No Justification for Inclusion of Royalty and Technical know-how in Assessable value of Imported products: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that there can be no justification for the inclusion of royalty and technical know-how in the assessable value of the imported products.

It was held by the adjudicating authority that the royalty paid by Respondent during 2014-2015 to the overseas supplier and also further royalty payments, whenever made, has to be included in the transaction value as per Rule 10 (1) (c) of the Customs Valuation ( Determination of Value of Imported Goods ) Rules, 2007.

Against the order directing to add the royalty payment in the assessable value, the Respondent filed appeal before the Commissioner ( Appeals ) and vide order impugned herein, the Commissioner ( Appeals ) set aside the order of adjudicating authority to the extent of directing to add the royalty payment in the assessable value. Aggrieved by such order, the Department is now before the Tribunal.

The Authorised Representative Ms. Anandalakshmi Ganeshram appeared and argued for the Department. It is submitted by the Authorised Representative that the foreign suppliers are subsidiaries of the ultimate group parent company ‘Compagnie Generale – Des – Establishments Michelin ( CGEM ) and Compagnie Francaise - Michelin ( CFM ), Switzerland which hold 99.99% shares of importer company. Thus the amount of royalty paid to their ultimate group company, and their other group company, Michelin Recherchéer Technique S.A., Switzerland ( MRT ) would amount to indirect payment of royalty as provided in Rule 10 (c) CVR, 2007.

The counsel for the respondent argued that royalty is a payment made on post-import activity as per Article 3 of the Trademark and Technology License Agreement entered into by the Respondent with CGEM and MRT. Further, the Royalty is to be paid on the sale value of the product that is manufactured utilizing the raw materials and capital goods imported from the supplier. This is a payment made on post-import activities and hence cannot be included in the transaction value of the import.

The Tribunal in the case of Commissioner of Customs, Mumbai Vs. Bridgestone India Pvt Ltd, held that the royalty and license fee paid on net sale value of products sold in India which has nothing to do with imported goods nor was a condition of sale cannot be included in the assessable value.

 A Two-Member Bench of Vasa Seshagiri Rao, Technical Member and CS Sulekha Beevi, Judicial Member observed that “We find that as far as the relationship has not influenced the pricing pattern there is no justification for inclusion of royalty and technical know-how in the assessable value of the imported products. Therefore, we set aside the impugned order.”

To Read the full text of the Order CLICK HERE

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