Cus - Under an agreement, royalty payment shall remain due and payable to licensor commencing on production of 140000 licensed vehicle - when Agreement terminated after production of 51000 vehicles, we fail to understand how royalty would be payable in terms of Agreement: CESTAT
By TIOL News Service
MUMBAI, NOV 24, 2015: IN the first round of appeal, the CESTAT while allowing the appeal of the importer held -
Cus - Appellant is related with the supplier viz., M/s Renault s.a.s France in terms of Rule 2(2) of the Customs Valuation Rules, 2007 - adjudicating authority came to the conclusion that the declared invoice value for the goods imported by the appellant from their supplier M/s.Renault can be accepted for the purpose of arriving at the transaction value– on appeal by Revenue, Commissioner (Appeals) held that the Tribunal's decision in the case of General Motors India Pvt. Ltd. - 2008-TIOL-1738-CESTAT-MUM is very much relevant and set aside the lower adjudicating authority's order – appellant before CESTAT : HELD – Admittedly the department sought to load the assessable value under Rule 10(1)(c) of CVRules – it is found that the Commissioner (Appeals) has based her findings for enhancement of value on the trade agreements whose details are recorded in para 6 of her order -from the said details it is clear that the department could not bring out that the royalty of 100 Euros and royalty @ 2% per vehicle and 15 million Euros as per Technical Assistance and Engineering of Training Services Agreement are condition for the sale of imported goods -in these circumstances, inclusion of the aforesaid amounts in the assessable value is not sustainable in law - order of Commissioner (Appeals) set aside and appeal allowed : CESTAT [para 6, 6.1, 6.2]
We reported this order as - 2013-TIOL-2202-CESTAT-MUM.
The Commissioner of Customs, Mumbai had filed a Civil Appeal No. 707/2014 and the Supreme Court observed that since the Tribunal's Order No. A/1468/13/CSTB/C-I dt. 1.7.2013 - 2013-TIOL-2202-CESTAT-MUM has not assigned any reason while upsetting the order of the Commissioner (Appeals), the matter should be reconsidered by the Tribunal.
The matter was heard by the CESTAT recently.
At the outset, the Bench noted –
"We find that the Order of the Commissioner (Appeals) is a very bare order. It not only does not go into details of the four Agreements but does not even discuss the various judicial pronouncements including those of the Apex Court. In the circumstances, we find the impugned order of no assistance to us in analyzing the issue in proper perspective."
After hearing both sides, in a detailed order, after extracting the various clauses of the agreements between the appellant and Renault from whom the parts were imported, the Bench observed -
++ Under one arrangement appearing at Section 10 of the Technology License Agreement, there are further two types of royalty payments. The first royalty payment "shall remain due and payable to licensor commencing on the production of the 140000 th license vehicle". We fail to understand that when the Agreement terminated after production of 51000 vehicles, how the royalty would be payable in terms of the Agreement. It is also not the case of Revenue that royalty was paid in respect of 51000 vehicles. The Commissioner has clearly not understood the plain language of the Agreement and has come to a conclusion that the royalty becomes due and payable and is therefore includible. This part of the demand is clearly unsustainable.
++ The other royalty under Section 10 relates to spare parts. Section 10.2 reads that the royalty is payable at 2% collected on the aggregate quarterly sales at ex-factory price before excise duty of the spare parts manufactured and sold in the territory during the time the licensed vehicle is being manufactured and assembled by Licensee. Quite apparently the royalty is related to the spare parts manufactured by the appellant and has no relation to the parts imported by the appellant. However, since the Commissioner has set aside the Order-in-Original which had held that such royalty is not includible, we find it necessary to give our decision on this issue. We hold that the royalty on spare parts manufactured is not includible while arriving at the assessable value.
++ Next issue is the royalty under Section 3 of the Trademarks License Agreement to be paid by the licensee in consideration of the rights granted in the Territory by Licensor to Licensee. But this royalty in terms of Section 3.1 is included in the royalty payment to be made to the Licensor under Section 10 of the Technology License Agreement. As we have held above that royalty under Section 10 is not includible, there is no question of including the royalty in terms of Section 3.
++ The other part of the financial arrangement finds mention in Section 7 of the Services Agreement. According to this, the appellant shall remunerate Renault in the form of a lump sum fee equal to EURO 15 Million in consideration of the services rendered under this Agreement. The services rendered are mentioned in Section 3 to 5. They include process engineering service, services for conversion of left hand drive, services of training to company personnel, engineering services, part localization services etc. …we find that the Agreement provides for increasing localization of indigenous parts to reach a level of 50% by value of total imported parts and components. Therefore, it cannot be said that the lump sum payment is a condition of the sale of imported goods when the Services Agreement provides for local sourcing and procurement. The Resources for localization plan are to be shared between Renault and the appellant (para 2.1.3 of Exhibit). Para 3.1.5 of the Services Agreement provides for training of company personnel. All these activities are nowhere related to import of parts. Payment for such activities cannot be included in transaction value under Section 14. General Motors - 2008-TIOL-1738-CESTAT-MUM refers]
++ We find that in the present case Revenue has not put forth any evidence to demonstrate that the invoice prices are not the real prices. Neither has it adduced any evidence to show that part of the invoice price was passed off as the lump sum payments for services provided.
++ We agree with the contention that the adjudicating authority came to the conclusion that the relationship between the appellant and Renault has not influenced the price of the imported goods. This finding was neither challenged nor is there any reference to it in the order of Commissioner. Therefore this matter had indeed attained finality.
Holding that that lump sum payments and royalty paid under the Agreements are not includible in the price of goods imported, for the purpose of assessment of duty, the order of Commissioner (A) was set aside and the appeal was allowed.
(See 2015-TIOL-2486-CESTAT-MUM)
