P.G.CHACKO, MEMBER (JUDICIAL)
The appellants had imported from an Italian company components, parts and technical documents/drawings for manufacture of aircrafts in India. They had also procured technical know-how from the supplier, for which they paid fees totalling to over Rs.1.87 crores to the supplier. This fee was not included in the assessable value of the imported components and parts, which were objected to by the department after noting that the appellants were related to the supplier. The Deputy Commissioner (Special Valuation Branch) passed an order directing that the technical know-how fee to be added to the transaction value of the goods under Rule 9 (1) (c) read with Rule 2 (2) and Rule 4 of the Customs Valuation Rules, 1988. The appeal filed by the assessee against the Deputy Commissioners order was allowed by the Commissioner (Appeals) and, later on, the appeal filed by the Revenue against the appellate authoritys decision was allowed by way of remand by this Tribunal. Pursuant to the remand order, ld.Commissioner (Appeals) passed the impugned order holding that the technical know-how fee was liable to be added under Rule 9 (1) (c) to the invoice value of the goods imported by the assessee from the Italian company.
2. After examining the records and hearing both sides, we note that the lower appellate authority examined the Technical Collaboration Agreement under which the technical know-how fee was paid by the assessee, and held that the payment of know-how fee was related to the components and parts imported by the assessee and that such payment was a condition of sale of the goods. The appellate authority noted that the supply of the kits (containing components/parts) was after the payment of the technical know-how fee, and observed that the kits had no utility without technical know-how. It was on this basis that the know-how fee was directed to be added to the value of the imported goods.
3. We have examined the relevant provisions of the TECHNICAL KNOW-HOW TRANSFER AGREEEMENT between the appellants and the Italian-company. This Agreement refers to certain aircrafts as the 'licensed products'. Under Article 1 of this Agreement, the Italian-company (licensor) granted to the appellants (licensee) the exclusive right to manufacture and to sell the licensed product in India, the non-exclusive right to sell the licensed product in neighbouring countries viz. Nepal, Afganistan, Burma, Bangladesh, Bhutan, Sri Lanka, etc. and the exclusive right to maintain for maintenance, repairs and overhauling of the licensed product in the said countries. The standard configurations of the licensed product were laid down under Article 2 of the Agreement. Article 3 specified a period of 10 years as the duration of the Agreement. Article 4 specified the date for the coming into force of the Agreement, which was the date on which all the necessary authorizations of the Italian and Indian authorities would be obtained. Article 5, the crucial provision of the Agreement, provided for transfer of technical know-how and rendering a technical assistance and training by the licensor to the licensee. Under the provision, know-how related to the licensed product was to be made available to the licensee in the form of manuals, drawings, specification, documents or other papers in the English language. Under this provision, technicians designated by the licensee to visit the plant of the licensor and obtain instructions and training for the manufacture, assembly, installation, repairs, maintenance and overhauling of the licensed product for a period of five months. At the request of the licensee, the licensor would, under Article 5 ibid, send their qualified engineers/technicians to the manufacturing facility of the licensee in India for the purposes of rendering assistance in the application of the technical know-how. Article 6 provided for confidentiality of technical know-how. Article 7 provided for modification/improvements of the standard configurations of the licensed product. The licensor shall liable to supply kits for such modifications/improvements to the licensee free of cost. Article 8 dealt with the terms of payment of a fee by the licensee for the technical know-how supplied by the licensor. After carefully examining these and other provisions of the Agreement, we have not found any nexus between the payment of technical know-how fee and the components/parts imported by the appellants. There is nothing in this Agreement indicating that the payment of the fee was a condition of sale of the components/parts by the licensor to the licensee. It was only a condition for the supply of technical know-how by the licensor to the licensee for the manufacture of the licensed product in India. Similar cases have been cited by ld.consultant for the appellants. We have had also occasion to consider such cases in HSI Automotive Ltd. Vs Commissioner of Customs, Chennai, 2008 (224) ELT 149 (Tri.-Chennai), wherein, disposing of a batch of appeals, we held that technical know-how fee, technical assistance fee or royalty, as the case may be, were not addable, under Rule 9 (1) (c) of the Customs Valuation Rules, to the invoice price of the imported goods.
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We have also heard ld.SDR, who reiterated the findings of the lower appellate authority. 4. For the reasons already noted, following our own decision rendered in HSI Automotive case, we hold that the technical know-how fee paid by the appellants to their Italian company as consideration for technical know-how and assistance supplied by the latter for the manufacture of the licensed products (aircrafts) in India is not includible in the assessable value of the components and parts imported by the appellants. The impugned order is set aside and the appeal is allowed.