2005 (7) TMI 253 - AT - Central Excise

Valuation (Customs) - Imports Ethyl Benzene - Raw material - seeking addition of royalty under Rule 9(1)(c) and Rule 9(1)(d) - HELD THAT - In the instant case, the payment of royalty is not related to imports of Ethyl Benzene and Styrene Monomer. It appears, the respondents do not have any obligation to import these goods only from their collaborators abroad. It has been noted by the lower authorities that they have in fact imported these goods from non-related suppliers at comparable prices. As such, it cannot be said that the royalties have been paid as a condition of sale of the imported goods. On the other hand, the agreement between the collaborators abroad and the respondents requires payment of royalty on finished goods manufactured and sold in India. The amount of royalty specified under the agreement relates to sale price of the goods less certain deductions. The applicant Commissioner himself has stated in the grounds of appeal that in effect the royalties are being paid on manufacturing cost plus profit plus the value of raw materials. Just because a particular formula has been designed to calculate the royalty amount which also includes the raw material cost, it cannot be said that the royalty payment is related to the imported goods. In fact, the royalty is payable on the Net Selling Price of all Agreement Products under the agreement and such products have been defined to mean polystyrene polymers manufactured in whole or in part according to existing technology or improvement. Such payment of royalty is not therefore restricted to polystyrene polymers manufactured using impugned goods imported from the related suppliers only. We find that the impugned agreement provides for payment of running royalty under the know-how agreement and relates to goods manufactured and sold indigenously. Such payment of royalty to BASF, Germany is for using BASF technology and has also been approved by the R.B.I. Thus, we are of the view that the amount of royalty in question cannot be added to the declared value under the said sub-rule (c) either. Revenue's contention seeking addition of royalty under Rule 9(1)(c) and Rule 9(1)(d) fails in view of our findings above. As such, we dismiss the appeals filed by the department. The cross objection filed by the respondents also stands disposed off.

Issues:
1. Determination of relatedness between the appellant and suppliers.
2. Applicability of Rule 9(1)(c) and Rule 9(1)(d) of the Customs Valuation Rules, 1988 regarding royalty payments.
3. Adjustment requirements for declared price based on royalty payments.
4. Comparison of prices between related and unrelated suppliers.
5. Interpretation of conditions of sale in relation to royalty payments.
6. Application of precedents in similar cases.

Analysis:

1. The judgment involved three appeals by Revenue and a cross objection by the respondent concerning the relatedness between the appellant and suppliers, specifically regarding the import of Ethyl Benzene and Styrene Monomer. The original authority held the parties as related and ordered a 1% loading on the value of the imported goods. However, the Commissioner (Appeals) reversed this order, emphasizing that the prices were comparable and the royalty payment was not related to the imported raw materials.

2. The Revenue argued that the royalty payment should be added to the invoice value under Rule 9(1)(c) and Rule 9(1)(d) of the Customs Valuation Rules, 1988. They contended that the royalty was paid based on profits and manufacturing costs, including the value of raw materials, and should be considered in the valuation of the imported goods. The department sought adjustments under Rule 9 to include the royalty indirectly paid on the cost of raw materials.

3. The Tribunal examined whether adjustments were necessary under Rule 9(1)(c) and Rule 9(1)(d) for the royalty payments made by the respondents to their related suppliers. It was determined that the royalty payment was not related to the imported goods but to the finished goods manufactured and sold in India. The Tribunal concluded that the royalty amount should not be added to the declared value under Rule 9(1)(c) as it was not a condition of sale for the imported goods.

4. The Tribunal compared prices between related and unrelated suppliers and found that the prices were comparable, indicating that the relationship did not influence the pricing. As a result, the Tribunal did not discard the transaction value method and did not find the need for adjustments under Rule 9 based on the relatedness between the parties.

5. The interpretation of conditions of sale in relation to royalty payments was crucial in determining whether the royalty was directly related to the imported goods. The Tribunal emphasized that the royalty payment was for using technology and was not restricted to goods imported from related suppliers, thus not constituting a condition of sale for the imported goods.

6. The Tribunal considered various case laws cited by both parties to support their arguments and applied the relevant provisions of the Customs Valuation Rules, 1988 to reach a decision. The judgment highlighted the importance of analyzing the specific circumstances of the case to determine the applicability of rules and adjustments to the declared value of imported goods.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Tribunal's findings on each aspect, including relatedness determination, royalty payment adjustments, comparison of prices, interpretation of conditions of sale, and the application of precedents in similar cases.

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