2024 (2) TMI 1096 - AT - Customs

Valuation of imported goods under Rule 9 and 10(1)(c) - addition of payment made towards royalty -100% subsidy of foreign supplier - Related party - Import of raw material for manufacture of finished goods - HELD THAT - Appellant has produced enormous documents to show that the pricing has been uniform worldwide in respect of transaction between affiliates. As seen from Rule 3, the 2% variation in the prices demonstrated by the appellant in the tables given below do not reflect as abnormal discounts to reject the transaction value. The Department has also not produced any evidence to show any financial flow back on account of the relationship. Thus, there is no reason to reject the transaction value in the present case. On Persual of Rule 12, it is clear that Cogent reasons with evidence needs to be produced to prove that the declared value is not acceptable and in the present case revenue has failed to prove. As seen from the Rules the Original Authority has after rejected all other methods has arrived at the loaded value as per Rule 9 which is last in the sequence. The Commissioner having rejected this method of enhancement of value cannot remand the case for redetermination under any other method as it has already attained finality and there is no appeal on that method of valuation. Hence the remand to redetermine is not sustainable and hence set aside. Addition of payment made towards royalty under Rule 10(1)(c) of the Customs Valuation Rules, 2007, law is well settled that addition of payment made towards royalty can be made only in cases where the goods have been manufactured from the raw material imported by using the trade secret license under License agreement. The Royalty is not payable in instances of trading of imported finished goods and on goods repacked in India and it is only for use of technology to produce the products in India. Admittedly the royalty has been paid for use of technology to produce the products and it is payable on the net value of the goods manufactured in India and therefore, royalty cannot be added to the finished goods imported by the appellant for trading purpose. Thus, in view of the settled principles of Valuation, we find the impugned order devoid of merits. Accordingly, the appeal is allowed with consequential relief if any, in accordance with law.

Issues Involved:
1. Valuation of imported goods under Rule 9 and 10(1)(c) of the Customs Valuation Rules, 2007.
2. Rejection of declared invoice value and loading of declared invoice price by 100%.
3. Addition of payment towards royalty in the assessable value.

Summary:

1. Valuation of Imported Goods:
The Appellant, engaged in trading industrial standard mould release agents and dye lubricants, imported raw materials from Chem Trend, USA. An agreement dated 01.01.2010 was entered for the use of trade secrets and other Intellectual Property Rights, with royalty payments of 3.7% and 4% of net sale volume. The Assistant Commissioner of Customs, SVB Mumbai, rejected the declared invoice value and ordered a 100% loading under Rule 8 read with Rule 9 of the Customs Valuation Rules, 2007. The case was transferred to SVB Bangalore, where the Assistant Commissioner again ordered a 100% value loading on the declared price and added payment towards royalty under Rule 10(1)(c).

2. Rejection of Declared Invoice Value:
The Commissioner (Appeals) set aside the 100% loading and additional royalty of the assessable value but upheld the rejection of the declared value, remanding the matter for re-determination of the assessable value. The Appellant argued that the declared price was not influenced by the relationship with the supplier and that the transaction value should be accepted. The Appellant provided evidence, including transfer pricing guidelines and cost certifications, to demonstrate that the declared value closely approximated the transaction value of identical goods sold to unrelated buyers in India.

3. Addition of Payment Towards Royalty:
The Appellant contended that royalty payments were only applicable for goods manufactured using the licensed trade secrets and not for traded or repacked imported goods. The law is well settled that royalty paid for manufacturing licenses in India should not be included in the assessable value of imported goods. The Tribunal cited various judgments supporting this view, including Commissioner of Customs v. Toyota Kirloskar and Commissioner of Customs v. Ferodo India (P.) Ltd.

Tribunal's Observations:
The Tribunal noted that the Appellant had provided substantial documentation to support the declared transaction value and that the 2% variation in prices did not justify rejecting the transaction value. The Department failed to produce evidence of financial flow back due to the relationship. The Tribunal emphasized that the rejection of the declared value must be supported by cogent reasons and evidence, which were lacking in this case.

Conclusion:
The Tribunal set aside the rejection of the declared value and the remand for re-determination of the assessable value. It held that the addition of payment towards royalty was not justified for imported finished goods meant for trading. The appeal was allowed with consequential relief, if any, in accordance with the law.

Order Pronounced:
The order was pronounced in open court on 16.02.2024.

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