2016 (9) TMI 318 - AAR - Customs

Valuation - import of goods from third party and sale in India under the brand name of foreign holding company - principal to principal relationship - applicability of Section 14 of the Act read with the Customs Valuation (Determination of Values of Imported Goods) Rules, 2007? Held that - applicant and the overseas third party manufacturers do not qualify as related entities‟ in as much as none of the conditions specified in Rule 2(2) of the Customs Valuation (Determinations of Value of Imported goods) Rules, 2007 is satisfied; that it is also clear that the price paid by the applicant to the overseas third party manufacturers will be based on the purchase invoices and is the sole consideration for the sale transaction value of invoice raised will form the transaction value. Trade Mark/ License Fee - payment made in terms of the foreign collaboration agreement - payment under Rule 10 (1)( c)of the Rules is the above amount required to be added to the Transaction Value of the said goods for levy of Customs Duty under the Act read with the Rules Held that - the applicant will pay the Trademark License fee in lieu of grant of right to exploit and use of associated trademark for sale of said goods; that such Trademark License fee will be payable on the basis of the sales made by the applicant in India; that said activities for which the applicant will pay the license fee are post importation activities and are not related to the sale of goods by the third party manufacturers to the applicant. Further, the said payment of Trademark License Fee is a not condition for sale between the third party manufacturers and the applicant the trademark fee and payment under foreign collaboration agreement do not qualify as payment made under Rule 10 (1)( c)of the Rules and need not be added to the transaction value. Sales and Business Support Fee - payment under Rule 10 (1)( c)of the Rules - is the above amount required to be added to the Transaction Value of the said goods for levy of Customs Duty under the Act read with the Rules Held that - payment not made under condition for sale payment do not qualify as payment under Rule 10 (1)( c)of the Rules and need not be added to the transaction value. There is no Agreement between third party manufacturers and H & M GBC where the third party manufacturers agreed to supply the goods to only such party who enters into an Agreement with the H&M GBC under the Foreign Collaboration Agreement and the Trademark License Agreement. The role of H &M GBC is only restricted to in identifying independent third party manufacturers.

Issues:
1. Determination of Transaction Value for Customs Duty.
2. Inclusion of Trade Mark/License Fee in Transaction Value for Customs Duty.
3. Inclusion of Sales and Business Support Fee in Transaction Value for Customs Duty.

Issue 1: Determination of Transaction Value for Customs Duty

The case involved an Indian subsidiary of a global brand setting up single brand retail trading in India. The subsidiary proposed to import goods from overseas third-party manufacturers and sell them in India under the parent company's brand. The applicant sought clarification on whether the value on the invoice from third-party manufacturers constitutes the Transaction Value for Customs Duty. The Revenue argued that the payment to third-party manufacturers was the sole consideration for the sale transaction, and no other payments were made. The Revenue contended that the applicant did not qualify as a related entity with the manufacturers, and the Trademark License fee paid to the parent company was not a condition of sale. The Authority ruled that the value on the invoice from third-party manufacturers is the Transaction Value for Customs Duty.

Issue 2: Inclusion of Trade Mark/License Fee in Transaction Value for Customs Duty

The applicant also questioned whether the Trade Mark/License Fee paid to the parent company should be added to the Transaction Value for Customs Duty. The Revenue argued that the License fee was for post-importation activities and not a condition of sale between the applicant and manufacturers. The Revenue emphasized that the payment should be made to the seller for inclusion in Transaction Value. The Authority ruled that the Trade Mark/License Fee did not qualify as a payment under the relevant Rule and should not be added to the Transaction Value for Customs Duty.

Issue 3: Inclusion of Sales and Business Support Fee in Transaction Value for Customs Duty

Lastly, the applicant inquired about including the Sales and Business Support Fee paid to the parent company in the Transaction Value for Customs Duty. The Revenue contended that this fee was also not a condition of sale between the applicant and manufacturers. The Authority agreed with the Revenue's argument that the Sales and Business Support Fee did not qualify as a payment under the relevant Rule and should not be added to the Transaction Value for Customs Duty.

In conclusion, the Authority ruled in favor of the applicant regarding the Transaction Value determination for Customs Duty and clarified that both the Trade Mark/License Fee and the Sales and Business Support Fee should not be included in the Transaction Value for Customs Duty purposes.

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