Commnr. of Customs
Excise, New Delhi Vs. M/S. Living Media (India) Ltd.
The Civil Appeal Nos. 86278628 of 2002 are filed against the judgment and order
passed by the Customs, Excise & Gold (Control) Appellate Tribunal (hereinafter
for short referred to as "CEGAT") on 23.1.2002, however, Civil Appeal
No. 2959 of 2008, Civil Appeal No. 4751 of 2006, Civil Appeal No. 2832 of 2006
and Civil Appeal No. 1 of 2009 are filed against the judgment and order passed
by the Customs Excise and Service Tax Appellate Tribunal (hereinafter for short
referred to as "CESTAT") on 21.9.2007, 2.2.2006, 2.9.2005 and
facts leading to the filing of the present appeals are that the Respondent company
undertakes various music projects in India and under these projects it enters into
agreements with reputed artists for composing and recording musical works. The music
thus recorded is converted into DAT [Digital Audio Tape] Master which is then
sent to Singapore for replicating the musical work on compact discs. Apart from
this, the Respondent also renders service for quality production/duplication of
various music titles on compact discs.
Respondent has entered into an agreement for rendering services with M/s. World
Media India Ltd., New Delhi, which provides masters to the Respondent and
Respondent in turn sends these masters to Australia for replicating the musical
work on compact discs (CDs).
Respondent imported a consignment of Audio Compact Discs from Singapore vide
Bill of Entry No. 659308 dated 27.05.1998 for home consumption. Customs duty
was paid on the invoice value of the replicator in Singapore and the declared
value of each CD was USD 0.6. The Respondent had similar import of Audio Compact
Discs from Australia under Bill of Entry No. 659289 dated 27.05.1998 for home
consumption and the declared value of each CD was @ 1.62 Australian Dollar. The
dispute regarding the valuation of these consignments imported by the Respondent
herein is the subject matter of these appeals.
Assistant Commissioner vide order dated 23.06.1998, while assessing the value of
CDs imported from Singapore allowed all deductions except expenses incurred under
advertisement and publicity and fixed the assessable value at Rs.100 per CD.
For the CDs imported from Australia, the assessing authority granted deductions
except to the extent of those claimed towards expenses on royalty and advertisement
and publicity and the assessable value was determined as Rs.199 per CD.
by the aforesaid order of the Assistant Commissioner, the Respondent assessee
filed appeals before the Commissioner (Appeals). The Commissioner (Appeals), vide
order dated 12.06.2001, confirmed the order of the assessing authority. Aggrieved
thereby, the Respondent assessee appealed to the CEGAT. The CEGAT, vide order dated
23.01.2002, allowed the appeals and set aside the order of the Commissioner (Appeals)
present appeal is filed against the judgment and order of CESTAT passed on 21.09.2007
whereby the appeal filed by the Revenue was rejected and the order of the Commissioner
of Customs (Appeals) dated 18.09.2006, was upheld.
facts leading to the filing of the present appeal are that the case of import of
goods by respondent M/s Sony BMG Music Entertainment (I) Pvt. Ltd. from supplier
M/s Sony Music Entertainment (Hong Kong) Ltd. was examined by GATT Valuation Cell,
Mumbai. The Deputy Commissioner of Customs vide order dated 10.02.2006 held
that the Respondent and the supplier were related under Rule 2(2) of Customs Valuation
Rules, 1988 and rejected the transaction value of goods imported and ordered
that the royalty at the note indicated in clause 4 read with Schedule A to the International
Repertorise License Agreement entered into between the importer and M/s Sony BMG
Music Entertainment, New York, was to be added to the declared value in addition
to 50% for the purpose of Customs Duty assessment. Payment of royalty was held
to be condition for sale at some subsequent stage in the commercial history of
aggrieved by the said order, the Respondent preferred an appeal before the Commissioner
of Customs (Appeals). The Commissioner (Appeals) vide order dated 18.09.2006
set aside the order of the adjudicating authority dated 10.02.2006 and held
that the inclusion of royalty in the invoice value was not permissible. Aggrieved
thereby, the Revenue filed an appeal before the CESTAT. The CESTAT vide order dated
21.09.2007 rejected the appeal of the Revenue and upheld the order of Commissioner
(Appeals) dated 18.09.2006.
present appeal is filed against the judgment and order of CESTAT passed on 02.02.2006
whereby the appeal filed by the Respondent was allowed and the order of the Commissioner
(Appeals) dated 24.09.2004 was set aside.
facts leading to the filing of the present appeal are that the case of imports of
CDs from M/s EMI Compact Disc, Holland by M/s Virgin Records (I) Pvt. Ltd. was
taken up for examination. The Deputy Commissioner of Customs vide order dated 17.08.2000
held that the Respondent and the Supplier are related to each other by virtue of
2(2) of Customs Valuation Rules, 1988. The relationship has not in any way
affected the prices and the value of the imports can be taken to be on the transaction
value and therefore did not propose the loading of the invoice bill.
thereby, the Revenue preferred an appeal to the Commissioner (Appeals). The Commissioner
(Appeals) vide order dated 24.09.2004 rejected the order of the assessing authority
and held that the assessable value of the CDs should be assessed on the basis
of the invoice price plus the copyright fees payable on the resale of records. Aggrieved
by the aforesaid order of the Commissioner (Appeals), the Respondent filed an
appeal before the CESTAT. The CESTAT vide order dated 02.02.2006 set aside the order
of the Commissioner (Appeals) dated 24.09.2004 and restored the order of the
assessing authority dated 17.08.2000.
present appeal is filed against the judgment and order of CESTAT passed on 02.09.2005
whereby the appeal filed by the Respondent assessee was allowed and the order of
the Commissioner of Customs (Appeals) dated 20.11.2002, was set aside.
facts leading to the filing of the present appeal are that the Respondent
herein M/s. Sony Music Entertainment (India) Ltd., is a wholly owned subsidiary
of Sony Music Entertainment (India) Inc., USA. They have a Licensing Agreement
with Sony Corporation of America, New York, U.S.A. The Indian Company has entered
into various agreements (licensing etc.) with their foreign collaborator and
issue for determination in the said appeal is of royalty at the rate of 20% of MRP
minus Sales Tax minus 6.5% packaging deduction payable by the Respondent herein
on the sale of imported recorded compact disc in India. The Adjudicating Authority,
vide order dated 31.10.2000, accepted the transaction value declared in the
invoice, holding that the payment of royalty is not the condition of sale of
goods and that there is no distraction on the Respondents sourcing CDs from any
manufacturer/supplier. The Commissioner (Appeals), however, vide order dated 20.11.2002,
set aside the Adjudication order dated 31.10.2000, on appeal by the Revenue, holding
that the royalty payment is a condition of sale of imported goods.
CESTAT vide order dated 02.09.05, set aside the order of the Commissioner (Appeals)
dated 20.11.2002 on appeal by the Respondent and held that the Respondents are correct
in their contention based upon the interpretative notes to Rules 9(1)(c) that the
payment of royalty by them to Sony Corporation of America cannot be included in
the price of the imported goods. Hence, this civil appeal by the Department.
present appeal is filed against the judgment and order of CESTAT passed on 16.10.2008
whereby the appeal filed by the Appellant assessee was rejected and the order of
the Commissioner of Customs (Appeals) dated 09.04.2002, was upheld.
The facts leading to the filing of the present appeal are that the Appellant in
this case are engaged in the marketing of audio cassettes and CDs imported inter
alia from M/s Universal Manufacturing and Logistics, Germany and associated
companies. Their company is a 100% subsidiary of Universal Music Holding, Netherlands.
issue for determination in the said appeal is whether the royalty paid by the Appellant
to Universal Music Holding, Netherlands on net sales in India can be added to
the transaction value of Audio Compact Disc imported from Universal Manufacturing
and Logistics, Germany.
per the agreement entered into with the foreign collaborator the Indian company
was required to pay royalty at the rate of 15% at the retail sale price of the
goods to the foreign supplier. Since the importer was a 100% subsidiary
company, it was considered as a related person and the royalty payable by it to
the supplier was considered to be as a condition of sale and therefore required
to be included in the declared invoice value to the extent of royalty amount
for which a show cause notice was issued to the Appellant and adjudicated by the
Deputy Commissioner, who vide order dated 16.10.2001, held that the value of
the goods imported by the Appellant is to be loaded by 15% as per Rule 9(1)(c) of
Customs Valuation Rules, 1988.
thereby, the Appellant preferred an appeal to the Commissioner (Appeals), who
vide order dated 09.04.2002 rejected the same and upheld the order of the assessing
authority. Aggrieved by the aforesaid order of the Commissioner (Appeals), the Appellant
filed an appeal before the CESTAT which was rejected vide order dated 16.10.2008
and the order of the Commissioner (Appeals) dated 09.04.2002 was upheld.
all these appeals involve almost similar facts and the issues raised therein
also being similar, we propose to dispose of all these appeals by this common
judgment and order.
learned counsel appearing for the parties made extensive arguments and drawn our
attention to the relevant materials on record also. On the basis of the same,
we proceed to answer the issue that arises for our consideration.
order to appreciate the contentions of the parties, we propose to extract the provisions
of Section 14 of the Customs Act, 1962 which deals with valuation of goods for
the purpose of assessment. The said section reads as follows:
of goods. (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or
any other law for the time being in force, the value of the imported goods and export
goods shall be the transaction value of such goods, that is to say, the price actually
paid or payable for the goods when sold for export to India for delivery at the
time and place of importation, or as the case may be, for export from India for
delivery at the time and place of exportation where the buyer and seller of the
goods are not related and price is the sole consideration for the sale subject to
such other conditions as may be specified in the rules made in this behalf;
Provided that such
transaction value in the case of imported goods shall include, in addition to the
price as aforesaid, any amount paid or payable for costs and services, including
commissions and brokerage, engineering, design work, royalties and licence fees,
costs of transportation to the place of importation, insurance, loading, unloading
and handling charges to the extent and in the manner specified in the rules
made in this behalf:
Provided further that
the rules made in this behalf may provide for,
circumstances in which the buyer and the seller shall be deemed to be related;
manner of determination of value in respect of goods when there is no sale, or
the buyer and the seller are related, or price is not the sole consideration for
the sale or in any other case;
manner of acceptance or rejection of value declared by the importer or exporter,
as the case may be, where the proper officer has reason to doubt the truth or accuracy
of such value, and determination of value for the purposes of this section:
Provided also that such
price shall be calculated with reference to the rate of exchange as in force
on the date on which a bill of entry is presented under section 46, or a
shipping bill of export, as the case may be, is presented under section 50.
(2) Notwithstanding anything
contained in sub section (1), if the Board is satisfied that it is necessary or
expedient so to do, it may, by notification in the Official Gazette, fix tariff
values for any class of imported goods or export goods, having regard to the trend
of value of such or like goods, and where any such tariff values are fixed, the
duty shall be chargeable with reference to such tariff value."
exercise of the power vested under the Customs Act, the Central Government has
made Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (hereinafter
for short called "the Rules").
2(f) of the Rules defines "transaction value" where it says that it means
the value determined in accordance with rule 4 of the Rules. Rule 3 of the
Rules deals with the determination of the method of valuation where it states
the method of valuation. For the purpose of these rules (i) subject to rules 9
and 10A the value of import ed goods shall be the transaction value; (ii) if the
value cannot be determined under the provisions of Cl. (i) above, the value
shall be deter mined by proceeding sequentially through rule 5 to 8 of these
is transaction value is stated in Rule 4 in the following manner: "4. Transaction
value (1) The transac tion value of imported goods shall be the price ac tually
paid or payable for the goods when sold for export to India, adjusted in accordance
with the provisions of Rule 9 of these rules."
9(1)(c) of the Rules states as follows: "9. Costs and services (1) In determining
the transaction value, there shall be added to the price actually paid or payable
for the imported goods ***** ***** ***** ***** ***** ***** ***** *****
(c) royalties and license
fees related to the im ported goods that the buyer is required to pay, di
rectly or indirectly, as a condition of the sale of the goods being valued, to the
extent that such royal ties and fees are not included in the price actually paid
the case of Commissioner of Customs Vs. Ferodo India Pvt. Ltd. reported in 2008
(4) SCC 563 this Court had occasion to analyze the aforesaid relevant provision
of Rule 9(1)(c) with which we are also concerned in the present appeals. The
relevant portion of which is extracted here below:
"16. Under Rule
9(1)(c), the cost of technical knowhow and payment of royalty is includible in the
price of the imported goods if the said payment constitutes a condition
prerequisite for the supply of the imported goods by the foreign supplier. If such
a condition exists then the payment made towards technical knowhow and
royalties has to be included in the price of the imported goods. On the other hand,
if such payment has no nexus with the working of the imported goods then such payment
was not includible in the price of the imported goods.
17. In Essar Gujarat Ltd.
the condition prerequisite, referred to above, had direct nexus with the functioning
of the imported plant and, therefore, it had to be loaded to the price thereof.
18. Royalties and license fees related to the imported goods is the cost which is
incurred by the buyer in addition to the price which the buyer has to pay as consideration
for the purchase of the imported goods. In other words, in addition to the price
for the imported goods the buyer incurs costs on account of royalty and license
fee which the buyer pays to the foreign supplier for using information, patent,
trade mark and knowhow in the manufacture of the licensed product in India.
Therefore, there are two
concepts which operate simultaneously, namely, price for the imported goods and
the royalties/license fees which are also paid to the foreign supplier. 19. Rule
9(1)(c) stipulates that payments made towards technical knowhow must be a condition
prerequisite for the supply of imported goods by the foreign supplier and if such
condition exists then such royalties and fees have to be included in the price of
the imported goods. Under Rule 9(1)(c) the cost of technical knowhow is
included if the same is to be paid, directly or indirectly, as a condition of the
sale of imported goods. At this stage, we would like to emphasize the word
indirectly in Rule 9(1)(c).
As stated above, the buyer/importer
makes payment of the price of the imported goods. He also incurs the cost of
technical knowhow. Therefore, the Department in every case is not only required
to look at TAA, it is also required to look at the pricing arrangement/agreement
between the buyer and his foreign collaborator. For example, if on examination of
the pricing arrangement in juxtaposition with TAA, the Department finds that the
importer/buyer has misled the Department by adjusting the price of the imported
item in guise of increased royalty/license fees then the adjudicating authority
would be right in including the cost of royalty/license fees payment in the
price of the imported goods. In such cases the principle of attribution of royalty/license
fees to the price of imported goods would apply. This is because every importer/buyer
is obliged to pay not only the price for the imported goods but he also incurs
the cost of technical knowhow which is paid to the foreign supplier. Therefore,
such adjustments would certainly attract Rule 9(1))(c)."
laying down the aforesaid proposition this Court has considered the case of
Collector of Customs (Prev.), Ahmedabad Vs. Essar Gujarat Ltd. reported in 1996
88 ELT 609 (S.C.) to which also reference was made at the time of hearing of the
is yet another decision on the aforesaid issue rendered by three Judges' Bench of
this Court in the case of Associated Cement Companies Ltd. Vs. Commissioner of
Customs reported in (2001) 4 SCC 593. Having referred to the case of Essar
Gujarat (supra) and after having noted Rules 3, 4 and 9 of the Rules, this
Court has stated thus in paragraph 42, 43 and 44 as follows: "42.
.............................. Therefore, the intellectual input in such items greatly
enhances the value of the paper and ink in the aforesaid examples. This means
that the charge of a duty is on the final product, whether it be the encyclopaedia
or the engineering or architectural drawings or any manual.
43. Similar would be the
position in the case of a programme of any kind loaded on a disc or a floppy.
For example in the case of music the value of a popular music cassette is sever
al times more than the value of a blank cassette. However, if a prerecorded music
cassette or a popular film or a musical score is imported into India duty will
necessarily have to be charged on the value of the final product. ......................................................
..................................................... 44. It is a misconception
to contend that what is being taxed is intellectual input. What is being taxed under
the Customs Act read with the Customs Tariff Act and the Customs Valuation
Rules is not the input alone but goods whose value has been enhanced by the said
inputs. The final product at the time of import is either the magazine or the en
cyclopaedia or the engineering drawings as the case may be.
There is no scope for
splitting the en gineering drawing or the encyclopaedia into intellec tual
input on the one hand and the paper on which it is scribed on the other. For
example, paintings are also to be taxed. Valuable paintings are worth millions.
A painting or a portrait may be specially commissioned or an article may be
tailormade. This aspect is irrelevant since what is taxed is the final product as
defined and it will be an absurdity to contend that the value for the purposes of
duty ought to be the cost of the canvas and the oil paint even though the composite
product, i.e., the painting, is worth millions."
issue that arises for our consideration is therefore appears to be answered by the
aforesaid decision in Associated Cements Companies Ltd. (Supra). In the said decision
this Court had stated clearly that if a prerecorded music cassette or a popular
film or musical score is imported into India, duty will necessarily have to be
charged on the value of the final product. As per Rule 9, in determining the transaction
value there has to be added to the price actually paid or payable for the
imported goods, royalties and the license fees related to the imported goods
that the buyer is required to pay, directly or indirectly, as a condition of sale
of goods. Therefore, when prerecorded music cassette is imported as against the
blank cassette, definitely its value goes up in the market which is in addition
to its value and therefore duty shall have to be charged on the value of the
final product. Therefore, there can be no dispute with regard to the fact that value
of the royalty paid is to be included in the transaction value.
all these cases, there is no dispute that the cassettes under question are brought
to India as prerecorded cassettes which carry the music or song of an artist. There
is an agreement existing in all the matters that royalty payment is towards
money to be paid to artists and producers who had produced such cassettes. Such
royalty becomes due and payable as soon as cassettes are distributed and sold and
therefore, such royalty becomes payable on the entire records shipped less records
returned. It could therefore, be concluded that the payment of royalty was a condition
of sale. Counsel appearing for the Respondent relied upon the commentary on the
GATT Customs Valuation Code. We failed to see as to how the aforesaid commentary
on the GATT Customs Valuation Code could be said to be applicable to the facts of
the present case. The specific sections and the rules quoted hereinbefore are themselves
very clear and unambiguous. We are required only to give interpretation of the
same and apply the same to the facts of the present case.
at the decision of this Court in the case of Associated Cement Companies Ltd.
[supra] and also to the clear and unambiguous provisions of law discussed above
we set aside the orders passed by the Tribunal in matters, i.e., Civil Appeal
No. 86278628 of 2002, Civil Appeal No. 2959 of 2008, Civil Appeal No. 4751 of
2006, Civil Appeal No. 2832 of 2006 and restore the order passed by the
Department, whereas Civil Appeal No. 1 of 2009 is dismissed. We leave the
parties to bear their own costs.
[Dr. Mukundakam Sharma]
[Anil R. Dave]