The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) held that royalty not includable in transaction value of imported raw materials to demand differential customs duty.
The Customs Appeal has been filed by the Appellant assailing Order-in-Appeal passed by the Commissioner of Customs (Appeals), Chennai upholding Order-in-Original, ordering for invoking Section 28(4) of the Customs Act, 1962 / Proviso to Section 28(1) of the Customs Act, 1962, as the case may be, prior to and after Customs (Amendment & Validation) Act, 2011, to demand the differential duty of Rs.15,02,08,235/- during the period from 2001 to 2013, arising out of levy of appropriate duty on the Royalty already paid by the Appellant, along with applicable interest under Section 28AA and to invoke penal provisions under Section 114A of the Customs Act for suppression of fact / wilful mis-statement to impose appropriate penalty.
After due process of law, the Adjudicating Authority, ordered for addition of Royalty paid / payable on imported goods at the end of each financial year, in terms of Rule 10(1)(c) of Customs Valuation Rules, 2007 (CVR, 2007) with options to pay duty on Royalty as lump sum payment for a particular financial year or at the rates applicable to individual goods imported under each Bill of Entry for a particular year.
The counsel for the appellant submitted that the appellant has argued that the activities of import of goods and the payment made for technology for manufacture of the final products are wholly unrelated and therefore there is no condition of sale of the goods being valued or the imported components but only for the technical knowhow. It was further submitted that it was a settled position of law that the royalty / license fee is includible in the transaction value only if the same is paid/ payable as a condition of sale of the imported goods.
It was submitted that the general terms of purchase and the Licence agreement are separate and pertain to two unrelated transactions and therefore, it was incorrect to consider the payment of the Royalty as a condition of sale of the imported goods especially in the absence of any such clause in the agreement to construe such payment as a condition of sale.
A Two-Member Bench comprising Vasa Seshagiri Rao, Technical Member and CS Sulekha Beevi, Judicial Member observed that “In view of aforesaid discussions and the judicial precedents cited above, we are inclined to hold that Royalty payment is not includible in the transaction value of imported raw materials. Thus, the issue of inclusion of Royalty payment in the transaction value of the imported raw materials is decided in favour of the Appellant and we order so accordingly.”
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