Customs, Excise and Gold Tribunal - Tamil Nadu
Indo Overseas Films vs Commissioner Of Customs, Chennai on 3 September, 2001
Equivalent citations: 2000ECR268(TRI.-CHENNAI), 2002(139)ELT729(TRI-CHENNAI)
ORDER
Shri S.L. Peeran
1. The Miscellaneous application has been filed for seeking early hearing of the appeal on the ground that the appellants have imported feature films and the question of ineludibility of royalty charges and their prayer for excluding the portion of the amount which is referred to as distribution charges thereof is required to be allowed.
2. Heard both the sides in the matter. As the issue lies in a short compass, the miscellaneous application is allowed and the appeal is taken for disposal with the consent of both the parties.
3. The facts of the case are that the appellants imported feature films titled "Web of Silence - AIDS" in 35 mm print of 2569 Mtrs along with one trailer in 35 mm of 35 Mtr length and declared the value for the purpose of assessment as US $ 1000 and $ 20 respectively totalling US $ 1020. It was noticed that the appellants paid US $ 12,500 towards Royalty including one brand new print and one Trailer (Rights of re-production and distribution for public performance for the territories of India) - US $ 12,500/-. The appellants contended that in terms of Rule 9(1) (c) of the Customs Valuation Rules 1988 it is obvious that the charges made for the right to reproduce the imported goods in the country of importation are not to be added to the price paid or payable for the imported goods and also payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of sale for export to the country of importation of the imported goods and in their case the film remains exclusive property of M/s Euro Film International and what is assigned is the distribution rights of the film and what is sold are new prints along with trailers of the film and the lower authority has lost sight of this distinction; that as per World Customs Organisation's ruling No VG/33 dated 18-06-93 in connection with a reference by' Cyprus, it was held that the amounts paid for the right to project Video Cassettes by television stations are considered to be for the rights of reproduction as such do not constitute elements includible int eh customs value of the imported video cassettes and in another ruling relating to Finland reference No.TVR 421, TH5/302/88 dated 10.4.88, it is was held that the free to be paid to the seller of film productions for the right to show the films to the public in the country of importation is not to be included in the transaction value since the right of public performance is considered equal to the right of reproduction. Appellants contend that in the light of the above mentioned rulings of World Customs Organisation and clear provisions of rule 9(1) (c) of the Customs Valuation Rules, 1988 and the interpretation note to the above rules, there is no justification, whatsoever to include the royalties paid for computing assessable value of the films imported.
4. The lower authorities did not agree with their contention in view of the fact that there was no split up shown in the invoice with regard to royalty charges and distribution charges for asking exclusion in terms of the note to Rule. Although the Commissioner agreed with them that the interpretative rules ins acceptable, however, he has held that since the agreement did not give any break-up of the amount payable towards each of the rights of licensing granted to them and as such exclusion of potion of the total amount towards re-distribution charge is not feasible in arriving at the conclusion. He has noted that the issue is covered by the judgment of the Hon'ble Apex court in the case of M/s Essar Gujarat Ltd and that of the CEGAT in TDT cooper Ltd vs. CCE New Delhi reported in 2000 (120) ELT 265 (Tribunal). The findings given by the Commissioner (Appeals) is reproduced below:
I have gone through the records of the case and the submissions of the appellant carefully.
The issue boils down to includability of US $12500 under Rule 9(1)(c) of the Valuation Rules. As per the Distribution Agreement, the Licensor licenses exclusively to the Distributor viz. the appellant, the picture in the territory i.e. India for the period upto December 31, 2002. Which confers theatrical as well as home video and commercial video rights. The payment of US $12500 covers licence fees, one brand new print and one Brand new trailer. The invoice for the import of the impugned goods shows "Royalty including one brand new print and one Trailer (Rights of re-production and distribution for public performance for the territories of India) - $ 12,500 and cost of movie material-$1,020.
Under Rule 9(1)(c) of the Valuation Rules, royalties and licence fees related to the imported goods that the buyer is required to pay directly or indirectly as a condition of sale of the goods being valued to the extent such royalties and fees are not included in the price actually paid or payable. In the instant case, the appellant had to pay not only the cost of movie materials but also the royalty for the rights specified in the Distribution Agreement as a condition of sale, for, without the right of re-production and distribution, the impugned goods viz. the print and the trailer will not be of any use to the appellant at all to enjoy the theatrical and video rights conferred on him.
The appellant relies upon the Interpretative Notes of Rule 9(1)(c) to argue that charges for the right to re-produce the imported goods in the country of importation and payment made for the right to distribute or re-sell the imported goods shall not be added to the price actually paid or payable. However, he Interpretative Notes provides for non-inclusion of payment made for the right to re-distribute only if such payment is not a condition of sale for export to the country of importation of the imported goods. The appellant's argument here that there is no sale for export to the country of importation, in the instant case, as the appellant had purchased the goods from M/s. Lakshmi Pictures Ltd., London, who are not the makers of the film and the makers of the film viz. M/s. Euro Film International, Italy, have sol the distribution rights to the supplier of the impugned goods and as such, there is no sale for export tot eh country of importation etc., is definitely not an acceptable argument. The sale is between the appellant and M/s. Lakshmi Pictures Ltd., London. The fact that M/s. Lakshmi Pictures Ltd. have obtained the right to sell the film as well as the right of re-production distribution etc., from the producer of the film will not affect the transaction between the appellant and the supplier, in the instant case. The fact is that not only the cost of the materials imported but the right to use, re-produce and distribute them have been collected from the appellant by the supplier. The goods under import cannot be used, re-produced or distributed without obtaining the requisite right to do these operations under the Distribution Agreement and the fact that these rights have been paid for, would definitely make these charges includable in terms of Rule 9(1)(c). The ratio of the honorable Apex Court's decision in the case of M/s. Essar Gujarat Ltd., and that of the honorable CEGAT in TDT Copper Ltd., Vs. CC New Delhi 2000 (120) ELT 265 (Trib) apply to the instant case. Though the appellant's plea that the fee paid for re-production is not includable as per the Interpretative Rules is acceptable, the agreement does not give any break-up of the amount payable towards each of the rights/licences granted to the appellant and as such exclusion of a portion of the total amount towards reproduction charges is not feasible.
In view of this, the decisions/opinions cited by the appellant are not relevant and cannot come to his rescue.
Accordingly, the lower authority's order is maintainable and the appeal is rejected.
5. Shri M.Murugappan, learned Counsel for the appellants submits that their contention is that as regards the ineludibility of the royalty charges, both the citations referred to by the Commissioner lays down the proposition that the royalty charge is includible but according to interpretative Rules 9(1)(c) the Commissioner has held that the whole amount is includible in terms of CEGAT rulings and the conclusion give by the International valuation Legislation, USA. He submits that the internationally the clause requires for non ineludibility of royalty charges as well as distribution charges. In such circumstances split up of value cannot be furnished and it has to be considered as distribution chargers alone and therefore, clearly acceptable. He pointed out that he Commissioner has agreed on the applicability of interpretative rules 9(1)(c) but in the absence of split up, he has not given any relief. He refers to the decision of the Film Advisory Opinion 14.1 particular reference to Example 6 and Ruling relating to Finland Reverence No. TVR 421, TH5/302/88 dated 10.4.98 (as referred to in page 45 of the paper book).
6. Shri A.Jayachandran, learned DR contends that both the rulings of the US and Finland have not been furnished in the paper book. Therefore, the entire typed copies without signature of any body does not have any evidentiary value and cannot be applied to the present case. He further submits that in the present case we have to apply to the rulings given by the Hon'ble Apex Court and the Tribunal as noted by the Commissioner (Appeals) and there is no dispute that in the invoice the appellants have shown clearly royalty charges. Therefore, their plea that they are distribution charges has not been substantiated and also it does not disclose the split up value. There is also no supporting evidence and therefore, the declaration given in the invoice that they have paid charges in terms of the agreement is conclusive of the matter and there is no infirmity in the impugned order which has been extracted above.
7. On consideration of the submission made, we notice that the aspect pertaining to ineludibility of "royalty charges" cannot be disputed in view of the Ruling rendered by the Hon'ble Supreme Court and the Tribunal decision noted above. The learned Counsel has made fervent appeal for the exclusion clause of the interpretative rules which according to him has been accepted by the Commissioner(Appeals). The learned Counsel relied upon the typed papers in the paper book which is said to be the ruling of US and Finland export valuation book. The authenticity of these is not proved. It does not have persuasive value as int eh case of HSN explanatory notes. The Customs valuation rules require ineludibility of royalty charges which has been paid in the present case in terms of the invoice. Therefore, the burden of proof for seeking exclusion of certain charges is on the appellants which has not been discharged. Therefore, we do not find any infirmity in the impugned order as the order has been passed after verification of the invoice and agreement and in view of the non availability of split up charges, the Commissioner's order is justified that the royalty charges given in the invoice is required to be accepted in terms of Rule 9(1) (c) of the (sic) Rules, 1988. Therefore there is no merit in the appeal and the same is dismissed.
(Dictated and pronounced in open Court)