2024 (1) TMI 190 - AT - Customs

Valuation of imported goods - enhancement of transaction/assessable value, at the time of finalization of provisional assessment by inclusion of lumpsum payments under know how agreement, as being related to the imports made, as a condition of sale of equipments, imported under the supply agreement - whether the license fee and designing charges were a part thereof and whether charges of knowhow agreement were required to be added to the assessable value of the imported goods in terms of Customs Valuation Rules, 1988 Rule 9(1)(c) and Rule 9(1)(e)? HELD THAT - Viewed in the backdrop of the law as propounded by the Hon ble apex court in the case of COMMISSIONER OF CUSTOMS (PORT), KOLKATA VERSUS JK CORPORATION LTD. 2007 (2) TMI 1 - SUPREME COURT , it is found that the contract, as entered into by the appellant with their overseas buyers are on identical terms. There was no obligation to bind the appellants to any post import act/activity and thus render it as a condition of sale for procurement of the imported goods. It is also noted that there is no technical know-how fees attributable towards post import related/associated acts and activities. Thereby no case arises for scaling up the assessable value with the inclusion of the royalty charges. In fact the preamble clause of the Confidentiality Agreement supra clearly brings to fore its purpose, completely unrelatable to any post import functioning. The order of the Tribunal in the case of TDT. COPPER LTD. VERSUS COMMISSIONER OF CUSTOMS, NEW DELHI 2000 (7) TMI 273 - CEGAT, NEW DELHI relied upon by the adjudicating authority, is completely at variance as far as facts of the present case are concerned as Article 10 of the agreement therein provided for inclusion of various fees, charges and cost of technical services and were clearly a condition of sale. In the said case as relied by the learned Adjudicating Authority, the importer was required to pay US dollars 15 lakh towards engineering and servicing charges unlike in the present case where there is no such condition imposed on the appellant importer, by way of any of the above referred contracts entered into. In view of the findings that there is nothing in the contract entered into by the two sides, to impute the additional costs, towards the sale of imported goods or as a condition of sale, it is opined that the order of the learned Commissioner (Appeals), is without merits and is therefore liable to be quashed. The impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Enhancement of transaction/assessable value by including lumpsum payments under the know-how agreement.
2. Inclusion of license fee and designing charges in the assessable value of imported goods.
3. Applicability of Customs Valuation Rules, 1988 - Rule 9(1)(c) and Rule 9(1)(e).

Summary:

Issue 1: Enhancement of Transaction/Assessable Value
M/s. Indian Oil Corporation Ltd. (IOCL) challenged the order passed by the Commissioner (Appeals) regarding the enhancement of transaction/assessable value by including lumpsum payments under the know-how agreement. The appellant had entered into three agreements with M/s. Merichem Company, USA: Confidentiality Agreement, Know-How, Process Package and Other Services Agreement, and Equipment Supply Agreement. The adjudicating authority observed that these agreements were interlinked and inseparable, forming a single umbrella agreement. The Special Valuation Branch examined the feasibility of including design and engineering charges, technical know-how fees, and other charges in the invoice value of the imported goods.

Issue 2: Inclusion of License Fee and Designing Charges
The learned Commissioner (Appeals) held that the technical know-how fee and basic engineering fees were includible in the value of the imported equipment. The department apportioned 40% of the total payment made towards know-how and design and drawing in the know-how agreement towards the value of equipment. The appellant argued that the agreements were separate and independent, emphasizing that the confidentiality agreement was exclusively for the security of patented technology and did not impose any compulsion for the purchase of equipment from the supplier of know-how.

Issue 3: Applicability of Customs Valuation Rules, 1988 - Rule 9(1)(c) and Rule 9(1)(e)
The appellant contended that the payment for design and drawings or license fee for technology transfer could not be considered as an obligation of the buyer to the seller for the sale of imported goods. They cited the Interpretative Notes to Rule 4 of the Customs Valuation Rules, 1988, which exclude charges for post-importation activities from the assessable value. The Tribunal referred to the Hon'ble Apex Court's judgment in Commissioner of Customs Port, Kolkata Vs. Steel Authority of India Ltd., which stated that post-importation charges should not be included in the assessable value.

Conclusion:
The Tribunal found that there was no material evidence to show that the payment of royalty charges was a mandatory condition of sale of the imported goods. The Tribunal concluded that any charge paid towards post-import related activity could not be included in the assessable value of imported goods. The order of the learned Commissioner (Appeals) was set aside, and the appeal filed by the appellant was allowed with consequential relief if any in law.