By TIOL News Service

MUMBAI, JUNE 13, 2016: THE appellant has a Collaboration agreement with the supplier of imported goods. Under the said agreement, the appellant is required to pay the Collaborator, documentation charges at rate of 30,000 Yen per sheet for Japanese version and 40,000 Yen for English version.

As per the adjudicating authority this documentation fee per sheet charged by Collaborator for supply of document is not related to import of goods and is not covered under Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988.

So also, royalty cannot be covered under Rule 9(1)(c) for addition to invoice values as the appellant is importing certain goods like Rollers, Cages from Collaborator at international market price as they conform to their design. As there was no third party import of such components/ instruments, the adjudicating authority accepted the declared price.

Revenue filed an appeal and the Commissioner (Appeals) inter alia held thus -

"…knowhow supplied is related to imported goods and a condition of sale. As per S.C. decision in Mahindra & Mahindra Ltd., - 2002-TIOL-62-SC-CUS-LB, apparent tenor of the agreement reflects real state of affairs. The importer have failed to show that the apparent is not real….But in view of clear provision of the agreement and Hon'ble Apex Court decision, same are not applicable here. As per their own admission, the importer in their reply dated 25th October 2000, have stated that the imported goods are manufactured as per their design and specification and not available outside. They are not importing similar items from any other supplier. Hence conclusion of the adjudicating authority is not warranted."

Being aggrieved by the impugned order, the appellant is before the CESTAT.

It is submitted that the royalty was payable on net ex-factory sales price of the products and the same has no relation to the import of goods;that royalty payment is based on the quantum of sale of the final product, therefore, any consideration of royalty payable on the quantity of sale of finished goods cannot be related to imported goods; lump-sum payment of 30,000 Yen & 40,000 Yen, as the case may be, is in respect of the documents of technical know-how which has no relation with the import of goods.

The AR emphasized that the appellant had no option but to buy the goods of the foreign collaborator, therefore, the lump-sum amount payable under the name of technical knowhow is includible in the value of imported goods. [Mahendra Suiting Ltd. - 2008-TIOL-2868-CESTAT-MUM relied upon]

The Bench extracted the relevant portion and clauses of the agreement for licence and technical assistance & observed -

"…it is clear that the agreement and the payment terms provided therein is related to the technical knowhow for the manufacture of final product at the appellant's end. The agreement no where suggests that there is any link between quantum of import and the payment terms related thereto provided in the agreement. Since the agreement is towards technical knowhow which is related to the manufacture of the final product and not related to the sale of imported goods, fees cannot be included in the assessable value of the imported goods…."

Noting that the adjudicating authority had with proper application of mind, adjudicated the matter and concluded that the documentation fees and the royalty are not related to the import of the goods and, therefore, the same cannot be included in the value of the imported goods, the impugned order passed by the Commissioner (A) was held to be unsustainable, hence set aside.

The appeal was allowed.

(See 2016-TIOL-1400-CESTAT-MUM)