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TMI Blog2024 (1) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... raw materials. The Rule 10(1)(c) does not say that royalty is to be added in transaction value if the supplier is a group company. It says that if the royalty is a condition for sale, the same has to be included in the transaction value. In the case of COMMISSIONER OF CUS. (PORT), CHENNAI VERSUS TOYOTA KIRLOSKAR MOTOR P. LTD. [ 2007 (5) TMI 20 - SUPREME COURT] , it was held that when technical assistance fees have direct nexus with post import activities and not with import of goods, the same is not to be included in the assessable value. The Tribunal in the case of COMMISSIONER OF CUS. (IMPORT), MUMBAI VERSUS BRIDGESTONE INDIA PVT. LTD. [ 2013 (12) TMI 1089 - CESTAT MUMBAI] held that the royalty and license fee paid on net sale value of products sold in India which has nothing to do with imported goods nor was a condition of sale cannot be included in the assessable value. In the present case, apart from contending that foreign entities are group companies, no evidence is adduced to establish that the relationship has influenced the price. The Tribunal in the case of M/S. KOSTWEIN (I) CO. PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS, (IMPORTS) [ 2019 (6) TMI 278 - CESTAT MU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as provided in Rule 10 (c) CVR, 2007. 2.2 The importer Respondent had entered into a Trade Mark and Technology License Agreement with Compagnie Generale Des Establishment Michelin, France (CGEM), their ultimate group company and Michelin Recherch er Technique S.A., Switzerland (MRT-Licensors) another group company on 01.04.2011. As per clause 3.3 of Article 3 of this agreement obligation of Licensee is stated. The importer has to pay royalty equal to 4% of the Annual Net Sales. Thus on plain reading of the said clause when royalty is paid on net sales value, it is to be construed that the royalty is paid on the value of raw materials and semi-finished goods which are also imported from CGEM or their group companies. The importer vide their letters dated 14.12.2015 and 23.12.2015 had submitted Chartered Accountant Certificates wherein it was stated that the annual net sales means the cumulative amount of the gross invoice sales price less discounts, if any. Thus, it is apparent that the royalty paid by the importer on the value of finished goods has a nexus with the goods imported. The sheer fact that royalty is paid on the value of finished goods would implicitly establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transaction value. There is no nexus between the royalty and the imported goods as the incidence of payment of royalty is on sale of finished goods and the scope of valuation is restricted to payments preceding import. This submission finds it roots in Section 14 of the Customs Act, 1962 which reads as follows: (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf: Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty paid on sale value of manufactured goods is not required to be loaded on the invoice price of raw material. 3.8.3 In the case of Shasun Chemicals Vs. Commissioner of Customs [2010 (249) ELT 80 (Tri.-Chennai)] it was held that, if royalty is payable for final products to be manufactured by them in India, it is not includible in the value of imported goods. 3.8.4 In HSI Automotive Ltd. Vs. Commissioner of Customs, Chennai [2008 (224) ELT 439 (Tri. Chennai)], it was held that royalty paid as a percentage of net sale proceeds has no nexus with import of raw materials/components, and it could not be loaded in their assessable value, especially if it was not paid as a condition of their purchase. 3.9 In this regard, it is also relevant to note the decision of the Chennai Bench in the case of Engelhard Environmental Sys. India Ltd. [2005 (185) E.L.T. 155 (Tri. Chennai)], wherein it was held:- We have heard rival contentions. In this case the appellants have imported one of the raw materials required for the manufacture of catalyst. In order to manufacture the catalyst they require many other raw materials. The technical fee in terms of the agreement with the foreign suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of capital goods and raw materials. 3.13 The payment for the import and the payment of royalty arise from two distinct agreements/ transactions and do not have any direct bearing on each other. Further, the Royalty is not a pre-condition in the agreement to import and it is a payment made for post-import activities. In this regard reliance is placed on the case of Commissioner of Customs, Chennai Vs. Toyota Kirloskar Motor Pvt. Ltd. [2007 (5) TMI 20-SC], wherein a single agreement provided for both import of goods and payment of royalty and fees for technical-know-how to the same entity. 3.14 In the present case, the raw materials are procured from MFPM or suppliers approved by MFPM whereas the royalty is paid to CGEM and MRT . MFPM establishes a list of approved suppliers who comply with the quality standards imposed by CGEM and MRT, and the Respondent is free to choose any from the said list to source the Capital goods and raw materials from. No additional consideration is paid to MFPM and there is no nexus between the payment of royalty to CGEM or MRT and goods by MFPM to the Respondent. 3.15 Further, CGEM and MRT do not mandate any condition with regard to the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, India. .... .... PRELIMINARY STATEMENT: WHEREAS the Licensors own all exclusive rights as regards Intellectual Property (defined below) for which the Licensee desires to obtain a license. WHEREAS the Licensee wishes to acquire the right to use the Intellectual Property Rights in order to manufacture radial tyres suitable for road conditions in India and other countries and distribute them in India. WHEREAS the Licensors agree to grant to Licensee the rights to use the Intellectual Property pursuant to the terms and conditions set forth hereinafter. .... .... Annual Net Sales shall mean the cumulative amount of the gross invoice sale price of the Products manufactured by the licensee and related activities within the scope of this Agreement, when sold during the respective calendar year in a bona fide arm's length commercial transaction, after deduction of: -all discounts, allowances, commissions and credits of any kind, and -all invoices for tubes, flaps, internal supports, components, semi-finished, and accessories sold to other Licensed Companies. .... .... 1.8 Intellectual Property shall mean all ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, the Respondent imported capital goods from Toyota Motor Corporation for manufacture of Passenger Utility Vehicles. Proceeding on the basis that the supplier is related to the respondent, the matter relating to valuation of the said capital goods was referred to the Special Valuation Branch for verification in regard to acceptance or otherwise of the declared invoice value. The Special Valuation Branch by reason of a Circular dated 6-4-1999 was directed to continue to assess the value of imports from the related supplier provisionally. 9 . Another agreement known as TMSS Overseas Parts Export Agreement was entered into by and between the respondent and the Toyota Motor Management Services Singapore Pvt. Ltd. The said agreement covered the seal of the TMSS. The Assessing Authority passed an Order-in-Original dated 31-1-2003 holding : (1) In view of Articles 3 and 4 of the agreement, a lump sum amount of J.Y. 1,015,000,325 paid up to 31-10-2002 towards technical know-how should be loaded to the value of goods imported as components, tools and new capital goods imported from related supplier. (2) The value of components be arrived at by the adjustments, namely, proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction preparation; and pilot production and production model, wherewith the import of capital goods did not have any nexus. 5.8 The Tribunal in the case of Commissioner of Customs, Mumbai Vs. Bridgestone India Pvt Ltd. [2013 (292) ELT 403 (Tri.-Mum.)] held that the royalty and license fee paid on net sale value of products sold in India which has nothing to do with imported goods nor was a condition of sale cannot be included in the assessable value. The relevant paragraphs reads as under:- 2.1 M/s. Bridgestone India Pvt. Ltd. are manufacturers of tyres and tubes and they undertook imports from their foreign collaborator M/s. Bridgestone Corporation, Japan. Inasmuch as the foreign supplier and the buyer are related persons the valuation of the goods imported is undertaken by the SVB cell attached to the Custom House. As per the joint venture agreement entered into between the two parties it was noticed that the importer was paying royalty and licence fee to the foreign supplier in terms of the Licence and Technical Assistance Agreement entered into on 1-4-2005. The department was of the view that the royalty and licence fee paid by the importer is relatable to the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Determination of Value of Imported Goods) Rules, 2007 are not attracted and, therefore, we do not find any infirmity in the order passed by the lower appellate authority. 8 . Accordingly, we dismiss the appeal as devoid of merits. The stay application is also accordingly disposed of. 5.9 In the case of Orochem India Pvt. Litd. Vs. Commissioner of Customs [2015 (327) ELT 254 (Tri.-Mum.)], the Tribunal analysed the meaning of the word condition and observed that it is a stipulation or something on fulfilment of which something else depend. The relevant paragraphs read as under:- 2 . The appellant namely M/s. Orochem India Pvt. Ltd. and M/s. Orochem Technologies Inc., USA have entered into a License and Technical Assistance Agreement for manufacture of Solid Phase Extraction (SPE) by the appellant. The terms of the agreement inter alia includes payment of lump sum royalty amount of US $ 2,00,000 over a 20 years period. Since both the appellant and M/s. Orochem Technologies Inc., USA were related in terms of the provisions of Valuation Rules, 2007, the issue of valuation of the imported raw materials and components and the prospect and feasibility of inclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the price actually paid or payable. made as a condition of sale of the imported goods, by the buyer to the seller are condition of sale of essential ingredients in both the rules is condition of sale. The term used in Rule 10(1)(c) and 10(1)(e) of Customs Valuation Rules, 2007 is Condition of Sale . As per Oxford Dictionary condition means Stipulation or something on fulfilment of which something else depend . Meaning thereby things on whose fulfilment or other things are made to depend. The department could not show that the royalty which they wanted to add to the assessable value is a condition pre-requisite for sale and the assessable value is not a true transaction value in terms of Section 14(1)(a) of the Customs Act, 1962. Hon ble Supreme Court in the case of Ferodo India Pvt. Ltd. (supra) held that Under Rule 9(1)(c), [now Rule 10(1) (c)], if the cost of technical know-how and payment of royalty has no nexus with the working of the imported goods then such payment was not includible in the price of the imported goods. In these circumstances, the impugned order is not sustainable therefore the same is set aside and the appeal is allowed. (emphasis suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have imported one of the raw materials required for the manufacture of catalyst. In order to manufacture the catalyst Appeal No.C/85362/2013 4 they require many other raw materials. The technical fee in terms of the agreement with the foreign supplier is only for the manufacture of the final product. Hence it is not relatable to the imported goods. There is no clause in the agreement which says that the condition of sale of the imported product payment technical know-how fees. In fact there is no obligation to import the item imported only from the foreign supplier. As regards reference to Appendix A, the precious metal solutions are supplied by the foreign supplier as a part of Engelhard s assistance in the start-up of the facility. From this we cannot infer that payment of technical transfer know-how fee is a condition of sale of the imported goods. The case law cited by ld. Counsel are very much relevant. Moreover, the price of the imported goods are based on London Metal Exchange price. Hence Revenue does not have a good case. The technical knowhow fee paid in relation to the manufacture of catalyst cannot be added to the value of the imported goods which are one of the raw m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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