1. In this appeal, filed by M/s. Hindustan Motors Ltd., the issue involved is whether the technical know-how fees paid by them is includible in the assessable value of the goods imported by them.
2. Shri S.K. Bagaria, learned Advocate, mentioned that the Appellants, manufacturer of passenger motor vehicles, entered into a "Licence and Technical Assistance Agreement' with M/s. Mitsubishi Motor Corporation, Japan (M/s. Mitsubishi in short) on 1.11.1995; that the said Agreement was split into two by another Agreement dated 31.3.1998; that they also entered into another Agreement 'Component Supply Agreement' dated 16.11.1995; that the total investment on their plant and machinery was Rs. 153.10 crores; that out of this, capital goods imported form M/s.
Mitsubishi were to the extent of Rs. 10.20 crores, mainly in the form of jigs and fixtures; that all other capital goods were either purchased from indigenous sources or were imported from various other foreign suppliers; that the Deputy Commissioner, under Order-in-Original dated 21.2.2003 has held that (i) the Appellants are not related to M/s. Mitsubishi Motor Corporation; (ii) the value of spares may be accepted under Rule 4(3)(a) of the Customs Valuation Rules with document, if any, allowed subject to verification of price list; and (iii) the assessable value of components and new capital goods, jigs and fixtures, imported from M/s. Mitsubishi shall be arrived at after loading the lump sum fee of Japanese Yen 4,51,220,000 paid by the Appellants. He, further, mentioned that the Commissioner (Appeals), under the impugned Order-in-Appeal No. 721/2003 dated 28.11.2003, has upheld the loading of the assessable value under Rule 9(1)(c) of the Customs Valuation (Determination of the Price of Imported Goods) Rules, 1988 with the modification that a sum of Yen 231 million be apportioned to the total value of the goods (excluding spare parts) imported during the tenure of First Agreement, i.e. from 1.11.1995 to 31.3.1998 and the remaining sum of Yen 220.220 millions be apportioned to the imports during the currency of the Agreement dated 31.3.1998.
3. The learned Advocate submitted that Rule 9(1)(c) of the Customs Valuation Rules does not have any application as none of the conditions precedent for invoking Rule 9(1)(c) exists or is satisfied; that the payment of lump sum amount is not in any way related to the imported goods as all the imports were made at the agreed prices which were normal international prices which have also been certified by M/s.
Mitsubishi by their certificate dated 18.2.1999; that it has been certified by Mitsubishi that they have received the lump sum fees from the Appellants as the payment of the grant of license to them for manufacturing "Lancer" in India and that the components are supplied on the basis of commercial prices or fair market value; that it has also been mentioned in the said Certificate that the Appellants are engaged in the localization of many components and sub-assemblies right from the first year and, therefore, their supply portions are only limited to those that have not yet been localized in India. The learned Advocate, further, submitted that in the License and Technical Assistance Agreement and Component supply Agreement, there is absolutely nothing to indicate that the payment in question is in any way related to the imported goods; that the said lump sum payment was not made as a condition of sale of the imported goods nor there is any material or basis whatsoever to come to any such conclusion; that no amount whatsoever was paid or payable by the Appellants, directly or indirectly, relating to the imported goods either by way of any license fee or otherwise as a condition of sale or in any other manner; that the lump sum payment is the agreed consideration for the licence and technical assistance provided by M/s. Mitsubishi for manufacture of the licensed products in India; that the licensed products as per Article 1 of the Agreement means "Licensed Vehicles and the parts and components therefore"; that as per Article 2.1, Mitsubishi has granted to the Appellants a non-exclusive license to the Technical Assistance and the Patents solely for purpose of assembling and manufacturing the licensed products and selling the same in specified territories; that according to Article 1.5, "technical Information" means all the lists, specifications, drawings and other information provided for in Annexure B' and as per Article 1.7, "Technical Assistance" means the Technical Information and other assistance and service provided to the Appellants pursuant to Article 3; that in terms of Clause 4.2 of the L.T.A.Agreement the lump sum payment was to be made in three instalments - (1) First instalment within 60 days after the effective date of L.T.A.Agreement; (2) the second instalment within 60 days after the transfer of the technical information and (3) the third instalment within 60 days after the commencement of commercial production roe by 4.1.2000 whichever is earlier. He contended that thus the said lump sum was payable irrespective of and totally independent of any import of components and parts from M/s. Mitsubishi; that the Appellants' liability to pay the said sum for getting the license and technical assistance did not in any way depend upon import of any parts, components and capital good from M/s. Mitsubishi; that the lump sum payment did not in any way relate to the imported goods nor the said payments were made as a condition of sale of the impugned goods; that there was absolutely no nexus of any nature between the said lump sum payment and the price of goods imported from M/s. Mitsubishi; that as per the Interpretative Note to Rule 9(1)(c), the payment for right to reproduce the imported goods in the country of import shall not be added to the price paid or payable for the imported goods in determining the value. The learned Advocate relied upon the decision of the Larger Bench of the Appellate Tribunal in the case of S.D.Technical Service v. CC wherein the Larger Bench, on going through the terms of the Agreement, came to the conclusion that "it is clear that know-how relates to manufacture of the licensed equipment in India. The above has no relation whatsoever to the goods imported under the 4 bills of entry referred above." He also relied upon the decision of the Larger Bench of the Tribunal in the case of Panalfa Dongwon India Ltd. v. CC, Mumbai 2003 (55) ELT 287 (T-LB) : 2003 (109) ECR 354 (T-LB) wherein also "on going through the entire agreement we came to the conclusion that royalty is payable in connection with the manufacturing process and not in connection with the import of the goods." Reliance has also been placed on the following decisions:Mando Brake Systems India Ltd. v. CC 6. Countering the arguments, Shri S.M. Tata, learned SDR, submitted that the Component Supply Agreement entered into between the Appellants and M/s. Mitsubishi clearly makes a reference to Technical Assistance Agreement and as such there is a nexus between the payment of lump sum to M/s. Mitsubishi and import of the components by the Appellants from M/s. Mitsubishi; that assembly is the integral part of the manufacture of licensed vehicles for which lump sum payment has been made by the Appellants; that as per Article 1 of the Component Supply Agreement, "Components mean any and all components, parts and accessories used in the manufacture of a Manufactured Model, and "MMC Components" mean a Licensed vehicle in K.D. condition without deletion parts supplied from M/s. Mitsubishi to the Appellants and packed in a form suitable for shipment. The learned SDR contended that the purchase of components/spares/capital goods from M/s. Mitsubishi is thus dependent on the License and Technical Assistance Agreement under which the lump sum payment has been made by the Appellants. He referred to Article 2.1 and 2.2 of the Component Supply Agreement according to which when the Appellants desire to manufacture or procure local parts, they have to do so in consultation with M/s. Mitsubishi and in accordance with K.D.Procedure Manual and contended that this clause clearly established the nexus between the technical assistance and the supply of components; that without the payment of lump sum, the Appellants can not import any goods, cannot manufacture any Licensed Product and can only manufacture the specified Licensed Product in quantity specified by Mitsubishi with the Mitsubishi's specified or agreed upon indigenisation content. The learned SDR also submitted that the decision in the case of S.D, Technical Service is not applicable as the said decision was delivered relying upon the decision in the case of CC v. Maruti Udyog Ltd. wherein the issue involved was of 'related person' 7. We have considered the submissions of both the sides. Rule 9(1)(c) of the Customs Valuation Rules provides that in determining the transaction value, royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that royalties and fees are not included in the price actually paid or payable, shall be included in the price. For the purpose of including the licence fees in the value in terms of Rule 9(1)(c), it is pre-requisite that (i) the licence fees is related to the imported goods; (ii) the importer is required to pay the said fees, directly or indirectly; and (iii) the importer is required to pay the fees as a condition of the sale of the goods imported by him. In all the decisions of the Larger Bench of the Tribunal, relied upon by the learned Advocate, we observe that the Larger Bench has, after going through the terms of the Agreement, concluded that the know-how relates to manufacture of the licensed equipment and had no relation whatsoever to the goods imported. In the present matter also, a perusal of the "License and Technical Assassinated Agreement" reveals that M/s.
Mitsubishi had granted to Hindustan Motors Ltd. a license to use the technical Assistant and the patents solely for assembling and manufacturing the licensed product and the conditions of payment of consideration (Yen 451,220,000) would be in three instalments without any reference to the goods imported by the Appellants. Thus in the present matter also licence fee only relates to the manufacture of the licensed product and not to the import of goods from M/s. Mitsubishi.
Accordingly, the conditions stipulated in Rule 9(1)(c) of the Customs Valuation Rules are not satisfied. A perusal of the "Component Supply Agreement" also does not reveal any clause to indicate that the Appellants are required to pay the license fee as a condition of the sale of the goods. The Revenue has also not converted the submissions made by the Appellants that the imports were made by them at the agreed prices which were normal international prices of the goods.
Accordingly, we hold that the lump sum payment made by the Appellants in pursuance to License & Technical Assistance Agreement is not includible in the price of the goods imported by them. Thus, the impugned Order is set aside and the appeal is allowed.