Customs, Excise and Gold Tribunal - Mumbai
Thermon Heat Tracers Ltd. vs Commissioner Of Customs on 1 February, 2006
Equivalent citations: 2006(109)ECC92, 2006ECR92(TRI.-MUMBAI)
ORDER S.S. Sekhon, Member (T)
1. The appellants imported certain spares and components which were supplied by their principals abroad. On valuation was done following and an order was passed by the Asstt. Collector of Customs GVC/SVB on 27-9-94 enhancing the declared FOB value by 20%. This order was ex parte. In appeal the Commissioner (Appeals) ordered the remand.
2. In remand the Dy. Commissioner found that the appellants were a subsidiary of a company in USA which held 70% of the share capital in the Indian Company. The appellant herein the Indian company was manufacturing heat tracing cable and heat transfer cements in technical assistance with the company in USA. They were importing spares/warranty spares from their collaborators which are impugned herein.
3.1 They had also imported earlier capital goods machinery and equipments from the said collaborators in the year 1992-93. The Dy. Commissioner on basis of the case records on document furnished and submits made held-
The Indian company has acquired technical know how and information from their principal for manufacture of heat tracing systems. For the same they have acquired latest technique and expertise along with drawing and design as per technical collaboration Agreement. They were required to pay total lumpsum payment of US $ 150000/- but could not do so, due to financial condition of the company and have paid only two installments of US $ 100000/- total after deduction of tax at source of 30%. No royally has been remitted so far though it was due from time to time but financial condition not permitting.
It is also observed that the Indian company is importing spares/warranty components from their principal as per the price lists circulated by the principal and is one and the same for all the group companies. It is also observed that the company's request for special discount also has been turned down. So the relationship is not influencing the price in this case. Moreover the technical know-how payments and royalty payments are not related to imported components/spares and there is no condition of sale in the agreement. The acquirement of technical know how is for manufacture of final product which is as per drawing/design technique etc. invented by the principal. These payments have no relation to the value of imported goods. Moreover they have furnished the pricelist of the principal company (the supplier) on the basis of which the goods are invoiced to the importing companies.
As far as royalty is concerned it is payable on the indigenous value addition of the product (i.e. to say the cost of the product to be calculated is exclusive of the cost of bought out components and landed cost of imported components (irrespective of the source of procurement.) As such it cannot be added to value of imported components. Also they have not remitted any royally to the principal. Even otherwise the royalty payable for a right to reproduce or to copy the imported goods in India is not to be added to the price paid/payable vide interpretative notes to Rule 9(1)(c) of Customs Valuation Rules, 1988.
In view of above and in view of price list furnished and in view of relationship not influencing the price I am inclined to accept invoice value under Rule 4 of Customs Valuation Rules, 1988.
and therefore the order of the Dy. Commissioner of GATT Valuation cell upheld the transactions value as declared.
3.2 In appeal was filed before Commissioner (Appeals) on the following grounds -
The adjudicating authority while accepting the transaction value under Rule 4(3) has ignored the legal fact that it is mandatory to make adjustments in terms of Rule 9 of Customs Valuation Rules, 1988 with regard to includability or otherwise of technical know now and royalty paid/payable to the Indian company to the foreign collaborator.
The Indian company sells the licensed goods which are manufactured, using the technical know how provided by the collaborator under the brand name of collaborator. They have imported capital goods, machinery and equipment, components and spare from the foreign collaborator. The technical know how is related to the imported goods because such imports are of no value unless they are processed/manufacture in accordance with manufacturing process contained in the technical information supplied by the collaborator.
To achieve their objection, the importer has to pay not only price of the goods imported but also free for obtaining the technical know how & license to obtain the right to exclusive use of the same.
The adjudicating authority has held that there is no condition of sale in the agreement. However, it can be seen that import of such goods has started after signing of the collaboration agreement where in payment of technical know how and royalty are conditions of the agreement. The issue of includability of technical know how licence fee was discussed in detail in the judgement passed by the Hon'ble Supreme Court in the matter of M/s. Essar Gujarat Ltd. and State Bank of India v. Collector of Customs, Bombay and the same are applicable to the present case also.
Therefore both technical know how/licence fee and royalty are clearly includible in the value in terms of Rule 9(1)(b) of Customs Valuation Rules, 1988.
3.3 The Commissioner (Appeals) after hearing the importers concluded.
In the written submission made by the importer at the time of hearing, they have stated that in the case of Essar Gujarat, there is a nexus between the value of capital goods and the know how of the manufacturer. In their case there is import of components, hence the said decision is not applicable. In the case of State Bank of India, royalty was payable for use of software and the same was related to the imported goods. In the present case there is import of component parts, and at the time of import there is no nexus between the royalty payable and imported goods. The royalty, is payable on finished products. Hence the two S.C. decisions are not applicable here.
I have gone through the records of the case. Under the provisions of the collaboration agreement, the importer is required to pay the collaborator a lumpsum fees in addition to running royalty. As per submission made by the importer before the lower authority, they have stated that they have imported capital goods, machinery, etc from the collaborator. In the present submission, they are stating that they have imported parts/components. I find that versions are contradictory. In the submission, they have not stated how the capital goods imported by them are different from the know-how of the collaborator. As per them royalty is calculated on the basis of net sale price of goods manufactured in India excluding bought out components and imported components. It is also not specified these components imported are separate from the know how of the collaborator. Nor it is their case that these are standard items available to anyone. So, the lumpsum amount paid/payable to collaborator is to be included. In view of method of calculation adopted by the importer in respect of royalty, the same can not be included. Supreme Court decision in the case of Essar Gujarat also supports the case of Deptt. The order of the lower authority is modified to this extent.
And disposed off the appeal. Hence the present appeal.
4. Heard both sides and considered the material and it is found -
(a) there is no material in the records or produced before us to find that the invoice value could not be transactions value as per Rule 4(3) (a) of the Valuation Rules. Therefore no infirmity in the order of Dy. Commissioner GATT Valuation Cell could be found where he concluded that the relationship in this case did not influence the price for the reasons recorded by him and extracted hereinabove. In this view of the matter the transactions value has to be the invoice value.
(b) The additions under Rule 9 of the Valuation rules as regards the technical know, clause of the agreement for the technical know how if in case that the technical know how which reads as:
It is found the agreements defines -
Technical know how and information" shall mean the latest techniques and expertise, trade secrets, product designs, plans, assembly product and tooling drawings, engineering specifications, operation, service parts, blueprints, charts, manuals, software production method, production technique and technology, testing method, mould and the information relating to materials used in the manufacture thereof, technical data calculations and information, details of drawings of layout of the factory including details and specifications of the plant and machinery, processes, operation manuals and all other documentation and information relating to the manufacture, production, marketing and servicing the products which is owned by or is in the possession of or is used in commercial production by THERMON at the date of the agreement.
This indicates that these costs are to be incurred on the goods after import and not for the goods under import. Reading Rule 9(b)(4) would induce that the technical know how if tooling drawings, engineering specifications etc, are not for the plant parts/spares/ components under import. Then there additions under Rule 9 as assist permissible cannot be made to the transactions value otherwise determined to be the invoice value. In this case the costs are not for the goods (spares/components) under import. They cannot be added.
(c) the issue is well settled by the catena of decisions of the Larger Bench S.D. Technical Service v. CC thereof and in para 4 Revenue contention of application of the decisions in the case of Essar Gujarat Ltd. 1996 (88) E.L.T. 609 (S.C.) has been considered and not upheld by the Larger Bench being bound & following the same we find no merits in the findings of the Commissioner (Appeals). The order of the Commissioner (Appeals) is therefore required to be set aside and the order of the Dy. Commissioner upheld and this appeal allowed accordingly. As far as import of spares/components are concerned.
5. Appeal allowed in view of the above findings.
(Pronounced in Court)