2018 (2) TMI 1075 - AT - Customs

Valuation - includibility - royalty charges paid by the appellant to the Japan Company - Held that - the cost of imported components and parts are to be excluded to arrive at the net value for computation of royalty charges - the factual and legal findings as recorded by the Original Authority cannot be contested - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Valuation of royalty charges paid by the appellant for imported goods.

Analysis:
The appellant, an associated company of M/s. YKK India Pvt. Ltd., imported parts and components of zippers, with the valuation being scrutinized by the Special Valuation Branch of Customs House. The dispute arose regarding the addition of royalty charges paid to a Japan Company in the assessable value of the imported goods. The Original Authority initially held that the royalty was not a pre-condition of sale nor related to the imported goods, thus no amount attributable to royalty should be added to the valuation. However, the Revenue appealed against this decision, leading to the impugned order.

The appellant contested the findings of the impugned order, arguing that it was passed ex parte without proper notice and did not consider the original order before remanding the matter. Reference was made to a Supreme Court decision favoring the appellant's position. Additionally, a subsequent order by the same Appellate Authority supported the appellant's stance that royalty charges should not be added. After hearing both sides and examining the records, the Tribunal delved into the details of the License Agreement between the appellant and the Japan Company.

The License Agreement specified that royalty was payable only on goods manufactured in India, not on imported finished goods. The Tribunal noted that the cost of imported components was excluded from the calculation of royalty payments, as per the agreement terms. Citing a Supreme Court judgment in a similar case, the Tribunal emphasized that only royalty connected to imported goods and a condition of sale could be added to the declared price. In this case, the royalty payment was linked to both domestic production and imports, including the cost of imported components.

Given the factual and legal findings, the Tribunal found that the impugned order did not adequately consider the Original Authority's conclusions and the Supreme Court's ratio. As the subsequent order by the Appellate Authority also favored the appellant, the Tribunal concluded that the impugned order was unsustainable. Consequently, the Tribunal set aside the impugned order and allowed the appeal.