Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs vs Birla Yamaha Ltd. on 10 January, 1995
Equivalent citations: 1995ECR313(TRI.-DELHI), 1995(77)ELT170(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. These two appeals which have been filed by the Collector of Customs, Bombay arised out of a common order dated 30-5-1994 passed by the Collector of Customs (Appeals), Bombay. The facts of the case briefly are that M/s. Tungabhadra Industries Ltd. and M/s. Yamaha Motor Company Ltd. entered into a joint venture agreement to establish a new company in the name of Birla Yamaha Ltd. There was also an agreement with the Yamaha Motor Company of Japan by which the Japanese had 26% of equity holding. The Japanese Company by the agreement granted licence to the exclusive use of technical information and industrial property rights for the purpose of manufacture and assembly of generators and multipurpose engines and parts thereof and the certain trademarks, design and other industrial property rights relating to generator and multi-purpose engines. The agreement also allowed to use the trade marks on locally manufactured products in consideration of the grant of the technical information the licencee was to pay to the foreign collaborator a lumpsum fees. There was also an agreement for payment of royalty on the net sales of the product. The jurisdictional Asstt. Collector on scrutiny of the provisions of the agreement came to the conclusion .that the buyer and seller in this case had interest in the business of each other, therefore the invoice value of their imports was loaded by 2%. This direction was given regarding valuation of the imported goods for the period prior to 1988 when the old Customs Valuation Rules, 1963 were in force. Subsequently for the period under the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 the Asstt. Collector found that since the foreign collaborators held more than 5% equity shares and since there is a nominee of theirs in the Board of Directors of the Indian company the two are related persons under Rule 2(2)(i) and Rule 2(2)(iv) of the Customs Valuation Rules, 1988. He further found that the purpose of technical assistance agreement is to obtain technical assistance in the field of designs manufacture of generator sets. The Assistant Collector referred to Rule 9(1)(c) of the Valuation Rules and the Interpretative Notes to those Rules saying that royalty referred to therein includes among other things payment in respect of patent trade mark and copy right. Therefore, the Asstt. Collector held that the royalty is to be apportioned for the use of the trade mark which gives them penetration for sale of their finished goods in the Indian market. The Asstt. Collector, therefore, passed on order that the invoice value be loaded by 4.3% under Rule 9(1)(b)(IV) and Rule 9(1)(c) of the Customs Valuation Rules, 1988.
2. The matter was taken up by the respondents before the Collector (Appeals). The Collector (Appeals) in the impugned order held that the royalty is payable on the goods manufactured in India and the technical information is for the know-how for assembly and manufacture in India and that these are not in any way related to the imported components and will not affect the price thereof. He further observed that Rule 9(1)(c) of the Valuation Rules, 1988 is in respect of royalty and the licence fee related to the imported goods, that the buyer is required to pay as a condition of sale of the goods being valued which can only be added to the price actually paid or payable. In the present case, the Collector (Appeals) found that these payments are not relatable to the imported components. They are for the purposes of the manufacture of final product within India. He further held that the payment of royalty is not a condition for the sale of the components. On the other hand, royalty and know-how fees are payable for the right to produce finished products in India which as per Rule 9(1)(c) cannot be added to the price paid for the imported goods. Therefore, the Collector (Appeals) held that the technical know-how fees and royalty are not liable to be added to the price paid or payable to the imported components. Accordingly, he set aside both the orders of the Assistant Collector and held that the price declared by the respondents herein is acceptable as transaction value of the goods imported.
3. Shri B.K. Singh, learned Senior Departmental Representative appearing for the appellant Collector submitted that the provisions of Rule 9(1)(c) and 9(1)(b) clearly provided for the addition of royalty and know-how fees to the assessable value. The respondents had cited before the lower authority certain decisions of the Tribunal as in the case of Maruti Udyog Ltd. v. CC, 1987 (28) E.L.T. 390 which has been upheld by the Supreme Court 1990 (48) E.L.T. 141. They have also referred to the decisions of the Tribunal in the case of CC v. Modi Xerox Ltd., 1990 (48) E.L.T. 141 (Tri.) as well as the Bombay High Court decision 1991 (55) E.L.T. 15 (Bom.) UOI v. Mahindra & Mahindra. These decisions, learned SDR contended, were given with reference to the old Valuation Rules of 1963 and is not relevant for a case arising under the Valuation Rules, 1988. These Rules provided for the inclusion of royalty fees and for the transfer of technical know-how. The learned SDR further urged that the royalty paid in lumpsum to the foreign collaborators has a definite relation to the imported goods because without such payment the foreign supplier will not be selling the goods, therefore it is a condition for supply of the goods by the foreign collaborators. The learned SDR also drew attention to the detailed grounds of appeal furnished in these two cases and pleaded that the orders of the Collector (Appeals) should be set aside. Shri Kamal Parsurampuria, the learned Counsel appearing for the respondent contended that the issue is now well settled by the judgment of Supreme Court in the case of Maruti Udyog Ltd. (supra) upholding the decision of the Tribunal in this regard. Further the Tribunal in several subsequent decisions had followed the same ratio. The Tribunal in the case of Maruti Udyog Ltd. had held that the share holding by the foreign collaborator in the Indian company will be only one sided interest and will not reflect mutuality of interest. The respondents herein had entered into a joint venture agreement for the manufacture of generators with Yamaha Motor Company of Japan. The agreement provide for technical and other services on payment of royalty and lumpsum and 3% on net sale price of the product was asked to be paid in order to ensure quality control. It was pointed out that the respondents do not have any holding in Yamaha Motor Company, Japan and none of their Directors are on the Board of Yamaha Motor Company. On these considerations, the Tribunal in subsequent decisions has held that invoice value cannot be loaded. The learned counsel cited and relied upon in this regard the following decision of the Tribunal :-
Eicher Motors Ltd. v. CC, Bombay 1994 (74) E.L.T. 357.
He also relied upon the Bombay High Court decision in the Mahindra & Mahindra (supra) and Modi Xerox (supra) and pleaded that the orders of the Collector (Appeals) are correct in law.
4. We have carefully considered the submissions made by both the sides. So far as valuation in similar circumstances under the Valuation Rules of 1963 is concerned, the matter is no more res Integra. It stands settled by the order of the Supreme Court in the case of Maruti Udyog Ltd. case in which Tribunal decision was upheld. The ratio of the decision as well as the Bombay High Court decision in the case of Mahindra & Mahindra had been subsequently followed by the Tribunal in the Modi Xerox Ltd. case, in the Eicher Motor case and in the Order No. 391/94-A dated 8-12-1994 in the case of CC, Bombay v. Hero Honda Motors Ltd. and further in the case of Asahi India Safety Glass Ltd. v. CC, Bombay final Order No. 292/94-A dated 17-10-1994. Therefore, the ratio of the decision is applicable to the facts of the case having regard to the nature of the various clauses in the agreement relating to the payment for technical assistance apart from royalty and technical know-how and applying the ratio, the Collector (Appeals) was right in following these decisions in his impugned order. Similarly even under the Customs Valuation Rules of 1988 there are decisions which have clearly held that in similar circumstances these new Rules are also not applicable. There are two decisions of the Tribunal in the case of Collector of Customs v. Vishakapatnam Steel Project at pages 572 & 833 in Vol. 62 of E.L.T. 1992 in which it has been held with reference to Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988 that a reading of the Rule makes it clear that the engineering fees for the production of imported goods alone is to be included in the transaction value and where the fees is not relatable to the production of the imported goods then the Tribunal held that this Rule was not applicable. The test is whether this payment is made for the production of the imported goods. Clearly in this case also this is not the position as has been found by the Collector (Appeals) in the impugned order. Further Rule 9(1)(c) reads as follows :-
"In determining the transaction value there shall be added to the price actually paid or payable for the imported goods, -
(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."
Therefore, the Rule comes into play only when such royalty and licence fee payment is related to the imported goods. In the present case clearly the royalty payment is not related to or is a condition for the import of the components but it relates to the right to manufacture the finished product in India. It is not a condition for the sale of the components. It is further found by the Tribunal in the precedent decisions that lumpsum payment for technical assistance and other rights granted as per agreement cannot be attributable to the price of the imported goods and the Tribunal had found that such terms for payment of royalty are commonly made in such agreements in order to compensate the collaborator by way of larger payments on account of royalty due to increasing indigenisation leading to decreasing realisation to the collaborator through the sale of parts and components to the Indian importer. Therefore, we find that the Collector (Appeals) has considered the right principles to be adopted in the situation and had correctly followed the ratio of precedent decisions. In such circumstances, we do not see any reason to interfere with the order passed by the Collector. The appeals are, therefore, rejected.