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TMI Blog2013 (5) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... such other Replicators as the licensor may from time to time designate, DVDs for the purpose of distribution/re-sale in India. Accordingly, the respondent was importing DVDs from the U-Tech Media Corporation, Taiwan and Infodisc Technology Co. Ltd., Taiwan (vendors in short) by placing purchase orders from time to time on the vendors. The respondent was also locally purchasing DVDs from replicators/vendors in India. In consideration of the right granted to the respondent to distribute/re-sell the DVDs in India, the respondent was required to pay to the licensor, a license fee and further a royalty upon the sale of the DVDs in India. Such royalty was paid both in respect of imported DVDs as well as locally procured DVDs and the same was payable to the Licensor in view of the copy right held by the licensor and in view of the right granted by the licensor as holder of the copy right to the respondent to distribute/re-sell in India. Thus there were two sets of transactions, first with the licensor under the license agreement and second with the vendors by means of purchase orders. 3. The issue of valuation of the said DVDs imported by the respondent was examined by the Special Valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior to the order cut-off date of each such Release Title as notified by Licensor form time to time; and (v) Licensee shall pay replicators all amounts due to Replicator in respect of the purchase of DVDs within thirty (30) days of the date of receipt of the relevant invoice. 4.2 The above clause clearly indicates that the payment of royalties/license fee has direct bearing on the purchase prices. Thus, the transaction with the vendors is not an arms strength transaction and the licensor virtually controls the transaction and determines the prices. Therefore, in terms of provisions of Rule 9 (1) (c) the license fee/royalty is paid by the respondent to the licensor is includable in the value of the goods imported by the respondent from the vendors, since the payments are a condition of sale for export of the goods from abroad to India. The Ld. AR also relies on the decision of the Hon'ble apex Court in the case of CCE, New Delhi Vs. Living Media India Ltd., reported in 2011(271) ELT 3 (SC). He further submits that the decision of the Tribunal relied upon by the lower appellate authority has been over ruled by the apex Court in the cited case. Accordingly, he submits that the lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives the right to repudiate the contract of sale. Since the payment of royalty was not stipulated as a term/condition in the sales contract but was stipulated in a separate agreement, it was not a condition of sale. The Ld. Counsel submits that the Indian Sale of Goods Act in Section 12 (2) similarly provides that a condition of sale is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. In the present case, there is no stipulation of the payment of royalties to the licensor in the purchase orders placed on the vendors and therefore, there is no question of treating the royalties as being a condition of sale of export of goods to the country of imports. 5.1 As regards the reliance placed by the department on the Living Media India Ltd. case, he submits that a decision cannot be an authority or precedent for an issue which did not arise before the Court and which was hence not considered and decided by the Court. In the Living Media India Ltd. case, it is nowhere indicated that there were two separate agreements, one license/royalty agreement with the licensor and the other the sale contract w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter. In addition to the above, the clause 6 of the agreement prescribes payment of a non-refundable license fee of US $ 25,000, which has to be paid in advance even before the import of the goods. 6.3 As regards the payment of royalty there is a minimum amount stipulated per DVD/VCD of the order on Rs.27/- and Rs.130/- respectively. Otherwise, the royalty is 25% of the gross invoice amount for the VCD distributed and 35% of the gross invoice amount for the DVDs distributed. Thus, the payment of royalties is not related not only to the sale price of DVDs/VCDs in India, but there is a stipulation as to the minimum royalty to be paid to the licensor. It is in these circumstances, one has to examine provisions of Rule 9 (1) (c) of the Customs Valuation Rules. 6.4 In the case laws relied upon by the respondent of the Federal Court of Appeal and Supreme Court of Canada, these conditions of sale were not in existence as could be seen from those decisions and therefore, the facts of the present case are different and distinguishable from the facts involved in those decisions and in view of that no reliance can be placed on those decisions. 6.5 Coming to the provisions of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith reputed artists for composing and recording musical works. The music recorded is converted into DAT (Digital Audio Tape) Master which is then sent to Singapore for replicating the musical work on compact discs. Living Media India Ltd. entered into an agreement with M/s. World Media India Ltd. New Delhi for providing of masters which was sent to Australia for replicating into CDs. Thereafter, the respondent company imported a consignment of Audio Compact Discs (ACDs) from Singapore and Customs duty was paid on the invoice value of the replicator in Singapore. Similarly, ACDs were purchased from Australia also, wherein duty was paid on the invoice value of the replicator. The dispute arose with regard to the valuation of these consignments imported by the respondent and the Hon'ble apex Court held as follows:- In all these cases, there is no dispute that the cassettes under question are brought to India as pre-recorded cassettes which carry the music or song of an artist. There is an agreement existing in all the matters that royalty payment is towards money to be paid to artists and producers who had produced such cassettes. Such royalty becomes due and payable as soon as casse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This means that the charge of a duty is on the final product, whether it be the encyclopaedia or the engineering or architectural drawings or any manual. 43. Similar would be the position in the case of a programme of any kind loaded on a disc or a floppy. For example in the case of music the value of a popular music cassette is several times more than the value of a blank cassette. However, if a pre-recorded music cassette or a popular film or a musical score is imported into India duty will necessarily have to be charged on the value of the final product. 44. It is a misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with the Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopaedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, paintings are also to be taxed. Valuable paint ..... X X X X Extracts X X X X X X X X Extracts X X X X
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