Case Law Details
Commissioner of Customs (Imports) Vs Diabu Diamond Tools (I) Pvt. Ltd. (CESTAT Chennai)
CESTAT Chennai held that as transfer of technical knowhow not a condition for sale of capital goods, hence, technical knowhow fee not to be included in the assessable value of imported goods.
Facts- In Order-in-Original, it was directed to include the fee of Euro 40,000 for transfer of technical knowhow in the assessable value on import of new capital goods.
The importer had filed an affidavit stating that there is no change in technical collaboration / agency / distribution agreement / method of invoicing and also submitted relevant documents/affidavit and invoices.
After verifying the documents, the Special Valuation Branch directed to accept the invoice value for assessment purpose and to add technology transfer fee of EURO 40,000 to the invoice value on importation of the new capital goods by the importer and thus maintaining the earlier order.
The respondent-importer thereafter filed an appeal before the Commissioner (Appeals) who after verifying the collaboration agreement has held that the technical knowhow fee of EURO 40,000 is not related to the import of capital goods and there is no stipulation and it is a condition for sale of the import of capital goods. The order was thus modified by the Commissioner (Appeals) directing not to include the technical knowhow fee to the assessable value. Being aggrieved, revenue has preferred the present appeal.
Conclusion- Held that the transfer of knowhow and related technical assistance was not a condition for sale of the capital goods. Hence, we are of the considered opinion that the view of the Commissioner (Appeals) that technical knowhow fee of EURO 40,000 need not be included in the assessable value of imported goods is legal and proper. We find no grounds to interfere with the impugned order. The appeal filed by Department is dismissed.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The above appeal is preferred by the Department against the order passed by Commissioner (Appeals) who modified the order dated 25.03.2010 passed by the Special Valuation Branch.
2. The learned A.R Shri R. Rajaraman appeared and argued for the Department. It is submitted by him that as per periodical review, the earlier Order-in-Original No.5884/2007 dated 19.02.2007 was taken up by the Special Valuation Branch. In the said order, it was directed to include the fee of EURO 40,000 for transfer of technical knowhow in the assessable value on import of new capital goods. The importer had filed an affidavit stating that there is no change in technical collaboration / agency / distribution agreement / method of invoicing and also submitted relevant documents/affidavit and invoices. They requested to maintain the earlier OIO No.5884/2007 dated 19.02.2007. After verifying the documents, the Special Valuation Branch passed Order-in-Original No.11461/2010 dated 25.03.2010 directing to accept the invoice value for assessment purpose and to add technology transfer fee of EURO 40,000 to the invoice value on importation of the new capital goods by the importer and thus maintaining the earlier order. The respondent-importer thereafter filed an appeal before the Commissioner (Appeals) who after verifying the collaboration agreement has held that the technical knowhow fee of EURO 40,000 is not related to the import of capital goods and there is no stipulation and it is a condition for sale of the import of capital goods. The order was thus modified by the Commissioner (Appeals) directing not to include the technical knowhow fee to the assessable value. It is argued by the Ld. A.R that there are no grounds to modify the order passed by the SVB especially when the importer had filed affidavit stating that there is no change of circumstances. He prayed that the appeal filed by department may be allowed.
3. Counsel Shri N. Anand appeared for the respondent. It is submitted that when the case was taken up for periodical review it is correct that the respondent had submitted that there is no change in the pricing pattern or the collaboration agreements. However, from the collaboration agreement itself, it is clear that transfer of technical knowhow is not a condition for sale of the goods. This being so, the said amount cannot be included in the invoice value. To substantiate this argument, Ld. Counsel for the respondent adverted to the collaboration agreement dt. 21.06.2004. The decisions in the case of CC (Port), Kolkata Vs J.K. Corporation Ltd. – 2007 (208) ELT 485 (SC) and CC (Port), Chennai Vs Toyota Kirloskar Motor P. Ltd. – 2007 (213) ELT 4 (SC) was relied to argue that when the technical knowhow which is given, is not a condition for sale of the goods, the same cannot be added to the assessable value of imported goods. There was an omission to put forward this argument before the original authority. Being a legal issue, the respondent opted to file appeal before Commissioner (Appeals). Ld. Counsel prayed that appeal filed by the department may be dismissed.
4. Heard both sides.
5. The issue to be decided is whether the order passed by the Deputy Commissioner, Special Valuation Branch directing to modify the order No.11461/2010 dated 25.03.2010 so as not to include the technical knowhow fee to the assessable value of imported goods is legal and proper.
6. The relevant part of the collaboration agreement has been reproduced in the impugned order. The said agreement reads as under :
“Sub-article 7- Consideration for the Disclosure of Know-How and Related Technical Assistance:
7.1 – In consideration for the disclosure of know-how and a rendition of related technical assistance by DG to DI, DI shall pay to DG a Technology Transfer Fee of EURO 40,000 & Royalty at the rate of 5% on the sale value of the products sold by DI in India & 8% on the sale value of the products exported by DG provided that no royalty shall be payable:
(a) for the sales made by DI to DG
(b) on the value of the imported components in manufacture of products and
(c) on the taxes levied on the royalty bearing sale value.
7.2- Where it is not possible for DI to procure material and parts from India, the DI shall place order for such material or parts exclusively with DG subject to agreement on price, delivery, quality and other similar conditions.”
7. From the above, it can be seen that the transfer of knowhow and related technical assistance was not a condition for sale of the capital goods. The Hon’ble Apex Court in the case of J.K. Corporation Ltd. (supra) observed as under :
“8. The sole question which, therefore, arises for consideration in this appeal, is as to whether customs duty would be payable on the purchase price of the goods by adding the value of licence and technical knowhow, etc. to the value of the imported goods.
9. The basic principle of levy of customs duty, in view of the aforementioned provisions, is that the value of the imported goods has to be determined at the time and place of importation. The value to be determined for the imported goods would be the payment required to be made as a condition of sale. Assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of licence or technical knowhow for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose. Any amount paid for post-importation service or activity, would not, therefore, come within the purview of determination of assessable value of the imported goods so as to enable the authorities to levy customs duty or otherwise. The Rules have been framed for the purpose of carrying out the provisions of the Act. The wordings of Sections 14 and 14(1A) are clear and explicit. The Rules and the Act, therefore, must be construed, having regard to the basic principles of interpretation in mind.”
8. In the case of Commissioner of Customs, Chennai Vs Standard Industrial Oils P. Ltd. – 2009 (234) ELT 518 (Tri.-Chennai), it was held as under:
“3. After hearing the learned SDR for the appellant and the learned counsel for the respondents, we find that the Revenue is for addition of the technical know-how fee to the transaction value of the goods under Rule 9(l)(c) of the Customs Valuation Rules, 1988 and not under Rule 9(l)(b)(iv) of the Rules which provision was invoked by original authority. In other words, the case of the Revenue at this stage is beyond the scope of the SVB’s proposal. This apart, we find that the appellant has not established the existence of the conditions for invoking Rule 9(l)(c). The technical know-how fee of £ 10,000 was paid by the importer as consideration for the technical know-how and assistance provided by the supplier for manufacturing wax oxidates in India, a fact correctly discerned by the lower appellate authority from the agreement between the importer and the supplier. The payment had no relation to the imported goods. Moreover, the payment was not a condition for the sale of the goods to the importer. The averments to the contra in this appeal of the Revenue are only ipse dixit. Neither of the conditions for applicability of Rule 9(l)(c) existed in this case. Therefore, the aforesaid fee was not liable to be added to the transaction value of the goods imported by the respondents. This view is squarely supported by the decision of this Bench in HIS Automotive Ltd. v. Commissioner of Customs, Chennai, 2008 (224) E.L.T. 439 (Tri. – Chennai) and the decision of the Apex Court in Commissioner of Customs, Chennai v. Toyota Kirloskar Motor P. Ltd. – 2007 (213) E.L.T. 4 (S.C.) cited by the learned counsel for the respondents.
4. In the result the Revenue’s appeal is dismissed.”
9. After appreciation of facts and the evidence placed before us, we are of the considered opinion that the view of the Commissioner (Appeals) that technical knowhow fee of EURO 40,000 need not be included in the assessable value of imported goods is legal and proper. We find no grounds to interfere with the impugned order. The appeal filed by Department is dismissed. The cross objections filed by respondent is disposed accordingly.
(pronounced in open court on 27.03.2023)
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