Custom, Excise & Service Tax Tribunal
M/S. Inspiron Engineering Private ... vs Commissioner Of Customs(Appeals), ... on 1 September, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL NO. C/452/05 [Arising out of Orders-in- Appeal No. 51/2005(JNCH) dated 21/2/2005 passed by the Commissioner of Customs (Appeals), Mumbai -II] For approval and signature: Honble Mr Ramesh Nair, Member(Judicial) Honble Mr. Raju, Member (Technical) =======================================================
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M/s. InspirOn Engineering Private Limited (formerly known as M/s. ATE Industries Pvt Ltd) :
Appellant VS Commissioner of Customs(Appeals), JNCH, Nhava Sheva, Mumbai-II :
Respondent Appearance Shri. Arun Mehta, Advocate for the Appellants Shri. Chatru Singh, Asstt. Commissioner(A.R.) for the Respondent CORAM:
Honble Mr. Ramesh Nair, Member (Judicial)
Honble Mr. Raju, Member (Technical)
Date of hearing: 1/9/2016
Date of decision 6/12/2016
ORDER NO.
Per : Ramesh Nair
The Dy. Commissioner of Customs, Gatt Valuation Cell, NCH accepted the transaction value declared in the invoices for the year 1993-96 under Rule 4 of Customs Valuation Rules, 1988. The matter was taken up for valuation for the reason that there is relationship between foreign supplier and the appellant and there is know how agreement for manufacture of final product between foreign supplier and the appellant. As per agreement, the appellant has undertaken to pay the DM 60000 to the foreign collaborator. The Dy. Commissioner vide Order-in-Original dated 31/7/2000 accepted the transaction value of the appellant and finalize the assessment accordingly. Being aggrieved by the Order-in-Original, Revenue filed appeal before Commissioner(Appeals) wherein he allowed the appeal of the Revenue holding that DM 60000 paid in consideration for technical knowhow would be addable in the price of imported goods in terms of Rule (9)(1)(c) of Customs Valuation Rules, 1989 on pro rata basis. Aggrieved by the impugned order appellant is before me.
2. Shri. Arun Mehta, Ld. Counsel for the appellant submits that Adjudicating authority has discussed the agreement and found that the technical knowhow is in respect of manufacture of final product of the appellant and the royalty is on the net sale price of the product by deducting the cost of bought out components both the imported and indigenous and all taxes therefore royalty does not influence the declared price of the imported goods. Ld. Commissioner(Appeals) while reversing the Order of the Original authority did not consider reasoned findings given by the Adjudicating authority. He has added DM 60000 in the price of the imported goods on the ground that being 40% equity participation, the relationship has been established. Mainly he contended that without technical knowhow the imported goods would have no value since no manufacturing activity could take place, which is apparently misleading and on this basis value cannot be added.
3. Shri. Chatru Singh, Ld. Asstt. Commissioner(A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order.
4. We have carefully considered the submissions made by both sides and perused the record.
5. We find that Ld. Adjudicating authority after careful considerations of the reply to the questionnaire and knowhow agreement came to very reasonable conclusion that value declared by the appellant is acceptable. The relevant findings of the Order-in-Original reproduced below:-
As regards royalty, it is calculated on net selling price of the product by deducting the cost of standard bought out components both imported as well as indigenous, all taxes are forwarding expenses. So the royalty is being calculated only on indigenous value addition of the product. Hence it is not related to value of imported components. The royalty is being charged for having given them right to produce end product in India with knowhow supplied by the foreign company. As the royalty payment has no relation with the imported component, the said amount cannot be added to the value of imported components and other parts.
From the above findings, we observed that as per knowhow agreement, it is for manufacture of final product at the appellants end, the royalty is payable on the net sale price by deducting the cost of bought out components both imported as well as indigenous, all taxes and forwarding expenses therefore it is not related to the imported components. From the technical knowhow agreement nowhere it appears that the technical knowhow fees/royalty is condition of sale of the imported components. Ld. Commissioner(Appeals) in the impugned order given following findings:
I have carefully gone through the case records and the submissions of the Respondent as well as the record of the personal hearing. I find that the lower authority has passed the impugned order on the ground that the relationship has not affected the price of the imported goods. But I find that imports were made from the foreign company both components and capital goods. The fact the roreign company has a 40% equity participation and has directs in the Respondents board establishes the relationship under Rule 2(2) of the CVR, 1988. I agree with appellant that without technical knowhow, the imported goods would have no value since no manufacturing activity can take place without the technical knowhow. Therefore, the DM60000 paid in consideration for transfer of technical knowhow would be addable to the price of imported goods in terms of Rule 9(1)(c) of the CVR, 1988 on a pro rata basis. However, regarding the payment of royalty, I do not agree with the appellant since, royalty is to be paid on sales of finished goods which is post importation activity and therefore cannot have any bearing on the price of imported goods.
From the above findings, we observed that adjudicating authority has discussed about technical knowhow whether the same is condition of the sale or otherwise and also discussed about calculation of the royalty on net sale price, the same was not dealt with by the Commissioner(Appeals) in the impugned order. The reasoning given by the Ld. Commissioner(Appeals) that without technical knowhow the imported goods would have no value since no manufacturing activity can take place, is absurd. If this view of the Commissioner(Appeals) is accepted then invariably in every case where technical knowhow agreement exist the royalty/ technical knowhow fees will be added in the declared value without going into the fact whether it is condition of sale or otherwise. Therefore this contention of the Ld. Commissioner(Appeals) is absolutely unacceptable to us. Ld. Commissioner(Appeals) has also not dealt with vital aspect that royalty is only on net selling price of the product. It is settled legal position by Honble Supreme Court in case of Matsushita Television & Audio (I) Ltd. v. Commissioner of Customs[2007(211) ELT 200(S.C.)] that when the royalty is related to the final product on the net selling price that is without inclusion of cost of imported components it was considered that royalty is not the condition of sale of the imported goods. As per our above discussion and settled legal position the impugned order is not sustainable, hence the same is set aside. The Order of the Original Adjudicating authority is upheld. Appeal is allowed.
(Order pronounced in court on _______________ ) Raju Member (Technical) Ramesh Nair Member (Judicial) sk 2 C/452/05