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TMI Blog2016 (3) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... .R., Shri Govind Dixit, D.R. For the Respondent : Ms. Sweta Bharti, Advocate, Shri Shantanu, Advocate, Ms. Mahima Singh, Advocate ORDER PER R.K. SINGH : Revenue is in appeal against order-in-appeal dated 25.3.2008 which set aside the order-in-original dated 31.8.2006 to the extent that (O-I-O) held that the amount of royalty paid to foreign supplier was includible in the assessable value in terms of Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2008 (hereinafter also referred to as the said Rules). In other words, the Commissioner (Appeals) held that the amount of royalty paid to the foreign supplier cannot be added to the assessable value in terms of Rule 9(1)(c) of thesaid Rules. 2. The facts of the case are as under: The appellant entered into an agreement with M/s Lucent Technologies Inc. USA for supplying the manufacturing component and technical information for the manufacture of PBXs . As per the said agreement - (i) to use in India the portion of the TECHNICAL INFORMATION designated MANUFACTURING INFORMATOIN solely for manufacture of PRODUCTS manufactured in India and solely in factories of the COMPANY. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es International, Inc., its parent or affiliates shall at any time have provided an exclusive right to others in connection with the sale of PRODUCTS; or (2) in countries where Lucent Technologies International, Inc., its parent or affiliates shall at any time have manufacturing operations for PRODUCTS. LUCENT shall not be required to market and sell the PRODUCTS under terms and conditions which it believes are unfavourable to LUCENT. Any export sales through LUCENT channels will take place under the applicable trade marks of LUCENT s choice. As per the agreement, the appellant was required to pay royalty as per Appendix C (to the agreement), paras, 2.01 (a) and (b) of which are reproduced below: 2.01(a) In part payment for the rights granted under Section 4.01(a)(i) and (ii) of this agreement by Lucent; company shall pay to Lucent a royalty in the amount of six United States Dollars (US $ 6.00) per port of each item subject to fee, which is a circuit pack and which is sold, leased or put into use. (b) In part payment for the rights granted under Section 4.01(a)(i) and (ii) of this agreement by Lucent, company shall pay to Lucent a royalty in the amount of six United ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supply Agreement entered into by the appellant with Lucent Technologies. We find that the Supply Agreement duly states that it is consistent with the Transfer of Technology Agreement. The facts which have been recorded by the primary adjudicating authority in para 19 of its order are reproduced below for the sake of convenience. 19........Initially components for making cards were imported by the importers from the Foreign suppliers and these components were used for making cards in India. These cards upon activation were integrated with the back plane line assembly of the EPBAX. A fixed number of ports could be activated by this card and royalty was paid/payable on the number of ports sold, leased or put to use. Royalty paid on the components imported for making cards was not directly related to the goods imported and hence, did not appear to be addable to their declared invoice values. But as the manufacture of these cards in India became nonviable due to economical reasons, the importers started importing complete PCBs. This fact is also established from the study of photocopies of Price Lists and Bills of Entry submitted by the importers in respect of imports made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to import of goods meaning thereof that the amounts must be payable as a condition of sale and that there clearly exists a distinction between amount payable as a condition of import and payable in respect of the matters governing the manufacturing activates . In the case of Tata Yutaka Autocomp Ltd. (supra) the licence fee was to be paid on all products manufactured. In the present case, as has been stated in para 19 (quoted earlier) of primary adjudication order, the royalty payment by the importers to the foreign suppliers was made not only when the appellant imported the cards (instead of manufacturing them) but also when it (i.e. the appellant) sold these cards on high sea sales basis. The appellant was to pay royalty within such 7 days of the end of the quarterly period to the foreign suppliers (para 6 of the Technology Transfer Agreement refers) and in case of failure to do so, the foreign suppliers had the right to terminate all of the foreign suppliers obligation hereunder.. (para 6.03 of Technology Transfer Agreement). As the Supply Agreement is consistent with the Technology Transfer Agreement, it follows that the supplier had the right to terminate the supplies in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be charged on the value of the final product. As per Rule 9, in determining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the license fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of sale of goods. Therefore, when pre-recorded music cassette is imported as against the blank cassette, definitely its value goes up in the market which is in addition to its value and therefore duty shall have to be charged on the value of the final product. Therefore, there can be no dispute with regard to the fact that value of the royalty paid is to be included in the transaction value. 33. . 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 cassettes are distributed and sold and therefore, such royalty becomes payable on the entire records shipped less records returned. It could therefore, be concluded that the payment of royalty was a condition of sale. In the present case, royalty payment was ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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