Custom, Excise & Service Tax Tribunal
Lord India Chemical Products P. Ltd vs Commissioner Of Customs on 18 September, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.C/1202/04 (Arising out of Order-in-Appeal No.563/2004/MCH dated 30/09/2004 passed by Commissioner of Customs (Appeals), Mumbai) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Lord India Chemical Products P. Ltd., Appellant Vs. Commissioner of Customs, Respondent Pune Appearance:
Shri. Harish Bindumadhavan, Advocate for appellant Shri.Ahibaran, Addl. Comm. (AR), for respondent CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial) Date of Hearing : 18/09/2014 Date of Decision : 18/09/2014 ORDER NO Per: P.R.Chandrasekharan
1. The appeal is directed against Order-in-Appeal No.563/2004/MCH dated 30/09/2004 passed by Commissioner of Customs (Appeals), Mumbai. Vide the impugned order, the learned lower appellate authority has set aside the order of the adjudicating authority and has held that royalty/licence fee paid by the appellant to the related foreign collaborator is includable in the assessable value of the goods imported by the appellant in terms of Rule 9 (1) (c) of the Customs Valuation Rules, 1988. Aggrieved of the same, the appellant is before us.
2. The learned Counsel for the appellant submits that while coming to the above conclusion, the lower appellate authority has referred to a joint venture agreement as per which the appellants importer herein initially undertakes selling of the imported product in the open market; in the second stage standard products will be imported and in the final stage critical products will be imported, while the rest will be manufactured locally. However, the learned Counsel submits that there is no joint venture, agreement made between the appellant and related foreign entity as mentioned in the impugned order. The importer is having one collaboration agreement dated 14/08/1996. In terms of the said collaboration agreement, the foreign entity had agreed to supply technical know-how to the appellant to manufacture or to get manufactured or to use or to have it used, to sell and to have sold licensed products embodying or making use of the know-how and/or covered by the licensed patents. The licensed products are defined in clause 7.03 of the agreement and these are manufactured by the appellants using the technical know-how and the patent. He further submits that as per the compensation clause 8.01, for the consideration of the rights and licence granted in respect of the know-how and licensed patents, the appellant has agreed to pay to the foreign collaborator a running royalty at 8% of the net sales value of the licensed products sold by the company for exports outside India, a running royalty at 3% of the net sales value of Chemlok 205 and Chemlok 220 sold by the company in India and a running royalty at 5% of the net sales value of all other licensed products sold by the company in India. Further, it is made clear in clause 11.01 that no royalty shall be payable on resale of the licensed products purchased from the collaborator on which no additional processing is performed. The learned Counsel submits that net sale value has been defined in clause 7.05 and excludes the elements specified therein, particularly CIF price and import duties of raw materials, intermediate goods, parts and other components purchased from Lord (foreign supplier) and the landed cost of imported components irrespective of the source of procurement including ocean freight, insurance and customs duties. These two exclusions make it abundantly clear that royalty is required to be paid only on the indigenous value addition that is taking place and it has nothing to do with the imported goods procured by the appellant either from the Lord or from anywhere else. In these circumstances, the conclusion of the lower appellate authority that the relationship has influenced the prices of the raw materials does not stand the scrutiny of law and accordingly, the impugned order merits to be set aside. He also relies on the decision of the Tribunal in the case of ABB Ltd. Vs. CC (Import), Mumbai 2013 (288) ELT 296 (Tri-Mumbai), CC (Import), Mumbai Vs. Bridgestone India Pvt. Ltd. -2013 (292) ELT 403 (Tri-Mumbai) and Foseco India Ltd. Vs. CC (Import), Nhava Sheva 2014-TIOL-552-CESTAT-Mum in support of the above contention in addition to certain other decisions. In the light of these submissions, he prays for setting aside the impugned order and allowing the appeal.
3. The learned Additional Commissioner (AR) appearing for the Revenue reiterates the findings of the lower appellate authority. However, he was unable to produce before us any copy of the so-called joint venture agreement referred to in the impugned order-in-appeal. It is his contention that clause 8.01 relating to grant of licence specifies that the licence has been granted not only for manufacture but for sale of the licensed products by the appellant. It is also his contention that compensation clause specified in clause 11.01 of the agreement also supports the conclusion drawn by the lower appellate authority. Accordingly, he pleads that the impugned order be upheld and the appeal rejected.
4. We have carefully considered the submissions made by both the sides.
4.1 We observe that the adjudicating authority while passing order dated 13/09/2001 had examined the agreement at length and had come to the conclusion that the collaboration agreement had not influenced the price of the raw-materials imported by the appellant for undertaking further manufacturing in India. The said order also does not refer to any joint venture which revenue seeks to rely upon in their appeal. We have perused the terms and conditions of the collaboration agreement. From a reading of the clauses 8.01, 11.01 and 7.05, it is abundantly clear that royalty is required to be paid only on the value addition achieved by the appellant undertakes by the activities undertaken in India. It has nothing to do with the value of the imported raw-materials procured from the related foreign supplier or value of the imported components procured irrespective of origin. Thus, the contention of the Revenue that relationship has influenced the price of imports is not borne out from terms and conditions of the agreement which the appellant had entered into with the foreign supplier. This issue has been examined at length by this Tribunal in a number of cases and in particularly in the Foseco India Ltd. case (supra) wherein it was held that if the royalty is computed excluding the cost of imported material and is based on the indigenous value addition which clearly shows that the payments made by the appellant for the collaboration and consultancy services has nothing to do with the imports undertaken by the appellants and therefore, the same could not be included in the assessable value of the goods imported under Rule 9 (1) (c) & 10 (1) (e) of the Customs Valuation Rules. Following the ratio of these decisions, in the present case also, we are of the considered view that the royalty paid by the appellant for the technical-know-how received has nothing to do with the imports of raw materials. Consequently, the same is not includable in the assessable value of the goods imported. Therefore, we allow the appeal by setting aside the impugned order, with consequential relief, if any, in accordance with law.
(Dictated in Court) (Ramesh Nair) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 6