Customs, Excise and Gold Tribunal - Delhi
Escorts Ltd. vs Collector Of Customs on 19 October, 1995
Equivalent citations: 1996(83)ELT388(TRI-DEL)
ORDER
U.L. Bhat, J. (President)
1. The appellant in the earlier appeal who is the respondent in the later appeal is the Department. The respondent in the earlier appeal who is the appellant in the later appeal is M/s. Excorts Ltd. whom we refer as assessee in this order.
2. The assessee is manufacturing 100 c.c. Motor cycles under technical assistance agreement with and licence from M/s. Yamaha Motor Company Ltd., a concern in Japan. The agreement entered into on 1-8-1983 was amended on 6-2-1984. The period originally fixed, has expired, the agreement has been kept alive by subsequent agreements. We are told that even now the agreement is in force. The Assistant Collector was not prepared to accept the invoice price and determined the assessable value by adding one per cent to the invoice price. This order for the period between 1983-88 was set aside in the appeal. The appellate order is challenged in the earlier appeal. In 1988 the Customs Valuation Rules were amended. For the period subsequent to the amendment of Rules, the Assistant Collector passed a similar order and that was confirmed by the appellate authority. This order is challenged by the assessee in the later appeal. Though the records of earlier appeal were not before us, both sides agreed that the appeal also be heard alongwith later appeal and disposed of. We had the benefit of perusing the copies of the records of the earlier appeal shown to us by D.R.
3. The Assistant Collector, on consideration of the terms of the agreement, came to the conclusion that the sale of components of motor cycles in this case cannot be regarded as ordinary sale envisaged under Section 14(1) of Customs Act and, therefore, Rule 4 of the Customs Valuation Rules (for short "the rules") cannot be followed. He purported to determine the value under Rule 8 read with Rule 9(3) of the Rules by way of best judgment on the basis that the running royalty payable to the assessee by the supplier is part of the price for components and that it would be reasonable to add one per cent of the price to determine the assessable value. The appellate authority in the later case took the view that the parties are "interested" in the business of each other and the supplier has control over the assessee. The appellate authority in the previous case took exactly the contrary view.
4. It is necessary to refer to the main features of the agreement. The agreement is basically for technical assistance for the manufacture of 100 c.c. motor cycles and parts thereof. M/s. Yamaha Motor Company Ltd. agreed to supply technical information data, know-how, drawings and industrial property rights with the help of which the assessee has to manufacture motor cycles and could export the same to all countries except countries where M/s. Yamaha Motor Company Ltd. has manufacturing facilities. The assessee is also allowed to indicate that the motor cycle is manufactured under the licence of Yamaha. M/s. Yamaha Motor Company Ltd. also agreed to provide personal instructions and training in Japan or in India to assessee's personnel. The assessee is also entitled to have industrial property rights and the trade mark usage provided by Yamaha. Under clause 5 of the agreement as amended, in. consideration of the technical information, the industrial property rights and the trade mark usage provided by Yamaha, the assessee undertook to pay US Dollars 1,70,000.00 in two parts, that is, lumpsum of 4,20,000 US Dollars in 3 instalments and running royalty of 10% per unit of motor cycle manufactured to be paid for 75,000 motor cycles only during the currency of the agreement. Under Article 9, the foreign company agreed to supply certain parts or components under supply agreement as mutually agreed upon. The dispute in these cases relates to supply of such components under separate agreement as mutually agreed upon.
5. According to the Department, the above terms of the agreement indicate that the foreign company is the controlling authority and the foreign company and the assessee are "interested" in each other and running royalty is part of the price actually agreed upon for supply of components. This contention cannot be accepted. The Department has no case that the agreement does not incorporate all the terms agreed between the parties or that it evidences only a partial agreement. The agreement makes it clear beyond all doubt that the lumpsum payment of 1,70,000 US Dollars, which includes running royalty, is consideration for technical information, industrial property right and trade mark usage provided by the foreign company. The price of components has been separately agreed upon, as contemplated in the agreement under consideration. It is not the case of Department that the price so agreed which is reflected in the invoice is lower than the ordinary price obtaining in international trade. The agreement does not reserve to the foreign company any controlling interest in the manufacture of motor cycles or in the sale except to countries where the foreign country has manufacturing facility. Thus, there is nothing in the agreement to indicate that any part of the royalty is intended to cover any part of the price of the components.
6. The matter is no longer res Integra, One of the earliest decisions in this regard is in the case of Collector of Customs, Bombay v. Maruti Udyog Limited, Gurgaon reported in 1987 (28) E.L.T. 390 (Tribunal). The assessee in that case undertook manufacture of Maruti Cars with technical know-how and expertise provided by a foreign company which was permitted to hold 26% equity hold' in the assessee and for that reason had a proportional representation on the Board of Directors. The agreement provided for payment of lumpsum royalty as well as running royalty. Nevertheless the Tribunal rejected the contention that the assessee has a complex and inter-woven relationship with the foreign company or that the value of the components supplied is not assessable under Section 14(1)(a) or that best judgment assessment was required under Rule 8 of Rules. The Tribunal held that transfer of technical know-how was a separate commercial transaction governed by the licence agreement and does not create an interest of assessee in the business of the foreign company. The Tribunal pointed out the payment of royalty was relatable directly to indigenous manufacture of vehicles and components to the foreign company's designs and specifications. The royalty had nothing to do with the import of components or assemblies. One of the learned Members of the Tribunal took the view that Rule 8 should be applicable but both Members agreed that there was no nexus between the supply of components and royalty agreed to be paid and set aside the addition of one per cent made by the statutory authorities. The appeal filed by the Department against this decision was dismissed by the Supreme Court in the case of CC, Bombay v. Maruti Udyog Ltd, Gurgaon reported in 1989 (44) E.L.T. 481.
7. In the decision of Union of India v. Mahendra & Mahendra Ltd., Bombay reported in 1995 (7) RLT 341, Supreme Court took a similar view on the assessable value of the components imported by M/s. Mahendra & Mahendra Ltd., Bombay, for manufacture of diesel engines with the technical know-how supplied by a foreign company under specific agreement which provided for payment of lumpsum royalty as well as running royalty for making available such technical know-how etc.
8. To the same effect is the decision of the Tribunal in the case of Collector of Customs v. Modi Xerox Ltd. reported in 1990 (48) E.L.T. 141 (Tribunal) which considered that technical know-how agreement between M/s. Modi Xerox and foreign company. The agreement provided for 5% royalty on the products sold. The decision of the Tribunal in the case of Eicher Motors Ltd. v. Collector of Customs, Bombay, reported in 1994 (74) E.L.T. 357 took the same view in regard to the agreement which provided for payment of lumpsum royalty.
9. There is nothing to indicate that parties were not dealing with each other at arm's length or that the agreement regarding price was not an ordinary commercial transaction or that the parties devised the method of providing royalty in order to depress the invoice price or that the invoice price was in any way less than the ordinary price obtaining for indentical or similar goods in international trade. Going by the terms of the agreement, the royalty has nothing to do with the supply of components or the price of components. Therefore, the assessee is entitled to succeed in both the appeals.
10. Appeal C. 3417/90-A is dismissed. Appeal C.168/94-A is allowed. The order impugned in this appeal [is] set aside holding that the invoice price should be taken as the assessable value under Section 14(1)(a) of the Act.