By TIOL News Service

MUMBAI, SEPT 12, 2015: THIS is a Revenue appeal against the order of Commissioner(A).

The dispute has arisen from the Agreement for the 'Licensing of Technology and Processes' between the appellant and M/s. Eagle Industry Company Ltd., Japan. The agreement provides for one-time lump sum payment of USD 1,25,000/- for obtaining license of technology, processes, technical know-how, drawings etc. and royalty payment of 2% commencing from the commencement of sale of Eagle products. Under the Agreement only technical know-how is provided for the said payments. The appellant are required to maintain manufacturing standards equivalent to that maintained by Eagle in its own manufacture.

Both the lower authorities held that the payment of royalty is related to indigenous manufacture of mechanical seals and parts thereof and there is no obligation to procure the mechanical seals from the collaborators who are a related person.

After considering the submissions, the CESTAT, at the outset, remarked that the ground of appeal is very weak as the same states that the importer had imported parts from their collaborator to manufacture goods of foreign collaborator's brand name.

Inasmuch as the the Bench justified this by observing -

"…Interestingly, we find that in the present case there is no import of goods on the value of which the amount of royalty is sought to be added. There is no evidence of actual import in the appeal papers. In any case we note that in terms of Rule 10(1)(c) of the Customs Valuation Rules, royalty may be added to the price of the goods only if the same is a condition of the sale of the imported goods being valued. This is established law as held in various judgments of the Apex Court including the case of Commissioner of Customs Vs. Ferodo India Pvt. Ltd. - 2008-TIOL-28-SC-CUS. Revenue has not established that the royalty is paid as a condition of the sale of goods being valued."

The Revenue appeal was dismissed.

(See 2015-TIOL-1920-CESTAT-MUM )