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TMI Blog2024 (8) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... omoto Japan. It is not a condition of sale by Ajinomoto Thailand. The Hon ble Supreme Court in Commissioner Of Customs vs M/S Ferodo India Pvt. Ltd. [ 2008 (2) TMI 12 - SUPREME COURT ], examined a similar issue involving Rule 9 of CVR 1988 which is in pari materia with Rule 10 of CVR 2007. The Hon ble Court held ' 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(1))(c).' Prima facie the reasoning of the Ld. Commissioner is not valid as he does not have the jurisdiction to determine whether the process amounts to manufacture or not under the Central Excise Act - postponing the collection of duty to the time of domestic sale of the goods after being repacked under a trademark, amounting to manufacture, appears far too remote to retain the character of a Customs impost. The nexus between the imported goods and those being sold cannot be said to exist. As per the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jinomoto India) the appellant imported Monosodium Glutamate (MSG) from Ajinomoto Thailand Ltd. (Ajinomoto Thailand) and marketed it in India based on the trademark agreement entered into between the appellant, Ajinomoto India and Ajinomoto, Japan (Ajinomoto Japan). In terms of the said agreement, Ajinomoto, India was directed to pay royalty on the repacked MSG supplied to the retail market and the food industry carrying the trademark. The quantum of MSG supplied to industrial consumers was outside the purview of royalty payments. The adjudicating authority held that in terms of Rule 10(1)(c) (e) of the Customs Valuation Rules, 2007 (CVR 2007) appellant is liable to add royalty @1% on the net domestic sales of repacked MSG to the invoice price of the imported goods from Ajinomoto Co. Thailand Ltd. He further held that professional charges are to be added to the invoice price under Rule 10(1)(e) ibid. Aggrieved by the said order, the appellant preferred appeal before Commissioner (Appeals) who upheld the portion of the order whereby royalty of 1% was ordered addable to the invoice price of the imported goods and set aside that portion of the order allowing the addition of Professiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty is to be paid not on the imported goods, but on the MSG repacked from bulk to small packets which is deemed to be manufactured goods and sold in retail packs after affixing trademarks in India. It is undisputed that the license to use trademark is paid to Ajinomoto Japan and the goods are imported from Ajinomoto Thailand. There is no payment by Ajinomoto India directly or indirectly to Ajinomoto Thailand as a condition of sale of the imported MSG. Rule 10(1)(c) of CVR 2007 can be invoked only if it is a pre-condition of sale of imported goods. Hence for the stated reasons, payment of royalty @ 1% based on Trademark License Agreement by adding it to the transaction value is untenable. The appellant has further filed a Miscellaneous Application under Rule 41 of the CESTAT Procedure Rules, 1982 for admission of Additional Grounds of Appeal . They have stated that that they had inadvertently annexed the Trademark License Agreement dated April 2011, instead of Trademark License Agreement dated 28 November 2003 in the set of documents filed for Appeal No. Customs/41402/2014 filed before on 25 June 2014. They assure that this error was unintentional and occurred due to oversight. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights of the parties that are the subject of the lis by removing the cloud of doubt over the case. That the additional evidence has a direct and important bearing on the main issue in the dispute and interest of justice clearly requires that it may be allowed on record. We find that the issue of royalty depends on examining the correct Agreement in force during the relevant period and hence allow their request. We also find that the appellant has objected to certain new issue of law raised by the respondent, stating that they are beyond the observations made by the Ld. Adjudicating Authority who passed the Order in Original. A point of law which is relevant and material and can be argued without any further evidence being taken, can be allowed to be raised at any time. [see Chitturi Subbanna Vs Kudapa Subbanna Others - 1965 AIR 1325 / 1965 SCR (2) 661]. Many a time such points arise from the averments and as a counter to legal positions that are taken at the time of making submissions. With the appellant taking the help of subsequent day judgments and legal issues that have crystalised after a passage of time, revenue cannot be asked to contest the same with one arm tied to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing materials or advertising media as well as the documents and stationery. (5) The term (Manufacture ) employed herein relating to the Product, regardless of its part of speech or its tense in verbal form, shall mean the repackaging of the Product by LICENSEE using certain know- how owned by LICENSOR. (6) Net Sales shall mean the gross invoice price of the Product with the Trademark, less only discounts, accepted returns from LICENSEE's customers, breakage, transport costs, insurance and excise or other sales taxes to the extent that they are included in the gross invoice price, unless otherwise required by governmental regulations. (7) Execution Date shall mean the date first above written. Article 2. Grant of License 1. LICENSOR hereby grants to LICENSEE a non-exclusive and non- transferable license, with no right to sublicense, to use the Trademark on the Product in the Territory ( License ). 2. It is agreed and understood that the Trademark shall remain as the sole and exclusive property of LICENSOR and nothing herein contained shall be construed to give LICENSEE or any other party any right, title or interest, except otherwise specifically provided for herein, or to gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty by them is purely for the license to use trademark and is paid to Ajinomoto Japan. It is not a condition of sale by Ajinomoto Thailand. 8. The Hon ble Supreme Court in Commissioner Of Customs vs M/S Ferodo India Pvt. Ltd. [2008 AIR SC 1633 / 2008 (4) SCC 563], examined a similar issue involving Rule 9 of CVR 1988 which is in pari materia with Rule 10 of CVR 2007. The Hon ble Court held; 16. Under rule 9(1)(c), the cost of technical know-how and payment of royalty is includible in the price of the imported goods if the said payment constitutes a condition pre-requisite for the supply of the imported goods by the foreign supplier. If such a condition exists then the payment made towards technical know-how and royalties has to be included in the price of the imported goods. On the other hand, if such payment has no nexus with the working of the imported goods then such payment was not includible in the price of the imported goods. 17. . . . . . 18. Royalties and licence fees related to the imported goods is the cost which is incurred by the buyer in addition to the price which the buyer has to pay as consideration for the purchase of the imported goods. In other words, in addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subjected to the said process after importation of such goods . Normally, an Explanation does not expand or limit the scope of the main provision unless the Explanation purports to be a definition or a deeming clause, which is not the case here. It was held by the Hon ble Karnataka High Court, in N. Govindaraju Vs I.T.O. [(2015) 377-ITR-243 (Karnataka)] that a section has to be understood and read hand in hand with the Explanation, which is only to support the main provision, like an example does to explain any situation. 10. As per the appellant condition of sale' of the goods arises only when the payment of royalty / license fee is insisted on for supply of goods and there is no such finding in the instant case. We find that the royalty in this case has been paid for the use of trademark and not for a process. Secondly where the royalty is includible as referred to in clauses (c) and (e) above, the use of such a process should also emanate from the condition of sale for it to be added to the price actually paid or payable. Thirdly while Rule 10(1)(c) states that royalty could be paid directly or indirectly, we find that the transaction value has been accepted and revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter stage, has been factored in under the Customs Act and Rules for administrative convenience. This would not affect the incidence of duty so long as the character of the impost, is not lost. The taxable event in the case of import of goods was examined by the Apex Court in Garden Silk Mills Ltd Vs Union of India [1999 (113) E.L.T. 358 (S.C.)]. The Hon ble Court held; 16.. . . . It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed. In the impugned case the manner of domestic sale is not part and parcel of the condition of import. Hence postponing the collection of duty to the time of domestic sale of the goods after being repacked under a trademark, amounting to manufacture, appears far too remote to retain the character of a Customs impost. The nexus between the imported goods and those being sold cannot be said to exist. As per the impugned order, the royalty is ordered to be pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alife International India Pvt. Ltd. [2016 (341) ELT 257 (Tri-Mumbai)] (b) Fujitsu Ten India Pvt Ltd Vs Comer of Cus., New Delhi [2018 (362) 875 T-Del]. (c) Matsushita Television Audio (I) Ltd vs Comm of Customs, Mumbai [2007 (211) ELT 200 (SC)] 16. Royalty or payments for use of intellectual property etc, differ from business to business and there is no standard format. Hence each judgment is an authority in the setting of its own facts and terms of agreement. The Tribunal judgments in Herbalife International and Fujitsu Ten India Pvt Ltd are based on the Apex Courts Judgment in Matsushita Television Audio. The said judgment in Matsushita was examined by the Hon ble Supreme Court in Ferodo India Pvt. Ltd. (supra) and it was held that the pricing arrangement and TAA are both to be seen by the Department. 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. No such condition of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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