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TMI Blog2017 (6) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... nt purpose in terms of Rule 4(3)(a) of Customs Valuation Rules, 1988, however, ordered that technical know-how fees and royalty shall be added to invoice value in terms of Rule 9(1)(c) of the said Rules. The importers preferred an appeal before learned Commissioner (Appeals). Vide impugned order dated 21.5.2007, the Commissioner (Appeals) set aside that portion of the order of the original authority with regard to addition of technical know-how and royalty fees to assessable value. 2. Aggrieved against the order of the Commissioner (Appeals), the department has filed this appeal. 3. Today, when the matter came up for hearing, learned AR reiterated the grounds of appeal. He took us to Rule 9(1)(c) of the Rules to contend that royalty and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerns technical know-how granted to appellants to exclusively manufacture, market, sale and distribute the licensed products within the territory agreed upon. Para 4 of the agreement specifies that for grant of such technical know-how license of technical know-how, the following amounts have to be paid:- (a) Technical know-how license fee of Rs. 99,99,999/-; and (b) Running royalty on sales of each licensed product at specified rates, initially 5% and subsequently at 3% on net ex-factory price of these products. 7. We are, however, unable to find out any condition precedent in the license agreement which ties the import of the impugned goods to the payment of the technical know-how and license fees. The imports are therefore definitel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Royalties and licence fees related to the imported goods is the cost which is incurred by the buyer in addition to the price which the buyer has to pay as consideration for the purchase of the imported goods. In other words, in addition to the price for the imported goods the buyer incurs costs on account of royalty and licence fee which the buyer pays to the foreign supplier for using information, patent, trade mark and know-how in the manufacture of the licensed product in India. Therefore, there are two concepts which operate simultaneously, namely, price for the imported goods and the royalties/licence fees which are also paid to the foreign supplier. Rule 9(1)(c) stipulates that payments made towards technical know-how must be a cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Application of Rule 9(l)(c) to the facts of the present case xxxxxx xxxxx xxxxx xxxxx xxxxx 22. In the case of Essar Gujarat Ltd. (supra), the buyer had entered into a contract with TIL for purchase of Direct Reduction Iron Plant (the plant). The entire agreement was for import of the plant. The agreement was subject to two conditions- (a) approval of G.O.I. and (b) obtaining transfer of licence from M/s. Midrex, USA. Without the licence from Midrex, the imported plant was of no use to the buyer. Therefore, it was essential to have the licence from Midrex to operate the plant. Therefore, it was held by this Court that procurement of licence from Midrex was a pre-condition of sale which was specifically reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 Televis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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