2016 (3) TMI 256 - AT - Customs

Valuation - Technology Transfer Agreement - Whether royalty paid in terms, is a condition of sale includible in the assessable value - Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2008 - Held that as per Technology Transfer Agreement, the appellant was to pay royalty within such 7 days of the end of the quarterly period to the foreign suppliers and in case of failure to do so, the foreign suppliers had the right to terminate all of the foreign suppliers obligation hereunder. Therefore, as the Supply Agreement is consistent with the Technology Transfer Agreement, and the supplier had the right to terminate the supplies in case of non-payment of royalties, the payment of royalty is a condition of sale and includible in the assessable value. - Decided in favour of Revenue

Issues Involved:
1. Whether the royalty paid to the foreign supplier is includible in the assessable value under Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2008.
2. Whether the payment of royalty was a condition of sale of the imported goods.

Issue-wise Detailed Analysis:

1. Inclusion of Royalty in Assessable Value:
The primary issue revolves around whether the royalty paid to the foreign supplier should be included in the assessable value of the imported goods as per Rule 9(1)(c) of the Customs Valuation Rules, 2008. The initial adjudicating authority held that the royalty was includible, whereas the Commissioner (Appeals) reversed this decision. The Tribunal examined the agreements between the appellant and Lucent Technologies, noting that the royalty payments continued even when the appellant shifted from manufacturing to importing complete cards. This consistency indicated that the royalty was directly related to the imported goods, thereby making it includible in the assessable value.

2. Condition of Sale:
The second issue is whether the payment of royalty was a condition of sale of the goods. Revenue argued that non-payment of royalty would lead to the termination of the supplier's obligations, indicating that royalty payment was indeed a condition of sale. The Tribunal referred to the Technology Transfer Agreement and the Supply Agreement, which showed that the supplier had the right to terminate supplies in case of non-payment of royalties. This established that the royalty payment was a condition of sale, making it necessary to include it in the assessable value.

Detailed Judgment Analysis:
The Tribunal considered the contentions of both sides and reviewed the relevant agreements. It was found that the Supply Agreement was consistent with the Technology Transfer Agreement, and the facts recorded by the primary adjudicating authority were not disputed by the appellant. The Tribunal noted that the royalty payments continued on the same basis when the cards were imported instead of being manufactured, indicating that the royalty was related to the imported goods.

The Tribunal also referred to several judgments, including those of the Supreme Court in cases like Ferodo India Pvt. Ltd., J.K. Corporation Ltd., and Toyota Kirloskar Motor Pvt. Ltd., which clarified that royalty payments related to the imported goods and were a condition of sale should be included in the assessable value. The Tribunal found that the royalty payments in the present case were similar to those in the cited judgments, where the royalty was found to be a condition of sale.

The Tribunal also cited the Advisory Opinion of the World Customs Organisation and the judgment in Universal Music India Pvt. Ltd., which supported the view that royalty payments made as a condition of sale should be added to the assessable value.

Conclusion:
The Tribunal concluded that the royalty paid by the appellant was indeed a condition of sale and related to the imported goods. Therefore, it should be included in the assessable value under Rule 9(1)(c) of the Customs Valuation Rules, 2008. The impugned order of the Commissioner (Appeals) was set aside, and Revenue's appeal was allowed.

(Pronounced in Court on 17.02.2016)

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