Customs, Excise and Service Tax Appellate Tribunal

Fujitsu Ten India Pvt. Ltd. Vs. Commissioner of Customs, New Delhi

MANU/CE/1021/2017

26.12.2017

Customs

When cost of imported goods is included in amount, which is considered for payment of royalty, then such royalty should be added in assessable value of imported goods

In the facts of present case, the Appellant is regularly importing goods from Thailand, China and Philippines. The suppliers of the imported goods viz. parts used in the manufacture of car infotainment systems like semi-conductor components, etc, are related to the Appellants. The foreign suppliers are subsidiaries of same parent entity and are related to the Appellant in terms of Rule 2(2) of Customs Valuation Rules, 2007. The Appellants entered into a license agreement with Fujitsu Ten Limited. The said agreement allowed the Appellant the right to use IPR and know how, for the manufacture of car infotainment system. The valuation of imported goods were examined by the Special Valuation Branch, in terms of Circular dated 23rd February, 2001 of the Board. On completion of verification of various documents, the Original Authority held that, royalty paid by the Appellant to Fujitsu Ten Limited and Patent and Software usage fee paid are required to be added in the assessable value in terms of Rule 10 of Customs Valuation Rules, 2007. The appellants contested the finding before the Commissioner (Appeals). The Commissioner (Appeals) vide the impugned order held that, the above charges are rightly includible in the assessable value and accordingly, rejected the appeal.

"Licensed products", means products in which the foreign company approve the Appellant's use of industrial property rights and know-how for the manufacture and sale by the Appellant. The Appellants are liable to pay royalty on gross sale value of the manufactured goods. Admittedly, such value includes cost of goods imported by the Appellant. The lower authorities held that, there is no provision for exclusion of cost of imported goods in such situation. Reliance was placed on the decision of the Supreme Court in Matsushita Television & Audio Co. When the cost of imported items were included in the net ex factory sale price of the manufactured goods and the importer pays royalty as a percentage of turnover of final product, which included the cost of imported components, it becomes a condition of sale of finished goods. Hence, both the conditions of Rule 9(1)(c) of the Valuation Rules are satisfied. The Tribunal, in the case of Herbalife International India Pvt. Ltd. and Husco Hydraulics Pvt. Ltd., held that when the cost of imported goods is included in the amount, which is considered for payment of royalty, then such royalty should be added in the assessable value of imported goods.

Regarding payment of patent/software fee, the claim of the Appellant is that, they are reimbursing the said fee on behalf of the various patent/software owners for which agreement was entered into with Fujitsu Ten India Ltd., Japan. This is to get volume discount. These software are essentially required to make the imported components integrated and functional as well as for final operation of the manufactured goods. Admittedly, these patent/software are required for the functional utility of the imported items as well as the finished final product. The Appellants are under obligation to pay fee for the said third party patent/software.

Rule 10(1)(e) of the Valuation Rules stipulates that, all other payments actually made are to be made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to the third party to satisfy and obligation of the seller to the extent that such payments are not included in the price actually paid or payable, shall be added to the price actually paid or payable for the imported goods. Explanation to the said rule provides that, whether the royalty, license fee or any other payment for a process, whether partial or otherwise, is includible. There is no infirmity in the impugned order. The appeal is dismissed.

Relevant

Matsushita Television and Audio (I) Ltd. vs. Commissioner of Customs MANU/SC/2030/2007
; Commr. of C. Ex., Mumbai vs. Herbalife International India P. Ltd. MANU/CM/0610/2016
; Husco Hydraulics Pvt. Ltd. vs. Commissioner of Cus. (Import), Mumbai MANU/CM/0608/2016

Tags : Valuation Inclusion Validity

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