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2024 (1) TMI 470 - AT - CustomsValuation - import of goods - whether the royalty paid by the appellant to the foreign entity is to be included in the transaction value for the purpose of payment of duty? - HELD THAT - The twin conditions required to be satisfied are (i) the payment of royalty should be in relation to imported goods (ii) the payment should be as a condition of sale of the imported goods. The contention of the Department is that since CGEM MRT are group companies of M/s. MFPM there is a nexus of the royalty paid to the annual net sales. It is to be seen that M/s. MFPM, France procures goods from third party suppliers and then supply to Respondent. Further royalty is paid only on the annual net sales to M/s. CGEM MRT who have no role in supply of capital goods and are companies in Switzerland. Other than the contention that these are group companies there is no evidence adduced to establish that royalty is paid as a condition of sale of capital goods / raw materials. The Rule 10(1)(c) does not say that royalty is to be added in transaction value if the supplier is a group company. It says that if the royalty is a condition for sale, the same has to be included in the transaction value. In the case of COMMISSIONER OF CUS. (PORT), CHENNAI VERSUS TOYOTA KIRLOSKAR MOTOR P. LTD. 2007 (5) TMI 20 - SUPREME COURT , it was held that when technical assistance fees have direct nexus with post import activities and not with import of goods, the same is not to be included in the assessable value. The Tribunal in the case of COMMISSIONER OF CUS. (IMPORT), MUMBAI VERSUS BRIDGESTONE INDIA PVT. LTD. 2013 (12) TMI 1089 - CESTAT MUMBAI held that the royalty and license fee paid on net sale value of products sold in India which has nothing to do with imported goods nor was a condition of sale cannot be included in the assessable value. In the present case, apart from contending that foreign entities are group companies, no evidence is adduced to establish that the relationship has influenced the price. The Tribunal in the case of M/S. KOSTWEIN (I) CO. PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS, (IMPORTS) 2019 (6) TMI 278 - CESTAT MUMBAI while considering the issue as to whether license fee has to be included in transaction value observed as far as the relationship has not influenced the pricing pattern there is no justification for inclusion of royalty and technical know-how in the assessable value of the imported products. The impugned order does not require any interference - the appeal filed by Department is dismissed.
Issues Involved:
1. Whether the royalty paid by the appellant to the foreign entity is to be included in the transaction value for the purpose of payment of duty. Summary: 1. Background and Facts: The Respondent requested registration in the Special Valuation Branch (SVB) for imports from M/s. Manufacture Francaise Des Pneumatiques Mechelin (MFPM), France. An order dated 31.12.2015 mandated that royalty payments made by the Respondent to the overseas supplier be included in the transaction value as per Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The Commissioner (Appeals) later set aside this order, leading the Department to appeal to the Tribunal. 2. Department's Arguments: The Department, represented by Ms. Anandalakshmi Ganeshram, argued that the royalty paid to the ultimate group company and other group companies should be considered an indirect payment of royalty as per Rule 10(c) CVR, 2007. They contended that the royalty paid on the net sales value of finished goods has a nexus with the imported goods and should be included in the transaction value. 3. Respondent's Arguments: The Respondent, represented by Mr. Harish Bindumadhavan, argued that the royalty paid is for post-import activities and not related to the imported goods. They cited several judicial precedents, including Commissioner of Customs, Chennai Vs. Toyota Kirlosakar Motor Pvt Ltd. and Total Finaelf India Ltd. Vs. Commissioner of Customs, Mumbai, to support their claim that such payments are not includible in the transaction value. 4. Tribunal's Analysis: The Tribunal examined Rule 10(1)(c) of the Customs Valuation Rules, 2007, which requires that royalties related to the imported goods and paid as a condition of sale be included in the transaction value. The Tribunal noted that the royalty agreement was with entities not involved in supplying capital goods or raw materials to the Respondent. The capital goods and raw materials were supplied by MFPM, which procured them from third parties. The Tribunal found no evidence that the royalty payment was a condition of sale for the imported goods. 5. Judicial Precedents: The Tribunal referenced several cases, including Commissioner of Customs, Mumbai Vs. Bridgestone India Pvt Ltd. and Orochem India Pvt. Ltd. Vs. Commissioner of Customs, which held that royalties paid for post-import activities and not as a condition of sale of imported goods are not includible in the transaction value. 6. Conclusion: The Tribunal concluded that the royalty payments made by the Respondent were not a condition of sale for the imported goods and were related to post-import activities. Therefore, they should not be included in the transaction value. The appeal filed by the Department was dismissed. (Order pronounced in open court on 08.01.2024)
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