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TMI Blog2016 (3) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds of sale of products sold in India and abroad. It is quite obvious that maize product being an agricultural product, the price of the imported goods i.e. maize corn is included in the net proceeds of sale of finished goods which are essentially corn only and the royalty is paid on corn. Therefore, royalty paid by the appellant is includible in the value of the imported goods for purpose of assessment of Customs duty. Confiscation and Penalty - Vending Corn - The department contended that appellant had not used imported goods for manufacturing vending corn but sold the same in the market in the same condition as it was imported and therefore the vending corn is liable to confiscation and confiscated the same under Section 111(d), 111(m) and 111(o) of the Customs Act - Held that: Section 111(m) speaks of confiscation in respect of goods which do not correspond in respect of any particulars with the entry made under Customs Act. Here the entry referred to is the Bill of entry and the declaration thereto. As the declaration did not declare the existence of the Agreement, the goods are liable to be confiscated under Section 111(m) of the Customs Act and penalty under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke instant popcorn : (a) Refrigeration; (b) Fumigation; (c) Removal of dead insects and foreign matters by sifting/sieving; (d) Gradation; (e) Passing through metal detector for removal of any broken piece of metal; (f) Mixing of edible and seasoning/spices; (g) Packing After the above processing, the following types of Popcorn are made, marked and sold under Act II Brand (i) Instant Popcorn (ii) Microwave Popcorn, (iii) All-in-One Popcorn (iv) Vending Popcorn. Vending Popcorn made out of imported maize corn, does not undergo the processes mentioned in (e) and (f) above. 2.2 The first reason for issue of show cause notice to the appellant is that in their application to the canalizing agency NAFED for import of maize under TRQ scheme, they had declared the end product to be manufactured as value added corn; in the covering letter importer had described himself as Actual User. DGFT vide letter dated 31-3-2006 granted permission to NAFED for import for further supply to Actual User/applicant. The TRQ were granted for the years 2008-09, 2009-10, 2010-11 subject to Actual User condition. The show cause al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers who issued the show cause notice. 4.1 On the issue of applicability of Actual User condition in respect of the goods imported, he referred to the affidavit submitted by the DGFT before the Hon ble High Court Andhra Pradesh in the case of Sriven Marketing v. Union of India, Writ Petition No. 16349/2011. According to this affidavit as per the decision taken in ministerial meeting held on 29-4-2003, Actual User condition was made not mandatory under the procedure for import of all items under TRQ scheme. He stated that Actual User condition was done away with under Public Notice 47(RE- 2010)/2009-14 at 18-5-2011 issued by DGFT in respect of imports under TRQ Scheme. Ld. Counsel stated that any condition specified in TRQ certificate which is contrary to the policy is redundant. He further argued that, in any case, the definition of manufacture in para 9.36 of the FTP is wide enough to cover processing done on maize for making vending popcorn. As they had done processing on imported maize, therefore Actual User condition has not been violated by them. He referred to judgments in the case of Hewlett Packard India Sales Pvt. Ltd. v. CCE [2009 (241) E.L.T. 545 (Tri.)], Baccoro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be said that the Actual User condition was done away with by Public Notice dated 18-5-2011 (supra). Further, in terms of definition of Actual User in para 9.6 and definition of manufacture in para 9.37 of the FTP, no new products having distinctive name, character or use emerged with the processing of vending corn maize. Hence manufacture has not taken place. Therefore as the vending corn is sold in the market in the condition it is imported, Actual User condition is not satisfied. Therefore as TRQ Scheme requires Actual User condition, the TRQ Allocation Certificate issued to the appellant is not valid and the appellant is not eligible for exemption under Notification 21/2002. He relied on the Hon ble Apex Court judgment in the case of Maruti Suzuki India Pvt. Ltd. v. CCE, New Delhi, [2015 (318) E.L.T. 353 (S.C.)] in which it was held that anti-rust treatment on motor vehicle parts does not amount to manufacture in terms of Section 2(f) of the Central Excise Act. He argued that the Division Bench of Hon ble Andhra Pradesh High Court while passing Order in Writ Appeal 228/2002 in the case of Sriven Marketing considered the affidavit of DGFT relied upon by the ld. Counsel, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment in accordance with para 1.3 of FTP read with Section 5 of the FTA Act. Although this stay (interim Order) was vacated and appeal dismissed due to non-prosecution, the ld. A.R. brought our notice that the order of dismissal has been restored by the High Court in June, 2015 in WAMP 928/2015. According to us, irrespective of the final decision of the Hon ble High Court of Andhra Pradesh, we find that the Actual User condition is incorporated on the licence. Ld. Counsel tried to argue that the condition attached to the Customs Notification No. 21/2002 does not require Actual User condition. We find that this condition has not been appreciated in the correct perspective. It is clear from the condition that TRQ Allocation Certificate must be issued in accordance with specified procedure which appears to have not been followed as explained lucidly in the interim order of the High Court. But as the matter is still pending for final decision in the High Court, we just take note of the fact that Actual User Condition is incorporated in Appellant s Licence. Therefore we reject this reasoning of the ld. Counsel. 7.2 Since Actual User condition is incorporated on the licence, we may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses, we cannot expect that a new product having a distinctive name, character or use will emerge. The reliance by ld. A.R. on the case of Maruti Suzuki (supra) is misplaced because the Apex Court was considering definition of manufacture under the Central Excise Act. Rather the decisions relied upon by the Counsel are correct because they considered the definition in the FTP which is very wide. We reject this contention of ld. AR and hold that the processes undertaken in the case of vending pop corn will amount to manufacture. Therefore Actual User condition is satisfied and the appellant are eligible for the benefit of concessional rate of duty under Notification No. 21/2002. The demand of duty on this amount is not sustainable. 8. For examining the second issue of royalty, relevant provisions of the Agreement between Corn Agra Foods, USA (Licensor) and the appellant (Licencee) are reproduce below for convenience. Recitals B. Licensor is the owner of certain rights, title and interest in and to the trademark Act II, including without limitation, C. Licensor and its affiliates are owners of certain information, specifications, formulae, recipes, patents, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, standards instructions, product formulae and product specifications (Collectively the Specification ) .. Licensee s failure to comply with the said specification shall constitute a material breach of this Agreement and be grounds for immediate termination. Licensor shall have the right to change, alter or amend the specifications. Licensee shall permit Licensor, or its duly appointed assignee, to enter and inspect Licensee s relevant plants and business premises upon reasonable notice at all reasonable times during business hours for the purpose of determining if the Products conform to the quality standards 6.4 If any portion of Licensee s facilities, or any of Licensee s processes, inventories or equipment are in an unsanitary condition. Licensee shall promptly take such action as will correct the deficiencies and bring such processes, inventories and/or equipment into compliance with the specifications, the Licensed know-how, applicable laws and regulations and with the terms and conditions of this agreement. 6.5 . If the nonconformity or defect in the Product subject to seizure, recall, withdrawal or destruction is attributable to an act or mission on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the appellant acquired exclusive right in connection with the manufacture, marketing, sales and distribution of the products. The products are specified in Exhibit B to the Agreement as : Act II Sachet : Act II Vending Popcorn Act II Microwave Popcorn The Agreement also provides for technical assistance relating to the manufacturing and production of the products. All the expenses incurred in providing technical assistance are to be borne by the appellant. Licensor and licensee (Appellant) shall develop mutual acceptable plan for marketing, promotion and sale of the product during the period the Agreement is in effect. During the term of the Agreement, the appellant cannot distribute any other 3rd party products which are similar to the Products. Under the Clause of manufacturing and quality control, the Agreement provides that the use of licensee s properties shall be subject to the quality control of the licensor. The products shall comply with the all the terms and condition of the Agreement including the specifications as defined. The Licensee shall conform with the quality control procedures, standard instructions, product formula and prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty payments. The case of Bridgestone India (supra) is also on a different footing. These facts are clearly distinguished in the Hon ble Supreme Court judgment in the case of Matsushita Television Audio Ltd., 2007 (211) E.L.T. 200 (S.C.) in which Hon ble Apex Court held that the royalty payment was payable @ 3% of the net ex-factory sale price of colour TV including the cost of imported components. There the royalty was held to be relatable to the imported goods and as a condition of sale of finished goods. The situation is identical in the case before us. The royalty payments are made as percentage of the net proceeds of sale of products sold in India and abroad. It is quite obvious that maize product being an agricultural product, the price of the imported goods i.e. maize corn is included in the net proceeds of sale of finished goods which are essentially corn only. And the royalty is paid on corn. Therefore royalty paid by the appellant is includible in the value of the imported goods for purpose of assessment of Customs duty. 8.3 A doubt may arise that whereas the Licensor is M/s. Con Agra Foods Delaware, the goods are imported from Con Agra Foods Argentine. This will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated are in accordance with the invoice No dated . and other documents presented herewith. I/We also declare that the contents of the above mentioned invoices(s) and documents are true and correct in every respect. 2. I/We declare that I/We have not received and do not know of any other documents or information showing a different price, value (including local payments, whether as commission or otherwise), quantity or description of the said goods and that if at any time hereafter I/We discover any information showing a different state of facts. I/We will immediately make the same known to the Commissioner of Customs. 3. I/We declare that goods covered by the bill of entry have been imported on outright purchase/consignment accout. 4. I/We am/are not connected with the suppliers/manufacturers as : - (a) Agent/distributor/indentor/Branch/subsidiary/ concession-naire, and (b) Collaborator entitled to the use of the trade mark, patent or design, (c) Otherwise than as ordinary importers or buyers. In our view, by not declaring the existence of the Agreement, there is suppression of facts and extended time period is in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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