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2024 (9) TMI 190 - AT - CustomsValuation of imported goods - inclusion of Licence Fee and Management Fee in the assessable value of the goods imported from related parties - Inclusion of Management Fee in the assessable value of imported goods. Valuation of imported goods - inclusion of Licence Fee and Management Fee in the assessable value of the goods imported from related parties - HELD THAT - From the provisions of Rule 10(1)(c) of the Valuation Rules royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods, to the extent that such royalties and fees are not included in the price actually paid or payable, does constitute a component of the transaction value. It can thus be said that royalties and licence fees, necessarily required to be added to transaction value has to be relatable to the imported goods alone and should be necessarily a condition precedent for sale of the goods. From the agreement provisions reproduced, it can be noted that the said licence fee payments are not anywhere related to imported goods and are neither stated to be as a condition of the sale of the said goods. The trade mark licence fee is required to be paid for affixing the trade mark on the goods manufactured by the appellant - The appellant has pointed out that in terms of the trade mark affixation, the licence fee is required to be paid and has been paid for the affixation of the words and marks/label of Carl Schenck AG on their finished goods. This payment is neither related to the import of goods nor is prescribed to be paid as a condition of sale of the imported goods. Thus, the licence fees paid by the appellant not being related to imported goods cannot be added to the transaction value fo the imported goods. The appellant also placed reliance on the Interpretative Notes to Rule 10 of the Customs Valuation Rule 2007, to point out that even if the royalty is based partially on the imported goods and partially on other non-related factors, it would be inappropriate to make out a case for addition of royalty - if the royalty paid is solely based on the imported goods and as a condition precedent to the sale of imported goods, then alone can it be added to the price actually paid or payable. Inclusion of Management Fee in the assessable value of imported goods - HELD THAT - The Management Fees paid by the appellant served as a mechanism for reimbursement of costs of various administrative services received from the group companies which in itself are defined in the said agreement - These services are in the nature of Management Services and cannot be held to be related to importation of goods. They rather represent fees for the Management Services rendered to the group companies as a continuous process and are not contingent upon the importation of the goods from the group company. The appellant has also submitted that even in the absence of such imports, the group companies are still mandated for the payment of aforementioned fees for the Management Services received by the appellant. It may also be appropriate to refer to the decision of the Larger Bench of the Tribunal in the case of Panalfa Dongwon India Ltd. v. Commissioner of Customs, Mumbai 2003 (6) TMI 30 - CEGAT, NEW DELHI , wherein it was clarified that royalty payable is required to be necessarily in connection with the import of the goods and that related to downstream production/training etc. being nowhere related to imported goods were not required to be a part of the transaction value. Thus, the payment of Management Fee and the License Fee not being relatable to the imported goods and condition precedent to the sale of imported goods are therefore not includible in the transaction value - the impugned order set aside - appeal allowed.
Issues Involved:
1. Inclusion of Licence Fee in the assessable value of imported goods. 2. Inclusion of Management Fee in the assessable value of imported goods. Detailed Analysis: 1. Inclusion of Licence Fee in the Assessable Value of Imported Goods Facts and Arguments: The appellant, M/s. Schenck Process India Limited, imports various capital goods from related foreign entities. The department contended that the Licence Fee paid to Schenck Process GmbH, Germany, should be included in the transaction value of the imported goods as per Rule 10(1)(c) and 10(1)(e) of the Customs Valuation Rules, 2007. The Commissioner (Appeals) upheld this view, stating that the Licence Fee was directly related to the imported goods and was a condition for their sale. Judgment: The Tribunal noted that the Licence Fee was for the use of the trademark on the finished goods manufactured by the appellant and not related to the import of goods. The Tribunal emphasized that the Licence Fee was not a condition of the sale of the imported goods. Citing the Supreme Court decision in Commissioner of Customs v. Ferodo India Pvt. Ltd. [2008 (224) ELT 23 (SC)], the Tribunal concluded that royalties and licence fees must be directly related to the imported goods and a condition of their sale to be included in the transaction value. Since the Licence Fee in this case was related to the manufactured goods and not a condition for the sale of imported goods, it was not includible in the transaction value. 2. Inclusion of Management Fee in the Assessable Value of Imported Goods Facts and Arguments: The appellant paid a Management Fee to Schenck Process Group for various administrative services. The department argued that this fee should be included in the transaction value of the imported goods. The Commissioner (Appeals) supported this view, stating that the Management Fee was related to the imported goods. Judgment: The Tribunal observed that the Management Fee was for administrative services provided by the group companies and was not related to the importation of goods. The Tribunal cited the case of Thyssenkrupp Elevator (I) P. Ltd. v. A.C.C. (Import & General), New Delhi [2017 (356) ELT 249 (Tri.-Del.)], where it was held that fees for management services not related to the importation of goods should not be included in the transaction value. The Tribunal concluded that the Management Fee was not a condition of the sale of imported goods and therefore not includible in the transaction value. Conclusion: The Tribunal set aside the order of the lower authority, ruling that both the Licence Fee and the Management Fee were not related to the imported goods and were not conditions for their sale. Consequently, these fees were not includible in the transaction value of the imported goods. The appeal was allowed with consequential relief as per law.
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