Indian arms of multi-national companies are no longer required to add licence fee, payable on goods produced in India, in the value of components imported from the collaborator.
Furhter, service fee payable to the collaborator for deploying technical assistance under annual maintenance contract is also not liable to be added to the value of imported parts/components under Rule 9(1)(c) of Customs Valuation Rules.
The contentious issue was whether licence fee of 2,60,000 Denmark Kroner payable by the appellant on each Wind Turbine Generator produced in India is liable to be added to the value of components/parts imported from the collaborator in terms of Rule 9(1)(c) of the Customs Valuation Rules, 1988.
Questions were also asked on whether service fee of 6000 DKK payable by the appellant to the collaborator for deploying technical assistance by competent personnel for servicing the WTG under annual maintenance contract is liable to be added to the value of imported parts/components under Rule 9(1)(c).
The DC passed an order dated 12.2.2001 wherein he held that licence fee and service fee shall be added to the transaction value as per Rule 9(1)(c) of the Customs Valuation Rules, 1988.
Appeal filed by the assessee was allowed by the Commissioner (Appeals) holding that payment of licence fee and service fee are not, in any way, connected with the goods under import.
Against the above order the department filed an appeal before the Tribunal. The Tribunal vide its order dated 19.4.2002 set aside the orders impugned and remanded the matter for de novo consideration. On remand the Commissioner (Appeals) took the view that the fee of 6000 DKK for technical assistance which was rendered for servicing the WTGs as well as the lump sum 2,60,000 DKK payable towards technical know-how under the agreement are relatable to the imports and would be addable under Rule 9(1)(c).
It was contended on behalf of the appellant that neither fee for technical assistance in relation to the servicing of WTG nor the lump sum payable towards technical know-how would qualify as amounts to be added in terms of Rule 9(1)(c). In order to be covered by Rule 9(1)(c) the licence fee has to be one related to imported goods and that licence fee is payable as a condition of sale of the goods. In the present case, while the agreement for supply of parts and components was entered into on 1.4.97, technical licence agreement was entered into only on 29.1.2000.
Therefore, licence fee payable under the subsequent agreement cannot be treated as a condition for import under an agreement entered into three years back. The licence fee agreement makes it clear that licence fee was a compensation for the R & D cost incurred by foreign collaborator NEG Micon A/S Denmark.
NEG Micon A/S Denmark has centralised Research and Development centre and was undertaking activities relating to technological innovation of WTG produced by the appellant in India.
The appellant ,therefore ,submitted that such licence fee payable in respect of every WTG produced by it was, in no way, related to the imports of parts/components. The agreement also stipulates a foreign company to provide technical assistance for servicing the WTG manufactured by the appellant in India. Fee payable for such service to the foreign company cannot have any connection whatsoever with the import of components and parts for the manufacture of WTG.
Commissioner took the view that since the parts/components imported from foreign supplier are used in the manufacture of WTG, technical know-how fee, which is related basically to the assistance provided by the foreign supplier would be added to the value of the imports made.
The Commissioner observed that even though there is a provision in the agreement that the appellant can procure parts from any source other than the foreign supplier, no evidence in the form of invoices, bills of entry from other unrelated suppliers had been submitted by the assessee.
Commissioner also takes the view that the fee payable in relation to servicing the WTG produced should also be guided by the same principle.
The Tribunal observed that "on going through the provisions of the agreement it would be very clear that technical know-how fee relates to the manufacture of WTG in India. Service fee is also in respect of service of the manufactured product, namely, WTG. Apart from the fact that the agreement for supply of parts/components was entered into much earlier to the technical licence fee agreement, we find that the technical licence fee was payable in relation to WTG manufactured in India by the appellant and not in respect of parts/components imported by the appellant.
"Licence fee is not payable as a condition of sale of the imported goods. Therefore, according to us, both the licence fee would not satisfy the required conditions under Rule 9(1)(c) of the Customs Valuation Rules, 1988 for being added while assessing the value of the imported goods".
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