In a recent Customs, Excise and Service Tax Appellate Tribunal case,(1) the assessee had entered into a licence and technology agreement with a holding company for the transfer of technical know-how with regard to the manufacture of float glass. The assessee had imported certain capital goods required to manufacture the float glass. The issue was whether the royalty paid to the holding company should be included in the value of the imported capital goods.
The adjudicating authority held that, under Rule 9(1)(c) of the Custom Valuation Rules, the 3% royalty on domestic sales and exports (net of taxes) should be added to the value of the imported capital goods. Aggrieved by this order, the assessee appealed to the commissioner of customs (appeals), who rejected the appeal and upheld the adjudication order.
The assessee then appealed to the tribunal. The tribunal held that the rationale in Commissioner of Customs (Port), Chennai v Toyota Kirloskar Motor Pvt Ltd(2) applied to the case at hand, as the licence fee related to the transfer of technical know-how and the payment of royalty was for the sale of finished goods manufactured in India. The tribunal went on to state that the royalty did not relate to the import of the capital goods and thus, in the absence of any condition within the agreement (and considering that the royalty related to the manufacture of float glass), inclusion of the royalty in the assessable value of the imported capital goods was unjustified.
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