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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 ..... nical information and grant of license and involves consideration in the shape of royalty. Running royalties are condition of sale for the transaction value and thus needs to be added in the value for the purpose of payment of Customs duty. Appeal allowed - decided partly in favor of appellant. - C/1071/04 - A/89193/16/CB - Dated:- 10-8-2016 - Mr. Raju, Member (Technical) Shri.D.K.Sinha, Asst. Comm. (AR) for appellant Shri.Tarun Jain, Advocate for respondent ORDER The appellant, M/s.Herbalife International India Pvt. Ltd. have collaboration agreement with M/s.Herbalife USA. Herbalife USA holds 75% of the equity in Herbalife International India Pvt. Ltd. The appellants imported certain material from Herbalife USA. Their case was picked up by SVB under Rule 2 (2) of the Customs Valuation Rules, 1988. Various documents were called after examining the agreement, invoice value and the imports was accepted by the Deputy Commissioner. The Revenue challenged the said order before the Commissioner (Appeals). Revenue s appeal was rejected by the Commissioner (Appeals). Aggrieved by the said order, the Revenue is in appeal before the Tribunal. 2. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any margin to the appellant. He pointed out that even in the appeal filed by the Revenue it has been recognised that the business transaction between Herbalife USA and the appellants are on arm length basis. Herbalife USA is only to provide support to the appellant. He argued that though the provisions of ₹ 83 lakhs (equivalent to US $ 2 million) has been made in the books of accounts towards technical know-how and the royalty payable to Herbalife USA. No remittance in foreign currency have been made. However, related tax and R D cess has been remitted with appropriate authorities. He also pointed out that this certificate was issued from Deloitte Haskins Sells, on February 01, 2001. Also records that provisions of ₹ 4,67,07,146/- (equivalent to US $ 1.0 million) payable to Herbalife USA towards administrative service fees have been made in the books of accounts. However, the remittance in foreign currency has not been made as of date. He pointed out that material time upto February 01, 2001 no remittance in the foreign currency have been made. He pointed out that even though addendum to the royalty agreement prescribes that a lump sum payment of US $ 2 millio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al information shall mean that information, owned or authorized for use by licensor as of the effective date of this agreement, in whatever form, tangible or intangible, in connection with the manufacture of the products and shall include all patents, copyrights, trade names, trademarks, trade secrets and other proprietary rights or applications therefor and information complementary to the manufacturing process, including without limitation, engineering, scientific and practical information and formulae, research data, design and manufacturing procedures, know-how, raw material data and expertise and all specifications which are applied to the design and manufacturing of the products, together with all improvements developed or acquired by licensor during the term of this agreement . In the Article IV of the said agreement royalty has been defined as follows: Royalties: In consideration for the transfer of know-how and the technical assistance services and the license granted under this agreement, during the tern of this agreement, licensee shall pay licensor the following royalties: a) An initial lump sum payment of US @ 2 million; and b) A running royalty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the licence to be granted by MEI to the appellants it was agreed that the appellants shall pay to MEI the royalty at the rate of 3% on the net ex-factory sale price of the colour T.V. manufactured and sold. Further, it was agreed that in addition to the technical assistance, MEI would assist the appellants in the manufacturing of the colour T.V. by selling the components to the appellants. Under the Agreement, the parties further agreed that if the appellant desired to make use of bought-out components it can do so provided the said components are forwarded to MEI for inspection and if MEI approves the quality and the specifications of such bought-out components then alone the appellant would be free to use such components in the manufacture of colour T.V. 7. The question which arises for consideration in this civil appeal is : whether royalty payment was connected with the imported components. Under Rule 9(1)(c) of the Valuation Rules, 1988, only such royalty which is relatable to the imported goods and which is a condition of sale of such goods alone could be added to the declared price. However, in the present case, payment of continuing royalty was payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the agreement, the appellants were to pay MEI a royalty @ 3% on net ex-factory sale price of the colour TV receivers manufactured by the appellants for the technical assistance rendered by MEI. The appellants were to pay a lump-sum amount of U.S. $ 2 lakhs to MEI for transfer of technical know-how. It was the case of the appellant that payment of royalty was not related to imported goods as the said payment was made for supply of technical assistance and not as a condition pre-requisite for the sale of the components. 24. One of the questions which arises for determination in this civil appeal is whether reliance could be placed by the Department only on the Consideration Clause in the TAA for arriving at the conclusion that payment for royalty was includible in the price of the important components. 25. Rule 4(3)(b) of the CVR, 1988 provides for an opportunity for the importer to demonstrate that the transaction value closely approximates to a test value. A number of factors, therefore, have to be taken into consideration in determining whether one value closely approximates to another value. These factors include the nature of the imported goods, the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not included in the value of the imported goods. In such circumstances, the Valuation Rules have to be applied at two stages. Firstly, it needs to be examined if the relationship have affected the transaction value. Therefore, at the second stage the transaction value arrived at after neutralizing the influence of relationship needs to be adjusted for the cost of the engineering, development, art work and design works, etc. in terms of Rule 9 of the Customs Valuation Rules. In the case of Matsushita Television Audio (I) Ltd (supra), the Hon'ble Apex Court has examined the impact of factors listed in Rule 9 of the Customs Valuation Rules to arrive at the adjusted transaction value. After examining the contract in the said case it has come to the conclusion that if the royalty is paid at a price which includes the value of imported goods then it becomes a condition of sale of finished goods in terms of Rule 9 (1) (c) of the Customs Valuation Rules. The decision in the case of Can-Pack (India) Pvt. Ltd. is differentiable as the same passed without considering the decision of the Hon'ble Apex Court in the case of Matsushita Television Audio (I) Ltd. (supra) 6. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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