By TIOL News Service

MUMBAI, NOV 14, 2014: THE appellant imports parts and components from their related foreign entity M/s Atlas Copco Air Power, Belgium and other related parties for the manufacture of manufacture of various compressed air and gas equipment, construction and mining equipment, generators, industrial tools and assembly systems. They pay royalty to the related foreign supplier on the basis of various agreements in respect of technical knowhow for the manufacture and sale of equipment.

The valuation was examined by the Assistant Commissioner of Customs, GATT Valuation Cell, Bombay and vide order dated 26.04.95 he held that "since the technical know-how payment/royalties are not related to imported goods and prices of imported goods are not influenced by the relationship, the transaction value under Rule 4 of Customs Valuation Rules, 1988 are to be accepted but the Indian company will not be entitled to 5% or 10% commission on equipment/components etc. from collaborators, accordingly ordered to accept gross invoice value as transaction value under Rule 4 of Customs Valuation Rules, 1988 after disallowing commission/discounts".

The Revenue appealed against this order but was rejected by the Commissioner of Customs (Appeals), Bombay vide order dated 23.02.99. A further challenge by Revenue met with no success as the appeal was dismissed on merit by Tribunal vide order dated 16.11.2005. The said Tribunal's order was accepted by the revenue &the issue attained finality for the previous period.

For renewal of the earlier SVB order dated 26.04.1995, the importer made a representation dated 21.06.2010 which was disposed of by the Assistant Commissioner of Customs, GATT Valuation Cell, Mumbai vide order dated 28.01.11 wherein the earlier order dated 26.04.95 was maintained.

This order was appealed by Revenue and the Commissioner (A) allowed the appeal by way of remand & by holding that the amount of royalty or any lump sum payment is to be examined for inclusion in the assessable value of the goods in view of apex court decision in Matsushita Television and Audio India Ltd. - 2007-TIOL-64-SC-CUS.

Therefore, the Appellant is before the CESTAT.

It is submitted that the issue involved in the present case has already been settled finally in their favour in their own case by this Tribunal in order dated 16.11.2005, which has been accepted by the revenue for the previous period. Since there is no change in the facts and circumstances of the present case from the earlier case, there is no reason for the Commissioner (Appeals) to take a different view in the impugned order; that the terms of the agreement for the previous period and the period involved in this case is same; the Commissioner (Appeals) has not taken cognizance of the earlier order of the Tribunal in the Appellant's own case; As per the terms of the technical knowhow agreements the royalty is calculated on the amount i.e. ex-factory sale price of the licensee exclusive of excise duties, taxes and levies, minus the cost of standard bought out components and the landed cost of imported component, irrespective of the source of procurement; there is no condition in the agreements that goods are to be solely sourced from related foreign suppliers, in fact the goods were procured from various other foreign suppliers and also domestic suppliers; that royalty is not the condition of sale in respect of the goods imported from related foreign suppliers, therefore in the present case there is no application of Rule 10(i)(c) and (e) of Customs Valuation Rules, 1988/2007. Reliance is inter alia placed on the following decisions - Toyota Kirloskar Motor P. Ltd. - 2007-TIOL-94-SC-CUS, Tata Yutaka Autocomp Ltd.- 2012-TIOL-778-CESTAT-MUM, Bridge stone India P. Ltd. - 2012-TIOL-166-CESTAT-MUM.

The AR supported the order of the Commissioner (A).

The Bench observed -

++ Commissioner (Appeals) despite recording the various submissions on facts and on law made by the Appellant has not given any finding on such submissions. The most important fact in this case is that for the previous period this issue was settled by this Tribunal's order dated 16.11.2005. However, the Commissioner (Appeals) in her finding not even whispers this fact. Since there is no change in the facts and circumstances in the present case the present case is squarely covered by the Tribunal's order dated 16.11.2005 and, therefore, the order passed by the lower appellate authority ignoring the above vital fact, suffers from serious infirmity.

++ Upon reading of rule10(1)(c) of Custom Valuation Rules, 2007, it is seen that the royalty is includible in the value of imported goods only in case if the said royalty is 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. In present case, on analyzing the facts we observe that ingredients of the aforesaid rule does not exist in the import transaction of components made by the Appellant from the foreign associate companies.

++ From a reading of clause 6.1 & 6.2 of the Agreement between appellant and foreign suppliers, it is abundantly clear that royalty is required to be paid only on the sale of the manufactured goods and royalty is not relevant to the import of the components. Thus the royalty has nothing to do with the value of the imported raw-materials procured from the related foreign supplier or value of the imported components procured irrespective of origin. In these set of facts, Rule 10(1)(c) of Customs Valuation Rules, 2007 is not applicable, hence the finding of the Commissioner (Appeals) patently incorrect and not sustainable.

++ The issue has been examined at length by the Tribunal in the case of Foseco India Ltd. Vs. CC (Import), Nhava Sheva -2014-TIOL-552-CESTAT-Mum wherein it was held that if the royalty is computed excluding the cost of imported material and is based on the indigenous value addition it clearly shows that the payments made by the appellant for the collaboration and consultancy services has nothing to do with the imports undertaken by the appellants and, therefore, the same could not be included in the assessable value of the goods imported under Rule 9 (1) (c) & 10 (1) (e) of the Customs Valuation Rules.

The appeal was allowed with consequential relief.

(See 2014-TIOL-2269-CESTAT-MUM)