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J U D G M E N T S.B. SINHA, J :

1. Leave granted.

2. This appeal is directed against a final order dated 07.12.2005 passed by the Customs, Excise and Service Tax Appellate Tribunal (for short, 'the CESTAT') passed in Appeal Nos. C/231/04 and C/949/04 whereby and whereunder the appeal preferred by Respondent herein was allowed and that of Appellant herein was dismissed.

3. Kirloskar Systems Limited entered into an agreement with Toyota Motor Corporation, Japan. It is also a major shareholder in the Respondent-

Company. For the purpose of establishing an automobile manufacturing plant, Respondent imported some capital goods and parts thereof.

4. Dispute between the parties revolves round the valuation of the said capital goods and parts imported by the respondent from Toyota Motor Corporation for manufacture of automobile in India. Under the agreements entered into by and between the respondent and the said Toyota Motor Corporation, royalty and know-how fees were to be paid.

5. According to the Revenue such payments were to be added to the invoice value of the goods so as to arrive at a proper transaction value, in terms of Rule 9(1)(c) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (for short, 'the Rules). Payments of royalty, according to the Revenue, have a direct nexus to the imported goods as the same go into the manufacture of the licensed vehicles and spare parts.

6. Before embarking upon the rival contentions of the parties, we may notice the basic and undisputed facts of the matter.

7. A Technical Assistance Agreement was entered into by and between Toyota Motor Corporation and the respondent herein. Some of the payments were required to be made towards engineering services and for imparting training to its personnel at Japan.

In the said agreement, the terms 'licensed vehicles', 'local parts', and 'licensed products' have been defined. By reason of the said agreement, the respondent was given manufacturing licence for the licensed products of Toyota. The licence was to be given on non-exclusive, non-divisible, non- transferable and non-assignable basis and was not to include any right to grant sub-licences without the licensor's prior consent.

10. In coming to its conclusions, as noticed hereinbefore, the Assessing Authority recorded the following findings :

"42. It has already been pointed out that it is Toyota Motor Corporation which decide what Toyota Products would be sold to TKML and having decided that TMC had made it mandatory on the part of the importers to use the technical assistance agreement and thus it can be concluded that import of Toyota Products is subject to conditions related to the use of TAA.

43. Thus in terms of Rule 9(1)(c) of the CVR 88, Royalties and license 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 shall be added to the extent that such royalties and fees are not included in the price actually paid or payable for the imported goods.