By TIOL News Service

MUMBAI, JANUARY 20, 2015: THE Additional Commissioner of Customs (I), GATT Valuation Cell, Mumbai, came to conclusion that the lumpsum trademark fee of USD 0.5 mn and lumpsum royalty for technical knowhow of USD 1.5mn should be proportionally added to the value of imports made by the appellant from the related overseas suppliers. As the Commissioner(A) upheld this order, the appellant is before the CESTAT.

The appellant made an exhaustive submission sprinkled with case laws to drive home the point that the agreements entered did not contain any provision relating to procurement of raw-materials/components and, therefore, the royalty cannot be added to the AV of the imported goods.

The AR submitted that in the supply agreement there is a condition that the raw materials should be of prescribed quality; in the guise of ensuring quality, the supplier is indirectly controlling the appellant in India and, therefore, since the transaction is between two related parties, the same “might” have influenced the price; therefore, the order needs to be upheld.

The CESTAT pored over the agreements and while noting that the case laws relied upon by the appellant apply to the facts of the case observed -

++ In these agreements, there is no stipulation or condition as to where from or from whom the appellant has to procure the raw materials for the manufacture of the goods. In other words, the agreements do not envisage or stipulate any condition with regard to the procurement of raw-materials for the manufacture to be undertaken in India. The appellant has entered into separate contracts for the procurement of raw-materials. Even in the contract entered into with the related foreign suppliers, it is clearly stipulated that the appellant has the freedom to procure the raw-materials from any persons, so long as the quality/standard is maintained. Thus, the agreement for the purchase of raw materials also does not impose any condition with regard to the source of procurement of raw materials. In these circumstances, it cannot be said that the relationship has influenced the supply price of the raw materials.

++ We also notice that the Revenue has taken two different stands, one with respect to running royalty and another with respect to the lumpsum payment of royalty. With respect to running royalty, the Revenue has no grievance and admits that the same is not connected with the purchases of raw-materials imported, whereas the lumpsum payment is sought to be added to the assessable value of the raw materials. This stand in our view, is quite contradictory and cannot be accepted.

Holding that the orders are not sustainable in law, the same were set aside and the appeals were allowed.

(See 2015-TIOL-158-CESTAT-MUM)