Customs, Excise and Gold Tribunal - Tamil Nadu
Hsi Automotive Ltd. vs Cc [Alongwith Appeal No. C/174/2003 ... on 15 November, 2007
Equivalent citations: 2008(125)ECC246, 2008(151)ECR246(TRI.-CHENNAI), 2008(224)ELT439(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. In Appeal No. C/139/2004 of M/s. Boss Profiles Ltd., which arises for final hearing, the issue is whether the technical know-how fee paid by the appellant to an Italian company under a Technical Assistance Agreement with them is liable to be included, under Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, in the assessable value of the capital goods imported by them from the said company for the purpose of setting up a plant in India for the manufacture of vitrified ceramic tiles. Similar issues are involved in the rest of the cases also. Therefore, after dismissing the stay applications and allowing the applications for out-of-turn hearing of appeals, we are taking up such appeals also for final hearing and disposal.
2. After examining the records, we note that, in all these cases, the appellants imported components/raw material for the manufacture, in India, of final products by making use of the technical know-how provided by the suppliers against payment of lumpsum fees by the importers. In a few cases, the technical know-how fee paid by the importers to the suppliers of components/raw material was a consideration for technical assistance in the setting up of the manufacturing plant also. In some cases, what was paid by the importer to the supplier of components/raw material for technical know-how for the manufacture of finished goods in India was a royalty which was paid periodically as a percentage of the net sale proceeds of the finished goods. In all cases, the Special Valuation Branch (SVB) of the Department took the stand that the technical know-how fee/royalty paid by the importers to their technical collaborators abroad had a relation to the imported goods and that such payment had been made as a condition of sale of such goods and, therefore, under Rule 9(1)(c) ibid, the amount is required to be included in the assessable value of the goods. The SVB accordingly directed finalization of the provisional assessments in respect of the imported goods. The importers were aggrieved by such decision of the Deputy Commissioner/Joint Commissioner of Customs (SVB). They maintained that the technical know-how fee/royalty paid by them to the suppliers of the imported goods had no relation to such goods and that the transfer of technical know-how was not a condition of sale of such goods. On this basis, the SVB orders were taken in appeal to the Commissioner of Customs (Appeals). The appeals of some of the present appellants were allowed by the Commissioner (Appeals) and the latter's orders were taken in appeal to this Tribunal by the department and such appeals of the department were disposed of by this Bench as per Final Order Nos. 278 to 313/2002 dated 18.3.2002, whereby the matters were remanded for de novo consideration by the Commissioner (Appeals). Pursuant to such remand, the Commissioner (Appeals) passed fresh orders against the assessees, which are presently under challenge before us in Appeal Nos. C/153/2003, C/174/2003, C/221/2003, C/238/2003, C/10/2004 and C/242/2004. The appeals filed by M/s. Hi-Tech Arai Ltd., M/s. GEC Alstom Ltd., M/s. Alstom Ltd. and M/s. Boss Profiles Ltd. against the SVB decision were dismissed by the Commissioner (Appeals) and consequently their appeals are also before us [C/07, 189, 241 and 139/2004].
3. In the impugned orders, the Commissioner (Appeals) considered the relevant terms and conditions of the Technical Assistance Agreements between the importers and their suppliers and took the view that the technical know-how/assistance was definitely linked with the manufacture of the licensed products in India and, since such manufacture would not have been possible without the imported components/raw material, the technical know-how/assistance had a relation to the imported goods. On this basis, the appellate authority endorsed the SVB's view and ordered that the technical know-how/royalty paid by the importers to the suppliers of the imported goods be included in the assessable value of such goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988.
4. Shri N. Venkataraman, Senior Advocate, as leading counsel for the assessees, pointed out, at the outset, that the lower appellate authority had not established that the transfer of technical know-how or the rendering of the technical assistance by the suppliers of the imported components/raw material to the appellants was a condition of sale of such goods, for purposes of Rule 9(1)(c) of the Customs Valuation Rules, 1988. Further, he stated 3 distinct factual situations arising out of these cases and submitted that, on all such factual situations, the valuation issue was already covered by judgments of the apex court. The following are the factual situations mentioned by learned Counsel:
(A) Import of components/raw materials required for the manufacture, in India, of finished goods licensed [by the supplier of components/raw material] to be so manufactured AND Payment of a lumpsum [often referred to as 'technical know-how fee' in common parlance and 'licence fee' in the text of Rule 9(1)(c) of the Customs Valuation Rules, 1988] by the importer of components/raw material to the supplier as consideration for technical know-how for the manufacture of the licensed products.
(B) Import of components/raw materials required for the manufacture, in India, of finished goods licensed [by the supplier of components/raw material] to be so manufactured AND Payment of a lumpsum as above by the importer of components/raw material to the supplier as a consideration for the technical assistance provided by the latter in assembling, installing and commissioning a manufacturing plant in India.
(C) Import of components/raw materials required for the manufacture, in India, of finished goods licensed [by the supplier of components/raw material] to be so manufactured AND Payment of a royalty by the importer of components/raw material to the supplier as a fixed percentage on the net sale proceeds of the licensed product sold in India/outside India for a specified period.
The Senior Departmental Representatives who presented the Revenue's case also acknowledged the existence of the above factual situations in the present cases. According to this consensus, factual situation 'A' is obtaining in all these appeals, factual situation 'B' exists in the cases of M/s. Boss Profiles Ltd. (Appeal No. C/139/2004) and M/s. Habonim Vaas Automation (P) Ltd. (Appeal No. C/l74/2003) and factual situation 'C' can be found in the cases of M/s. Gem Telegron Switch Gears (P) Ltd. (Appeal No. C/221/2003) and M/s. Alstom Ltd. (Appeal No. C/241/2004).
5. In the case of M/s. HSI Automotive Ltd., raw materials were imported by the assessee for the manufacture of weather strips and low pressure hoses for automotive usage and a lumpsum (US $ 2,00,000) was paid as technical know-how fee to the raw material supplier M/s. HIS Chemical Company, Korea under a Technical Assistance Agreement. In the case of M/s. Habonim Vaas Automation (P) Ltd. actuators (components) were imported from M/s. Habonim Vaas Automation (P) Ltd., Israel by the appellants for manufacture of industrial valves in India and a lumpsum equivalent to US $ 1,50,000 was paid by the importer to the supplier as consideration for technical know-how and assistance. In the case of M/s. Gem Telegron Switchgears (P) Ltd., they had imported components from M/s. Telegron, Spain for the manufacture of Cam switches in India and a lumpsum equivalent to Rs. 3.52 millions was paid to the Spanish company by the assessee as consideration for the technical know-how provided by the former. Further, the assessee also paid royalty to the Spanish company @ 5% of the net proceeds of domestic sales of the licensed product and @ 8% of the net proceeds of the export sales of the product for a period of 5 years in terms of the relevant Technical Collaboration Agreement. In the case of M/s. TVS R & M, the assessee had imported capital goods, components and parts from M/s. Reichle De Massari, Switzerland for the manufacture, in India, of a range of modules meant for telecom industries and a lumpsum of SFR 50,000 was paid by the importer to the supplier as consideration for technology transfer under the relevant agreement. In the case of M/s. Hi Tech Arai Ltd., the assessee had imported capital goods and raw materials from M/s. Arai Seisakusho Co. Ltd., Japan and M/s. Mitsubishi Corporation, Japan, for the manufacture, in India, of various licensed products and, under a Technical Collaboration Agreement, the assessee had paid US $ 19,25,000 to M/s. Arai Seisakusho Co. Ltd., Japan towards technical know-how provided by the latter. In the case of M/s. D.M. Walls Co. (P) Ltd., the assessee had imported capital goods and certain finished goods [aluminum composite panels] from M/s. Dae Myung Wall Systems Co. Ltd., Korea and M/s. Dae Myung Hwa Sung Co. Ltd., Korea for the purpose of manufacture, in India, of the licensed products and a technical know-how fee of US $ 2,00,000 and a 'design and drawing fee' of US $ 6,00,000 and an 'engineering fee' of US $ 1,00,000 were paid to the supplier under the relevant Technical Collaboration Agreement. In the case of M/s. GEC Alstom Ltd., they had imported parts and components for the licensed products, from M/s. GEC Alstom T & D, SA, France and a lumpsum of FF 60,000 was paid as technical know-how fee by the assessee to the foreign supplier. In the case of M/s. Alstom Ltd. they had imported components from a few foreign companies for the manufacture of transformers and vacuum circuit breakers in India and lumpsum payments were made to the suppliers towards technical know-how for such manufacture. In addition to such payments, royalties were also paid by the assessee to the suppliers of components @ 5% of the net proceeds of domestic sales of the licensed products and @ 8% of the net proceeds of export sales of the said products under the relevant Technical Collaboration Agreements. In the case of M/s. Simpson & Co. Ltd., they had imported, components from M/s. Perkins International Ltd., England for the manufacture of diesel engines in India and technical know-how fee of 1,00,000 Pounds was paid to the supplier in terms of the relevant Technical Assistance Agreement. Lastly, in the case of M/s. Boss Profiles Ltd., they had imported capital goods from an Italian company for the purpose of setting up a manufacturing plant in India and a lumpsum of US $ 20,00,000 was paid to the supplier as consideration for technical know-how and assistance provided for layout, erection, commissioning and start-up of the plant as also for the raw material preparation, extrusion, firing and finishing process.
6. Thus all the factual situations ('A', 'B' & 'C') mentioned by the Senior Advocate are available in these cases. It is his submission that the Hon'ble Supreme Court's judgment in the case of Commissioner of Customs, New Delhi v. Prodelin India (P) Ltd. is squarely applicable to factual situation 'A' obtaining in these appeals. He has also referred to the Tribunal's decision in Birla Tyres v. Commissioner of Customs, Kolkata 2001 (45) RLT 582 (CEGAT - Kol.) affirmed by the Supreme Court in Commissioner v. Birla Tyres 2002 (143) ELT A183 (SC). On fact situation 'A', learned Counsel has also cited in support of his case a line of other decisions including R. Stahl (P) Ltd. v. Commissioner of Customs, Chennai 2006 (205) ELT 682 (Tri. - Chennai), Rane Nastech Ltd. v. Commissioner of Customs, Chennai 2006 (199) ELT 266 (Tri. - Chennai), SD Technical Service v. Commissioner of Customs, New Delhi 2003 (56) RLT 970 (CEGAT - LB) and Steel Authority of India v. Commissioner of Customs, Vishakapattinam 2007 (210) ELT 150 (Tri.-Bang.).
7. In relation to factual situation 'B', learned Senior Counsel has relied on the apex Court's judgment in the case of Commissioner of Customs, Chennai v. Toyota Kirloskar Motor (P) Ltd. . He has claimed support from this judgment in relation to situation 'C' also. Learned Counsel has also relied on the Tribunal's larger Bench decision in Polar Marmo Agglomerates Ltd. v. Commissioner of Customs, New Delhi on factual situation 'B'.
8. Insofar as factual situation 'C' is concerned, learned Counsel has claimed support from Union of India v. Mahindra and Mahindra Ltd. .
9. It has been argued that the technical know-how fee/royalty paid by the assessees was related only to post-import activities and did not have any nexus with the importation of goods. The technical know-how/assistance was not given as a condition of sale of the imported goods. Therefore the know-how fee/royalty paid by the assessees was not to be included in the assessable value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988. Interpretative Notes to Rule 4 of the CVR clearly reflected the legislative intent on the above aspects. According to learned Counsel, the case law cited by him would squarely apply to the facts of these cases inasmuch as, in all these cases, technical know-how/assistance of suppliers of the imported goods was taken by the assessees for post-import purposes and not as a precondition for purchase of the goods.
10. On the other hand, learned SDR, Shri N.J. Kumaresh submitted that the case law cited by learned Counsel might not be applicable to cases [like the instant ones] where the importer was related to the supplier in terms of Rule 2(2) of the Customs Valuation Rules, 1988. According to him, such a relationship was very much relevant to the applicability of Rule 9(1)(c). In this connection, learned SDR heavily relied on the apex Court's judgment in Commissioner of Customs, Mumbai v. Clariant (India) Ltd. , wherein, while remanding the case to the original authority for de novo adjudication, their lordships observed that the question whether the technical know-how fee paid by the assessee to the supplier of the imported raw material was a condition for the import needed to be examined in the light of the relationship between the parties. The SDR argued that the technical know-how fee/royalty in the present cases had a relation to the imported goods inasmuch as, without the imports, it would not have been possible for the importer to use the technical know-how/assistance provided by the supplier. He claimed that all these imports had been made, at least indirectly, as a condition of sale of the goods to the assessees. In this connection, learned SDR claimed support from the Supreme Court's judgment in Collector of Customs, Ahmedabad v. Essar Gujarat Ltd. as also from the Tribunal's decision in TDT Copper Ltd. v. Commissioner of Customs, New Delhi . Reliance was also placed on the apex Court's judgment in Associated Cement Companies Ltd. v. Commissioner of Customs and the decision in Matsushita Television and Audio (I) Ltd. v. Commissioner of Customs 2007 (211) ELT 200 (SC). SDR also opined that the legislative intent behind Rule 9(1)(c) of the CVR 1988 could be gathered from the corresponding provisions of the CVR 2007.
11. We have considered the submissions of both sides. In the case of Prodelin India (P) Ltd. (supra) cited by learned Counsel, under a Joint Venture Agreement between M/s. Prodelin Corporation, USA and one Shri Ashok Mago of New Delhi, the assessee-company was set up for assembly of VSAT antennas, accessories and other communication equipments in India and for the marketing of these products in India. A technical fee of US $ 2,58,000 was paid by the assessee to the US company for the assistance rendered in India by the latter for the design and assembly of antenna systems. The Revenue sought to include the amount in the assessable value of the components/parts imported by the assessee from the US company, under Rule 9(1)(c) of the CVR, 1988 on the ground that the technical assistance provided by the US company in the form of design, drawing etc. [for the assembly of antenna systems] to the assessee had a relation to the imported goods. This Tribunal disapproved this stand of the Revenue and held that the technical assistance was not related to the imported goods but only to the post-importation activity of assembly of antenna systems in India. Accordingly, the technical fee was held not includible in the assessable value of the imported goods. The Hon'ble Supreme Court, after detailed consideration of the relevant provisions of the Joint Venture Agreement, found that there was no nexus between the 'design drawing', 'fabrication drawing' etc. supplied by the US company and the components/ parts supplied by them and that the technical fee was paid to them by the assessee in respect of the various jobs which the US company was to perform in respect of the assembly of antenna systems in India. Their lordships also held that the Customs authorities could not add the technical know-how fee relating to a post-importation activity, to the assessable value of the imported goods. Their lordships also approved the reliance placed by the assessee on the Tribunal's decision in the cases of Daewoo Motors (India) Ltd. v. Commissioner and NEG Micon (India) (P) Ltd. v. Commissioner , wherein licence fees (technical know-how fees), which were payable not as a condition of sale of the imported goods, were held to be not includible in the assessable value of the imported goods as they had not satisfied the requirements of Rule 9(1)(c). In this connection, apex Court also observed as under:
34. This apart, the Department has not advanced any argument as to how the Tribunal erred in following their earlier judgments on the identical issue. When the law has been laid down by the CESTAT itself in a number of earlier judgments, it only followed the same in the facts and circumstances of the present case. Therefore, now it is not open for the Department to persuade this Court to reverse the order which is based on the earlier judgments of the CESTAT wherein correct view has been taken by it.
We note that the apex Court's ruling in the above case is that technical know-how fee paid by an importer to his foreign collaborator in respect of post-importation activities is not includible in the assessable value of the imported goods under Rule 9(1)(c) of the CVR read with Section 14 of the Customs Act. This ruling is squarely applicable to all the fact situations in the present appeals.
12. In the case of Birla Tyres (supra), the assessee had paid Italian Lira 5,40,000,000 as a lumpsum to their technical collaborators in Italy as consideration for technical know-how in the form of basic engineering documentation etc., which was to be used in the manufacture of radial tyres in India. The Tribunal held that the know-how fee had relation only to the activity of manufacture of tyres in India and therefore it was not to be included in the assessable value of the machinery imported by them. The civil appeal filed by the department against the Tribunal's decision was dismissed by the apex Court vide 2002 (143) ELT A183 (SC). The decision of the Tribunal's larger Bench in S.D. Technical Service case (supra) and the decision of this Bench in Stahl case (supra) and Rane Nastech case (supra) are also in support of the appellants' case on fact situation 'A'.
13. In the case of Toyota Kirloskar Motor (supra), M/s. Kirloskar Systems Ltd., a major shareholder in M/s. Toyota Kirloskar Motor (P) Ltd., entered into an agreement with M/s. Toyota Motor Corporation, Japan for the purpose of establishing an automobile manufacturing plant in India. The assessee namely M/s. Toyota Kirloskar Motor (P) Ltd. imported some capital goods and parts from the Japanese company for the said purpose. They also obtained technical know-how and assistance for the purpose from the Japanese company under a Technical Assistance Agreement and paid know-how fee as consideration therefor. After setting up and commissioning the plant, the assessee also paid royalty to the Japanese company at 5% of the net sale proceeds of the licensed product. The Revenue wanted to add the know-how fee and royalty to the invoice value of the imported goods under Rue 9(1)(c), but this proposal was ultimately rejected by this Tribunal. Upholding the Tribunal's decision, the Supreme Court held that the technical know-how/assistance fees paid by the assessee to their foreign collaborators had no nexus with the imported goods and that the same was related only to post-import activities. It was also held that the above fees had not been paid as a condition of sale of the imported goods. It was held to the same effect in respect of royalty also. Accordingly, both the amounts were held not includible in the assessable value of the imported goods under Rule 9(1)(c). We find that the decision of the apex Court in Toyota Kirloskar Motor case is squarely applicable to fact situations 'B' and 'C' in the present cases. Insofar as fact situation 'B' is concerned, the Tribunal's larger Bench decision in Polar Marmo Agglomerates case (supra) also supports the appellants concerned.
14. Insofar as fact situation 'C' is concerned, we are of the view that the apex Court's ruling on the other two fact situations is a fortiori supportive of the assessees in appeals involving situation 'C'. It is not in dispute that, in such cases, royalty was paid as a percentage of the net sale proceeds of the licensed products cleared for home consumption or for export. Obviously, there is a nexus between the royalty and the production and sale of the licensed products. There is no nexus between the royalty and the import of components/raw material. Further, in any of the relevant appeals, we have not found anything in the agreement between the assessee and their foreign collaborator, which suggests that they have paid royalty as a condition of purchase of the imported goods. Thus the royalty paid by any of the appellants to their foreign collaborator does not satisfy the twin conditions of Rule 9(1)(c), to be included in the assessable value of the imported goods.
15. We have also examined the case law cited by learned SDR. He has heavily relied on the Supreme Court's decision in Essar Gujarat case (supra). We need only say that the case of Essar Gujarat Ltd. was clearly distinguished by the apex Court in Toyota Kirloskar Motor case and by the Tribunal's larger Bench in S.D. Technical Service case and in the case of Panalfa Dongwon India Ltd. v. Commissioner of Customs, Mumbai 2003 (56) RLT 962 (CEGAT - LB). Learned SDR has argued that, where relationship in terms of Rule 2(2) between the buyer and the seller of the imported goods is established, the question whether technical know-how fee/royalty paid by the buyer (importer) to the seller (foreign collaborator) is liable to be added to the invoice value of the goods under Rule 9(1)(c) cannot be decided upon in terms of the case law cited by counsel. He has argued that, where such relationship is established, the case has to be dealt with in accordance with the ratio of the decision rendered by the apex Court in the case of Clariant (India) Ltd. (supra). But we have not found any ruling in that case to the effect that, where the above kind of relationship is established between the buyer (importer) and the seller, the technical know-how fee/royalty paid by the former to the latter should necessarily be included in the assessable value of the imported goods or that one or both of the conditions attached to Rule 9(1)(c) can be dispensed with. Therefore the remand order passed by the apex Court in Clariant case cannot be considered to have laid down any ruling contrary to the one laid down by the Court in the case of Prodelin India (supra) and other cases cited by counsel. We also find that the landmark judgment of the apex Court in Associated Cement Companies case (supra), wherein drawings and designs were held to be "goods" liable to customs duty, cannot be cited as an authority for the proposition that any technical know-how fee/ royalty paid by an importer of capital goods/raw materials as consideration for such drawings and designs supplied by his foreign collaborator is linked to the import of such capital goods/raw materials. Learned SDR has also claimed support to his arguments from the apex Court's judgment in Matsushita Television & Audio India case (supra). We find that, in this case, under a Technical Assistance Agreement, the assessee (importer) was liable to pay royalty to their foreign collaborator for the technical assistance rendered by the latter by way of approval of bought-out components (imported). The apex Court found nexus between the royalty payment and the bought-out components imported by the assessee and, therefore, the royalty amount was held to be includible in the assessable value of the imported components. These facts are clearly different from the facts of the present appeals. None of the decisions cited by SDR is found to have advanced the Revenue's case on any of the fact situations.
16. Having found that the technical know-how fee or royalty paid by any of the appellants to foreign collaborator was not liable to be included, under Rule 9(1)(c), in the assessable value of the imported components/raw materials, we have got to set aside the impugned orders.
17. It is ordered accordingly and all these appeals are allowed.
(Operative portion of the order was pronounced in open court on 15th November 2007)