2017 (11) TMI 147 - AT - Central Excise

Valuation - royalty - includibility - Department was of the view that the amount collected in the guise of royalty was nothing but part of sale consideration - Held that - there is no relationship between the appellant and the marketing company and the marketing company is also dealing with other goods like switches and the departmental investigations revealed that these products are not marketed under the brand name Farcom - demand upheld. Extended period of limitation - Held that - since the appellant has not suppressed the facts from the Department and entertained a bona fide belief that the royalty amount is not to be included in the assessable value, therefore the extended period of limitation is not invokable. Penalty - Held that - the appellant is also not liable to pay the penalty in view of the fact that there was no intention to evade payment of duty. Appeal allowed in part.

Issues:
- Appeal against rejection of appeal by Commissioner (A) regarding assessable value of royalty amount in connection with permission for using a name.
- Whether the royalty amount forms part of the assessable value.
- Applicability of extended period of limitation and penalty for duty evasion.

Analysis:
The appeal was filed against the rejection of the appellant's appeal by the Commissioner (A) regarding the assessable value of royalty amount received in connection with permitting a marketing company to use a specific name. The appellant contended that the royalty amount was not related to the sale of manufactured goods but was for allowing the use of the name 'Farcom.' The appellant argued that the Commissioner (A) had exceeded the scope of the show-cause notice and had failed to consider the specific purpose of the royalty amount. It was emphasized that the marketing agency dealt with goods from various companies, not just the appellant's, and the royalty was not linked to the sale of goods. The appellant maintained that there was no intention to evade duty and that they genuinely believed the royalty amount should not be included in the assessable value.

The respondent, however, supported the findings of the impugned order, asserting that the royalty amount should indeed be added to the assessable value for duty calculation. The Commissioner (A) had provided reasons for this decision, indicating the liability of the appellant to pay duty on the royalty amount. Upon reviewing the submissions and the impugned order, the Tribunal found that the Commissioner (A) had correctly concluded that the royalty constituted additional consideration and should be included in the assessable value. Despite the lack of a direct relationship between the appellant and the marketing company, and the absence of intentional suppression of facts by the appellant, the Tribunal determined that the royalty amount was indeed part of the assessable value. However, since the appellant had a genuine belief and had not intended to evade duty, the extended period of limitation was deemed inapplicable. Consequently, the appellant was held liable for duty only for the normal period, and not the extended period. The Tribunal partially allowed the appeal, directing the appellant to pay duty for the normal period, considering the amount already paid towards duty on the royalty charges in their CENVAT account.

In conclusion, the Tribunal ruled that the royalty amount received by the appellant was to be included in the assessable value for duty calculation, despite the lack of a direct link to the sale of goods. However, due to the appellant's genuine belief and lack of intent to evade duty, the extended period of limitation was not applicable, and the appellant was only liable for duty for the normal period. The appeal was partially allowed, with the appellant directed to pay duty for the normal period based on the amount already deposited in their CENVAT account.

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