Ericsson India Private Limited Vs Additional Director General (Adjudication) (CESTAT Delhi)
Conclusion: Royalty paid for technical know-how was not a ‘condition of sale’ merely because it was included in the value of imported goods as it pertained to post-importation activities relating to the manufacture of finished goods in India and was not a condition of sale of imported components. Consequently, such royalty could not be included in the assessable value of imported goods under Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
Held: Assessee-Ericsson India had entered into a Technical Cooperation Agreement with LM Ericsson Sweden for the grant of non-exclusive rights and licenses to manufacture, sell, repair, and service finished goods using Ericsson know-how and Ericsson IPR. Special Valuation Branch accepted the declared import prices as “transaction value” under section 14 of the Customs Act, read with rule 3(1) of the 2007 Valuation Rules. Assessee entered into a fresh Technical Cooperation Agreement with LM Ericsson Sweden. Both agreements were identical in form and substance except for the royalty clause. As a matter of co-operation, Ericsson India paid the applicable duty (CVD, SAD and Customs Cess) on the royalty payments made to LM Ericsson Sweden during the relevant period, while reserving its rights of remedies. A show cause notice alleging that payment of royalty by Ericsson India to LM Ericsson Sweden was includible in the value of imported goods. Additional Director General held that the amount of royalty paid by Ericsson India to LM Ericsson Sweden was includible in the value of goods imported by Ericsson India from Ericsson Sweden in terms of rule 10(1)(c) of the 2007 Valuation Rules. Assessee submitted that both Technical Agreement did not stipulate that payment of royalty was a sine qua non for import of components. Therefore, royalty for technical know-how did not automatically become a “condition of sale” merely because it was inclusive of the value of imported goods. The issue before the Tribunal was whether royalty paid by Ericsson India to LM Ericsson Sweden towards know-how could be included in the transaction value of the components imported by Ericsson India from Ericsson Sweden under rule 10(1)(c) of the 2007 Valuation Rules. It was held that since both the Technical Agreements did not stipulate that payment of royalty to LM Ericsson Sweden was a sine qua non for import of components from Ericsson Sweden, royalty for Technical Know-how will not automatically become a “condition of sale” merely because it was inclusive of the value of imported components. This apart, the payment of royalty pertained to post importation activities and as such could not be included to the value of the assessable goods. Tribunal stated that the contention of the assessee that it bona fide believed that it was not liable to pay duty on the payment of royalty also deserved to be accepted. The order passed by the Additional Director General holding that the royalty paid by assessee to LM Ericsson Sweden would be includible in the transaction value of the components imported by Ericsson India from Ericsson Sweden in terms rule 10(1)(c) of the 2007 Valuation Rules, therefore, could not be sustained would have to be set aside.
