Royalty need not be included in Transaction Value if Not Paid to Foreign Supplier: CESTAT [Read Order]

The Chennai Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), has held that royalty need not be included in transaction value if not paid to a foreign supplier.

The appellant, M/s. Doosan Bobcat India Pvt. Ltd. (formerly known as M/s. Doosan Infracore India Pvt. Ltd.) imported products from M/s. Doosan Infracore Co. Ltd. is situated in South Korea, China, and Ireland. The suppliers being related companies, the Special Valuation Branch (SVB) took up the matter for examination. The Assistant Commissioner held that the price declared was on par with contemporaneous imports made by unrelated buyers and therefore accepted the declared price as the transaction value in terms of Rule 3(3)(a) of Customs Valuation Rules, 2007.

The company M/s. Doosan International India Pvt. Ltd. subsequently got amalgamated with M/s. Doosan Infracore India Pvt. Ltd. Consequently, the SVB vide order was issued to M/s. Doosan Infracore India Pvt. Ltd. which was valid up to 3.6.2014 was taken up for review there arise a dispute regarding the royalty amount of Rs.28.14 lakhs. The Tribunal directed the authority that the only issue to be examined by the adjudicating authority is with reference to the payment of royalty and no other payments made to the foreign suppliers can be considered in the re-adjudication.

The Deputy Commissioner of Customs (SVB) held that the royalty amount shown to have been paid in the financial statements during 2012 – 13 should be added to the invoice value. The appeal filed before the Commissioner of Customs (Appeals) was rejected upholding the order passed by the adjudicating authority. Aggrieved by such an order, the appellant is now before the Tribunal.

The appellant submitted that the authorities below failed to see that no such payment towards royalty was actually paid to the foreign supplier appellant had produced the Chartered Accountant’s certificate to establish that the royalty amount of Rs.28.14 lakhs shown in the balance sheet for the year 2012 – 13 was never paid to the foreign supplier and the book entries made was also reversed later in the financial year 2014 – 15.

The Tribunal observed that there is no agreement between the appellant and the foreign supplier. It is then difficult to understand whether the royalty is a condition for the sale of the imported goods. In case, the appellant has not paid such an amount, there is no question of including the same in the transaction value.

The Coram of Ms. Sulekha Beevi C.S., Member (Judicial) and Sri Raju, Member (Technical) has held that “we deem it fit that the matter requires to be remanded to the adjudicating authority who shall look into the aspect whether the appellant has paid royalty to the foreign supplier or not”.

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