2013 (9) TMI 504 - AT - Customs

Assessable value - department loaded the assessable value of equipment on account of technical know-how (licence fee) and design fee received from SWEC They did not load the value on account of royalty or know-how fees - The value had been loaded under Rule 9(1)(c) and Rule 9(1)(e) of Valuation Rules Held that - The cardinal principle for loading the value under Rule 9 was condition of sale of imported goods by the buyer to the seller or the buyer to a third party to satisfy an obligation of seller to the extent that such payments were not included in the price actually paid or payable Addition under Rule 9(1)(c) had to be of payments which constitute a condition prerequisite for the supply of the imported goods from the foreign supplier - Royalties/licence fees were to be paid to the foreign supplier of the equipments - For application of Rule 9(1)(e) there had to be a finding that although termed as royalty/licence fee, the payment was made or was to be made as a condition prerequisite for the sale of the imported goods and was in fact not royalty/licence fee. License fees Royalty Held that - Revenue could not bring out that the licence fee or the royalty payment or any portion - The department could not bring out that royalty paid by the applicant had any nexus with the goods imported under the equipments contract subsequently There was no direct or indirect role in the procurement and supply of equipment by the appellant and price thereof - The department could not show that the contract for procurement of goods or the equipment agreement was in pursuant to such condition in the engineering and technological agreement - They could not show that it was a condition for sale of equipment to the assesse Order set aside Decided in favor of assessee.

Issues Involved:
1. Inclusion of Process Design & Basic Engineering fee (PDBE fee) in the assessable value of imported goods.
2. Inclusion of royalty (technical know-how fees) in the assessable value of imported goods.
3. Inclusion of fees for the design of Flue Gas Piping and Catalyst Piping in the assessable value of imported goods.

Issue-wise Detailed Analysis:

1. Inclusion of Process Design & Basic Engineering fee (PDBE fee) in the assessable value of imported goods:
The appellant argued that the price indicated in the Equipment Agreement included design and engineering charges. The Engineering Agreement with SWEC, USA, was a separate agreement for the license to use certain technical information and patent rights. The appellant contended that the value was loaded under Rule 9(1)(c) and Rule 9(1)(e) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, which was incorrect. They cited Supreme Court decisions in Ferodo India Pvt. Ltd. and J.K. Corporation Ltd., emphasizing that additions under Rule 9(1)(c) must be payments constituting a condition prerequisite for the supply of imported goods. The department failed to establish a direct nexus between the PDBE fee and the imported goods, as SWEC had no role in the procurement and supply of the equipment.

2. Inclusion of royalty (technical know-how fees) in the assessable value of imported goods:
The appellant argued that royalty related to production for using patented technology and was based on the design capacity of the FCC unit. They contended that the royalty payments were not to be paid to Samsung, the supplier of the imported equipment, and thus should not be included in the assessable value under Rule 9(1)(c) or Rule 9(1)(e). The department could not prove that the royalty payments were a condition prerequisite for the sale of the imported goods. The appellant cited the Supreme Court's decision in Ferodo India Pvt. Ltd., which clarified that royalties/licence fees must be a condition prerequisite for the supply of imported goods to be included in the assessable value.

3. Inclusion of fees for the design of Flue Gas Piping and Catalyst Piping in the assessable value of imported goods:
The appellant argued that the design fees were for specifying the flue gas line piping and catalyst transfer lines, which were not directly related to the procurement of the equipment. The department failed to show that these fees were a condition for the sale of the imported equipment. The appellant emphasized that SWEC provided only specifications and data, not detailed designs or drawings required for manufacturing the equipment. The department could not establish that the design fees were a condition prerequisite for the sale of the imported goods under Rule 9(1)(c) or Rule 9(1)(e).

Judgment:
The Tribunal found that the department could not establish a direct nexus between the PDBE fee, royalty payments, and design fees with the imported goods. The department also failed to prove that these payments were a condition prerequisite for the sale of the imported goods. The Tribunal referred to the Supreme Court's decision in Ferodo India Pvt. Ltd., which clarified the application of Rule 9(1)(c) and Rule 9(1)(e). The Tribunal concluded that the lower adjudicating authority's order was not sustainable in law and set it aside, allowing the appeals.

Conclusion:
The Tribunal allowed the appeals, setting aside the lower adjudicating authority's order. The department failed to establish that the PDBE fee, royalty payments, and design fees were conditions prerequisite for the sale of the imported goods, as required under Rule 9(1)(c) and Rule 9(1)(e) of the Customs Valuation Rules. The Tribunal emphasized the need for a direct nexus between these payments and the imported goods, which the department could not demonstrate.

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