Customs, Excise and Gold Tribunal - Delhi
Barbour Vardhman Thread Ltd. vs Commissioner Of Customs on 19 July, 2006
Equivalent citations: 2006(111)ECC392, 2006ECR392(TRI.-DELHI)
ORDER
R.K. Abichandani, J. (President)
1. This appeal is directed against the order-in-appeal made by the Commissioner of Customs (Appeals) on 13.9.2004 upholding the order-in-original to the extent of its apportioning technical-now-how fee of Rs. 30 lacs (Rupees Thirty Lacs) to the CIF invoice value of the goods imported, namely, machinery for manufacture of threads.
2. The appellant had entered into a joint venture with the foreign-collaborator. There was a joint venture agreement under which manufacture, marketing, distribution and sales licence was to be undertaken. The licensed products were defined under that Agreement as follows:
LICENSED PRODUCTS shall mean such industrial sewing threads, twines and braids and related products as are manufactured by BVTL in accordance with the know-how and technology licensed by BARBOUR to BVTL from time to time under the Technical Collaboration to be executed by and between BARBOUR AND BVTL. A list of LICENSED PRODUCTS is attached hereto as Attachment and made part of this AGREEMENT.
The list of licensed products attached to this Agreement admittedly did not contain any machinery. The consideration Clause 6.1(a) of the Agreement, inter alia, provided as under:
6.1 Lumpsum a. In consideration of the provision of the TECHNICAL KNOW-HOW by the LICENSOR and other covenants of the LICENSOR under the AGREEMENT, LICENSEE in addition to complying with all of the other terms and conditions of this AGREEMENT, shall pay to LICENSOR A LUMPSUM PAYMENT OF Rs. 3,000,000/- (Rupees Three Million) subject to the deduction of all applicable Indian Taxes.
b. The said lump-sum shall be paid in three equal instalments as follows:
i. one-third immediately upon the delivery of the DOCUMENTATION from the LICENSOR to the LICENSEE.
ii. One-third immediately upon the COMMENCEMENT OF COMMERCIAL PRODUCTION.
3. It was contended on behalf of the appellant before us that, there was no allegation made in the show cause notice, that the provisions of Rule 9(1)(c) of the Customs Valuation Rules, 1988, could not have been invoked by the Appellate Commissioner, because the fees for the licensed products under the know-how Agreement did not relate to the imported goods, namely, the machinery in respect of which the Customs duty was duly paid. The learned Counsel submitted that in an identical case of the same appellant relating to the goods received at Delhi Port under the same know-how agreement, the Tribunal had set aside a similar order of Commissioner (Appeals).
4. The learned authorized representative for the department, on the other hand, supported the reasoning and findings of the authorities below and argued that in the very nature of things and in the context of Joint Venture Agreement, the machineries which were imported could not have functioned without the disclosure of the know-how and, therefore, the fees which were payable under the know-how Agreement as a lump sump amount were attributable to the import of machinery and ought to be computed along with the price of the machinery for the purpose of imposition of the Customs duty. The learned authorized representative very fairly submitted that the Tribunal in Barbour Vardaman Thread Ltd. v. Commissioner of Customs, Delhi reported in 2004 (177) ELT 966 (Tri.-Del.) of the same appellant had set aside a similar order of the Commissioner (Appeals) on this issue.
5. On going through the terms and conditions of the Licence Agreement, we do not find any stipulation that the licence fees related to the imported machinery or that they were payable directly or indirectly as a condition of sale of the machinery. There is no other material adduced to show any such connection between the fees payable for the know-how under the said Agreement and the machinery imported for manufacture of threads. The consideration clause provided for a lump sum payment for the technical know-how by the licensor and other covenants of the licensor under the Agreement. Technical know-how was defined in the following terms in the said Agreement:
TECHNICAL KNOW-HOW- shall mean and made all inventions, processes, formulations, patents, engineering and manufacturing skills and other technical information relating to the LICENSED PRODUCTS whether patented or patentiable or not, which are presently owned by the LICENSEE or which may be so owned during the term of this AGREEMENT including, limitation, general layout of production lines, general definitions and detailed list of equipment, product designs and raw material specifications, operating and security instructions, selection of equipment, raw materials and finished products, quality control requirements, drawings for high wear parts, lists of suppliers and standard spare part, co-ordination of procurement, inspection and despatch of plant and equipment and bought out components and erection and commissioning of the plant.
The licensed products in respect of which foreign collaborator supplied the Technical know-how as stated in the Agreement did not specify machinery. From the terms of the Agreement, it is not possible to infer that any amount of consideration contemplated in Article 6, was for the machinery which was imported.
5.1 The Tribunal in the appellant's own case reported in 2004 (177) ELT 966 (Tri.-Del.), in the background of identical facts on the issue under consideration before us, held in paragraph 6 as under:
6. Rule 9 of the Customs Valuation Rules provides that for the purpose of determining the transaction value, cost of royalties and license fee relating to the imported goods that the buyer is required to pay directly or indirectly as a condition of the sale is to be included in the price of the imported goods. The learned Advocate has drawn our attention to Technical Collaboration Agreement between M/s. Barbour Campbell Ltd. and the appellants, according to which technical know-how shall mean and made all inventions, processes, formulations, patents, engineering and manufacturing skills and other technical information relating to the licensed product. The licensed product means only sewing threads, twines and braids, thus, the price paid by them for technical know-how relates to the manufacture of licensed products, namely, sewing threads, twins and braids. There is no material adduced by the Revenue to show that the payment made towards technical know-how was a condition pre-requisite for supply of capital goods by the foreign supplier. Under Rule 9(1)(c) of the Customs Valuation Rules, the cost of technical know-how is includible if the same is to be paid directly or indirectly as a condition of the sale of the goods. The Revenue has not adduced any evidence in this regard. The Appellate Tribunal has also held in the case of Daewoo Motors India Ltd. v. C.C. , relied upon by the learned Advocate that the payment for the licensed information and patent was nothing to do with the working of the plant and, therefore, lumpsum payment made by the appellants had no connection, whatsoever, in the working of the capital goods imported in absence of any material/evidence, we hold that the amount paid for technical know-how is not to be included in the price of the imported goods. We, therefore, set aside the impugned order and allow the appeal.
Since the Revenue has not been able to establish any nexus between the licence fees and the imported goods by showing that the buyer was required to pay, directly or indirectly as a condition of the sale of the goods being valued, the licence fees, the Commissioner (Appeals) was not justified in including the amount payable under the know-how Agreement in the price of the goods in question. We do not find any valid reason to take a different view of the matter than the one taken earlier by the Tribunal in the appellant's own case. The impugned order of the Commissioner (Appeals) upholding the order-in-original to the aforesaid extent is hereby set aside and the appeal is accordingly allowed.
(Dictated and pronounced in the open Court on 19.7.2006)