Custom, Excise & Service Tax Tribunal
Kruger Ventilation Industries North ... vs New Delhi on 9 May, 2022
Author: Dilip Gupta
Bench: Dilip Gupta
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
CUSTOMS APPEAL NO. 50606 OF 2019
[Arising out of Order-in-Original No. CC(A)CUS/D-I/Gen/SVB/NCH/574-575/2018
dated 4.12.2018 passed by the Commissioner of Customs (Appeals), New Custom
House, Near IGI Airport, New Delhi]
Kruger Ventilation Industries (North India) ....Appellant
Private Limited
Plot No. 191, Sector 59, HSIDC, Ballabgarh
Faridabad, Haryana-121004.
Now At:
Khasra No. 150/20/21, 21/1/2, 22/2, 151/16/2/2
Delhi Rohtak Highway, Village: Rohad,
Tehsil: Bahadurgarh, Jhajjar (Haryana)-124507
Versus
Commissioner of Customs (Import) ....Respondent
New Custom House, New Delhi APPEARANCE:
Ms. Vibha Narang, Advocate - for the Appellant Shri Rakesh Kumar, Authorised Representative for the Department CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) DATE OF HEARING: 30.03.2022 DATE OF DECISION: 09.05.2022 FINAL ORDER NO. 50399/2022 P. V. Subba Rao This appeal has been filed by M/s Kruger Ventilation Industries (North India) Private Limited 1 assailing the order in appeal dated 04.12.2018 passed by the Commissioner of Customs (Appeals), New 1 appellant 2 C/50606/2019 Customs House, New Delhi whereby he allowed the Department's appeal and rejected the appellant's appeal against the order-in-
original dated 10.02.2016 passed by the Deputy Commissioner of Customs, Special Valuation Branch 2, New Delhi.
2. The facts of the case, in brief, are that the appellant is a private limited company incorporated under the Companies Act, 1956 and is engaged in manufacturing industrial fans. It imported various parts such as side plate, back plate, tube casting, motor base and impeller for use in manufacturing its final products from (i) M/s Kruger Ventilation Industries Pte. Ltd., Singapore and (ii) M/s Kruger Ventilation Asia Co. Ltd., Thailand. As the appellant and the foreign suppliers were related persons, the Deputy Commissioner of Customs, SVB, Nhava Sheva referred the matter to SVB New Customs House, Delhi. The appellant submitted documents, requisitioned by the SVB Delhi and also participated in the proceedings before the Deputy Commissioner. The three issues considered and decided by the Deputy Commissioner are as follows:
(i) Whether the buyer and seller are related persons in terms of Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 3;
(ii) Whether the transaction between the buyer and seller are influenced by such relationship; and
(iii) Whether any addition is required to be made to the assessable value of the imported goods under Rule 10 of the Valuation Rules.
2 SVB 3 Valuation Rules 3 C/50606/2019
3. On the first issue, the adjudicating authority found that the importer (appellant herein) and the overseas supplier were related persons. On the second issue, the adjudicating authority decided that there is no evidence on record that can establish that the relationship has influenced the transaction value and, therefore, the transaction value needs to be accepted in terms of Rule 3(3)(a) of the Valuation Rules. On the third question as to whether any additions have to be made under Rule 10 of the Valuation Rules, the adjudicating held that the licence fee paid by the appellant to M/s Kruger Asia Holding Pte. Ltd., Singapore, its holding company, under the technical aid agreement, needs to be added to the assessable value in terms of Rule 10(1) (c) of Valuation Rules.
4. The appellant felt aggrieved by this order of the adjudicating authority and filed an appeal before the Commissioner (Appeals). Revenue was also aggrieved by the order of the adjudicating authority for the reason that the invoices indicated ex- factory prices of the goods which were taken as Free On Board4 values in the bill of entry and the additional amount indicated in the invoices under the head miscellaneous charges were not included in the assessable value. Revenue's prayer was that these 'miscellaneous charges' also needed to be included in the assessable value.
5. In the impugned order, the Commissioner (Appeals) has allowed Revenue's appeal and rejected the appellant's appeal. Hence, this appeal before us by appellant on the following grounds:
(i) The impugned order was passed mechanically without appreciating the submissions made by the appellant;
4 FOB 4 C/50606/2019
(ii) The appellant is not liable to include the amount of royalty or license fee paid to the associated enterprises under Rule 10(1)(c) of Valuation Rules;
(iii) The appellant has included the value of miscellaneous expenses in the assessable value in terms of Rule 10(2) of Valuation Rules.
6. The fact that the appellant and its overseas supplier are related persons, but such relationship has not affected the transaction value is not disputed by either side. The dispute is only about the additions.
7. Learned Counsel for the appellant has made the following submissions:
(i) The appellant is not liable to include the amount of license fee/royalty paid to the associate company in terms of Rule 10(1)(c) of Valuation Rules since the agreement with M/s Kruger Asia Holding Pte. Ltd., Singapore for receiving technical assistance is not a condition for sale of the imported goods. The license fee is based on the total net sales made by the appellant.
The agreement nowhere states that the appellant cannot import any goods from Kruger, Singapore unless and until the license fee is paid to the holding company in terms of technical agreement. The agreement is neutral about the supply of raw material and does not mandate the appellant to buy the goods from the supplier of technology or any of its associate companies. 5
C/50606/2019 The license fee is paid on the sales of the goods domestically manufactured and sold in India. No condition has been imposed in the agreement restricting import of goods from any suppliers. It is purely an independent activity and has no relationship to the raw material by the appellant;
(ii) It is undisputed that there is no influence of the relationship between the appellant and exporter on the transaction value;
(iii) SVB Mumbai had, under similar set of circumstances, accepted the pricing of the identical goods in case of another subsidiary company by order-in-original No. 411/AC/SVB/BRA/2007-08 dated 28.09.2007;
(iv) The goods were imported by another associate enterprise and not from the holding company to which the license fee was being paid;
(v) The terms of license agreement do not require import of goods from either the overseas supplier who supplied the goods or from any other supplier in the world;
(vi) The appellant has also been procuring raw materials from other suppliers outside India and also from some local vendors;
(vii) The SVB Mumbai has evaluated the identical transaction of another India associated enterprises of the appellant and has accepted the declared price of the identical goods; and 6 C/50606/2019
(viii) The appellant has already included the value of miscellaneous expenses in terms of Rule 10(2) of Valuation Rules as can be seen from the bill of entry and invoices enclosed. Therefore, it is erroneous to say that the accepted price has been taken as the FOB value.
8. On behalf of the Department, learned Authorised Representative made the following submissions:
(i) The importer and the overseas supplier are related parties. The royalty/license fee, etc. which flow from the appellant to its overseas holding company is includible in the assessable value as per proviso to Section 14 of the Customs Act and Rule 10 (1)(c) of Valuation Rules;
(ii) Miscellaneous expenses must be included in the assessable value in terms of Rule 10(2) of Valuation Rules;
(iii) As per the agreement between the appellant and the licensor, the licensor has complete control on technical knowhow, production facilities, manufacturing process, quality control etc. and, therefore, it cannot be said that the license fee paid or payable is not relatable to the imported goods and it is not a condition for sale of the imported goods;
(iv) Reliance was placed in Star Entertainment Pvt. Ltd.
Vs. Commissioner of Customs 5, in which it was held that in terms of Rule 10(1) (c) of the Valuation Rules, 5 2015 (327) ELT 238 (Tri.-Mumbai) 7 C/50606/2019 royalty and license fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of sale have to be added to the transaction value;
(v) In State Bank of India Vs. Collector of Customs, Bombay 6, the Supreme Court has held as follows:
"19. It is difficult to accept the contention of the SBI that the countrywide licence fee paid by it is basically the reproduction charges only and by virtue of interpretative note to Rule 9(1)(c) the said charges could not be included in the assessable value for the purpose of levying of customs duty. Countrywide licence fee paid by SBI is not the same as the "charges for the right to reproduce" as envisaged in the interpretative note to Rule 9(1)(c).
Total cost incurred would be transaction value on which customs duty has to be charged and total cost for the purpose of assessment of customs duty would include single site licence fee as well as countrywide licence fee. Rule 3(1) of the Rules provides that value of the imported goods shall be transaction value as defined by Rule 4 and which in the present case would mean the price actually paid or payable for the goods when sold for export to India.
The amount payable to the supplier was US $ 4,084,475 which was correctly taken as assessable value.
(vi) Learned Departmental Representative also placed reliance on the judgment of the Supreme Court in Matsushita Television & Audio (I) Ltd. Vs. Commissioner of Customs 7; and
6 2000 (115) ELT 597 7 2007 (211) ELT 200 (SC) 8 C/50606/2019
(vii) He also placed reliance on Commissioner of Customs Vs. Avaya Global Connect Ltd. 8, paragraphs 5 and 6 of which are reproduced below:
"5. We have considered the contentions of both sides and have perused the Transfer of Technology Agreement and the Supply Agreement entered into by the appellant with Lucent Technologies. We find that the Supply Agreement duly states that it is consistent with the Transfer of Technology Agreement. The facts which have been recorded by the primary adjudicating authority in para 19 of its order are reproduced below for the sake of convenience.
"19 ........Initially components for making cards were imported by the importers from the Foreign suppliers and these components were used for making cards in India. These cards upon activation were integrated with the back plane line assembly of the EPBAX. A fixed number of ports could be activated by this card and royalty was paid/payable on the number of ports sold, leased or put to use. Royalty paid on the components imported for making cards was not directly related to the goods imported and hence, did not appear to be addable to their declared invoice values. But as the manufacture of these cards in India became nonviable due to economical reasons, the importers started importing complete PCB's. This fact is also established from the study of photocopies of Price Lists and Bills of Entry submitted by the importers in respect of imports made by them from the foreign suppliers. Although there was no manufacturing of cards, the importers continued to pay royalty on the number of ports sold, leased or put to use which were activated by using these cards imported in complete form from the foreign suppliers. Thus royalty was paid by the importers when the components were imported by them for assembly/manufacturing and they have continued to pay the same when they started importing complete cards. At the time of import of complete cards, the foreign suppliers as well as the importers are aware of the number of ports that can be activated through a particular card. Thus the royalty paid/payable is known at the time of import of these cards. Royalty is also paid to the foreign suppliers on the goods imported by the importers and sold on High Sea Sales basis to other buyers in India which clearly shows that complete goods, i.e., Circuit Pack as defined in TTA are being imported and no manufacturing activity is taking place."
There is nothing to show that the facts narrated in the above quoted para were disputed by the appellant before the Commissioner (Appeals). It is evident from the foregoing facts that initially the appellant was importing components to manufacture cards but subsequently the appellant started importing cards themselves. Royalty in both the circumstances remained the same and continued to be based upon the number of ports activated. In the case of Ferodo India Pvt. Ltd. (supra) cited by the appellant the Supreme Court held that payment of royalty and licence fees was entirely relatable to the manufacture of brake lines and brake pads. The said payments were in no way related to the imported items. But in the 8 2016 (337) ELT 402 (Tri.-Del.) 9 C/50606/2019 present case, Royalty payments on cards continued on the same basis when the cards began to be imported instead of being manufactured. In the case of J.K. Corporation Ltd. (supra) the ratio laid down by Supreme Court was that any amount paid for post- importation service or activity would not come within the purview of determination of assessable value of the imported goods. In the present case royalty is not paid for post-importation service or activity; only the determination of royalty was done based upon the number of ports activated. In the case of Toyota Kirloskar Motor Pvt. Ltd. (supra), the Supreme Court laid down similar ratio, i.e., that "the transaction value must be relatable to import of goods meaning thereof that the amounts must be payable as a condition of sale" and that "there clearly exists a distinction between amount payable as a condition of import and payable in respect of the matters governing the manufacturing activities". In the case of Tata Yutaka Autocomp Ltd. (supra) the licence fee was to be paid on all products manufactured. In the present case, as has been stated in para 19 (quoted earlier) of primary adjudication order, the royalty payment by the importers to the foreign suppliers was made not only when the appellant imported the cards (instead of manufacturing them) but also when it (i.e., the appellant) sold these cards on high sea sales basis. The appellant was to pay royalty within such 7 days of the end of the quarterly period to the foreign suppliers (para 6 of the Technology Transfer Agreement refers) and in case of failure to do so, the foreign suppliers had the right to "terminate all of the foreign suppliers' obligation hereunder.." (para 6.03 of Technology Transfer Agreement). As the Supply Agreement is consistent with the Technology Transfer Agreement, it follows that the supplier had the right to terminate the supplies in case of non-payment of royalties. This also makes it evident that payment of royalty was a condition of sale in the present case.
"6. Advisory Opinion of World Customs Organisation 4.15 : Royalty and Licence Fee under Article 8.1(c) stipulates as under :
"2. The Technical Committee on Customs Valuation expressed the following view..... The sales contract between M and I does not contain any clause requiring payment of a royalty. However, payment of the royalty is made a condition of sale of the goods, because I would not be able to buy them if it failed to make that payment to L. Non-payment of the royalty to L by I would cause not only the termination of the licence agreement but also the withdrawal of the authorisation given to M to manufacture and sell to I the goods bearing such trademark.
The royalties in question, therefore, should be added to the price actually paid or payable for the goods under Article 8.1 (c) of the Agreement."
In the case of Universal Music India Pvt. Ltd. (supra), CESTAT held as under :
"7. Royalty is payable on distribution of cassettes and this is the only purpose for import and no other. Royalty is payable on the entire records shipped less records returned but such records returned shall not exceed 10%. It means that in the event the return exceeds 10% the royalty will still have to be paid even though some cassettes were not available for sale. In such circumstances, the only inference which can be drawn is that payment of royalty was a condition of sale. This view is supported by the Madras High Court decision in the 10 C/50606/2019 case of Indo Overseas Film (supra) wherein in similar circumstances payment of royalty was considered to be condition of sale.
As per Rule 9(1)(c) of the said Rules - "Royalty and Licence Fee 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" is to be added to the assessable value. Thus as per the analysis above, the royalty paid by the appellant is includible in the assessable value.
Once it is held that royalty payment is a condition of sale, it is immaterial how the royalty payable is computed. In the case of Living Media (I) Ltd. (supra), the Apex Court observed as under :
32. .... duty will necessarily have to be charged on the value of the final product. As per Rule 9, in determining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the license fees related to the imported goods that the buyer is required to pay, directly' or 'indirectly, as a condition of sale of goods. Therefore, when pre-recorded music cassette is imported as against the blank cassette, definitely its value goes up in the market which is in addition to its value and therefore duty shall have to be charged on the value of the final product. Therefore, there can be no dispute with regard to the fact that value of the royalty paid is to be included in the transaction value.
33. ..... There is an agreement existing in all the matters that royalty payment is towards money to be paid to artists and producers who had produced such cassettes. Such royalty becomes due and payable as soon as cassettes are distributed and sold and therefore, such royalty becomes payable on the entire records shipped less records returned. It could therefore, be concluded that the payment of royalty was a condition of sale.
In the present case, royalty payment was arrived at on the basis of number of ports activated by the card. The Supreme Court in the case of Matsushita Television & Audio (I) Ltd. v. C.C. - 2007 (211) E.L.T. 200 (S.C.) held as under :
7. The question which arises for consideration in this civil appeal is : whether royalty payment was connected with the imported components. Under Rule 9(1)(c) of the Valuation Rules, 1988, only such royalty which is relatable to the imported goods and which is a condition of sale of such goods alone could be added to the declared price.
However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex- factory sale price of the colour T.V. exclusive of taxes, freight and insurance but including the cost of imported components. In other words, the royalty payment was to be computed not only on the domestic element of the net sale price of the colour T.V. but also on the cost of imported components. A bare reading of the agreement shows that payment under the said agreement related not only to the production of the goods in India but also to imports. In some of the decisions cited on behalf of the assessee, we find that the net ex-factory sale price of the 11 C/50606/2019 finished products expressly excluded the cost of imported components. On the other hand, in the present case, the cost of imported components was expressly included in the net ex-factory sale price of the colour T.V. Further, when payment to MEI was at the rate of 3% of the sales turnover of the final product, including cost of imported component, it became a condition of sale of the finished goods. Hence, in this case both the conditions of Rule 9(1)(c) of the Valuation Rules, 1988, are satisfied. The ratios of the judgments of the Supreme Court in the case of Living Media (I) Ltd. and Matsushita Television & Audio (I) Ltd. v. C.C. (supra) are thus also supportive of the above analysis."
9. The Civil Appeal against this order of the Tribunal filed by the assessee was dismissed by the Supreme Court in AGC Networks Ltd. Vs. Commissioner 9.
10. He also relied on Atul Kaushik Vs. Commissioner of 10 Customs (Export), New Delhi which was affirmed by the Supreme Court 11.
11. He also placed reliance on Giorgio Armani India (P) Ltd. 12 Vs. Commissioner of Customs, New Delhi affirmed by Supreme Court 13.
12. Learned Departmental Representative submits that merely because the license agreement was not with the overseas supplier but with the parent holding company of both the appellant and the supplier should make no difference because the license fee paid either directly or indirectly is liable to be included in terms of Rule 9 (1)(c) of the Valuation Rules. On the question whether license fee can be attributed to the imported goods when, in fact, it is to be paid as a percentage of turnover of the final products of the 9 2017 (349) ELT A 158(SC) 10 2015 (330) ELT 417 (Tri.-Del.) 11 2016 (339) ELT A136 (SC) 12 2018 (362) ELT 333 (Tri.-Del.) 13 2019 (365) ELT A110 (SC) 12 C/50606/2019 appellant, he submits that an identical question was before the Supreme Court in Matsushita Television. It has been decided by the Supreme Court that since the license fee has to be paid on the entire turnover including the imported goods the same needs to be included in the assessable value. He emphasized that this issue is squarely covered by the judgment of the Supreme Court and, accordingly, the license fee must be added.
13. Learned Counsel for the appellant places reliance on the order of a Division Bench of the Tribunal in BASF India Pvt. Ltd. Vs. Commissioner of Customs (Import), Mumbai 14 in which the judgment of the Supreme Court in Matsushita Television was distinguished. It was held that the license fee must be held to be included in that case because the Indian importer was not free to procure any Indian component from anybody else without approval of the technical knowhow supplier. Since such a condition was not there in BASF India Pvt. Ltd., the license fee was held to be not includible in the assessable value. He also places reliance on Commissioner of Customs Vs. Ferodo India Pvt. Ltd.15
14. We have considered the submissions advanced from both the sides and have perused the records.
15. It is undisputed that the appellant and its overseas supplier are sister concerns and are related persons. It is also undisputed that the relationship has not affected the transaction value. However, in terms of Rule 3 read with Rule 10(1)(c) of the Customs Valuation Rules royalty and license fee related to imported goods 14 2014 (314) ELT 462 (Tri.-Mumbai) 15 2008 (224) ELT 23 (SC) 13 C/50606/2019 which the buyer is required to pay directly or indirectly as a condition of sale of the goods has to be included, to the extent that such royalty and fees are not included in the price payable or paid has to be added.
16. It is also undisputed that the ex-factory price of the goods did not include the miscellaneous charges which were indicated in the invoices and that they need to be included. The only dispute is factual - whether they were included or not in the Bill of Entry. Learned Counsel has demonstrated before us that they were indeed included in the values in the Bill of Entry. However, these charges were included under a different column and the figure "0" was indicated against the column "Miscellaneous Charges". The net effect of the valuation insofar as these charges is concerned is that the miscellaneous charges were included by the appellant in the Bill of Entry. Therefore, we find no reason or justification to add them again to the assessable value.
17. The next question is includibility of royalty/license fee paid by the appellant to its holding company as a percentage of its total sales turnover in the assessable value. Learned Departmental Representative relies on the judgment of the Supreme Court in Matsushita Television & Audio (I) Ltd. in which it was held that the royalty paid by the appellant as a percentage of the net ex- factory sale price of the colour television is includible in the assessable value of the components which were imported and used in the manufacture of the television. Paragraphs 6, 7 and 8 of this judgment are reproduced below:
14
C/50606/2019 "6. On reading the above agreement, the following features emerge. Under Clause 1.03 the term "Net-
factory sale price" has been defined to mean the sale price billed by the appellants for its products to its customers in normal arm's length transaction exclusive of taxes, freight and insurance, but including the cost of the bought-out components and the cost of the imported components. Under Clause 1.04 the term "Technical Know-how" was defined to mean technical information required for the manufacture of colour T.V. as specified in Clause 3.01. The technical know-how which was agreed to be furnished to the appellants was to consist of quality control standard and specification of the components to be used in the manufacture of T.V. sets. Further, under Clause 2.01 it was agreed that MEI shall render to the appellants the technical assistance regarding the manufacture of the T.V. sets in the manner provided in the said clause. Under the said Clause 2.02(C), all costs, charges and expenses, incurred by the appellants for technical assistance, was to be paid by the appellants in U.S. Dollars. Further, under Clause 4.01, MEI agreed to grant to the appellants a licence to use the technical assistance and the technical know-how for the manufacture of the colour T.V. at the appellants' factory in India and also for sale of such products throughout India. Under Clause 6.01, in consideration of the technical assistance to be rendered by MEI and in consideration of the licence to be granted by MEI to the appellants it was agreed that the appellants shall pay to MEI the royalty at the rate of 3% on the net ex-factory sale price of the colour T.V. manufactured and sold. Further, it was agreed that in addition to the technical assistance, MEI would assist the appellants in the manufacturing of the colour T.V. by selling the components to the appellants. Under the Agreement, the parties further agreed that if the appellant desired to make use of bought-out components it can do so provided the said components are forwarded to MEI for inspection and if MEI approves the quality and the specifications of such bought-out components then alone the appellant would be free to use such components in the manufacture of colour T.V.
7. The question which arises for consideration in this civil appeal is : whether royalty payment was connected with the imported components. Under Rule 9(1)(c) of the Valuation Rules, 1988, only such royalty which is relatable to the imported goods and which is a condition of sale of such goods alone could be added to the declared price. However, in the present case, payment of continuing royalty was payable at the rate of 3% of the net ex-factory sale price of the colour T.V. exclusive of taxes, freight and insurance but including the cost of imported components. In other words, the royalty payment was to be computed not only on the domestic element of the net sale price of the colour T.V. but also on the cost of imported components. A bare reading of the agreement shows that payment under the said agreement related not only to the production of the goods in India but also to imports. In some of the decisions cited on behalf of the assessee, we find that the net ex-factory sale price of the finished products expressly excluded the cost of imported components. On the other hand, in the present case, the cost of imported components was expressly included in the net ex-factory sale price of the colour T.V. Further, when payment to 15 C/50606/2019 MEI was at the rate of 3% of the sales turn over of the final product, including cost of imported component, it became a condition of sale of the finished goods. Hence, in this case both the conditions of Rule 9(1)(c) of the Valuation Rules, 1988, are satisfied.
8. For the above reasons, we find no merit in this civil appeal and the same accordingly stands dismissed with no order as to costs."
18. Learned Counsel for the appellant, on the other hand, relies on the judgment of Supreme Court in the case of Commissioner of Customs Vs. Ferodo India Private Limited 16 in which the royalty was held to be not includible as it was related to the technical know- how and not related to the sale of the imported goods.
19. Rule 10(1)(c) of the Valuation Rules reads as follows:
"(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".
20. We find that as per Rule 10(1)(c ) any royalty paid directly or indirectly as a condition for the import is includible in the assessable value of the imported goods. In Matsushita Television & Audio (I) Ltd. the agreement between the importer and the technology service provider related to the components which were imported since clause 7.02 of that agreement stipulated that not only the technology partner assisted the appellant by selling the components were also assessed and approved components which were bought out items. Further, under the agreement the appellant had imported components of colour television receivers from Matsushita Television & Audio (I) Ltd. In that factual matrix, it was held by the Supreme Court that a bare reading of the 16 2008 (224) ELT 23 (SC) 16 C/50606/2019 agreement shows that payment under the agreement related not only to the production of the goods in India but also to import of components under the agreement even though it is charged as a percentage of the final goods manufactured.
21. On the other hand, in the case of Ferodo India Private Limited, the Supreme Court has held that there was no finding in fact that the royalty or license fee was to be made as a condition pre-requisite to the sale of the imported goods and hence held that royalty cannot be included in the assessable value.
22. In the present case, we find that the Technical Aid Agreement entered into between the appellant and M/s Kruger Ventilation Industries Pvt. Ltd., Singapore was a technical aid agreement on a non exclusive basis to manufacture and assemble centrifugal fans, axial fans, in-line fans, roof exhaust fans and mixed flow fans (goods) and to instruct the licensee in the methods of working the processes relating to or in respect of or for the manufacture of the goods and to provide total management. The restrictions in the agreement are with respect to import or export of final products by the appellant but not with respect to imports. It is also mandated that the goods were to be manufactured strictly in accordance with the specifications provided by technology provider. A license fee @ 5% had to be paid on the total net turnover of the goods. We have gone through the agreement and do not find anything in it that it also provides import of the components. Therefore, the goods were not imported under the agreement and any royalty under the agreement cannot be related to it. Further, there is no condition that the importer has to obtain the approval of the technology 17 C/50606/2019 provider either for import or for procuring components domestically. Therefore, the royalty paid by the appellant @ 5% on the final products under the technical aid agreement cannot be said to be a condition for sale and added to the assessable value of the imported goods. It is true that the royalty is paid is as percentage of the net turnover of goods manufactured, which includes not only the component which are domestically procured but also which are imported as well as any value addition by the appellant. However, this in itself, is not sufficient to add royalty to the assessable value.
23. It needs to be seen whether the payment of such royalty is pre-condition to the sale of the imported goods. No such condition emerges from the agreement in the present case. The goods were also not imported under the agreement. In view of the above, we find that the royalty cannot be included in the assessable value.
24. In view of the above, the appeal is allowed and the impugned order is set aside with consequential relief, if any to the appellant.
(Pronounced in Court on 09.05.2022) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) RM