The Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled that royalty and license fees are not addable to the transaction value of imported parts and components.
The respondent, M/s. Humboldt Wedag India Private Limited, is a subsidiary of the M/s Humboldt Wedag GmbH, Germany and is engaged in the business of industrial plant engineering and supply of equipment for cement plants. The equipment is manufactured in India either by the Respondent or a third-party vendor based on technical know-how provided by the Respondent. Apart from the above, the Respondent also provide spares to the customers on need basis and project related services.
Royalty and License Fees mentioned in the two Agreements are inseparable condition for sale of the parts and components imported by the respondent and hence shall be added to the Transaction value of the imported goods as per the CVR, 1988 and CVR, 2007.
Further observed that a Royalty of 3% net of applicable taxes on Net Selling Price of products and services sold domestically and exported, is payable under License Agreement of 2010. The imported components constitute only a small fraction of the total purchases made by the Respondent and constitute only 2.8% of the total value of purchases made by the Respondent during all the years under consideration.
It was observed that most of the components purchased by the Respondent are from India only and the locally procured components in all the years constitute more than 80% of the total share of components used in the manufacture of finished goods. Thus, we observe that the observation of the Revenue on the grounds of appeal that the Respondent cannot import parts and components from parties other than the related party is baseless and has no merit.
The two member bench of the tribunal comprising Ashok Jindal (Judicial member) and K. Anpazhakan (Technical member) observed that when the imported goods are mixed with domestic ingredients and are no longer separately identifiable, or when the Royalty cannot be distinguished from special financial arrangements between the buyer and the seller, in those circumstances, Royalty is not addable to the Transaction value of the imported parts and components.
CESTAT hold that Royalty and License Fees were not includable in the transaction value of the imported parts and components and uphold the impugned order and reject the appeal filed by the revenue.
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