CC Vs. JOHN CRANE SEALOL INDIA LTD. AND

JUDGEMENT

(1.) In all these batch of Revenue appeals, accompanying stay petitions and few of the assessees' appeals, the common question of law and facts have arisen and hence they are all taken up together for disposal as per law.

(2.) The question that arises for consideration in all these appeals is as to whether the lower authority was justified in ordering for addition of technical know -how fees to the transaction value in terms of Rule 9(1)(c) of Customs Valuations Rules, 1988 and as to whether royalty charges paid by the importers in terms of the agreement with their collaborators who have been held to be related person can be added to the transaction value under the same provisions as stated therein. The importers had waived the show cause notice. The original authority after granting hearing to all the importers and after the examination of the agreements filed by them with their collaborators and suppliers of the components/raw materials and come to the conclusion in the respective Orders -in -Original that the lump sum payment made by the importers in terms of the agreement as technical know -how fee is required to be added to the transaction value. The Deputy Commissioner, however, held that he does not propose to add certain royalty charges to the transaction value in view of the reasonings given in his Order -in -Original. The Dy. Commissioner had noted in his order that as per Interpretative Notes in Rule 12 of CVR 1988, the technical assistance and know -how fee shall be added to the transaction value provided it is related to the imported goods and it is a condition of sale. After due examination, he came to the conclusion that the technical assistance and know -how fee is very much related to the imported goods and its value is required to be loaded to the transaction value. In this regard, he has noted 7 judgments including the judgment of the Tribunal rendered in CC Mumbai v. Himson Textile Engineering Indus. Ltd. 1997 (93) ELT 301 wherein it has been held that royalty charges and technical know -how fees are required to be added to the assessable value. He has also noted the judgment of Apex Court rendered in CC (Prev.) Ahmedabad v. Essar Gujarat Ltd. 1996 (88) ELT 609 wherein also it was held that the technical know -how fee is to be added to the assessable value. Further reliance was also made to the judgment of Andhra Pradesh Petrochemicals, , wherein it was also held that design and engineering charges are addable to the transaction value under Rule 9(1)(b)(iv) of CVR 1988. In terms of his Order -in -Original in each of the cases, he directed for adding technical know -how fee in terms of the agreement noted by the importers. He rejected the transaction value declared by the importers under Rule 4(1) of CVR 1988 after due scrutiny of the documents. The importers challenged the correctness of the order before the Commissioner. The Commissioner (Appeals) in almost all the revenue's appeals before us has been passed in more or less similar manner on the same reasons. He has, in cases where importers had imported only raw materials, held that they had no nexus between the technical know -how for the manufacture of the final product manufactured in India with the imported inputs. He also held in some cases that imported items were not capital goods. He further noted that the judgment of the Tribunal in the case of Himson Textile Engineering (supra) has been set aside by the Apex Court. Further, he had not noted that Apex Court had merely remanded the matter for de novo consideration.

(3.) Revenue is aggrieved with the orders of the Commissioner (Appeals) and in the respective appeals have contended that there has to be nexus between the imported inputs and capital goods with the manufacture of final goods since know -how is essential for the purpose of manufacturing final goods. It has also been contended that the imported goods cannot be utilised unless the technology transferred under the agreement is also considered and applied in terms of the agreement. It has also been pleaded that as per the agreement "know -how" is defined as all information, technical or otherwise and in terms of respective agreement, the importers have marketed and given technical assistance to respective importers for initial setting up of the plant, trial production, introducing latest manufacturing technics, updates technology, correctness of any modification or improvements or designing charges in the product etc. besides use of trade mark of the supplier that is to have transferred the right of licence of the importer. It has also been stated by the Revenue that the imported components are used to manufacture the final products. The technical know -how is given to facilitate the manufacturing process. Without the use of technical information and other details provided as per the technical agreement for which the licence fee had been paid, imported components cannot be used. Hence, it is contended by the Revenue that the technical licence fee for giving rights to use technical information provided is related to the imported goods which is addable as per Rule 9(1)(c) of CVR 1988. It has also been contended that details of payment for technical assistance and know -how fees mentioned in the agreement itself goes to prove that this is a condition of sale of imported goods. Likewise, they have stated with regard to royalty or licence fee paid by the importers as having relation to imported goods mainly in two ways First, the royalty or licence fee payment may be related to the imported goods themselves, if it is calculated on the basis of revenue derived from the sale or use of the imported goods. Secondly, the rights for which the payment is made may be related to the imported goods. This will be the case where the royalty or licence fee is for the right to use a particular trade mark, copy rights, patent, know -how, design etc. which is either reflected in or inherent to the imported goods. So far as the "know -how" applicable to the imported goods and provided under a licence agreement, revenue contends that installation site of design, basic instruments etc. related to the use of the licensed products, therefore any licence fee/ royalty payment under that account need to be considered for inclusion of the value. It is further stated that the contract of sale of the goods gives the importer access to the tangible i.e. the goods and the licence agreement give access to the intangible i.e. intellectual property without which goods would be of no use. Where a buyer could not have purchased and imported the goods without having agreed to pay a royalty or licence fee, the fee should clearly be a condition of sale for the goods. Therefore, it is contended that where a royalty is paid to an owner of intellectual property and that property is embodied in the imported goods, then the payment would always be a "condition of sale".