By TIOL News Service

MUMBAI, OCT 14, 2016: THE appellant imported from the foreign partner in the joint venture and such imports were picked up for examination by GATT Valuation Cell. After examining the contract it was held by the Dy. Commissioner, GATT Valuation Cell that the appellant are related to foreign partner in the joint venture namely M/s Minami Engineering Co. Ltd., Tokyo, Japan. However, it was held that royalty payment is not includable in the value of imports.

Unhappy, Revenue appealed against this order and the Commissioner (A) allowed the same.

Inasmuch as the prayer of the Revenue was to remand the matter to the original adjudicating authority.

The appellant is before the CESTAT.

The appellant submitted that the royalty was payable only in respect of export sales and para 7.4 of the memorandum of understanding of joint venture provided that the royalty would be payable only when the joint venture has become healthy and financially sound. Inasmuch as no royalty whatsoever has been paid. It is further argued that the issue regarding related parties has not been raised in the appeal filed by the Revenue and, therefore, the observations of Commissioner (Appeals) regarding impact of relationship under rule 4(3) of the Customs Valuation Rules, 1988 cannot be sustained.

The AR supported the impugned order.

The Bench observed -

"4. …We find that there is a clause in the memorandum of understanding to the effect that royalty needs to be paid only when the joint venture becomes healthy and financially sound. Learned Counsel of appellant has argued that no royalty whatsoever has been paid and therefore the question of addition of the royalty to assessable value becomes irrelevant. We find that order-in-original has not examined the impact of relationship under Rule 4(3) of the Customs Valuation Rules, 1988, if any. The grounds of appeal of Revenue before the Commissioner (Appeals) also does not take the issue of effect of relationship into consideration and therefore the order of Commissioner (Appeals) with reference to rule 4(3) of Customs Valuation Rules cannot be sustained. However, if no royalties whatsoever have been paid the issue before us become only of an academic interest. In view of the above, the appeal is disposed of as it has no effect on any party and is only academic exercise."

(See 2016-TIOL-2682-CESTAT-MUM)