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TMI Blog2024 (7) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2024 (6) TMI 61 - CESTAT CHENNAI] had occasion to consider the very same issue. In the detailed order after considering the facts and the relevant precedents it was observed that unless it is established that the royalty is paid as a condition of sale it cannot be included in the assesable value. The order passed by the Commissioner (Appeals) that royalty is to be included in the assessable value cannot sustain and requires to be set aside - the impugned order is set aside - Appeal allowed. - MS. SULEKHA BEEVI. C.S., MEMBER (JUDICIAL) AND MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) Mr. R. Parthasarathy, Advocate: for the Appellant Ms. O.M. Reena, (A.R): for the Respondent ORDER Brief facts are that the appellants made imports from M/s AB Mauri Technology, Pty. Ltd, Australia, (foreign company), of yeast culture for manufacture of finished products. As per the reference dated 10.01.2017 received from Group 1 of Custom House, a provisional assessment was ordered on collection of 1% of Estimated Duty Demand (EDD). The matter was taken up for adjudication and as per order in original dated 15.10.2012, the original authority held that the appellants are related to foreign suppliers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in India. The five types of yeast which are the products have also been identified. 7. The royalty is not payable as a condition of sale of the imported goods and therefore, the finding of the Commissioner (Appeals) upholding the denovo order passed by the original authority is erroneous. 8. The decision in the case of M/s. Valeo Friction Materials India limited versus CC Chennai 2024 (6), TMI 61, CESTAT Chennai was adverted to by the Ld. Counsel to argue that the said decision has considered several decisions on the very same point and held that royalty can be included in the assessable value only if it is a condition of sale of the imported goods. The Ld. Counsel prayed that the appeal may be allowed. 9. The Ld. AR Ms. O.M. Reena appeared and argued for the department. The findings in the impugned order was reiterated. It is submitted that in the denovo adjudication order, the original authority has observed that the appellant is importing the goods only from the related supplier to whom the royalty is paid. The appellant has not substantiated that due to commercial viability they are not importing the impugned goods from other suppliers. So, also the appellant has not establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the laws of the Territory, the Licensor grants to the Licensee a license to use the AB Mauri Know-how in the territory subject to the terms of this agreement, from the effective date. (b) The Licensee must not without the prior written consent of the Licensor use the AB Mauri Know-How in any business other than the business carried on by the License. (c) While this agreement remains in force, the Licensor must not and must ensure that no other member of theAB Mauri Group (1) manufactures markets, distributes or sells the product in the exclusive territory : and (2) provides or discloses the AB Mauri Know-How to any other person in the Exclusive Territory or licenses any other person to use the AB Mauri Know How in the exclusive territory. (d) This agreement does not restrict the Licensor in manufacturing, marketing, distributing or selling the products in the non-exclusive territory or licensing any third party to do so. (e) The Licensor will provide the Licensee from time to time a reasonable level of Technical Support, as determined by the Licensor in its discretion. 6 Payments (i) The Licensee must pay to the Licensor a Royalty of 1.75% of net sales of the products sold b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitially the products manufactured by the Indian Company would be evaluated by VALEO, France in order to ensure the products confirmed to the quality specifications and accepted procedures prescribed by VALEO. Such royalty payment also covers technical assistance in sending industrialization specialists to the appellant's plant in India for imparting training to the employees of the appellant. It also covers training of the appellant's personnel at VALEO's plants located abroad. From the Technology Licence Agreement, it is also evident that the products manufactured by the appellant and even their packing will be utilizing the VALEO trade mark. Thus, the right to use the name 'VALEO' shall be exercised by the appellant according to the terms and conditions flowing from the Technology Licence Agreement. 14. In Article 8 of the Agreement, it is clearly indicated that at the 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 val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the licenced products on terms to be determined by the appellant and VALEO. 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. 17. The Order-in-Original dated 17.01.2014, had quantified the differential duty payable to be Rs.15,02,08,325/- for the period from 2000- 2013 on the basis of percentage of imported raw materials used for manufacture of finished goods and the amount 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 quantificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udible in assessable value if Payment of royalty and other charges not for imported goods and not a condition of sale of goods . The relevant extracts of the above decision have been reproduced below:- We have carefully considered the submissions and perused the records. The department has sought to load royalty relating to the C/42211/2014 technical know-how as per Rule 10(l)(c). Undisputedly the appellants have imported components for the manufacture of Disc Brake Systems for two wheelers. The department has sought to load the assessable value as per Rule 10(l)(c) which is reproduced for convenience of the reference :- Rule 10(1)(c). - Royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable; The following explanation 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 impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 imported 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 Television (supra) the pricing arrangement was not produced before the Department. In our 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 impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t VALEO, France has waived additional royalty payable if the cost of raw materials were to be included in the Net Sales Value for period from 2000-2001 to 2011-2012. We find that the Department was well C/42211/2014 aware of the issue all along and the Appellants have provided all documents and clarifications and nothing prevented the Department from launching an investigation against the appellant from 2000 to 2012. Instead, from 2000- 2012, the department was of the view that that Royalty payments were not includible in the transaction value as held in four Orders-in-Original and further, the Department never preferred to consider filing an appeal against the impugned orders. Having not done so, the department cannot invoke the extended period at a later date to demand duty on the grounds of suppression of facts by the Appellant. Hence, we do not find it legally sustainable to invoke the extended period in this case. We find that the Original Adjudicating Authority has demanded 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 vari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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