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TMI Blog2024 (3) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... as the appellant is not obliged to incur any particular amount or percentage of invoice value towards sales promotion/ advertisement. Further, we find that the activity of advertisement and sales promotion is a post-import activity incurred by the appellant on its own account and not for discharge for any obligation of the seller under the terms of sale - As per the stipulation in the agreement, the appellant is obliged to be responsible for sales and distribution in its territory of distribution and further to make such expenditure in consultation with the seller, does not attract the provisions of Rule 10(1)(e) of CV Rules. The appellant and M/s. Speedo or M/s. Jockey International are no way related parties as their relationship is principal to principal basis and the fact they are sole distributor in no way makes them related parties as per the Customs Act or the Valuation Rules. Moreover, they have imported from unrelated suppliers who have nothing to do with Jockey International and the distributed products have nothing to do with the licensed products as far as royalty is concerned. The issue being one of interpretation of what should be the value there is nothing brought on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue is regarding invoking the provisions of Rule 10 under the Customs Valuation Rules 2007. There is no evidence of any nature whatsoever that is brought on record to show that there were contemporaneous sales/transactions at high price. He further draws our attention to Section 14(1) of the Customs Valuation Rules 2007, the circumstances in which the buyer and seller shall be deemed to be related for consideration of sale. As per Rule 2(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 related persons is defined as: 2 (2) For the purpose of these rules, persons shall be deemed to be related only if (i) they are officers or directors of one another s business; (ii) they are legally recognised partners in business; (iii) they are employer and employee; (iv) any person directly or indirectly owns, controls or holds 5 percent or more of the outstanding voting stock or shares of both of them; (v) one of them directly or indirectly controls the other; (vi) both of them are directly or indirectly controlled by a third person; (vii) together they directly or indirectly control a third person; or (viii) they are members of the same family. Explanation I - Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trademark is owned by a third person then the payment for the imported goods and for the trademark used in the country of importation are quite clearly separate, since they go to different persons. The condition of sale test is thus not satisfied, and the royalty should not be added to the price of the goods. He further submits that General Agreement on Tariff Trade, 1994 (hereinafter referred to GATT) laid down the basic principles to be adopted for uniform implementation of practices pertaining to international trade. Rule 10(1)(c) of the Customs valuation Rules 2007 covers the situation contemplated under Article 8(1)(c) of the Customs Agreement. 7. Ld. Counsel further draws our attention to the finding in the impugned order where Adjudication authority held that such Licensed/contract manufacturers are manufacturing the goods on behalf of M/s Page industries Ltd. subject to conditions as defined and stipulated in the Trade Mark License Agreement between M/s Page Industries M/s Jockey International, Inc, USA. For such products, Trademarks are being allowed, manufacturing know-how is being shared by the Licensee i.e, M/s Page Industries Ltd and all such contract manufacturers ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal in the matter of M/s Indo Rubber Plastics Works Vs CC, New Delhi (2020 (273) E.L.T. 250 (Tri.Del). 10. The Ld. Counsel also draws our attention to the Final order of this Tribunal in the matter of M/S Kruger Ventilation Indus (North India) Pvt Ltd Vs C.C (Import), New Delhi (2022 (382) E.L.T. 541 where it is held that 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. 11. Ld. Counsel also draw our attention to the Final order of this Tribunal in the matter of M /s Sandvik Asia Pvt Ltd Vs C.C (Import), Mumbai (2015 (329) E.L.T 493 (Tri.Mumbai) where it is held that to invoke Rule 10(1)(c) of the Customs Valuation Rules, 2007, two conditions required to be satisfied are :- (i) Royalty is related to the imported goods; and (ii) Royalty is paid as a condition of sale of imported goods. 12. Thus Royalty paid should have nexus to the imported goods. Regarding M/s Jockey International branded g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brand products and successfully sophisticated manufacturer and seller of apparent products. Based on the strong track record, the Jockey has granted Appellant one of the longest extension of terms under the Trade mark license and which is valid up to 2030. The Appellant has achieved this growth and success without Jockey s transfer of know-how. 15. Thus the demand of royalty for the distributary products is illegal and unsustainable as it is only for the licensed products to be produced by the Appellant. To support the above, Ld. Counsel draws our attention to the decision of the Tribunal in the matter of M/s Indo Rubber Plastics Works Vs CC, New Delhi (2020 (273) E.L.T. 250 (Tri. Del) and decision of the Tribunal in the matter of CC Patparganj, New Delhi Vs M/s Adidas India Marketing Pvt Ltd (2020 (373) E.L.T. 394 (Tri. Del) Para 12,15,19-23). 16. Regarding demand of differential duty on the raw material, major supplier of the raw material are not approved supplier of M/s Jockey International and for that reason no royalty amount cannot be added to the import price. To support the above finding, the Ld. Counsel draws our attention to the judgment of Hon ble Supreme Court in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there is total absence of the prescribed condition precedent as the appellant is not obliged to incur any particular amount or percentage of invoice value towards sales promotion/advertisement. Further, we find that the activity of advertisement and sales promotion is a post-import activity incurred by the appellant on its own account and not for discharge for any obligation of the seller under the terms of sale. The ruling of this Tribunal in the case of Reebok India Company (supra) is not applicable, as the facts in the present case are totally different and unlike Reebok India Company, nowhere provides for any fixed expenditure towards sales and promotion as a pre-condition of sale. Further, in the instant case, the parties are not related to each other. Further, the appellant importer is not obliged to give any account of expenditure incurred by it to M/s. Sunlight Sports, incurred by them, unless such expenditure is incurred at the instance of M/s. Sunlight Sports under stipulation of reimbursement. Further, we find that the interpretative note to Rule 3(b) provides, that activity undertaken by the buyer on its own account, even though by agreement, are not considered as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Agreement, LICENSEE agrees that it will invite a representative of JOCKEY to serve on its Board of Directors and to participate in its regularly scheduled board meetings. 21. The Ld. AR further submits that as per the Customs Valuation (Determination of Valuation of Imported Goods), 2007 r/w Section 14 of the Customs Act, 1962, Royalty paid by the importer to their foreign partner supplier namely M/s Speedo International Ltd and M/s Jockey International Ltd. is to be added to the assessable value of the imported goods. The Royalty as well as mandatory advertisement expenses paid by the Appellant in relation to the imported goods will be part of transaction value. Further it is submitted that payment of Royalty/advertisement cost is a condition for sale of imported goods. The Ld. AR also draws our attention to the judgment of Hon ble Supreme Court in the matter of M/s Matsushita Television Audio (I) Ltd Vs CC (2007 (211) E.L.T 200 (SC), Reebock India Company Vs Cc, Patoarganj (2018 (364) ELT 581 (Tri Del), Giorgio Armani India(P) Ltd. Vs. CC, New Delhi. 22. Heard both sides. The issues before us are 1. whether the royalty paid by the appellant to M/s Jockey and to M/s. Speedo n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense from the licensor or any other source approved under clause 7.1 (b) . Licensed products are defined such of the products listed under schedule 1 under licensed products bearing the trademarks as approved by the licensor from time to time for manufacture by the licensee and which have been manufactured by or on behalf of the licensee . 24. Thus, there is a clear distinction between the licensed products and the distributed products while the licensed products are those that are manufactured by the appellant while the distributed products are those that are purchased by the appellant from the licensor. As rightly claimed by the appellant the royalty is being paid on the licensed products that is on the products manufactured by them and therefore the question of adding royalty to the distributed products because of the restrictions laid down at paras 7.1 and 24.4 cannot be sustained. Though the Adjudicating authority relied on the said condition as a restriction imposed on the Appellant to import the goods, it is applicable only for the sale of distributed products and not for the products licensed to manufacture. Moreover, Apex court in the matter of CC (Imports), Mumbai Vs Baye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to the finished goods. Only because imported goods are contained in the finished goods, it cannot be said that royalty is related to the imported goods as has been held by the Hon ble Supreme Court in the matter of C.C Vs M/s Ferodo India Pvt Ltd (2008 (224) E.L.T 23 (S.C)) wherein it was observed as follows: 20. Be that as it may, in the present case, on reading TAA we find that the payments of royalty/licence fees was entirely relatable to the manufacture of brake liners and brake pads (licensed products). The said payments were in no way related to the imported items. In the present case, no effort was made by the Department to examine the pricing arrangement. No effort was made by the Department to ascertain whether there exists a price adjustment between cost incurred by the buyer on account of royalty/licence fees payments and the price paid for imported items. No effort was made by the Department to ascertain enhancement of royalty/licence fees by reducing the price of the imported items. In the circumstances, we find no infirmity in the impugned judgment of the Tribunal. In this case, the Department has gone by TAA alone. On reading TAA in entirety, we are of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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