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TMI Blog2016 (9) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... y paid by the importer under the agreement relates to the manufacturing process of product to be manufactured in India and not to the manufacture of imported goods. He argued that neither Herbalife, USA would support the importer in technology and also in material sourcing as these two are highly specialized areas of requiring standards. He argued that the importer imports through Hebalife USA as the latter is well conversant with the quality of materials and reliability of suppliers. He argued that the technical information supplied as part of the royalty agreement includes the raw materials data and expertise as per the definition of the technical information provided under Article 1.5 of the License and Technical Assistance Agreement dated 10/11/1999. He argued that without the technical information, i.e. raw material data and expertise pertaining to the manufacturing of the raw materials, it would not be possible to manufacture the raw materials to the exacting standards as required for manufacture of final products in India. He argued that without technical know-how of the raw materials, the final production cannot be manufactured. He argued that Rule 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement prescribes that a lump sum payment of US $ 2 million will be made by31/03/2001, the same has not been made in view of RBI instructions which over write the said addendum. The learned Counsel pointed out that Rule 9 (1) (c) provides at the material time read as under: 9 (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods. (c) 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 being valued, to the extent that such royalties and fees are not included in the price actually paid or payable. 3.1 He argued that there is no co-relation of the royalties with the imported goods as the royalties are only in respect of material sold in India. In regard to interpretation of Rule 9 (1) (c) he elaborated the interpretive notes prescribed under Rule 12 of the Customs Valuation Rules, 1988. The interpretive Rules reads as follows: The royalties and licence fees referred to in Rule 9 (1) (c) may include among other things, payments in respect to patents, trademarks and copyrights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lties: a) An initial lump sum payment of US @ 2 million; and b) A running royalty of five percent (5%) of the aggregate Net Retail Sales during each calendar month. The term "Retail Sales" has been defined in para 1.4 in the said agreement and read as follows: "Retail Sales" shall mean the full retail selling prices, after sales returns and allowances, of products of licensee to retail customers by distributors of licensee (or any related party) plus packaging and handling with respect to such sales as reported in licensee's financial statements prepared for licensor. " 5.1 The appellants have argued that the royalties have been paid for the activities undertaken by the appellant within the country and are not related to the import of goods. In the case of Matsushita Television & Audio (I) Ltd. Vs. CC - 2007 (211) ELT 200 (SC) the Hon'ble Supreme Court had the occasion of examining a similar contract. In para 6 & 7 of the same decision, the Hon'ble Apex Court observed as follows: 6. On reading the above agreement, the following features emerge. Under Clause 1.03 the term "Net-factory sale price" has been defined to mean the sale price billed by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared price. However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex-factory sale price of the colour T.V. exclusive of taxes, freight and insurance but including the cost of imported components. In other words, the royalty payment was to be computed not only on the domestic element of the net sale price of the colour T.V. but also on the cost of imported components. A bare reading of the agreement shows that payment under the said agreement related not only to the production of the goods in India but also to imports. In some of the decisions cited on behalf of the assessee, we find that the net ex-factory sale price of the finished products expressly excluded the cost of imported components. On the other hand, in the present case, the cost of imported components was expressly included in the net ex-factory sale price of the colour T.V. Further, when payment to MEI was at the rate of 3% of the sales turn over of the final product, including cost of imported component, it became a condition of sale of the finished goods. Hence, in this case both the conditions of Rule 9(1)(c) of the Valuation Rules, 1988, are satisfied. 5.2 It is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another value. These factors include the nature of the imported goods, the nature of the industry itself, the difference in values etc. As stated above, Rule 4(3)(a) and Rule 4(3)(b) of the CVR, 1988 provides for different means of establishing the acceptability of a transaction value. In the case of Matsushita Television (supra) the pricing arrangement was not produced before the Department. In our view, the Consideration Clause in such circumstances is of relevance. As stated above, pricing arrangement and TAA are both to be seen by the Department. As stated above, in a given case, if the Consideration Clause indicates that the importer/buyer had adjusted the price of the imported goods in guise of enhanced royalty or if the Department finds that the buyer had misled the Department by such pricing adjustments then the adjudicating authority would be justified in adding the royalty/licence fees payment to the price of the imported goods. Therefore, it cannot be said that the Consideration Clause in TAA is not relevant. Ultimately, the test of close approximation of values require all circumstances to be taken into account. It is keeping in mind the Consideration Clause along wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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