2014 (12) TMI 649 - AT - Customs

Valuation of goods - Inclusion of royalty amount - Technical knowhow service - import of parts and components for various compressed air and gas equipments, construction and mining equipments, generators, industrial tools and assembly systems etc. - Rule 10(1)(c) of Custom Valuation Rules, 2007 - Held that - Royalty is required to be paid only on the sale of the manufactured goods and royalty is not relevant to the import of the components. For arriving the value for calculation of royalty, amongst other elements, cost of standard bought out components and the landed cost of imported components are deducted. The above clause also makes it clear that this method of deduction is adopted even if the procurement of components are made from any source other than the related foreign suppliers. Therefore from the clause referred above, it is amply clear that the royalty is not paid as a condition of the sale of the goods being valued . Thus the royalty has nothing to do with the value of the imported raw-materials procured from the related foreign supplier or value of the imported components procured irrespective of origin. In these set of facts, Rule 10(1)(c) of Customs Valuation Rules, 2007 is not applicable. If the royalty is computed excluding the cost of imported material and is based on the indigenous value addition which clearly shows that the payments made by the appellant for the collaboration and consultancy services has nothing to do with the imports undertaken by the appellants and therefore, the same could not be included in the assessable value of the goods imported under Rule 9 (1) (c) & 10 (1) (e) of the Customs Valuation Rules. - Decided in favour of assessee.

Summary

Issues Involved:
1. Inclusion of royalty or lump sum payment in the value of imported goods under Rule 10(1)(c) of Customs Valuation Rules, 2007.

Issue 1: Inclusion of Royalty or Lump Sum Payment in the Value of Imported Goods

The judgment pertains to an appeal against an Order-in-Appeal passed by the Commissioner of Customs (Appeals), Mumbai, regarding the inclusion of royalty or lump sum payments in the value of imported goods under Rule 10(1)(c) of the Customs Valuation Rules, 2007. The appellant, engaged in manufacturing various equipment, imported parts from a foreign entity and paid royalty based on technical know-how agreements. The Assistant Commissioner of Customs had earlier held that technical know-how payments/royalties should not influence the price of imported goods. The issue was challenged in various appeals, with a previous Tribunal order in favor of the appellant. However, the Commissioner of Customs (Appeals) in the present case directed examination of royalty inclusion based on a case law precedent. The appellant argued that the terms of the agreement did not make royalty a condition of sale for imported goods, citing similar judgments in support. The Tribunal found that the facts of the present case were identical to the earlier case where the issue was settled in favor of the appellant. The Tribunal analyzed the relevant rule (Rule 10(1)(c)) and the agreement terms, concluding that the royalty was not a condition of sale for imported components. The Tribunal distinguished a case law precedent cited by the Commissioner of Customs (Appeals) where the royalty was directly linked to the sales turnover of final products. Referring to previous Supreme Court and Tribunal decisions, the Tribunal held that the royalty paid for technical know-how did not impact the value of imported raw materials and should not be included in the assessable value of imported goods. Consequently, the Tribunal allowed the appeal, setting aside the impugned order.

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