2015 (11) TMI 1504 - AT - Customs

Valuation of goods - Determination of assessable value - Inclusion of royalty amount for use of the trademark - Held that - royalty is not related to the imported raw material; the royalty is related to the finished goods. Only because imported goods are contained in the finished goods, it cannot be said that royalty is related to the imported goods. The royalty is only paid for using the Trademark i.e. Sandvik on the products manufactured and sold in India. Therefore, we are of the view that the first condition of Rule 10 (1) (c) is not satisfied because the royalty is not related to the imported goods. - The Agreements with Sandvik Materials Technology and Sandvik Mining and Construction to whom the royalty is paid do not require the import of material from them only. The material may be procured other foreign suppliers or even locally. There is no condition that the Trademark can be used only if the appellant imports the raw materials from Sandvik. The appellants have made a statement that they have imported the goods from other suppliers and sourced locally too. This establishes that even the second condition under Rule 10 (1) (c), that royalty is paid as a condition of the sale of imported goods, is not met. In any case it is not as if the imported raw materials were sold by the appellant under the brand name Sandvik. There is no finding by Commissioner that the buyer had adjusted price of imported goods in the guise of enhanced royalty. Nor that the appellant was compelled to import raw material from Associate companies. Nothing in the Agreements indicate any binding to buy raw material from Associate companies. Rather, the Ld. Counsel submitted a statement showing use of raw material sourced locally as well as from unidentified origin. Therefore in the circumstances, the judgment of the Apex Court in the Ferodo case 2008 (2) TMI 12 - Supreme Court is applicable in the present case. - invoice value is not required to be loaded by including the royalty - Decided in favour of assessee.

Summary

Issues:
- Appeal against loading of declared invoice values for the years 2008-2009 to 2011-2012 by varying percentages.
- Inclusion of royalty paid to associated companies in the value of imported goods under Rule 10(1)(c) of the Customs Valuation Rules.
- Interpretation of conditions under Rule 10(1)(c) for inclusion of royalty in the value of imported goods.
- Analysis of agreements and judicial pronouncements regarding royalty payments.
- Comparison with similar cases and decisions by the Commissioner (Appeals).
- Determination of whether royalty is related to the imported goods or not.

Analysis:

1. The appeal was filed against the loading of declared invoice values for certain years due to the inclusion of royalty paid to associated companies in the value of imported goods. The Customs Authorities took the view that the royalty paid under the Trademark License Agreement should be included in the value of imported goods under Rule 10(1)(c) of the Valuation Rules.

2. The appellant contended that the royalty paid was not related to the imported goods but was for using the trademark on products sold in India. They argued that the conditions under Rule 10(1)(c) were not satisfied as the royalty was not a condition of the sale of imported goods. They cited judicial precedents to support their argument, including the case of Commissioner of Customs vs. Ferodo India Pvt. Ltd.

3. The Commissioner (Appeals) upheld the order of the adjudicating authority, which included the royalty in the invoice value. However, the appellate tribunal found that the Commissioner's order lacked a detailed analysis of the facts and relevant legal provisions. The tribunal noted discrepancies in the Commissioner's approach compared to a previous case involving similar circumstances.

4. The tribunal analyzed the Customs Valuation Rules and concluded that the royalty paid was not related to the imported raw material but to the finished goods. They found that the royalty was for using the trademark, not for the import of goods. The tribunal also considered the agreements with associated companies and previous judicial decisions to support their ruling.

5. By examining the conditions under Rule 10(1)(c) and comparing the present case with relevant precedents, the tribunal determined that the royalty payment should not be included in the invoice value of the imported goods. They emphasized that the royalty was not a condition of the sale of imported goods and therefore should not impact the valuation for duty assessment.

6. Ultimately, the tribunal allowed the appeal and set aside the impugned order, ruling in favor of the appellant regarding the non-inclusion of royalty in the invoice value for the imported goods.