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TMI Blog2016 (9) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... r rule 10 of Customs Valuation Rules, 2007). It is abundantly clear from the above narration that royalty is hinged upon post-importation manufacture and not on the imported goods per se. The impugned order has erred in including the royalty amounts in the valuation of the ‘master tapes’ that were imported. Appeal allowed - decided against Revenue. - C/01 to 03, 5, 10 & 11/2011 CROSS-OBJECTION NO: C/CO-07/2011 - A/89334-89340/16/CB - Dated:- 23-8-2016 - Shri M V Ravindran, Member (Judicial) and Shri C J Mathew, Member (Technical) Shri T. Vishwanathan, Advocate with Shri Narendra Dave, Chartered Accountant for the appellant-assessee No.1 to 3 Shri Prasad Pranjape, Advocate for the appellant-assessee No.4 Shri V.K. Singh, Special Counsel for the Revenue ORDER Appellant-importer, M/s Saregama India Ltd, distributes feature films of foreign studios in home-viewing formats , such as VHS, VCD and DVD in accordance with contracts entered into with such studios. In general, royalty based on gross sales in India are the recompense to the overseas entities. As a matter of trade practice, a minimum guarantee amount is remitted at scheduled intervals and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been issued by officers who have either not comprehended the scheme of customs valuation in section 14 of Customs Act, 1962 read with the Rules supra or have not appreciated the context in which these were sought to be enforced in the present instances. For their sakes as well as for the elucidation of other tax officials who may well be placed in similar circumstances, it devolves on us to elucidate and educate. 5. The valuation provision of Customs Act, 1962 is: Section 14. Valuation of goods for purposes of assessment. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where- (a) the seller and buyer have no interest in the business of each other; or (b) one of them has no interest in the business of the other, and price is the sole consideration for the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that such payments are not included in the price actually paid or payable. xxxxxx (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 7. It should be abundantly clear from the Rules that rule 9 is to be invoked for adjusting the declared value to reflect the components specified therein to reflect the transaction value to be adopted for assessment. Impliedly, the declared price is accepted and subjected to the adjustments when invoking rule 9. On the contrary, with the rejection of declared price under rule 10A, the transaction value under rule 4 becomes irrelevant and, in accordance with rule 3, the provisions of rule 5 to 8 are to be applied sequentially. Therein lies the nub in the present dispute: the declared price is sought to be rejected under ruled 10A without taking it to its logical conclusion as prescribed in rule 3 and, instead, the very same rejected price is sought to be adjusted by adding the royalty component a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances relating to the dispute in which the Hon ble Supreme Court rendered its decision in re Associated Cement Companies and thus justify the impugned order. 10. There, too, the courier mode or personal baggage mode was used with the importers contending that they were not enjoined to make any declaration and the imports were of drawings relating to technical know-how (described as ideas by the importers in their appeals). It must be borne in mind that the dispute resolved by the Hon ble Supreme Court pre-dates tax on services and the streamlined regulations governing courier mode. One of the contentions raised therein pertained to taxability of transactions in trade deals that are not restricted to supply of goods. The Hon ble Supreme Court held, in the context of the Forty-Sixth amendment to the Constitution, that drawings expressed on a physical media are taxable owing to the entry in chapter 49 of First Schedule of the Customs Tariff Act, 1975. The other pertinent finding in the dispute before the Hon ble Supreme Court was that courier imports, being treated at par with personal baggage, implied that appellants in that matter were liable to action for recovery un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is extremely complex in its structuring and operations; in recent times, the investment that goes into a single production is mind-boggling. It all begins with an idea culled from imagination or a literacy that is dramatized for performance by emotion specialists or cine stars whose credit titles can be as alluring as portrayal of the screen play. Consequently, the costing of a production is as complex and words may be inadequate to describe what a motion picture is. We may, with the limited powers of expression that we are endowed with, describe a motion picture as a presentation of emotion and episodes to entertain each and every viewer with a unique and particular experience. It is the means of setting aside our mundane exultance for a length of time to be spent in a fantasy land. It is unlikely that a tariff heading or tape/stamper/ disc could encage such an experience. Given this complexity, the tax collector may be excused his reluctance to strain beyond the valuation aspect. Nevertheless, for recourse to valuation after rejection of declared value, the adjudicating authority should have necessarily undertaken this onerous burden. 13. Appellant had contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, it would not be in accordance with law to hold that a value must needs be assigned to the contents of the tape/stamper that is imported. In the absence of any cogent arguments by either side that could assist us in reading the nature of motion picture we take note of the levy of service tax on temporary transfer of copyright in motion pictures which has been tested for ultra vires in the Hon ble High Court of Madras in AGS Entertainment Pvt Ltd v. Union of India [2013 (32) STR 129]. Being a service, it is subject to tax when rendered by an overseas provider to recipient in India under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2005. Transfer of copyright in motion pictures is, thus, a service which, though taxable only with effect from 1st July 2010 when section 65 (105) (zzzzt) was incorporated in Finance Act, 1994, does not detract from its non-classifiability as goods for assessment under Customs Act, 1962. 14. Though motion pictures are not liable to duty separately and though its intrinsic value has not been determined for resort to rules 5 to 8 which are sufficient to set aside the impugned order, we examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the present dispute which is solely about cost of reproduction rights. This, too, places reliance on Essar Gujarat Ltd. While the facts relating to import in re Star Entertainment Pvt Ltd are, by and large, similar to that of the appellant-importer before us, it needs noting that the imports in that case were for in telecast and public performance in contradistinction with the ultimate consumer of M/s Saregama India Ltd. In re Star Entertainment Ltd, the difference of opinion referred to Third Member was resolved by placing reliance on the decision in re Living Media Ltd. Therefore, it can safely be said that these and the decisions in re Sony BMG Entertainment (I) Pvt Ltd, re Sony Music Entertainment Pvt Ltd, re Excel Productions Audio Visuals Pvt Ltd and re Universal Music India P Ltd pertaining to motion picture and music rights flow from the decision in re Essar Gujarat Ltd. There is a particular significance to the preceding observation that we shall come to at a later stage. The decisions in re Excel Productions Audio Visuals Pvt Ltd and in re Universal Music India P Ltd are in relation to pre-recorded compact discs. 17. In the present dispute, it is the import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total capital goods and the remaining capital goods were purchased from some other exporters as well as indigenous, we also find that these agreements pertained to rendering of services which are post-import. Therefore, this case is also squarely covered by the judgment of this Court in Commissioner of Customs, Ahmedabad v. M/s Essar Steel Ltd [Civil Appeal No. 3042 of 2004] decided on 13th April, 2015 [20115 (319) ELT 202 (SC)]. 12. Accordingly, we have perused the decision of the Hon ble Supreme Court in Commissioner of Customs, Ahmedabad v. M/s Essar Steel Ltd [20115 (319) ELT 202 (SC)], in which it was held thus: 7 A cursory reading of the Section makes it clear that Customs duty is chargeable on goods by reference to their value at which such goods or like goods are ordinarily sold or offered for sale at the time and place of importation in the course of international trade. This would mean that any amount that is referable to the import goods post-importation has necessarily to be excluded. It is with this basic principle in mind that the rule made under sub-clause 1(A) have been framed and have to be interpreted. and distinguishing the facts in Collector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o operate this plant and use Midrex technology for producing sponge iron in India. Therefore, in our view, obtaining a licence from Midrex was a pre-condition of sale. In fact, as was recorded in the agreement, the sale of the plant had not taken place even at the time when the contract with Midrex was being signed on 4-12-1987, although the agreement with TIL for purchase of the plant was executed on 24th March, 1987. Therefore, we are of the view that the Tribunal was in error in holding that the payments to be made to Midrex by way of licence fees could not be added to the price actually paid to TIL for purchase of the plant. 17. The Court noticed several curious aspects of the Agreement stating that it started with the recital that the Purchaser and the Seller have today respectively purchased and sold a Direct Reduction Iron Plant, on the following terms and conditions , which, according to this Court , indicated that the purchase and sale of the plant had taken place on 24th March, 1987, but in clause (2) it was stated that the purchaser would purchase the property from the seller at the stated price. Upon construing the terms of the conditions, it was opined: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , namely, any amount paid for post-importation activities. The said provision, in particular, also applies to any amount paid for post-importation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for the same. 13. It is, therefore, unambiguously clear that rule 9 of the Rules supra does not confer a blanket mandate to add the value of elements of a contract merely because the supply of imported goods are covered in the same contract. The nature of each element of the contract that has a separate and distinct value, whether so segregated at the specific request of the importer or not, must be scrutinized for ascertainment as pre-importation component for addition to the assessable value .. 19. The decision in re Essar Gujarat Ltd, therefore, does not impact upon such imports which can draw a distinction between royalty on goods imported and royalty as a post-importation condition. Of particular import are the propositions that mere existence of royalty clause in a contract which also covers import of goods does not, ipso facto, mandate adjustment of transaction value; the connection with imported goods must conform to the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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