9911796707
TMI Blog2024 (6) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the goods have to be added to the transaction value of the imported goods. We find that there is no such condition that emerges from the agreement between the appellant and the VALEO, France which provides that royalty payment is a pre-condition for sale / import of raw materials. There is no evidence to establish as to how the royalty payment is linked to the import of raw materials. After reading the entire agreement comprehensively, it is to be inferred that though the payment of royalty is tagged to net sales value of the licenced products with so many deductions excepting raw materials is linked to not only supply / importation of raw materials and other goods semi-finished clutch facings, etc., but also linked to provision of technical assistance, documentation, transfer of technology, training of the personnel of the appellant both in India and abroad and also permission to use the trade mark VALEO on the products manufactured by the appellant. We find that the issue of inclusion of Royalty in transaction value is no more Res Integra in view of the ratio of the decision in the case of Kruger Ventilation Industries (North India) Private Limited Vs. Commissioner of Custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to demand any differential customs duty. The impugned order is set aside as being legally unsustainable and the appeal filed by the party is allowed with consequential benefits, if any, as per the law. - MS. SULEKHA BEEVI C.S., MEMBER (JUDICIAL) AND MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) For the Appellant : Shri S. Ganesh Aravindh, Advocate For the Respondent : Shri R. Rajaraman, Authorised Representative ORDER Customs Appeal No. C/42211/2014 has been filed by the Appellant assailing Order-in-Appeal No. 1216/2014 dated 21.07.2014 passed by the Commissioner of Customs (Appeals), Chennai upholding Order-in-Original No. 23474/2014 dated 17.01.2014, ordering for invoking Section 28(4) of the Customs Act, 1962 (ACT) / Proviso to Section 28(1) of the Customs Act, 1962, as the case may be, prior to and after Customs (Amendment Validation) Act, 2011, to demand the differential duty of Rs.15,02,08,235/- during the period from 2001 to 2013, arising out of levy of appropriate duty on the Royalty already paid by the Appellant, along with applicable interest under Section 28AA and to invoke penal provisions under Section 114A of the ACT ibid for suppression of fact / wilful mis-statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 114A of the ACT ibid for suppression of fact / wilful mis-statement to the department, to impose appropriate penalty. 2.3 Aggrieved by the said order, the Appellant filed an appeal before the Commissioner of Customs (Appeals) contending that the Ld. Deputy Commissioner could not have passed an order covering 13 years. However, during pendency of the matter before the Ld. Commissioner (Appeals), the Department started keeping the consignments imported by the Appellant on hold. However, since the Appellant were in urgent need of the goods for continuing the production of the goods, the Appellant paid Rs.54,65,113/- under protest and also requested for a speaking order in this respect. The Ld. Commissioner (Appeals), however, rejected the Appellant s appeal and upheld the Order-in-Original vide Order-in-Appeal No. C.Cus.1216/2014 dated 21.07.2014. 2.4 Aggrieved by the impugned order, the Appellant has filed the present appeal before this Forum. 3. The main grounds of appeal specified by the Appellant are:- i. That Royalty or Licence fee is not includible in the transaction value of the imported goods, as per Section 14 read with Rule 3 of CVR, 2007 adjusted in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LT 531] iv. It was contested that the royalty / license fee cannot be said to be the condition of sale of the imported goods when such sale is on the request of the Appellant. v. Royalty payment to be made by the Appellant to the supplier is to be computed with reference to Article 12 of Agreement which reads as follows:- 12.1 In consideration for the transfer of the Technology pursuant to Article 2 hereof, the Company shall pay to Valeo, a royalty of three and three quarters percent (3.75%) of the annual Net sales Value of the Products sold by the company during a 7 year period starting from 1st January, 2000 . By adverting to the above clause, the appellant has argued that the activities of import of goods and the payment made for technology for manufacture of the final products are wholly unrelated and therefore there is no condition of sale of the goods being valued or the imported components but only for the technical knowhow. It was further submitted that it was a settled position of law that the royalty / license fee is includible in the transaction value only if the same is paid/ payable as a condition of sale of the imported goods and reliance was placed on the following c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latable to the imported goods or required to be paid as a condition of sale of the imported goods relying on the following case laws:- a. Commissioner of Customs Vs. Bridgestone India Pvt. Ltd.-[2013 (292) ELT 403 (Tri.-Mum.)] b. ABB Ltd. Vs. Commissioner of Customs, [2013 (288) ELT 296 (Tri.-Bang.)] x. It was submitted that the previous orders have analysed the same agreement and department took a consistent view that the Royalty is not includible in the Transaction Value. It was further submitted that despite mistake in calculation of Royalty by the Appellant, the terms of the agreement remained unchanged from the very beginning and the copy submitted to the Department was as early as in 1999. xi. It was averred that the SVB order dated 14.12.2000 has considered the Royalty clause under the agreement and clearly observed that Royalty payment under the said clause is not includible in the Transaction Value. Even when CVR, 1998 was replaced by CVR, 2007, department maintained the above view consistently. In the SVB order dated 10.12.2010, it was clearly observed that The Annual reports submitted by the importer s for the last three years have been verified and confirmed that the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that royalty paid for post-import activity i.e., manufacture of finished products cannot be added to the Transaction Value of the imported goods and the impugned order deserves to be set aside relying on the ratio of the decision in the case of Commissioner of Customs (Imports), Chennai Vs. M/s. Vestas Wind Technology India Pvt. Ltd. [2023 (7) TMI 589-CESTAT CHENNAI], Wherein the Appellant had imported various parts from various foreign suppliers and also acquired technological innovations from related foreign supplier under technical assistance agreement for the purpose of manufacture of WTG and the Hon ble Tribunal held that royalty is not includible in the Transaction Value as there is no evidence to establish that the licence fee paid is a condition of sale of the imported goods. The relevant extract of the above decision has been reproduced below:- 6. It is submitted that for the purpose of manufacturing WTGs, the respondent imports various parts from various foreign suppliers. The respondent and M/s. NEG Micon (foreign company) known as Vestas Wind Systems AS, Denmark had entered into Technical Assistance Agreement on 29.01.2000. Through the said agreement, the technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total net turnover of the goods. We have gone through the agreement and do not find anything in it that it also provides import of the components. Therefore, the goods were not imported under the agreement and any royalty under the agreement cannot be related to it. Further, there is no condition that the importer has to obtain the approval of the technology provider either for import or for procuring components domestically. Therefore, the royalty paid by the appellant @ 5% on the final products under the technical aid agreement cannot be said to be a condition for sale and added to the assessable value of the imported goods. It is true that the royalty is paid is as percentage of the net turnover of goods manufactured, which includes not only the component which are domestically procured but also which are imported as well as any value addition by the appellant. However, this in itself, is not sufficient to add royalty to the assessable value. 23. It needs to be seen whether the payment of such royalty is pre-condition to the sale of the imported goods. No such condition emerges from the agreement in the present case. The goods were also not imported under the agreement. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked to arrive at the transaction value and the above position of law has been affirmed by the Tribunal in the following decisions:- a. Brembo Brake India Pvt. Ltd. Vs. Commissioner of Customs [2014 (302) E.L.T. 551 (Tri.- Mumbai)] b. Commissioner of Customs Vs. M/s. SICPA India Ltd. [2017 (2) TMI 608-CESTAT NEW DELHI] In this regard, it was submitted that in terms of the cited clauses 8 and 12 of the agreement, wherein the Appellant has a discretion not to buy raw materials from Valeo, France and will have to pay royalty on manufactured goods whether or not there are imports from the supplier in a given period which shows that the royalty payment is not related to and is not the condition of sale for the imported goods and therefore, Rule 10(1)(c) conditions are not satisfied. Hence, royalty is not addable to the value of the imported goods. 4.5 The Ld. Counsel also submitted that the inclusion of imported raw materials in the Net Sales Value is only a methodology enumerated in the agreement for calculation of royalty to be paid to the supplier which does not mean that the royalty payment is related to the imported goods and is a condition of sale for the imported goods. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal or not in the facts of this appeal? 8. From the appeal records, it is evident that the Appellant has entered into a Technology License Agreement dated 11.02.1998 ( agreement ) with M/s. Valeo, France for transfer of technology to the Appellant for the purpose of manufacturing and assembling of products in India for a consideration of payment of royalty which was agreed at 3.75% of the Net Sales Value of the product manufactured and sold. The relevant definitions are extracted herein below for ease of reference: Article 1 Definitions 1.6 Net Sales Value shall mean gross sales value of the Products (defined below) as per invoice to Company customers less the usual trade discounts, refunds for returned goods, taxes including excise duties, packaging costs, transportation costs, FOB an European airport or port of shipment (as defined in the 1990 Incoterms, import customs duties, as amended from time to time), insurance, cost of imported components and/or complete knocked-down parts and/or semi knocked-down parts, and/or standard bought-out components, regardless of the source of import ( excepting raw materials ). 1.7 Products shall mean the friction material products listed.in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Valeo Friction Materials India and shall be marketed under the trademark VALEO . The graphic of all such markings in which the name VALEO shall be written in accordance with its logotype specifications, shall be approved by VALEO. 7.2 The right to use the name VALEO referred to in Article 7.1 hereof shall be exercised by the Company according to the terms and conditions set forth in the VALEO Trademark License Agreement entered into between the Parties on February 11, 1998. Article 8 Purchase of Parts and Materials At the Company s reasonable request, VALEO shall supply the Company with parts and raw materials necessary to the manufacture of the Products on terms to be determined by the Company and VALEO. Article 12 Consideration and Payment Conditions 12.1 In consideration for the transfer of the Technology pursuant to Article 2 thereof, the Company shall pay to VALEO a royalty of three and three quarters percent (3.75%) of the annual Net Sales of Product sold by the Company during a 7- year period starting on 1st January 2000. 12.2 The value of fibre yarn and/or impregnated yarn to be supplied by VALEO to the Company shall be considered as a raw material for the purpose of calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw material to be included for the purpose of calculation of royalty amount and again fibre yarn and impregnated yarn are only considered as raw material . It is not known whether the LAA had considered only the above mentioned raw material or all the imported material to arrive at the percentage. Moreover, the method of calculating the royalty amount to be included in the Transaction Value from the already paid total royalty amount is not correct. 18. Appellant though not agreed to the fact that the royalty to be included in the Transaction Value, to prove the LAA s method of calculation of royalty was wrong, appended with the grounds of appeal a chart showing the value of raw material only year wise and the actual amount supposed to be paid as royalty also year wise. According to the appellant the royalty amount supposed to have been paid (though actually not paid or to put it other words, payable) worked out to Rs.3,88,01,446/- for the period from 2000-01 to 2012-2013. The department arrived at the same as Rs.15,02,08,325/-. Prima facie it appears that if at all the royalty amount that was payable to be included in the Transaction Value, the Appellant s calculation needs to be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant s request, VALEO shall supply the parts and raw materials necessary to the manufacture of the products on the basis of the terms to be determined by the appellant and VALEO. All this indicate that payment of royalty is not entirely related to import of raw materials. Even, the value of other products like copper wire, resins, semi-finished clutch facings, etc., required for manufacture of finished goods i.e., Clutch Facings from the associate companies of M/s. VALEO Materiaux De friction, France are to be deducted from the net sales value. 15. From the above, it can be safely inferred that payment of royalty is not completely relatable to import of raw materials as there is no condition of sale attached for their import. Distinction which exists between an amount payable as the condition of import and amount payable in respect of sale of manufactured goods using the brand name has to be understood properly. Rule 10(1)(c) of the Customs Valuation Rules, 2007 states that royalties and licence fees related to the import goods that the buyer is required to pay directly or indirectly as a condition of sale of the goods have to be added to the transaction value of the importe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty paid. The above method of computation of royalty is clearly against the prescribed procedures and rules. The above computation assumes that the entire royalty payment is related to import of raw materials. Even the Lower Appellate Authority has found fault with such a quantification though upheld that the royalty paid is having a nexus with the importation of raw materials and as such royalty paid has to be included in the value of the imported raw materials. The appellant has not only imported the raw materials like fibre yarn and impregnated yarn but also various other raw materials like textured yarn, technical yarn, copper wire, resins even semi-finished clutch facings. So, linking the raw materials imported entirely to royalty payment is not legal and cannot be accepted. 18. We find that the issue of inclusion of Royalty in transaction value is no more Res Integra in view of the ratio of the decision in the case of Kruger Ventilation Industries (North India) Private Limited Vs. Commissioner of Customs, [2022 (5) TMI 496-CESTAT NEW DELHI] which was affirmed by the Hon ble Supreme Court, as relied upon by the Ld. Counsel for the Appellant. We also find that the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has been added to Rule 10(l)(c). Where the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e) such charges shall be added to the price actually paid or payable for the imported good, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods . From the above it is clear that the royalty and the other charges can be included: (i) In case of imported goods (ii) As condition sale of goods And the explanation only added that such royalty would be includable in the case even if the imported goods have undergone the said process after importation of such goods. The department could not show that the royalty and other charges were for the imported goods and they were as a condition of sale of such imported goods. Undisputedly the royalty on technical know-how was paid only for the manufacture sub-assembly of Dis Brake Systems. Therefore the royalty and other charges are not includible and the impugned order is not sustainable and is set aside. The appeal is allowed. 20. Further, relying on the following decision of higher judicial fora, the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur view, the Consideration Clause in such circumstances is of relevance. As stated above, pricing arrangement and TAA are both to be seen by the Department. As stated above, in a given case, if the Consideration Clause indicates that the importer/buyer had adjusted the price of the imported goods in guise of enhanced royalty or if the Department finds that the buyer had misled the Department by such pricing adjustments then the adjudicating authority would be justified in adding the royalty/licence fees payment to the price of the imported goods. Therefore, it cannot be said that the Consideration Clause in TAA is not relevant. Ultimately, the test of close approximation of values require all circumstances to be taken into account. It is keeping in mind the Consideration Clause along with other surrounding circumstances that the Tribunal in the case of Matsushita Television (supra) had taken the view that royalty payment had to be added to the price of the imported goods. 26. For the aforestated reasons, we find no infirmity in the impugned orders of the Tribunals. Accordingly, the civil appeals filed by the Department are hereby dismissed with no order as to costs Further, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manded differential customs duty by including the royalty payment in transaction value of imported raw materials for the period from 2000-2001 to 2012-2013. The appellant s declared transaction values of various imported goods including raw materials have been accepted from time to time vide Orders-in-Original dated 14.12.2000, 23.11.2007 and 10.12.2010. Even by invoking the extended period, how the differential customs duty could be demanded for 13 years which is blatantly illegal and against the provisions of customs law. It is also on record that these Orders-in-Original have been accepted and not challenged in Review proceedings. On this account only, the differential duty demand has to be set aside. 23. Hence, in view of the above discussions and by appreciating the ratio of the above decisions, we are of the considered view that the Royalty is not includible in the transaction value of the imported raw materials to demand any differential customs duty. The impugned order is set aside as being legally unsustainable and the appeal filed by the party is allowed with consequential benefits, if any, as per the law. (Order pronounced in open court on 31.05.2024) - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
