Hon'ble Judges/Coram:
Ramesh Nair, Member (J) and Raju

ORDER

Raju, Member (T)

1. The appellant, M/s. Herbalife International India Pvt. Ltd., have collaboration agreement with M/s. Herbalife USA. Herbalife USA holds 75% of the equity in Herbalife International India Pvt. Ltd. The appellants imported certain material from Herbalife USA. Their case was picked up by SVB under Rule 2(2) of the Customs Valuation Rules, 1988. Various documents were called after examining the agreement, invoice value and the imports was accepted by the Deputy Commissioner. The Revenue challenged the said order before the Commissioner (Appeals). Revenue's appeal was rejected by the Commissioner (Appeals). Aggrieved by the said order, the Revenue is in appeal before the Tribunal. The learned AR argued that the Commissioner (Appeals) erred in holding that the royalty paid by the importer under the agreement relates to the manufacturing process of product to be manufactured in India and not to the manufacture of imported goods. He argued that neither Herbalife, USA would support the importer in technology and also in material sourcing as these two are highly specialized areas of requiring standards. He argued that the importer imports through Hebalife USA as the latter is well conversant with the quality of materials and reliability of suppliers. He argued that the technical information supplied as part of the royalty agreement includes the raw materials data and expertise as per the definition of the technical information provided under Article 1.5 of the License and Technical Assistance Agreement dated 10-11-1999. He argued that without the technical information, i.e. raw material data and expertise pertaining to the manufacturing of the raw materials, it would not be possible to manufacture the raw materials to the exacting standards as required for manufacture of final products in India. He argued that without technical know-how of the raw materials, the final production cannot be manufactured. He argued that Rule 9(1)(c) of the Customs Valuation Rules, 1988 imposes two conditions, i.e. (i) such royalties/fees are related to the imported goods, (ii) such royalties/fees are paid directly or indirectly as a condition of the sale of the goods being valued. It was argued that lump sum payment and the running royalty are related to the imported goods and are a condition of sale of goods being valued.

2. The learned AR for the appellants argued that the appellants are procuring the materials through Herbalife USA. He argued that Herbalife USA is getting the said goods manufactured from others and without any margin supplying the said goods to the appellants at the same price, after including freight. He showed us the price list of Herbalife USA submitted to the Deputy Commissioner of Customs. In the said price list he pointed out as an example Sl. No. 9 pertaining to Chinese Cruciferous which shows as the rate of US $ 17.60 per unit. He also showed us the invoice of Triarco for the same products in the name of Herbalife USA showing a unit price of US $ 17.60 per kg. Herbalife USA is supplying the raw material without adding any margin to the appellant. He pointed out that even in the appeal filed by the Revenue it has been recognised that the business transaction between Herbalife USA and the appellants are on arm's length basis. Herbalife USA is only to provide support to the appellant. He argued that though the provisions of Rs. 83 lakhs (equivalent to US $ 2 million) has been made in the books of accounts towards technical know-how and the royalty payable to Herbalife USA. No remittance in foreign currency have been made. However, related tax and R & D cess has been remitted with appropriate authorities. He also pointed out that a certificate to that effect was issued from Deloitte Haskins & Sells, on February 1, 2001. He also submitted that provisions of Rs. 4,67,07,146/- (equivalent to US $ 1.0 million) payable to Herbalife USA towards administrative service fees have been made in the books of accounts, however, the remittance in foreign currency has not been made as of date. He pointed out that material time, upto February 1, 2001, no remittance ........