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TMI Blog2017 (11) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... ement as well as the pricing agreement. Before taking the final view in the matter, it is necessary to re-examine the matter of both license agreement as well as supply contract simultaneously, to see if the enhanced royalty was in the guise of adjustment of the price of components - matter remanded for reconsideration. Appeal allowed by way of remand. - C/51097/2017(DB) - C/A/56728/2017-CU[DB] - Dated:- 25-9-2017 - Dr. Satish Chandra, President And Mr. V. Padmanabhan, Member (Technical) Present Shri Kishore Kunal and Shri Vasu Nigam, Advocate for the appellant Present Shri Govind Dixit, DR for the respondent ORDER Per: V. Padmanabhan 1. The appeal is filed against the order in appeal number 132/2017 dated 17/03/2017. 2. Brief facts of the case are as follows:- The appellant is a public ltd company and is engaged in the manufacture of goods such as paints chemicals etc. using raw materials imported from related and unrelated parties. The Appellant is also engaged in trading of finished products such as car and wood paints imported from the Foreign Suppliers. Special Valuation Branch, New Custom House, New Delhi (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds imported. iv. Payments under Royalty agreement are only with respect to post importation activities and are not co-related to the sale transaction between the Appellant and the supplier of the goods. v. Impugned order itself states that technical assistance fee cannot be termed as condition of sale of goods. vi. The Appellant is discharging service tax under reverse mechanism on payment of royalty to overseas related companies. vii. Ld. Counsel also submitted that the appellant has entered into various license agreements with M/s Akzo Nobel Coatings International BV, Netherlands. The agreements dated 01/06/12 and 01/09/2012 permit the appellant to use the intellectual property belonging to the principal, in the manufacture of various goods in India. Separately another agreement dated 16/9/2004 has been entered into by which the appellant has been allowed to use the technology, trade mark, technical knowhow etc for manufacture of industrial paints, ceilings etc. Other license agreements cover trading of goods. Even though royalty is payable to their principals in Netherlands, as per the above agreements, no goods have been imported from the said principal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07. In this particular case, the goods imported by the importer appellant from its related Foreign Supplier are manufactured by the Foreign Suppliers and are their proprietary goods, on which they hold Trademarks. The Suppliers have affirmed that all products exported to the importer are being sold on principal to principal basis. 5.4 The Foreign Suppliers have supplied the imported goods to the importer (appellant) only in accordance with the global transaction/ pricing policy of the Akzo Nobel group, which requires that group company supplies are to be made on the basis of cost plus 5% markup. The importer appellant informed the SVB that the supply of all the goods from group companies are in accordance with same pricing policy. When asked specifically, the importer vide its letter dated 23.02.2015 has submitted that their company has entered into various licence agreements with M/s Akzo Nobel Coating International BV, Netherland under which it was granted a non-exclusive, non- transferable, royalty bearing license with the right to sublicense to use the licensed intellectual property to manufacture, distribute, sell or otherwise supply products within India, Nepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, he 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 of MEI was at the rate of 3% of the sales turnover of the final products, including cost of imported component, it b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SA. After going through the terms of the agreement, the Hon ble Tribunal found that payment of royalty/license fee of 56% which was charged from the customers in India deserved to be added to the transaction value of the imported media packs and Customs duty was payable thereon because payment of license fee was a condition for the sale of media pack in India. As in the present case, Oracle entities worldwide were governed by a global pricing policy of an Oracle group, like the Akzo Nobel Group. 5.9 In view of the facts of the case and the ratio of the binding decisions as summarized in the preceding paragraphs, the royalty amount paid by the appellant to its foreign supplier must be added to the transaction value of the imported goods and the Customs duty is payable thereon. 6. We have heard both sides and perused the appeal record. The appellant has entered into several licence agreements with AKZO Noble International BV Netherlands (their Principal). Some of these agreements are for granting the right to the appellant to use intellectual properties. Certain other agreements are for licensing the use of technology, copyright, trademark etc. Royalty is payable as a perc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, 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. It is to be noted that facts of case before the Apex Court was similar to the present case. Accordingly, revenue has taken the view that royalty is to be added. 9. The appellants have relied on the subsequent Apex Court decision in the case of Ferodo India (supra). It has been argued that the facts before the Apex Court in Ferodo was also similar to the present case and the decision is in their favour. The facts of the Ferodo India case are as follows: 3. The buyer is the manufacturer of brake liners and brake pads in India. On 8-9-1995, a technical assistance and trade mark agreement ( TAA for short) was enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in juxtaposition with the TAA, the Department finds that the importer/buyer has misled the Department by adjusting the price of the imported item in guise of increased royalty/licence fees then the adjudicating authority would be right in including the cost of royalty/licence fees payment in the price of the imported goods. In such cases the principle of attribution of royalty/licence fees to the price of imported goods would apply. This is because every importer/buyer is obliged to pay not only the price for the imported goods but he also incurs the cost of technical know-how which is paid to the foreign supplier. Therefore, such adjustments would certainly attract Rule 9(l))(c). The Apex Court further observes as follows : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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