2012 (11) TMI 571 - AT - Customs

Royalty to foreign collaborators towards transfer of Technical Know-How - direction for addition with the transaction value to arrive at the assessable value of the goods in importation - Held that - Persuing the licence agreement entered into by the appellant with the foreign collaborator it is seen that the foreign collaborator (Licensor) grants the Licensee (the appellant) a non-exclusive, non-permissible license technology to manufacture and to sell or otherwise to supply the licenced products. In consideration thereof the appellant has to pay the royalty to the Licensor as the percentage of the net sale price of the licence products in the Indian market. Nowhere in the agreement is there any condition that the appellant is required to import any components from the licensor. In fact, in 7 of the agreements there is no condition at all with respect to import/purchase of any components from the foreign collaborator. The appellant is free to import the components either from the collaborator or from anybody else. If that be so, the condition that the payment of royalty is relatable to the imported goods and is a condition for sale of goods cannot be sustained in law. The appellant is liable to pay royalty to the foreign collaborator even when the appellant imports the components from anybody else and do not at all import the components from the foreign collaborator. Thus there is no nexus between the royalty payment and the import of components. There is no evidence which has been produced by the department indicating that the payment of royalty is a condition for the sale of imported components or it is relatable to the imported components. Thus the contention of the Revenue that the royalty amount is to be added with the transaction value to arrive at the assessable value of the goods in importation is rejected - in favour of assessee.

Summary

Issues:
1. Inclusion of royalty in the value of imported goods under Customs Valuation Rules.
2. Interpretation of agreements related to technical know-how and royalty payments.
3. Application of Rule 9(1)(c) and Rule 9(1)(d) of Customs Valuation Rules.

Analysis:
1. Inclusion of royalty in the value of imported goods under Customs Valuation Rules:
The case involved an appeal against an order concerning the inclusion of royalty paid to foreign collaborators in the value of imported goods. The Assistant Commissioner had held that royalty payments were relatable to some agreements but not to others. The dispute centered on whether the royalty should be added to the transaction value under specific Customs Valuation Rules.

2. Interpretation of agreements related to technical know-how and royalty payments:
The appellant argued that the royalty payments were not directly linked to the imported goods as per the agreements. They contended that the agreements did not mandate purchasing goods only from the collaborator and that royalty was based on the net sale price, not the value of imported components. The Tribunal analyzed the agreements to determine the nature of the royalty payments and their relation to the imported goods.

3. Application of Rule 9(1)(c) and Rule 9(1)(d) of Customs Valuation Rules:
The Revenue argued that certain clauses in agreements obligated the appellant to purchase imported components from the collaborator, justifying the inclusion of royalty in the value of imported goods under Rule 9(1)(c) and Rule 9(1)(d). However, the Tribunal found that the agreements did not establish a direct link between royalty payments and imported components in most cases, citing precedents and legal interpretations to support its decision.

In the final judgment, the Tribunal ruled in favor of the appellant, stating that there was no evidence of a nexus between royalty payments and the import of components. The Tribunal concluded that without a clear connection between royalty and imported goods, the inclusion of royalty in the assessable value of imported goods was not justified. The appeal was allowed, providing consequential relief to the appellant.