal was allowed.