Royalty for Technical know-how for Manufacture of Pantographs considered as Post Import Activity and cannot made Part of Transaction value of Customs Duty for Imported Goods: CESTAT [Read Order]

The Bangalore bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the royalty for technical know-how for the manufacture of pantographs was a post-import activity and therefore, it cannot be part of the transaction value for the imported goods. 

Schunk Metal and Carbon (India) Private Limited, the appellant assessee was importing various materials like carbon brushes and carbon strips from Schunk Gmbh, Germany, and other subsidiary companies of the same group. 

The assessee appealed against the order passed by the Commissioner (Appeals) for confirming the addition of royalty on all other imports other than carbon brushes. 

H. Y. Raju, the counsel for the assessee contended that the goods imported was not influenced by their relationship and the transaction value was accepted in terms of Rule 3(3)(a) of the Customs Valuation Rules, 2007 once the transaction value had been accepted, the question of adding a 5% royalty to the transaction value was not sustainable in law. 

Also submitted that the payment of a 5% royalty was not a prerequisite condition to import carbon strips and other goods from the associated companies to use in the manufacture of pantographs. 

Neeraj Kumar, the counsel for the department relied on the decisions made by the lower authorities and contended that the assessee had not provided any proof to show that the items imported were also from unrelated suppliers and since the imports were only from the related suppliers and a condition for sale for buying only from the related suppliers and as per Rule 10(1)(c) of the Customs Valuation Rules the royalty becomes part of the value. 

The Bench observed that in the case of Commissioner of Customs vs. Ferodo India Private Limited, the court held that the royalty for technical know-how for the manufacture of pantographs was a post-import activity and could not be the part of the transaction value for the imported goods. 

The two-member bench comprising P A Augustian (Judicial) and Bhagya Devi (Technical) quashed the addition of royalty to the transaction value while allowing the appeal filed by the assessee.

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