Custom, Excise & Service Tax Tribunal
M/S Antifriction Bearing Corp. Ltd vs Commissioner Of Customs (Import), ... on 6 May, 2016
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. IV APPEAL NO. C/858/04-Mum (Arising out of Order-in-Appeal No. 264/2004 MCH dated 15.06.2004 passed by the Commissioner of Customs (Appeals), Mumbai-I.) For approval and signature: Honble Mr. Ramesh Nair, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) =====================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy : Seen
of the order?
4. Whether order is to be circulated to the Departmental : Yes
authorities?
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M/s Antifriction Bearing Corp. Ltd.
Appellant
Vs.
Commissioner of Customs (Import), Mumbai-I
Respondent
Appearance:
Ms. Padmavati Patil, Advocate
for Appellant
Shri Ahibaran, Addl. Commr. (A.R.)
for Respondent
CORAM:
HONBLE SHRI RAMESH NAIR, MEMBER (JUDICIAL)
HONBLE SHRI C.J. MATHEW, MEMBER (TECHNICAL)
Date of Hearing: 06.05.2016
Date of Decision: 06.05.2016
ORDER NO.
Per: Ramesh Nair:
The appeal is directed against Order-in-Appeal No. 264/2004 MCH dated 15.06.2004 passed by the Commissioner of Customs (Appeals), New Customs House, Mumbai-I, whereby the learned Commissioner (Appeals) disposed of appeal by passing the following order-
I have gone through the records of the case. As per the agreement, royalty is calculated on the basis of indigenous value addition. So, as per settled legal position same is not includible.
As per clause, 13.9 of agreement:
13.9 Supply of Components and Material:
Subject to NSK and licensee reaching agreement on term of purchase and upon Licensees request, NSK shall sell and supply to Licensee components or material required to produce Licensed Products. This clearly shows that knowhow supplied is related to imported goods and a condition of sale. As per S.C. decision in Mahindra & Mahindra Ltd., 1995 (76) ELT 481 (S.C.), apparent tenor of the agreement reflects real state of affairs. The importer have failed to show that the apparent is not real. The importer have cited same Tribunal decision. But in view of clear provision of the agreement and Hon'ble Apex Court decision, same are not applicable here. As per their own admission, the importer in their reply dated 25th October, 2000, have stated that the imported goods are manufactured as per their design and specification and not available outside. They are not importing similar items from any other supplier. Hence conclusion of the adjudicating authority is not warranted.
The Departmental appeal is disposed as above terms.
2. The facts of the case is that the appellant have a Collaboration agreement with the supplier of imported goods, under the said agreement, the appellant is required to pay the Collaborator, documentation charges at rate of 30,000 Yen per sheet for Japanese version and 40,000 Yen for English version. As per the adjudicating authority this documentation fees per sheet charged by Collaborator for supply of document is not related to import of goods and is not covered under Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988. In the original order, it was also contended that there is no condition of sale in the agreement that royalty is payable on indigenous value addition, so it is not related to imported goods. Hence, the royalty cannot be covered under Rule, 9(1)(c) for addition to invoice values. The appellant is importing certain goods like Rollers, Cages from Collaborator at international market price as they conform to their design. There is no third party import of such components/instruments. So, the adjudicating authority accepted the declared price under Rule 4. Aggrieved by the Order-in-Original the Revenue filed appeal before the Commissioner (Appeals) who has passed the order as reproduced in first para above. Being aggrieved by the said impugned order the appellant is before us.
3. Ms. Padmavati Patil, learned Counsel for the appellant submits that the appellant have a collaboration with foreign company who is also supplier of certain goods such as Rollers and Cages. However, the agreement is for technical know-how for the manufacture of final product by the appellant. The royalty is nothing to do with its import. She has taken us to the agreement and from the agreement it is pointed out that the scope is that M/s NSK Ltd., the foreign Collaborator has granted licence for manufacture of the final product. She submits that the royalty was payable on net ex-factory sales price of the products and the same has no relation to the import of goods. The royalty payment is based on the quantum of sale of the final product. Therefore any consideration of royalty payable on the quantity of sale of finished goods cannot be related to imported goods. The lump-sum payment of 30,000 Yen & 40,000 Yen as the case may be is in respect of the documents of technical know-how which has no relation with the import of goods. She submits that the case is identical to the case of Kimberly Clark Lever Ltd. Vs. Commissioner of Customs (import), Mumbai vide Order No. A/86040/16/CB dated 16.02.2016 passed by this Tribunal.
4. On the other hand Shri Ahibaran, learned Addl. Commissioner (A.R.) reiterates the findings of the impugned order. He further submits that the appellant had no option but to buy the goods of the foreign collaborator, therefore the lump-sum amount payable under the name of technical knowhow is includible in the value of imported goods. In support of his submission reliance placed on the judgment of Tribunal in the case of Commissioner of Customs (I), Mumbai Vs. Mahendra Suiting Ltd. 2008 (226) ELT 747 (Tri.-Mumbai).
5. We have carefully considered the submissions made by both the sides.
6. We find that the amount payable as per the agreement, is clearly on account of technical knowhow provided by the foreign Co. for the manufacture of final product by the appellant. On perusal of the agreement, we find that it is an agreement for licence and technical assistance. The relevant portion and clauses of the agreement are reproduced below:-
WHEREAS, Licensee has been engaged, inter alia, in the manufacture and sale of its bearings and desires to upgrade the process and product technology for achieving higher productivity and lowering rework and scrap rate of parts/products;
WHEREAS, Licensee further desires to manufacture assemble, use and sell licensed Products (as defined hereinafter) and to obtain necessary technical information and know-how, including Drawings & Specifications from NSK to manufacture, assemble, use and sell such Licensed Products; and WHEREAS, NSK has had considerable experience, technique, technical Information and know-how for the design, manufacture, assembly, use and sale of the said Licensed Products and is willing to grant to licensee Licenses for the manufacture, assemble use and sole of them;
1.1. "Licensed Products" means all Ball and Tapered Roller Bearings of Standard International type that are manufactured by the Licensee under the Technical Documents and Know-How (as defined hereinafter).
1.5. "Know-How" means all information and knowledge, tangible or intangible reasonably necessary to enable Licensee to 'manufacture and assemble the Licensed Products, which is possessed and controlled by NSK at the date of the execution of this Agreement.
1.7. "Net Sales" means the licensee's net ex-factory sales amount of Licensed Products and/or components thereof exclusive of excise duties minus the cost of the standard boughtout components and the landed cost of imported components irrespective of the source of procurement, including Ocean freight, insurance, customs duties. etc. For the purpose of illustration, the basis of royalty computation would be as follows:
Particulars Value in Rupees Gross ex-factory selling price of the product Rs.A Less: Excise duty and other taxes RS.B Less: Landed cost of imported components Rs.C Less: Cost of Standard Bought-out Components Rs.D Net ex-factory sale price of the product Rs.A-Rs.B-Rs.C-Rs.D 2.1. NSK hereby grants licensee a non exclusive Licence to use the Technical Documents and/or Know-How under agreement to manufacture assemble, use and sell the Licensed Products in the Territory.
3. ARTICLE III - TECHNICAL DOCUMENTS 3.1. The area of the Technical Documents shall be the following:-
3.1.1.Product Drawings, Component Drawings and specifications thereof 3.1.2. Manufacture and assemble.
3.1.3. Quality assurance.
3.1.4. Product Application.
3.2. The Technical Documents shall be in the English or Japanese Language, as the case may be, and shall include all revisions, changes, improvements and modifications made by NSK upto the date of execution of this Agreement.
3.3. One (1) reproducible copy of Technical Documents shall be furnished to Licensee.
3.4. NSK will furnish or replace, at no charge to Licensee, those items of the Technical Documents which are later found to be deficient damaged or to contain defects that would affect the normal use of the Technical Documents. NSK will furnish or replace such items of Technical Documents within thirty (30) days of receipt of such notification by Licensee.
3.5. Licensee shall pay NSK the Technical Documents fee at the rate of Thirty thousand (30.000) Yen for the Japanese version and Forty thousand (40,000) Yen for the English version per sheet within thirty (30) days after the date of receipt of invoice from NSK.
4. ARTICALE IV TECHNICAL ASSISTANCE 4.1. NSK shall provide technical guidance to Licensee by dispatching NSKs engineers (hereinafter referred to as Engineers) to Licensee to advise and assist Licensees technical personnel on matters relating to the manufacture, assembly and product application of the Licensed Products. Such technical guidance shall be made during the term of this Agreement. The number of Engineers and the period during which they will be dispatched shall be determined by mutual consent between the parties.
4.2. For such technical services, Licensee shall pay the following within thirty (30) days after the date of receipt of invoice from NSK:
4.2.1. Round-trip Economy-class-airfare between Japan and the airport nearest Licensees facilities.
4.2.2. First-class hotel accommodation, food and all other expenses for each NSK Engineer, and 4.2.3. Technical Delegation Fee of Seventy thousand (70,000) Yen per Man-day.
4.3. Such technical guidance shall be made in Japanese or English through the aid of an interpreter arranged by Licensee at its expense.
6.1. Running Royalty:
During the term of this Agreement, Licensee shell pay to NSK running royalty at the rate of Zero point seventy five (0.75) per cent of Net sales for the Licensed Products I and three (3) per cent for the Licensed Products II manufactured by Licensee. Such Royalty payment shall be made for a period of seven (7) years from the first date of commencement of commercial production based on the Technical Documents end/or Know-How provided under this Agreement.
6.2. Payment Method:
NSK shall bear any withholding taxes imposed upon the payments made to NSK hereunder, provided, however, that Licensee shall pay such taxes on behalf of NSK, and after deducting them from the payments made to NSK, shall promptly forwarded of NSK due receipts from the competent authorities as evidence of the payment of such withholding taxes. Licensee shall remit the net amount of above payments directly to the designated bank account of NSK in Yen. Conversion, if necessary, shall be made at the official exchange rate prevailing on the date of remittance.
6.3. Time of Payment:
Licensee shall submit to NSK a report describing the respective quantities of the Licensed Products I land licensed Products II manufactured, assembled and sold by Licensee for the annual period or pro rata share of such ending March 31st of each year during the term hereof. The report shall be submitted to NSK within sixty (60) days after March 31st of each year. NSK will thereupon furnish an invoice in the corresponding amount. Upon receipt of NSK's invoices, Licensee shall forthwith pay NSK within thirty (30) days to an account at a bank designated by NSK. From the above terms of the agreement, it is clear that the agreement and the payment terms provided therein is related to the technical knowhow for the manufacture of final product at the appellants end. The agreement no where suggests that there is any link between quantum of import and the payment terms related thereto provided in the agreement. Since the agreement is, towards technical knowhow which is related to the manufacture of the final product and not related to the sale of imported goods, fees cannot be included in the assessable value of the imported goods. The adjudicating authority with proper application of mind, adjudicated the matter by giving the following findings:-
I have carefully gone' through the various documents produced and certificate and random copies of invoices and Bills of Entry furnished by M/s. The Antifriction Bearings Corpn. Ltd., Mumbai from the foreign supplier M/s. NSK, Ltd., Japan.
It is observed that there is only the Licence and technical Assistance between M/s. The Antifirction Bearing Corporation Ltd. (i. e. the Indian Company) and the foreign collaborators M/s. NSK Ltd. Oksaki, Tokyo Japan. The agreement is for obtaining necessary technical information and know-how including Drawings and specifications from NSK to manufacture, assemble, use and sell the Licensed products I and II. The Licensed products I are Ball and Tapered Roller Bearings of Standard international type and II are the specific bearings developed by NSK for OEM customers.
As per the agreement, this is only collaboration Agreement. There is no equity participation by the collaborator in the Indian company. There is no relationship under Rule 2(2) of Customs Valuation Rules, 1988. As per the Agreement two types of payments are there, one is technical documentation charges at the rate of 30,000 yen per sheet for Japanese version and 4000 yen for the English version to be paid after date of receipt of invoice from NSK. This shows that these payments are nothing but documentation fees per sheet charged by the collaborator for supply of documents. This payment is not related to import of goods from the Collaborator. This is not covered under Rule 9(1)(b)(iv) of the Customs Valuation Rules 1988. Also I do not find any condition of sale in the Agreement.
As regards payment of Royalty it is to be paid on net ex-factory sale price of the product. Net Ex-factory sale price means the price exclusive of excise duty and other taxes, exclusive of landed cost of imported components and cost of standard bought out components. Thus Royalty, is payable only on indigenous value addition of 'the product sold. Thus this payment has no relation to imported goods. Also as observed earlier there is no condition of sale in the Agreement. As this Royalty payment cannot be covered under Rule 9(1)(c) for addition to invoice value.
The Indian Company under the collaboration agreement is receiving technical assistance to improve quality of Bearings, manufactured by them to match the world class on International standard. The Indian company is importing certain component like Rollers, cages from the collaborator as they conform to their design and other source is still not known to them. The components imported from the collaboration/supplier are as per International/market price. There is no third party import of these components or instruments supplied by the collaborator for quality control/improvement in quality. The prices of these goods are as per market, price. As there is no addition to be made to imported goods, the invoice value of the imported components from the foreign collaborator/supplier can be accepted as transaction value under Customs Valuation Rules, 1988. In the above findings, we do not find any infirmity as the adjudicating authority has correctly held that the documentation fees and the royalty are not related to the import of the goods, therefore, the same cannot be included in the value of the imported goods and the same is not covered by Rule 9(1)(b)(iv) and 9(1)(c) of the Customs Valuation Rules, 1988.
7. As per the above discussion, we are of the considered view that the impugned order is not sustainable and the view taken by the adjudicating authority has to be upheld. We, therefore, set aside the impugned order and allow the appeal.
(Operative portion of the order pronounced in open Court) (C.J. Mathew) (Ramesh Nair) Member (Technical) Member (Judicial) Sp 10 APPEAL NO. C/858/04-Mum