Custom, Excise & Service Tax Tribunal
Sony Pictures Home Entertainment India vs Airport, Mumbai on 23 February, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NOS: C/01 to 03, 5, 10 & 11/2011
CROSS-OBJECTION NO: C/CO-07/2011
[Arising out of Orders-in-Original Nos: COMMR/PMG/ADJN/10/ 2010-11 dated 25th October 2010 & COMMR/PMG/ADJN/09/ 2010-11 dated 6th October 2010 passed by Commissioner of Customs, Airport, Mumbai.]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
No
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
APPEAL NOS: C/01 to 03 & 5/2011
Saregama India Ltd.
Rakesh Joshi
Ghanashyan Aayer
Sony Pictures Home Entertainment India
Appellants
versus
Commissioner of Customs
Airport, Mumbai
Respondent
APPEAL NOS: C/10 & 11/2011 Commissioner of Customs II Airport, Mumbai Appellant versus Saregama India Ltd.
Sony Pictures Home Entertainment India Respondent Appearance:
Shri T. Vishwanathan, Advocate with Shri Narendra Dave, Chartered Accountant for the appellant-assessee No.1 to 3 Shri Prasad Pranjape, Advocate for the appellant-assessee No.4 Shri V.K. Singh, Special Counsel for the Revenue CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 23/02/2016 Date of decision: 23/08/2016 ORDER NO: ____________________________ Per: C J Mathew:
Appellant-importer, M/s Saregama India Ltd, distributes feature films of foreign studios in home-viewing formats, such as VHS, VCD and DVD in accordance with contracts entered into with such studios. In general, royalty based on gross sales in India are the recompense to the overseas entities. As a matter of trade practice, a minimum guarantee amount is remitted at scheduled intervals and which is to be recouped by the appellant from the royalty payable on sales. The agreement envisages access to a finite number of titles during the term of contract which are supplied to the appellant in betacam or digital linear technology (DLT) form and these are replicated by designated entities in India in the retail form for sale to customers.
2. Aggrieved by order-in-original no. COMMR/PMG/ADJN/10/ 2010-11 dated 25th October 2010 of Commissioner of Customs, Chatrapati Shivaji International Airport, Mumbai which has demanded customs duty of ` 2,66,75,664 as short-paid on imports effected between 22nd August 2003 and 17th August 2007 along with interest and penalty, appellant-importer and two officials of the company are before us disputing the findings of the adjudicating authority. The imports in question were effected through couriers at the Mumbai Airport and duty liability discharged on the value of the media as declared by the supplier. The show cause notice dated 4th July 2008 (to be read with corrigendum dated 15th April 2009) sought to nullify the assessments, reject the declared value by invoking rule 10A of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and to include the royalties payable to overseas entities by invoking rule 9(1)(c) of the said Rules. During pendency of investigations, appellant-importer deposited Rs 2,00,00,000 towards duty. Revenue is in appeal against the quantum of penalty imposed.
3. In almost similar circumstances vide order-in-original no. COMMR/PMG/ADJN/09/2010-11 dated 6th October 2011, Commissioner of Customs, Chatrapati Shivaji International Airport, Mumbai confirmed demand of `1,85,63,704 along with interest and penalty on M/s Sony Pictures Home Entertainment India. The period of demand is for 2005-06, 2006-07 and for a part of 2007-08 straddling the governance of valuation for assessment by Customs Valuation Rules, 1988 and its successor Rules of 2007; there is not much difference between the two except in relation to numbering of the rules. The imports were of digi beta masters and stampers. Revenue is in appeal against the quantum of penalty imposed.
4. Owing to the identical nature of the dispute, we take up all the appeals for disposal by this common order. Before proceeding further, we are constrained to note that the notices and adjudication orders have been issued by officers who have either not comprehended the scheme of customs valuation in section 14 of Customs Act, 1962 read with the Rules supra or have not appreciated the context in which these were sought to be enforced in the present instances. For their sakes as well as for the elucidation of other tax officials who may well be placed in similar circumstances, it devolves on us to elucidate and educate.
5. The valuation provision of Customs Act, 1962 is:
Section 14. Valuation of goods for purposes of assessment. (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where-
(a) the seller and buyer have no interest in the business of each other; or
(b) one of them has no interest in the business of the other, and price is the sole consideration for the sale.
Provided also that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case may be, is presented under section 50.
(1A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf..
6. The Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and successor Rules of 2007 were applicable during the period of the two disputes and in the context of the provision for valuation of goods supra, the relevant rules of 1998 (which are not different, except for numbering in the 2007 Rules) are reproduced as under:
2. Definitions. (1) In these rules, unless the context otherwise requires,
(f) "transaction value" means the value determined in accordance with Rule 4 of these rules.
3. Determination of the method of valuation. For the purposes of these rules,
(i) subject to rules 9 and 10A, the value of imported goods shall be the transaction value;
(ii) if the value cannot be determined under the provisions of clause (i), the value shall be determined by proceeding sequentially through rules 5 to 8 of these rules.
4. Transaction value. (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules.
(2) The transaction value of imported goods under sub-rule (1) above shall be accepted:
Provided that xxxxxxxx
9. Cost and services. (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, xxxxxxx
(c) royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable.
e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.
xxxxxx (3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data.
(4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule.
7. It should be abundantly clear from the Rules that rule 9 is to be invoked for adjusting the declared value to reflect the components specified therein to reflect the transaction value to be adopted for assessment. Impliedly, the declared price is accepted and subjected to the adjustments when invoking rule 9. On the contrary, with the rejection of declared price under rule 10A, the transaction value under rule 4 becomes irrelevant and, in accordance with rule 3, the provisions of rule 5 to 8 are to be applied sequentially. Therein lies the nub in the present dispute: the declared price is sought to be rejected under ruled 10A without taking it to its logical conclusion as prescribed in rule 3 and, instead, the very same rejected price is sought to be adjusted by adding the royalty component as provided in rule 9 which applies only to the transaction value in rule 4. On this ground alone, the entire proceedings would fail.
8. Be that as it may, we proceed to examine the impugned order further. The original authority has framed three issues for determination - includibility of royalty, invokability of extended period of limitation and recourse to confiscation-cum-penal provisions all of which have been held against the appellants. In doing so, reliance has been placed on the various agreements which contain clauses for remitting royalty, rule 9(1)(c) of Customs Valuation Rules, 1988, the composite nature of the contracted rights from which reproduction right cannot be invented, paid and the decision of Tribunal in Indo Overseas Films v. Commissioner of Customs Chennai [2002 (139) ELT 729 (Tri)] affirmed by the Honble High Court of Madras in Indo Overseas Films v. Union of India [2007 (210) ELT 348 (Madras)] as well as that of the Honble Supreme Court in State Bank of India v. Collector of Customs, Mumbai [2000 (115) ELT 597 (SC)]. The adjudicating authority has also recorded a finding that, instead of using the air cargo route and seeking provisional assessment, the appellant deliberately used the courier mode to hoodwink the customs authorities for clearance of the goods by suppression of the licence agreements. Reliance was also placed on the decision of the Honble Supreme Court in Associated Cement Companies Ltd v. Commissioner of Customs [2001 (128) ELT 21 (SC)].
9. In the light of the contentions of the appellant before us, we are compelled to examine the facts of the import in conjunction with the rationale for inclusion of royalty in the assessable value of the imports effected by the appellant. The goods under import are master tapes/ stampers loaded with feature films despatched by the overseas licensor through courier. Courier is an authorized method of carriage of import articles with the procedure for clearance, including custodianship, declaration, examination and duty payment prescribed in Courier Imports & Exports (Clearance) Regulations, 1998. We see no earthly reason for debarring the disputed import from being routed through this in the absence of a specific prohibition in the Regulation. It would appear that the adjudicating authority made his observations with intent to draw a striking parallel with the circumstances relating to the dispute in which the Honble Supreme Court rendered its decision in re Associated Cement Companies and thus justify the impugned order.
10. There, too, the courier mode or personal baggage mode was used with the importers contending that they were not enjoined to make any declaration and the imports were of drawings relating to technical know-how (described as ideas by the importers in their appeals). It must be borne in mind that the dispute resolved by the Honble Supreme Court pre-dates tax on services and the streamlined regulations governing courier mode. One of the contentions raised therein pertained to taxability of transactions in trade deals that are not restricted to supply of goods. The Honble Supreme Court held, in the context of the Forty-Sixth amendment to the Constitution, that drawings expressed on a physical media are taxable owing to the entry in chapter 49 of First Schedule of the Customs Tariff Act, 1975. The other pertinent finding in the dispute before the Honble Supreme Court was that courier imports, being treated at par with personal baggage, implied that appellants in that matter were liable to action for recovery under section 28 of Customs Act, 1962. In the matter before us, there is no specific heading for the contents of the media that was imported and the Courier Imports and Exports (Clearance) Regulations, 1998 do not admit a significant role to the importer in the clearance of packages. We are, therefore, of the opinion that the reliance on the decision in re Associated Cement Companies in the impugned order appears to be misplaced.
11. Considering the above factual matrix and on a perusal of the licence agreements, we note an omission in the issues framed for determinants by the adjudicating authority. The agreement are for sale of feature films (or motion picture to assign it an appropriate description) in India after replication. It is not in dispute that media in the form of master tapes have been imported and declared under the appropriate tariff heading for determination of rate of duty. The media also contained the motion picture produced by, and belonging to, the contracting studios. Those motion pictures have an identity in their own right arising from existence on multiple media without in any way compromising the product itself or its value to the intended consumer. Undoubtedly, destruction or damage to the storage media destroys or damages the motion picture contained in it, the picture itself, however, is not erased out of existence. Indeed, as recorded in the impugned order, the motion picture can be re-sent should the need arise. And it is the motion picture that the viewing public has in mind with reference to the product and source of revenue to render the production venture viable. Therefore, resolution of issues framed by the adjudicating authority is not possible without determining whether motion pictures is goods in its own right and independent of the media that is used for storing it. Conceptually, the impugned order is placed in jeopardy for presuming without a finding, that motion pictures as consigned to the appellant-importer is dutiable within the meaning of section 12 of Customs Act, 1962. The manner in which the Honble Supreme Court arrived at the decision in re Associated Cement Companies that ideas embedded on paper or disks are dutiable is a clear pointer to the direction that the adjudication should have taken but did not.
12. The motion picture industry is collectively described as dream merchants and is extremely complex in its structuring and operations; in recent times, the investment that goes into a single production is mind-boggling. It all begins with an idea culled from imagination or a literacy that is dramatized for performance by emotion specialists or cine stars whose credit titles can be as alluring as portrayal of the screen play. Consequently, the costing of a production is as complex and words may be inadequate to describe what a motion picture is. We may, with the limited powers of expression that we are endowed with, describe a motion picture as a presentation of emotion and episodes to entertain each and every viewer with a unique and particular experience. It is the means of setting aside our mundane exultance for a length of time to be spent in a fantasy land. It is unlikely that a tariff heading or tape/stamper/ disc could encage such an experience. Given this complexity, the tax collector may be excused his reluctance to strain beyond the valuation aspect. Nevertheless, for recourse to valuation after rejection of declared value, the adjudicating authority should have necessarily undertaken this onerous burden.
13. Appellant had contended before the original authority that the import is that of a recorded storage media. They, avoiding our flight of fancy, imply that the drama emoted on screen by some of the idols of the modern world came to be confirmed within the material of the media itself and that the motion picture carried on it is not subject to duty. Unlike drawings etc of chapter 49 of the First Schedule of the Customs Tariff Act, 1975, there is no obvious entry therein for classification motion pictures. Learned Special Counsel for Revenue has invited attention to circular no. 86/2002-Cus dated 12th December 2002 in which the Central Board of Excise & Customs has referred to applicability rule 9(1)(c) of Customs Valuation Rules with the rescinding of exemption notification that had limited duty only to cost of print and cost of freight on imported cinematographic film; its context hardly advances the cause of deeming a motion picture to be inseparable from the media which carries the motion picture. That cinematographic films are goods is not in doubt and, with motion pictures no longer transported in cinematographic films, that betacam tapes are also goods subject to customs duty is not in doubt. The adjudicating authority has, on more than one occasion, referred to exploitation rights of the material in the media. Impliedly, the transaction between the owner of the motion picture and appellant-importer incorporates exploitation rights and, from the contracts, it would appear that the agreement is of, and for, rights. Motion pictures are protected by copyright laws that restrict, viewing, distribution and transmission to those who remit copyright fees. Normally, these are a component of the box office receipts or included in the price sold in home viewing format. Unlike patented product whose royalty is determined by negotiation, the breadth of consumer market of motion pictures would required a prior fixation includible in the collection fee or market price. The adjudicating authority was prepared to accept that reproduction rights is one of the components in the contracts but was unwilling to be influenced by that acknowledgement owing to the purposeful pursuit of adding royalty to the value of the imported goods. It is not the motion picture that is the sold in any transaction but the rights to the motion picture to a limited or larger extent. Consequently, it would not be in accordance with law to hold that a value must needs be assigned to the contents of the tape/stamper that is imported. In the absence of any cogent arguments by either side that could assist us in reading the nature of motion picture we take note of the levy of service tax on temporary transfer of copyright in motion pictures which has been tested for ultra vires in the Honble High Court of Madras in AGS Entertainment Pvt Ltd v. Union of India [2013 (32) STR 129]. Being a service, it is subject to tax when rendered by an overseas provider to recipient in India under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2005. Transfer of copyright in motion pictures is, thus, a service which, though taxable only with effect from 1st July 2010 when section 65 (105) (zzzzt) was incorporated in Finance Act, 1994, does not detract from its non-classifiability as goods for assessment under Customs Act, 1962.
14. Though motion pictures are not liable to duty separately and though its intrinsic value has not been determined for resort to rules 5 to 8 which are sufficient to set aside the impugned order, we examine the legality and propriety of adjustment of transaction value in accordance with rule 9 and rule 10 respectively. Learned Counsel for appellant cites Living Media India Ltd v. Commissioner of Customs [2002 9148) ELT 441 (Tri-Del)], Commissioner of Customs v. Living Media India Ltd [2011 (271) ELT 3 (SC)], Associated Cement Companies Ltd v. Commissioner of Customs [2002 (128) ELT 21 (SC)], Commissioner of Customs (Import) v. Sony BMG Entertainment (I) Pvt Ltd [2007 (218) ELT 699], Sony Music Entertainment Pvt Ltd v Commissioner of Commissioner of Customs (Import) [2005 (189) ELT 227 (Tri-Mum)] and the affirmation of the decision of the Tribunal in Star Entertainment Pvt Ltd v. Commissioner of Customs (Final order no. M/1072-1073/13/CSTB/C-1 dated 10th April 2013)] by Honble High Court of Bombay [2015-TIOL-493-HC-MUM-CUS].
15. Learned Special Counsel for Revenue relies on Commissioner of Customs v. Living Media India Ltd [2011 (271) ELT 3 (SC)], Associated Cement Companies Ltd v. Commissioner of Customs [2002 (128) ELT 21 (SC)], Star Entertainment Pvt Ltd v. Commissioner of Customs [2014-TIOL-583-CESTAT-Mum], Commissioner of Customs (Import) v. Excel Productions Audio Visuals Pvt Ltd [2014 (314) ELT 366 (Tri-Mumbai)] and Universal Music India P Ltd v. Commissioner of Customs (Import), Mumbai [2009 (128) ELT 829 (Tri-Mumbai)].
16. Of the various decisions cited, and some of them by both sides, we have already observed supra that the decision in Associated Cement Companies Ltd is not applicable in the present set of circumstances. Nevertheless, it, along with that of Commissioner of Customs v. Ferodo India Pvt Ltd [2008 (4) SCC 563], has been relied upon in the decision of the Honble Supreme Court in re Living Media India Ltd. In laying down the proposition in re Ferodo India Pvt Ltd that even indirect recompense through royalty and fee must be includible in the transaction value, the Honble Supreme Court considered Collector of Customs (Prev) Ahmedabad v. Essar Gujarat Ltd [1996 (88) ELT 609 (SC)]. The decision in re Indo Overseas Films, which was upheld by the Honble High Court of Madras, has been relied upon by the adjudicating authority in support of his rejection of the claim for exclusion of the costs attributable to reproduction rights owing to inability of appellant to furnish the break-up of royalty; it has been cited by the appellant as relevant to the present dispute which is solely about cost of reproduction rights. This, too, places reliance on Essar Gujarat Ltd. While the facts relating to import in re Star Entertainment Pvt Ltd are, by and large, similar to that of the appellant-importer before us, it needs noting that the imports in that case were for in telecast and public performance in contradistinction with the ultimate consumer of M/s Saregama India Ltd. In re Star Entertainment Ltd, the difference of opinion referred to Third Member was resolved by placing reliance on the decision in re Living Media Ltd. Therefore, it can safely be said that these and the decisions in re Sony BMG Entertainment (I) Pvt Ltd, re Sony Music Entertainment Pvt Ltd, re Excel Productions Audio Visuals Pvt Ltd and re Universal Music India P Ltd pertaining to motion picture and music rights flow from the decision in re Essar Gujarat Ltd. There is a particular significance to the preceding observation that we shall come to at a later stage. The decisions in re Excel Productions Audio Visuals Pvt Ltd and in re Universal Music India P Ltd are in relation to pre-recorded compact discs.
17. In the present dispute, it is the import of master tapes that are to be replicated for sale for which duty is assessed. The products manufactured thereafter are the subject of royalty payments to the overseas entities. The dispute in re Living Media Ltd is about pre-recorded discs imported into the country with royalty payable on the sale of the imported products. The substantive difference between the two is that the master tapes imported by the appellant before us is not the subject of royalty but the pre-recorded media made from these imported goods are. For this reason, the decisions sought to be relied upon by Revenue do not apply to this dispute as also the decisions in re Star Entertainment Ltd and re Indo Overseas Films for reasons stated supra.
18. In a recent decision of the Tribunal, in Commissioner v. Kinetic Technology India Ltd. (Final order no. A/89229/2016/CB dated 17th August 2016 in appeal no. C/875/2004), the scope of rule 9 of Customs Valuation Rules, 1988 (rule 10 of Customs Valuation Rules, 2007), as decided upon by the Honble Supreme Court, has been discussed at length.
10. Having heard both sides and noted the facts, we are of the view that the crucial point for determination is whether the declared value of imported goods necessarily has to be subject to enhancement merely on the ground that a contract with the overseas supplier incorporates a second and distinct transaction. It would appear that the original authority has presumed that addition is mandated by Rule 9 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.
11. In Commissioner of Customs (Import), Mumbai v. Hindalco Industries Ltd [2015 (320) ELT 42 (SC)] it was held that:
7. It is also to be borne in mind that the respondent had purchased various capital components from other parties and the goods for which the agreement was signed with OEC constituted only 16% of thee total value. On these facts, we are of the opinion that the matter is squarely covered by the recent judgment of this Court in Commissioner of Customs, Ahmedabad v. M/s Essar Steel Ltd [Civil Appeal No. 3042 of 2004] decided on 13th April, 2015 [20115 (319) ELT 202 (SC)].
xxxxxxx
10. The consideration of these three agreements is laid into the valuation of supplies made by M/s Davy Dravo. Not only the supplies which the assessee took from the said Company constituted merely 16 per cent of the total capital goods and the remaining capital goods were purchased from some other exporters as well as indigenous, we also find that these agreements pertained to rendering of services which are post-import. Therefore, this case is also squarely covered by the judgment of this Court in Commissioner of Customs, Ahmedabad v. M/s Essar Steel Ltd [Civil Appeal No. 3042 of 2004] decided on 13th April, 2015 [20115 (319) ELT 202 (SC)].
12. Accordingly, we have perused the decision of the Honble Supreme Court in Commissioner of Customs, Ahmedabad v. M/s Essar Steel Ltd [20115 (319) ELT 202 (SC)], in which it was held thus:
7 A cursory reading of the Section makes it clear that Customs duty is chargeable on goods by reference to their value at which such goods or like goods are ordinarily sold or offered for sale at the time and place of importation in the course of international trade. This would mean that any amount that is referable to the import goods post-importation has necessarily to be excluded. It is with this basic principle in mind that the rule made under sub-clause 1(A) have been framed and have to be interpreted. and distinguishing the facts in Collector of Customs (Preventive) v. Essar Gujarat Ltd [1996 (88) ELT 609 (SC)] wherein the agreement covered a licence for operation of the plant which rendered it a pre-import transaction, the Honble Court went on to lay down the scope for resolution of such disputes thus:
8..In the present appeal, arguments have veered around the applicability of Rule 9(1)(e). In this appeal, we are concerned only with the first part of Rule 9(1)9(e). The narrow question that arises before us is whether the payment made for the technical services agreement is to be added to the value of the plant that is imported inasmuch as such payment has been made as a condition of sale of the imported plant. From the above, it would appear that the Honble Supreme Court has ruled that the situations envisaged in one or the other sub-clauses of rule 9 should be present in the import transaction for additions to be effected to the price adopted under rule 4 for assessment to duty. Consequently, it would appear that legislative intent did not envisage every declared transaction value to be subject to further adjustments merely because rule 9 is the adjustment provision moored to rule 4. This decision has taken note of Commissioner of Customs (Port), Kolkata v. JK Corporation Limited [(2007) 9 SCC 401 = 2007 (208) ELT 485 (SC)] to distinguished the judgment in re Essar Gujarat by drawing on Tata Iron & Steel Co. Ltd v. Commissioner of Central Excise & Bhubaneswar thus:
16. Reliance has been placed by Mr. Radhakrishnan on a decision of this Court in Essar Gujarat Limited (supra). In that case, the licence fee was paid to the supplier of the plant and machinery for a licence to operate the plant which was in reality nothing but was held to be an additional price payable for the plant itself and was, therefore, held to be includible in its assessable value. It is in the afore-mentioned fact situation, this Court held:
"13[12]. Reading all these agreements together, it is not possible to uphold the contention of Mr. Salve that the pre-condition of obtaining a licence from Midrex was not a condition of sale, but a clause inserted to protect EGL. Without a licence from Midrex, the plant would be of no use to EGL. That is why this overriding clause was inserted. This overriding clause was clearly a condition of sale. It was essential for EGL to have this licence from Midrex to operate this plant and use Midrex technology for producing sponge iron in India. Therefore, in our view, obtaining a licence from Midrex was a pre-condition of sale. In fact, as was recorded in the agreement, the sale of the plant had not taken place even at the time when the contract with Midrex was being signed on 4-12-1987, although the agreement with TIL for purchase of the plant was executed on 24th March, 1987. Therefore, we are of the view that the Tribunal was in error in holding that the payments to be made to Midrex by way of licence fees could not be added to the price actually paid to TIL for purchase of the plant."
17. The Court noticed several curious aspects of the Agreement stating that it started with the recital that "the Purchaser and the Seller have today respectively purchased and sold a Direct Reduction Iron Plant, on the following terms and conditions", which, according to this Court , indicated that the purchase and sale of the plant had taken place on 24th March, 1987, but in clause (2) it was stated that the purchaser would purchase the property from the seller at the stated price. Upon construing the terms of the conditions, it was opined:
"24.Therefore, the process licence fees of DM 2,000,000 was rightly added to the purchase price by the Collector of Customs. The order of CEGAT on this question is set aside."
However, in TISCO [(2000) 3 SCC 472], this Court took note of interpretative note to Rule 4 and held:
"The part of the Interpretative Note to Rule 4 relied on by the Tribunal has been couched in a negative form and is accompanied by a proviso. It means that the charges or costs described in clauses (a), (b) and (c) are not to be included in the value of imported goods subject to satisfying the requirement of the proviso that the charges were distinguishable from the price actually paid or payable for the imported goods. This part of the Interpretative Note cannot be so read as to mean that those charges which are not covered in clauses (a) to (c) are available to be included in the value of the imported goods.."
and noted with approval that 15..In an instructive passage on principle, this Court also laid down:
"9. The basic principle of levy of customs duty, in view of the aforementioned provisions, is that the value of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia, by way of transfer of licence or technical know-how for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14(1-A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.
11. What would, therefore, be excluded for computing the assessable value for the purpose of levy of customs duty, inter alia, has clearly been stated therein, namely, any amount paid for post-importation activities. The said provision, in particular, also applies to any amount paid for post-importation technical assistance. What is necessary, therefore, is a separate identifiable amount charged for the same. "
13. It is, therefore, unambiguously clear that rule 9 of the Rules supra does not confer a blanket mandate to add the value of elements of a contract merely because the supply of imported goods are covered in the same contract. The nature of each element of the contract that has a separate and distinct value, whether so segregated at the specific request of the importer or not, must be scrutinized for ascertainment as pre-importation component for addition to the assessable value..
19. The decision in re Essar Gujarat Ltd, therefore, does not impact upon such imports which can draw a distinction between royalty on goods imported and royalty as a post-importation condition. Of particular import are the propositions that mere existence of royalty clause in a contract which also covers import of goods does not, ipso facto, mandate adjustment of transaction value; the connection with imported goods must conform to the prescriptions in rule 9 of Customs Valuation Rules, 1988 (or rule 10 of Customs Valuation Rules, 2007). It is abundantly clear from the above narration that royalty is hinged upon post-importation manufacture and not on the imported goods per se. The impugned order has erred in including the royalty amounts in the valuation of the master tapes that were imported.
20. The appeals of assessees and its employees (appeal nos. C/01 to 03, 5/2011) are, therefore, allowed with consequential relief. Appeals filed by Revenue (appeal nos. C/10 & 11/2011) are dismissed. Cross-Objection is also disposed off.
(Pronounced in Court on 23/08/2016) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 19 23