2019 (1) TMI 1049 - AT - Customs

Valuation of imported goods - import of goods from their principals M/s Aquatech International Corporation USA - related party transaction or not - enhancement of invoice value by 10% under Rule 7A of Valuation Rules 1988/ Rule 8 of Valuation Rules, 2007 - Rule 9(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 - addition of royalty charges to value of imported goods in terms of Rule 9(1) (c) of Valuation Rules, 1988 and 10(1) (c) of the Valuation Rules, 2007. Enhancement of invoice value by 10% under Rule 7A of Valuation Rules 1988/ Rule 8 of Valuation Rules, 2007 - Held that - The Adjudicating authority has recorded findings that On comparison of the prices of the in terms of rule 3(3)(b)(iii) ibid in column 4 6 of the Table I find that the supplier has taken nearly 10% margin of profit on the prices procured by them from other vendors. In a normal trade practice, if the goods are being exported to India by the suppliers, there are some addition like marketing, selling expenses, administrative and other general expenses, tax liability, depreciation of the factory investments, loading, unloading charges, handling charges, internal freight charges, insurance profit etc in determining the prices for the purpose of export. This all addition constitutes from 15% to 25% in addition to the procured prices. However, only 10% has been added by the supplier for exportation of the goods to the Indian importer. Accordingly, the invoice value may be loaded to the tune of 10% in terms of Rule 8 of Customs Valuation Rules, 2007 read with section 14 of the Customs Act, 1962 (as amended time to time). - Though these findings and addition were challenged by the appellant in their appeal before the Commissioner (Appeal), Commissioner (Appeal) has not recorded any finding in his order in this respect. Hence matter for consideration of additions as ordered by the adjudicating authority under Rule 7A of Valuation Rules 1988/ Rule 8 of Valuation Rules 2007 needs to be remanded back to the Commissioner (Appeal) for consideration of the issue. Addition of royalty charges to value of imported goods in terms of Rule 9(1) (c) of Valuation Rules, 1988 and 10(1) (c) of the Valuation Rules, 2007 - Held that - The value of the imported goods is included in project value and royalty has been paid on the project value determined inclusive of the value of imported goods. Thus in terms of the law laid down by the Apex Court in case of Matsushita Televisions 2007 (4) TMI 5 - SUPREME COURT OF INDIA , the conditions for addition of royalty charges as laid down in Rule 9 (1)(c) of the Valuation Rules, 1988 are satisfied in the present case - there are no merits in the submissions of the appellants in relation to addition of royalty charges in the value of imported goods in terms of Rule 9 (1) (c) of Valuation Rules, 1988/ Rule 10(1)(c) of Valuation Rules 2007 - Thus, the issue of addition of Royalty Charges will be dependent on the terms and condition of Royalty agreement. Appeal allowed in part by way of matter on remand.

Summary

Issues Involved:
1. Relationship between importer and supplier under Rule 2(2) of Customs Valuation Rules.
2. Enhancement of declared invoice value under Rule 7A and Rule 8 of Customs Valuation Rules.
3. Addition of royalty charges to the value of imported goods under Rule 9(1)(c) and Rule 10(1)(c) of Customs Valuation Rules.
4. Suppression of facts and applicability of Section 28(1) and Section 28(4) of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Relationship between importer and supplier under Rule 2(2) of Customs Valuation Rules:
The Commissioner of Customs (Appeal) upheld the Deputy Commissioner’s order that the importer and supplier are related as per Rule 2(2) of the Customs Valuation Rules, 1988/2007. This relationship influenced the transaction value of the imported goods.

2. Enhancement of declared invoice value under Rule 7A and Rule 8 of Customs Valuation Rules:
The adjudicating authority enhanced the declared invoice value by 10% under Rule 7A of the Customs Valuation Rules, 1988, and Rule 8 of the Customs Valuation Rules, 2007. The basis for this enhancement was the addition of handling charges and other expenses typically constituting 15% to 25% of the procurement price. However, only a 10% margin was added by the supplier. The Commissioner (Appeal) did not record any findings on this issue, leading to a remand for reconsideration.

3. Addition of royalty charges to the value of imported goods under Rule 9(1)(c) and Rule 10(1)(c) of Customs Valuation Rules:
The appellants argued that the royalty payments were not related to the import of goods but were project-based and linked to HERO Technology projects. They contended that the royalty was not a condition of sale of the imported goods. However, the adjudicating authority and the Commissioner (Appeal) concluded that the royalty payments were related to the imported goods and constituted a condition of sale. This conclusion was supported by the terms of the royalty agreement, which included the value of imported goods in the project value on which royalty was paid. The Apex Court’s decisions in Ferodo India Pvt Ltd and Matsushita Television & Audio (I) Ltd were cited to justify the inclusion of royalty charges in the value of imported goods.

4. Suppression of facts and applicability of Section 28(1) and Section 28(4) of the Customs Act, 1962:
The adjudicating authority found that the appellants had suppressed the existence of the royalty agreement dated 01.11.2004, which influenced the transaction value of the imported goods. Despite affirming no change in invoicing or pricing methods, the appellants failed to disclose the royalty agreement. This suppression justified the invocation of Section 28(1) for recovery of duty up to April 2011 and Section 28(4) thereafter.

Conclusion:
The appeal was partially allowed by remanding the issue of enhancement under Rule 7A/Rule 8 to the Commissioner (Appeal) for reconsideration. The addition of royalty charges to the value of imported goods was upheld, and the findings on suppression of facts were sustained. The judgment emphasized the need for a detailed examination of the terms of royalty agreements and the surrounding financial circumstances to determine their impact on the transaction value of imported goods.