2016 (12) TMI 1373 - AT - Customs

Valuation - royalty - whether royalty to be added to assessable value or not where raw materials/inputs imported from collaborator? - Held that - A plain reading of the agreement entered into by the appellant indicates that it is only a technical know-how agreement and running royalty is paid; no condition precedent that components cannot be imported from anyone else. Reliance placed on the decision of the case of Schenectady Herdillia Ltd. 2016 (3) TMI 887 - CESTAT MUMBAI , where it was held that The said agreement does not talk about or restrict the appellant to purchase or procure raw materials only from the parent concern. The loading of the value of by the amount of royalty paid by the appellant is not in consonance with the law settled by the higher judicial fora. Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues involved:
- Addition of value of royalty paid to the value of imported goods for customs duty assessment.

Analysis:
The appeal was against an Order-in-Appeal passed by the Commissioner of Customs regarding the inclusion of royalty paid to a collaborator in the assessable value of imported goods. The Revenue argued that the royalty amount should be added to the value of imported goods. The GATT Valuation Cell concluded that the royalty amount was not directly linked to the sale of imported goods as the appellant was free to import components from any source. The Deputy Commissioner accepted the transaction value for customs duty calculation.

The Revenue appealed the decision, and the first appellate authority sided with the Revenue, stating that the royalty amount for technical know-how should be included in the value of imported goods. However, the appellate tribunal found errors in this decision. Firstly, the authority relied on Rule 9 related to the purchase of equipment, not the import of raw materials. Secondly, the tribunal noted that the agreement did not restrict the appellant from importing components from other sources. The tribunal highlighted that the technical know-how agreement did not bind the appellant to procure components solely from the collaborator.

The tribunal referenced a similar case where it was held that the value should not be loaded with the royalty amount paid by the appellant. The tribunal concluded that the first appellate authority's decision was erroneous and set it aside, allowing the appeal. The tribunal emphasized that the royalty payment was not a condition for importing components and that the value for customs duty calculation should not include the royalty amount.