Importent Point:
To determine the assessable value for the levy of customs duty on
imported goods, Section 14 of the 1962 Act has to be read with the provisions of CVR, 1988 because under Section 14(1) there is reference to a deemed price of goods imported and under Section 14(1A) such deemed price is to be determined in accordance with the CVR, 1988.

Headnote:Customs Act, 1962 - Section 14 - Customs Valuation (determination of price of imported Goods) Rules, 1988 - Rules 9(1)(c), 9(1)(e)- Technical assistance and trade mark agreement entered into between buyer, licensee, a manufacturer of brake liners and brake paid in India and M\s T & N International ltd; U.KI. a foreign collaborator\ licensor - Under agreement, licensor agreed to permit manufacture of brake liners and brake pads (licensed products) by licensee and licensor agreed to disclose relevant secret processes, formula and information to licensee where as licensee was required to import/buy raw material and capital goods from licensor - Licensee was obliged to pay a licence fee along with royalty, based on net sales value of licensed products sold, consumed or otherwise disposed of - Order passed by adjudicating authority holding that, technical know-how fees and royalty were related to imported goods and were a condition of sale for import thereof and consequently, adjudicating authority loaded CIF value of imported goods with proportionate amount of know-how fees and royalty - Said order was confirmed by Commissioner (A) - However, Tribunal held that know-how fees and royalty payments stood related to brake liners and brake pads to be produced in India and not to imported goods - Appeal - Department in every case is not only required to look at TAA, it is also required to look at pricing arrangement/agreement between buyer and his foreign collaborator - For example if on examination of pricing arrangement in juxtaposition with TAA, Department finds that importer/buyer has misled Department by adjusting price of imported item in guise of increased royalty/licence fees then adjudicating authority would be right in including cost of royalty/licence fees payment in price of imported goods - In such cases principle of attribution of royalty/licence fees to the price of imported goods would apply - This is because every importer/buyer is obliged to pay not only the price for the imported goods but he also incurs the cost of technical know-how which is paid to the foreign supplier - Therefore, such adjustments would certainly attract rule 9(1))(c) - Adjudicating authority had not examined pricing arrangement between foreign collaborator and buyer - It had only examined royalty/TAA - No effort was made by the Department to examine pricing arrangement - No effort was made by Department to ascertain whether there existed a price adjustment between cost incurred by buyer on account of royalty/license fees payments and price paid for imported items - No effort was made by the Department to ascertain enhancement of royalty/license fees by reducing price of imported items - In circumstances, no infirmity found in impugned judgment of Tribunal - Appeal filed by Department dismissed.(Paras 19 to 26)
       1996 (88) ELT 609 (SC) relied upon.
       2007 (211) ELT 200 (SC) referred to.
       Facts of the case:-
       1. Technical assistance and trade mark agreement was entered into between buyer, licensee, a manufacturer of brake liners and brake paid in India and M\s T & N International ltd; U.KI. a foreign collaborator\ licensor herein in the instant case. Under agreement, licensor agreed to permit manufacture of brake liners and brake pads (licensed products) by licensee and licensor agreed to disclose relevant secret processes, formula and information to licensee where as licensee was required to import/buy raw material and capital goods from licensor. Licensee was obliged to pay a licence fee along with royalty, based on net sales value of licensed products sold, consumed or otherwise disposed of. Order was passed by adjudicating authority holding that, technical know-how fees and royalty were related to imported goods and were a condition of sale for import thereof and consequently, adjudicating authority loaded CIF value of imported goods with proportionate amount of know-how fees and royalty. Said order was confirmed by Commissioner (A). However, Tribunal held that know-how fees and royalty payments stood related to brake liners and brake pads to be produced in India and not to imported goods
       2. Present Appeal has been filed against said order of High Court.
       3. Findings of the court:- The Court held that department in every case is not only required to look at TAA, it is also required to look at pricing arrangement/agreement between buyer and his foreign collaborator. For example if on examination of pricing arrangement in juxtaposition with TAA, Department finds that importer/buyer has misled Department by adjusting price of imported item in guise of increased royalty/licence fees then adjudicating authority would be right in including cost of royalty/licence fees payment in price of imported goods. In such cases principle of attribution of royalty/licence fees to the price of imported goods would apply. This is because every importer/buyer is obliged to pay not only the price for the imported goods but he also incurs the cost of technical know-how which is paid to the foreign supplier. Therefore, such adjustments would certainly attract rule 9(1))(c). Adjudicating authority had not examined pricing arrangement between foreign collaborator and buyer. It had only examined royalty/TAA. No effort was made by the Department to examine pricing arrangement. No effort was made by Department to ascertain whether there existed a price adjustment between cost incurred by buyer on account of royalty/licence fees payments and price paid for imported items. No effort was made by Department to ascertain enhancement of royalty/licence fees by reducing price of imported items. In circumstances, no infirmity found in impugned judgment of Tribunal. Appeal filed by Department was dismissed.
       Result: Appeal dismissed

JUDGMENT:

KAPADIA, J. -- This batch of civil appeals is filed by the Department and is directed against the orders passed by the Customs, Excise & Gold (Control) Appellate Tribunal ("CEGAT") whereby and whereunder the appeals filed by the respondents-importers herein stood allowed. They arise from assessment proceedings and not from show cause. The adjudicating authority has held that M/s Ferodo India Pvt. Ltd. ("buyer" in short) is a subsidiary of M/s T & N International Ltd., UK and are thus related, which finding is not in dispute.

2. For the sake of convenience we state the facts occurring in Civil Appeal No. 8426/02 Commnr. of Customs v. M/s Ferodo India Pvt. Ltd.

3. The buyer is the manufacturer of brake liners and brake pads in India. On 8.9.1995, a technical assistance and trade mark agreement ("TAA" for short) was entered into between the respondent (buyer/licensee) and M/s T & N International Ltd., UK (foreign collaborator/licensor). Under the said agreement, the licensor claimed to be in possession of certain secret processes, formula and information. Under the agreement, the licensor agreed to permit manufacture of brake liners and brake pads (licensed products) by the licensee. Under the agreement, the licensor agreed to disclose the relevant secret processes, formula and information to the licensee. Under the agreement, the licensee was required to import/buy raw material and capital goods from the licensor. Under the agreement, the licensee was obliged to pay a licence fee along with royalty, based on the net sales value of licensed products sold, consumed or otherwise disposed of.

4. Vide order dated 22.9.1999 the adjudicating authority held that, technical know-how fees and royalty were related to the imported goods and were a condition of sale for the import thereof and consequently, the adjudicating authority loaded the CIF value of the imported goods with the proportionate amount of know-how fees and royalty. In this connection, reliance was placed on the judgment of this Court in CoC v. Essar Gujarat Ltd. reported in 1996 (88) ELT 609 (SC). This order was confirmed by the Commissioner (A). However, by the impugned order dated 12.2.2002, the Tribunal held that the know-how fees and the royalty payments stood related to the brake liners and brake pads to be produced in India and not to the imported goods. Hence, this civil appeal by the Department.

5. In this case, we are required to lay down the scope of rule 9(1)(c) and rule 9(1)(e) of CVR, 1988, which are quoted hereinbelow:

"9. Cost and services.- (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods,-

(a) (b) (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.

(d)

(e) All other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable."

6. At the outset, it may be stated that, this is not the case of rejection of transaction value, though it is held to be a related party transaction. In this matter we are concerned with adjustment/addition to the price of the imported goods under rule 9(1)(c) or in the alternative under rule 9(1)(e).

7. Under Section 14 of the Customs Act, 1962, the assessable value of imported goods is deemed to be the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation or exportation, as the case may be, in the course of international

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2008 Supreme(SC) 304

S. H. Kapadia & B. Sudershan ReddyCommissioner of Customs - PETITIONERVersusM/s Ferodo India Pvt. Ltd - RESPONDENTAppeal (civil) 8426 of 2002CIVIL APPEAL NO. 8426 OF 2002withCivil Appeal Nos. 8417/03, 981/06, 3076/06, 3203/06 and 284/07.Decided On: 21/02/2008

Cases Referred (2)

S. H. Kapadia & B. Sudershan Reddy
Commissioner of Customs - PETITIONER
Versus
M/s Ferodo India Pvt. Ltd - RESPONDENT
Appeal (civil) 8426 of 2002
CIVIL APPEAL NO. 8426 OF 2002
with
Civil Appeal Nos. 8417/03, 981/06, 3076/06, 3203/06 and 284/07.
Decided On: 21/02/2008