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TMI Blog2024 (9) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... lone and should be necessarily a condition precedent for sale of the goods. From the agreement provisions reproduced, it can be noted that the said licence fee payments are not anywhere related to imported goods and are neither stated to be as a condition of the sale of the said goods. The trade mark licence fee is required to be paid for affixing the trade mark on the goods manufactured by the appellant - The appellant has pointed out that in terms of the trade mark affixation, the licence fee is required to be paid and has been paid for the affixation of the words and marks/label of Carl Schenck AG on their finished goods. This payment is neither related to the import of goods nor is prescribed to be paid as a condition of sale of the imported goods. Thus, the licence fees paid by the appellant not being related to imported goods cannot be added to the transaction value fo the imported goods. The appellant also placed reliance on the Interpretative Notes to Rule 10 of the Customs Valuation Rule 2007, to point out that even if the royalty is based partially on the imported goods and partially on other non-related factors, it would be inappropriate to make out a case for addition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case are that M/s. Schenck Process India Limited, (formerly known as M/s. Schenck Jenson Nicholson Limited), having its registered office at Salt Lake, Kolkata and factories at Ranchi and Gurgaon, is engaged in the business of design, manufacturing and selling of various types of Plant Sequencing, Continuous Weighing, Feeding, Proportioning and Online Data Handling, Batching Systems used exclusively for industrial applications. They also manufacture discontinuous Weighing Systems for Industrial Commercial applications, set up of Modular Coal Preparation Plant, supply of Train Load-out System etc. The appellant imports capital goods, parts and components such as Controllers, Multicores, Centrifuges, Pneumatic Conveyors, Hydraulics, PLC, Liners, Reference and Master Load Cells etc. from related foreign entities for design, manufacturing and selling of various types of Plant Sequencing, Continuous Weighing, Feeding, Proportioning and Online Data Handling, Batching System used exclusively for industrial applications and the transactions are said to be effected at arm s length price in accordance with the transfer pricing provisions/regulations envisaged under the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he declared invoice value was accepted as transaction value in terms of rule 3(3)(a) of the Customs Valuation Rules, 2007 [The Valuation Rules] prospectively for a period of three years. 6. It was submitted before the lower authorities by the appellant that there was no change in the mode of transaction for the period 2010-2013. Vide their letter dated 25.06.2014, the requisite details for Management Fee incurred for the period 2010-2013 along with copies of relevant invoices etc. were supplied to the authorities by the appellant. The proceedings culminated in the aforesaid Order-in-Original dated 17.07.2014, whereby it was directed that the Trademark License Fee of Rs.1,26,85,000/-, Rs.1,38,58,000/-, Rs.1,28,05,000 Rs.1,52,29,000/- for the year 2010, 2011, 2012 2013 respectively and the Management Fee of Rs.2,09,40,000/-, Rs.1,31,13,000/- Rs.1,83,11,000/- for the year 2010, 2011 2012 respectively paid to the Group Companies and/or associated enterprise shall be added to the transaction value of imported goods in terms of Rule 10(1)(c) and 10(1)(e) of the Valuation Rules. 7. In appeal against the said order of the adjudicating authority the Commissioner(Appeals) observed that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of such goods. and the fact that the appellant manufactured the goods by using the imported goods from related suppliers and its associates/group companies plus the fact that related supplier did not supply any goods to any other unrelated buyer, (which fact was not denied by the appellant) held trade mark License Fee and Management Fee as required to be included in the transaction value and thereby upheld the Order-in-Original passed by the SVB authority. The Ld.Commissioner(Appeals) further noted in the order that the License Fee paid by Schenck Process India Limited to Schenck Process GmbH, Germany and its associates was only on account of the imported goods and directly related to the imported goods and the fact that it was not sold to group companies was indicative of the fact that the same is related to imported goods only. In respect of his findings the Ld.Commissioner(Appeals) also emphasized that as the goods were manufactured out of imported material, by using the brand name in terms of Technical License Agreement and thus the said License Fee was payable every year in respect of such goods produced. He therefore refused to interfere with the order of the lower author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded in the price actually paid or payable, does constitute a component of the transaction value. It can thus be said that royalties and licence fees, necessarily required to be added to transaction value has to be relatable to the imported goods alone and should be necessarily a condition precedent for sale of the goods. 13. From the agreement provisions reproduced above, it can be noted that the said licence fee payments are not anywhere related to imported goods and are neither stated to be as a condition of the sale of the said goods. The trade mark licence fee is required to be paid for affixing the trade mark on the goods manufactured by the appellant. It is thus clear that such licence fee would be payable as and when there is sale of the finished goods produced (such as Plant Sequencing, Continuous Weighing, feeding, Proportioning, On-Line Data Handling and Batching Systems exclusively for industrial applications) and has no bearing with the import of goods. The appellant has pointed out that in terms of the trade mark affixation, the licence fee is required to be paid and has been paid for the affixation of the words and marks/label of Carl Schenck AG on their finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 view that there was no nexus between royalty/licence fees payable for the know-how and the goods imported for the manufacture of licensed products. . The aforesaid decision of the Hon ble Apex Court has been followed by the Mumbai Bench of the Tribunal in the case of Tata Yutaka Autocomp Ltd. v. Commr. of Cus. (Import), Mumbai [2013 (294) ELT 467 (Tri.-Mumbai)] and the Chennai Bench of the Tribunal in the case of Sundaram Dynacast Pvt.Ltd. v. Commissioner of Customs, Chennai [2009 (247) ELT 685 (Tri.-Chennai)]. 14.2 Sandvik Asia Pvt.Ltd. v. Commissioner of Customs (Import), Mumbai [2015 (329) ELT 493 (Tri.-Mumbai)], wherein the Tribunal held 8. Coming to the merits of the present case, we may straight away to the relevant provisions of the Customs Valuation Rules, 2007, i.e., Rule 10(1)(c) under which it is to be decided to whether the royalty paid is includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the analyses made by the Original Authority with reference to non-fulfilment of conditions No. 3 viz. payment being not direct or indirect. The payment would be considered indirect where the pricing arrangement is such that the price of imported goods is adjusted downwards and the royalty or licence fee is inflated suitably to make up for that. It is clear that payment of licence trade mark fee by the respondent to RBSOIL would not merit as indirect payments within the ambit of Rule 10(l)(c). 14.4 Commissioner of Cus. (Import), Mumbai v. Bridgestone India Pvt.Ltd. [2013 (292) ELT 403 (Tri.-Mumbai)] 7.2 A reading of the above clauses makes it absolutely clear that the royalty has to be paid @ 3% on net sale value of the rubber products manufactured and sold by the Licensee in India. Similarly, licence fee has to be paid @ 1% of the net sale value of the rubber products manufactured and sold by the Licensee bearing the trade mark. In other words, these payments are liable to be made in respect of the goods manufactured and sold in India and not in respect of the goods under importation. The goods under importation may be raw materials or components for the manufacture of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aras, if the royalty paid is solely based on the imported goods and as a condition precedent to the sale of imported goods, then alone can it be added to the price actually paid or payable. 17. As regards the Management Fee charged as per Cost Allocation Agreement between intra-group companies of the Schenck Process Group so as to ensure that the cost of services is allocated among all companies, it is noted that the Management Fees paid by the appellant served as a mechanism for reimbursement of costs of various administrative services received from the group companies which in itself are defined in the said agreement and reiterated in Para 10 above. These services are in the nature of Management Services and cannot be held to be related to importation of goods. They rather represent fees for the Management Services rendered to the group companies as a continuous process and are not contingent upon the importation of the goods from the group company. The appellant has also submitted that even in the absence of such imports, the group companies are still mandated for the payment of aforementioned fees for the Management Services received by the appellant. This Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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