Custom, Excise & Service Tax Tribunal
Sungwoo Stamping Pvt Ltd vs Chennai-Iii on 20 February, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. I
Customs Appeal No. 40312 of 2015
(Arising out of Order-in-Appeal C.Cus. II No. 138/2014 dated 31.10.2014 passed by
Commissioner of Customs (Appeals-II), No. 60, Rajaji Salai, Custom House, Chennai - 600
001)
M/s. Sungwoo Stamping Pvt. Ltd. ...Appellant
(formerly known as M/s. Gestamp Sungwoo Hitech (Chennai) Pvt. Ltd.),
No. 488/2, Mannur Village, Valarpuram (Post),
Sriperumbudur,
Kancheepuram - 602 105.
Versus
Commissioner of Customs ...Respondent
Chennai III Commissionerate,
No. 60, Rajaji Salai,
Custom House,
Chennai - 600 001.
APPEARANCE:
For the Appellant : Shri M. Karthikeyan, Advocate
For the Respondent : Smt. Anandalakshmi Ganeshram, Authorised Representative
CORAM:
HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL)
HON'BLE MR. AJAYAN T.V., MEMBER (JUDICIAL)
FINAL ORDER No. 40256 / 2025
DATE OF HEARING : 17.01.2025
DATE OF DECISION : 20.02.2025
Per Mr. VASA SESHAGIRI RAO
Customs Appeal No. C/40312/2015 has been filed by
M/s. Sungwoo Stamping Pvt. Ltd., Kancheepuram
(hereinafter referred to as 'Appellant') assailing the Order-
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in-Appeal No. 138/2014 dated 31.10.2014 passed by the
Commissioner of Customs (Appeals-II), Chennai who have
set aside partly the Order-in-Original No. 27386/2014 dated
09.07.2014 so far as accepting the transaction value of
imported goods from a related party but ordering for re-
determination of the value of imported goods in accordance
with the Valuation Rules by including the Royalty amount to
the transaction value in terms of Rule 10(1)(c) of Customs
Valuation (Determination of Value of Imported Goods)
Rules, 2007 (CVR).
2.1 The issue involved pertained to finalisation of
assessments in respect of imports of capital / other goods
and whether payments made towards technical assistance
by the Appellant to their related foreign supplier viz., M/s.
Sungwoo Hitech Company, Korea during the disputed period
2007-08 to 2012-13 are to be included or otherwise to the
transaction value of imported goods.
2.2 Being a related party transaction, the goods
imported from the foreign supplier were subjected to
verification by the SVB, Chennai. The lower authority held
that the importer and Appellant were related under
Customs Valuation (Determination of Value of Imported
3
Goods) Rules, 2007 (CVR) and though accepting the
declared value as transaction value under Rule 3 read with
Rule 9 of CVR for assessment, ordered for inclusion of
technical fee of Rs.6,49,02,869/- paid to the related
supplier abroad, in terms of Rule 10(1)(c) of CVR. Upon
appeal by the Appellant, the impugned Order-in-Appeal
C.Cus. II No. 138/2014 dated 31.10.2014 though upheld
the addition of technical fee paid to Transaction value as
sustainable, set aside the acceptance of declared values and
ordered that Royalty amount should form part of the
transaction value as per Rule 10(1)(c) of CVR. Being,
aggrieved, the Appellant has sought relief from this forum
by filing this appeal.
3.1 The Ld. Advocate Shri M. Karthikeyan
representing the Appellant, first reiterated the Grounds of
Appeal and then submitted that the Order of the Lower
Adjudicating Authority to the extent it accepted the value
adopted by the Appellant in terms of Rule 3 r/w Rule 9 has
attained finality and cannot be reopened by the first
appellate authority as the order was not appealed against
by relying on the decision of this Tribunal in the case of
M/s. Hyundai Engineering Plastics India Pvt. Ltd. [2018 (6)
TMI 654 - CESTAT CHENNAI].
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3.2 He has contended that the technical assistance
fee could not be added to the value of imported goods
under Rule 10(1)(c) as it is neither related nor conditional
to the sale of imported goods. It was submitted that the
Appellant, engaged in the business of manufacture of body
panels and sheet metal components for M/s. Hyundai Motor
India Ltd. (HMIL) procures various raw materials/capital
goods from their foreign related supplier and also procured
technical assistance in consonance with the agreement
dated 01.04.2008 which was mainly for the purpose of
getting products' approval from HMIL, Whereas, the
imported goods were used in the manufacture of final
products and the technical assistance services had nothing
to do with the imported goods.
3.3 It was averred that merely because technical
assistance and raw materials/capital goods are procured
from the same supplier does not make both the supplies a
conditional sale especially in the absence of explicit clauses
to that effect in the procurement agreement and the
findings of the Appellate Authority were misplaced as it was
observed that "even if condition of sale is not explicitly
mentioned in the said agreements yet practically all the
5
imports are from only the related supplier who also provides
for technical assistance. This brings out the latent fact
namely the conditional sale". Reliance in this regard was
placed on the decision of this Tribunal in the case of M/s.
Hyundai Engineering Plastics cited supra and M/s. Valeo
Friction Materials India Ltd. [2024 (6) TMI 61 - CESTAT
CHENNAI]
4. The Ld. Authorised Representative Smt.
Anandalakshmi Ganeshram representing the Department
reiterated the findings of the lower Adjudicating Authority
and stressed that the value declared could not be accepted
as transaction value as the Technical Fees and Royalty
amount were includible in the transaction value in terms of
Rule 10(1)(c) of Customs Valuation (Determination of Value
of Imported Goods) Rules, 2007. She has submitted that
on reading various clauses of the agreement, there is a
direct nexus between payment of royalty and importation of
raw materials. She has prayed for maintaining the
impugned order and setting aside the appeal filed.
5. Heard both sides and carefully considered the
submissions and evidences on record.
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6. The issue that arises for decision in this appeal
is: -
i. Whether Royalty / Technical fees paid to the foreign
supplier is required to be added to the transaction
value in terms of Rule 10(1)(c) of Customs Valuation
(Determination of Value of Imported Goods) Rules,
2007?
7. For ease of reference, Rule 10 of CVR refers to
'Cost and Services' and clause (1) of the same reads as
under: -
"In determining the transaction value, there shall be
added to the price actually paid or payable for the
imported goods, -
...
...
(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; ...
...
Explanation.--- Where the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clause (c) and (e), such charges shall be added to the price actually paid 7 or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods." Rule 10(1)(c) of the Valuation Rules provides for addition to the price actually paid or payable for imported goods if royalties and license fees related to the imported goods. However, the Rule 10(1)(c) also requires that such amounts are those that the buyer is required to pay, directly or indirectly as a condition of the sale of the goods. There has to be a nexus between the goods imported with the royalties or license fees. The payment of royalty and licence fees should be a condition of sale with respect to the goods imported.
8. We find that as per Rule 10(1)(c) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, there are certain essential conditions, only on fulfilment of which the said rule can be invoked to arrive at the transaction value for including royalty / license fees payment.
a. The royalty/ license fee must be related to the imported goods;
b. It must be required to be paid by the buyer; and, 8 c. Such payment should be a condition of sale of the imported goods.
9. We have gone through the Memorandum of Exchange of Technicians between the Appellant and foreign supplier and as per this agreement, following services are to be rendered by the foreign suppliers who sent the technical experts to the Appellant: -
• Preparation of check sheet for submission to HMI • Trying and proving the Dies and Jigs • Preparation of AOI and ISAR documentation in coordination with the Company • Coordinate with HMI for the following ➢ Checking the parts for acceptance ➢ Deviation identification ➢ Improvement plan ➢ Final acceptance The above list of services is illustrative and not exhaustive.
10. As per Article 5 of the agreement that the costs and expenses were to be borne by the Appellant including 9 travel expenses and as per Article 6, the Appellant shall pay to the supplier USD 260 per person per each working day.
11. We have considered the submissions of the Ld. Counsel for the Appellant who have averred that these services which were to be provided under the Agreement are post-importation services and could not be related to imported goods and so, not justified to add to the value of the goods imported and the Department has not adduced any reason to suggest that the condition of sale has been satisfied. It was further submitted that the amount payable as per the Agreement was clearly on account of technical assistance provided by the foreign Co. for the manufacture of final products by the Appellant.
12. Whereas, the Ld. Lower Adjudicating Authority has justified inclusion of payment made towards technical assistance in the transaction value observing that the technical assistance rendered by the Foreign Company was for manufacturing process and without which the Indian Company comes to a standstill and as such, this amount warrants addition under Rule 10(1)(c) of the CVR. Further, the Ld. Appellate Authority in the impugned order dated 31.10.2014 has observed that the related supplier is 10 providing only services under Rule 10(1)(c) of CVR which talks only of the royalty and licence fee. It was also observed that "US$ 260/- per person per day would work out to Indian Equivalent to Rs.13,000/- (taking the average of Rs.50 = 1 US$ in the span 6 years). The Agreement shows that the Appellant company has to bear the additional expenditure towards the costs incurred by the M/s. Sungwoo with respect to the dispatch of its technical experts, travel and accommodation expenses, expenses towards medical treatment, case. It is very unlikely that such a huge sum is spent towards the remuneration for technical experts. The Appellant has not disclosed the details of such Technical Experts, their qualification, experience. The details of their income tax payments are also not disclosed. What is the remuneration given by the foreign company viz., M/s. Sungwoo to these Technical Experts when they were in Korea were also not disclosed. In the absence of such details, it cannot be said that the amount stated to be consideration for technical experts is true and actually paid to them."
13. We find that the Ld. Adjudicating Authority observed that the technical assistance rendered by the related supplier to the Appellant was in relation to their manufacturing process and the Appellant was totally 11 dependent on the technology supplied by the foreign supplier. However, the impugned order dated 31.10.2014 could not evidence the relationship of payments towards technical assistance and the imported goods. The reasoning given by the Ld. Appellate Authority are only talking about implicit condition without any evidence. We are of the view that the impugned order directing for inclusion of Royalty amount in the price of imports is erroneous and based on presumptions and assumptions. The Agreement entered between the Appellant and the supplier was for technical assistance which does not have any relation to impact import prices. We could not find discussion as to how the condition of sale is satisfied.
14. We refer to the following case laws in support of our view that payments made for technical assistance are not to be included in the transaction value. In the case of M/s. Valeo Friction Materials India Ltd. [2024 (6) TMI- CESTAT, Chennai], this Tribunal had the occasion to examine the issue of inclusion of Royalty/ technical Know fees in the assessable value of imported goods and held that the payment towards Royalty does not form part of the assessable value of imports and the relevant extracts of which have been reproduced below: -
"20.Further, relying on the following decision of higher judicial fora, the appellant has argued that the royalty 12 payment is only for providing technical assistance for manufacture and sale of licenced products and import of raw materials is incidental to such manufacture and sale. There is no condition of sale attached to importation of raw materials and having not met the required conditions of Rule 10(1)(c), payment of royalty amounts cannot be added to the transaction value of import of raw materials. In the case of Commissioner of Customs Vs. Ferrodo India Pvt. Ltd. [2008 (224) ELT 23 (SC)], it was held as follows:-
"23. In the case of Matsushita Television & Audio India Ltd. v. CoC reported in 2007 (211) E.L.T. 200 (S.C.) the question which arose for determination was whether royalty amount was attributable to the price of the imported goods. In that case, the appellant was a joint venture company of MEI, Japan and SIL for obtaining technical assistance and know-how. Under the agreement, the appellants were to pay MEI a royalty @ 3% on net ex-factory sale price of the colour TV receivers manufactured by the appellants for the technical assistance rendered by MEI. The appellants were to pay a lump-sum amount of U.S. $ 2 lakhs to MEI for transfer of technical know-how. It was the case of the appellant that payment of royalty was not related to imported goods as the said payment was made for supply of technical assistance and not as a condition prerequisite for the sale of the components.
24. One of the questions which arises for determination in this civil appeal is whether reliance could be placed by the Department only on the Consideration Clause in the TAA for arriving at the conclusion that payment for royalty was includible in the price of the imported components.
25. Rule 4(3)(b) of the CVR, 1988 provides for an opportunity for the importer to demonstrate that the transaction value closely approximates to a "test" value. A number of factors, therefore, have to be taken into consideration in determining whether one value "closely 13 approximates" to another value. These factors include the nature of the imported goods, the nature of the industry itself, the difference in values etc. As stated above, Rule 4(3)(a) and Rule 4(3)(b) of the CVR, 1988 provides for different means of establishing the acceptability of a transaction value. In the case of Matsushita Television (supra) the pricing arrangement was not produced before the Department. In our view, the Consideration Clause in such circumstances is of relevance. As stated above, pricing arrangement and TAA are both to be seen by the Department. As stated above, in a given case, if the Consideration Clause indicates that the importer/buyer had adjusted the price of the imported goods in guise of enhanced royalty or if the Department finds that the buyer had misled the Department by such pricing adjustments then the adjudicating authority would be justified in adding the royalty/licence fees payment to the price of the imported goods. Therefore, it cannot be said that the Consideration Clause in TAA is not relevant. Ultimately, the test of close approximation of values require all circumstances to be taken into account. It is keeping in mind the Consideration Clause along with other surrounding circumstances that the Tribunal in the case of Matsushita Television (supra) had taken the view that royalty payment had to be added to the price of the imported goods.
26. For the aforestated reasons, we find no infirmity in the impugned orders of the Tribunals. Accordingly, the civil appeals filed by the Department are hereby dismissed with no order as to costs."
Further, we find that in the case of Commissioner of Customs (Port), Chennai Vs. Toyota Kirloskar Motor Pvt. Ltd. [2007 (213) ELT 4 (SC)], it was held as follows: -
"31. The transaction value must be relatable to import of goods which a fortiori would mean that the amounts must be payable as a condition of import. A distinction, therefore, clearly exists between an amount payable as a condition of 14 import and an amount payable in respect of the matters governing the manufacturing activities, which may not have anything to do with the import of the capital goods."
21. In view of aforesaid discussions and the judicial precedents cited above, we are inclined to hold that Royalty payment is not includible in the transaction value of imported raw materials. Thus, the issue of inclusion of Royalty payment in the transaction value of the imported raw materials is decided in favour of the Appellant and we order so accordingly.
15. The Tribunal Mumbai in the case of BASF India Pvt. Ltd. Vs. Commissioner of Customs (Imports), Mumbai [2014 (314) ELT 462 (Tri.-Mum.)], has held that royalty charges for technical-how paid are not to be added to the assessable value of imported goods as there is no restriction for procuring the raw-materials from any source of choice of the importer which reads as follows: -
"5.1 We have also perused the technical know-how agreement entered into by the appellant with their foreign counterpart. From this agreement, it is seen that the supply of technical know-how is for manufacture of various products in India by the appellant and for the technical know-how so provided, the appellant is required to pay royalty as a percentage of sale price of the goods manufactured in India including the cost of goods imported from abroad. However, there is no condition in any of agreements that the appellant is required to purchase the raw materials only from the technical know- how provider. They are at liberty to procure the raw materials from any person including the technical know-15
how supplier. In fact, the appellant procures the raw materials from various parties, both in India and abroad and the total quantity of raw materials procured from the Technical know-how supplier is less than 50% of the quantity required for manufacture of plastic product in India both in terms of quantity and also in terms of value. If that be so, it cannot be presumed that the relationship has influenced the transaction price or the payment of royalty has nexus with the supply or procurement of raw materials from technical know-how supplier or is a condition of sale for the supply of goods."
16. In the case of Brembo Brake India Pvt. Ltd. Vs. Commissioner of Customs (Imports), Mumbai [2014 (302) ELT 551 (Tri.-Mumbai)], the Tribunal has held that royalty is not includable in assessable value when royalty or technical know-how was paid only for manufacture of sub- assembly of Disc Brake Systems and payment of royalty and other charges are not related for imported goods and not a condition of sale of goods as held in Para 7 as given below: -
"7. We have carefully considered the submissions and perused the records. The department has sought to load royalty relating to the technical know-how as per Rule 10(l)(c). Undisputedly the appellants have imported components for the manufacture of Dis Brake Systems for two wheelers. The department has sought to load the assessable value as per Rule 10(l)(c) which is reproduced for convenience of the reference :-
Rule 10(1)(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 16 royalties and fees are not included in the price actually paid or payable;
The following explanation has been added to Rule 10(l)(c).
"Where the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e) such charges shall be added to the price actually paid or payable for the imported good, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods".
From the above it is clear that the royalty and the other charges can be included :
(i) In case of imported goods
(ii) As condition sale of goods And the explanation only added that such royalty would be includable' in the case even if the imported goods have undergone the said process after importation of such goods. The department could not show that the royalty and other charges were for the to the imported goods and they were as a condition of sale of such imported goods. Undisputedly the royalty on technical know-how was paid only for the manufacture sub-assembly of Dis Brake Systems. Therefore the royalty and other charges are not includible and the impugned order is not sustainable and is set aside. The appeal is allowed."
17. Even in this case, the entire Agreement is only for technical assistance and a detailed analysis made by the Ld. Adjudicating Authority indicated that only 9% of the value of the final products are from the import. The entire Agreement is only for sending technical personnel whose main function is to get the approval of the products manufactured by the Appellant from M/s. Hyundai Motor India Limited. There is no relation or connection between the technical assistance taken by the Appellant to the 17 imported goods and how the condition of sale of goods is satisfied, no evidence is forthcoming.
18. Hence, in view of the above discussions and by appreciating the ratio of the above decisions, we are of the considered view that payments for technical assistance is not includible in the transaction value of the imported raw materials to demand any differential customs duty. The impugned Order-in-Appeal C.Cus. II No. 138/2014 dated 31.10.2014 is ordered to be set aside as being unsustainable and the appeal filed by the party is allowed with consequential benefits, if any, as per the law.
(Order pronounced in open court on 20.02.2025) Sd/- Sd/-
(AJAYAN T.V.) (VASA SESHAGIRI RAO) MEMBER (JUDICIAL) MEMBER (TECHNICAL) MK