ORDER
P.G. Chacko, Member (T)
1. The appellants are a Joint Venture (JV) company which was established in February 1997 with (1) M/s. Rane (Madras) Ltd. (2) M/s. NSK Ltd., Japan and (3) M/s. Torrington Co., U.S.A. as its partners and reconstituted in December 2000 with (1) M/s. Rane Investments Ltd. and (2) M/s. NSK Ltd., Japan as its partners. The JV company was established for the purpose of manufacture of solid and energy-absorbing “steering columns” and “steering joint assemblies” for automobiles, for which purpose the company entered into “Licence and Technical Assistance Agreements” with M/s. NSK Ltd., Japan, M/s. Nastech Europe Ltd., UK and M/s. Torrington Co., USA. The agreement with NSK Ltd., Japan was entered into on 23.2.1997 and, thereunder, M/s. NSK Ltd., were to provide technical documents (vide Article III) and technical assistance (vide Article IV) to the appellants for manufacture of steering columns and steering joint assemblies (licensed products) for Maruti, Honda, Teclo and Hyundai cars. A similar Licence and Technical Assistance Agreement with Nastech Europe Ltd. executed on 12.12.1997 provided for grant of technical documents and assistance by the said company to the appellants for manufacture of steering columns and steering joint assemblies for Ford vehicles. The appellants also entered into a similar agreement with Torrington Co., USA on 12.12.1997, which provided for grant of similar technical know-how and assistance by Torrington Co. to the appellants for manufacture of steering columns and steering joint assemblies for Ford Escort model and Fiat Uno model cars. During October 1997 to December 20?0, the appellants imported components/spares, capital goods, tools etc. from their collaborators for the purpose of manufacturing steering columns and steering joint assemblies for automobiles. A total amount of USD 1,65,000/- was payable as technical documents fees by them to the foreign collaborators under the Licence and Technical Assistance Agreements. The Dy. Commissioner (Special Valuation Branch) held that this fee was addable to the transaction value of the imported goods, under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The first appellant authority, after a perusal of the Licence and Technical Assistance Agreements concurred with the view taken by the lower authority and held that the amount was relatable to the imports and, therefore, addable to the transaction value of the goods under Rule 9(1)(c). The present appeal is against the order passed by the Commissioner (Appeals).
2. Heard both sides. Ld. counsel for the appellants submitted that the technical documents fees payable by them to their foreign collaborators was not at all related to the goods imported and that such payment was not a condition of sale of the said goods. Therefore, it was argued, Rule 9(1)(c) was not applicable. Counsel pointed out that the appellants had substantially reduced the quantum of imports under the above agreements over the years. In the year 1999-2000, the imports were to the extent of 79% of the total material cost. The import content of the total material cost for the manufacture of the licensed products was gradually reduced over the years and, accordingly, it was approximately 45% in 2003-2004. However, the payments due to the technical collaborators remained the same, irrespective of the reduction in the quantum of imports. On this basis, earned Counsel contended that the technical know-how fee had no relation to the imported components. It was also submitted that the appellants were not required to pay technical know-how fee as a condition of sale of the components imported. Ld. counsel relied on the Tribunal’s larger bench decisions in the cases of S.D. Technical Service v. CC 2003 (56) ELT 970 (LB) : 2003 (109) ECR 387 (T-LB) and Panalfa Dongwon India Ltd. v. CC 2003 (56) RLT 962 (LB) : 2003 (109) ECR 254 (T-LB). He argued that, as there was no relation between the technical know-how fee and the import of components and as the appellants were not liable to pay the fee, directly or indirectly, as a condition of sale of the said goods, the fee was not includible in the assessable value of the goods under Rule 9(1)(c). Ltd. DR reiterated the findings of the Commissioner (Appeals).
3. We have carefully examined the terms and conditions of the Licence and Technical Assistance Agreements and have considered the submissions of both sides. The provisions of three Licence and Technical Assistance Agreements are part materia. Steering columns and Steering joint assemblies are the “licensed products” and it is for the manufacture of these products that technical documents and assistance were provided to the appellants by their foreign collaborators. This position is crystal clear from the provisions of the Agreements. Each agreement defines “Know-how” as “all information and knowledge, tangible or intangible, reasonably necessary to enable Licensee to manufacture and assemble Steering Columns and to assemble Steering Joints”. This “know-how” is part of the licence granted to the appellants by each of their technical collaborators. For instance, Article 2.1 of one of the Agreements reads thus:
NSK hereby grants Licensee (i) an exclusive license under the License Patents and/or Know-How to manufacture and assemble Steering Columns and assemble Steering Joints in the Territory and (ii) non-exclusive license to use and sell Licensed Products in the Territory”.
Technical information & knowledge in tangible form are to be supplied as ‘technical documents” by the licensor to the licensee. Article 3.1 of the said agreement reads:
NSK shall furnish Licensee with the following tangible technical documents (“Technical Documents”) within sixty (60) days after NSK receives the Technical Documents Fees provided for in Paragraph 6.1 from Licensee.
Article 6.1 of the agreement provides for payment, by the appellants to their collaborator, of “technical documents fees” in 3 installments. This provision is reproduced below:
Technical Documents Fees:
In consideration of the licenses granted by NSK, Licensee shall pay NSK Technical Documents Fees of Thirty thousand (30,000) US Dollars for each model described in Paragraph 1.1 as follows:
(a) One-third on signing the Agreement
(b) One-third on receipt of technical documentation
(c) One-third on commencement of commercial production.
All these provisions clearly indicate the nexus between the technical documents fee (which may otherwise be called “technical know-how fee” or “licence fee”) and the licensed products. The provisions for technical assistance and technical training (vide Articles IV and V) also disclose this nexus. Clause (4.1) of Article IV and Clause (5.1) of Article V are reproduced below to show this nexus:
NSK shall provide technical assistance to Licensee by dispatching NSK’s engineers (hereinafter referced to as “Engineers”) to Licensee to advise and assist Licensee’s technical personnel on matters relating to the manufacture and assembly of the Steering Columns and assembly of the Steering Joints. Such technical assistance shall be made during the initial seven (7) years from the receipt of the first one-third of the Technical Documents Fees provided for in Paragraph 6. The number of Engineers and the period during which they will be dispatched shall be determined by mutual consent between the parties. Such technical assistance shall not exceed forty (40) Man-Days to support each Licensed Product.
NSK shall render services to train Licensee’s engineering trainees (hereinafter referred to as “Trainees”) at NSK’s facilities in Japan during the initial seven (7) years from the receipt of the Technical Documents Fees. The number of Trainees shall be decided by mutual consent between the parties. The engineering training period shall not exceed forty (40) Man-Days for each Licensed Product. However, this shall be increased depending upon the requirement of the Licensee on mutually accepted terms.
4. We find that the lower appellate authority has made an attempt to connect the payment of technical know-how fee (licence fee) to the imported components of licensed products, by relying on Article 3.1(a) of the Agreement entered into between the appellants and M/s. NSK Ltd. and the corresponding provisions contained in agreements entered into between the appellants and the other two collaborators. Article 3.1 (a) ibid reads as under:
(a) Documents for the selection of machines and equipments for manufacturing facilities and inspection equipments:
1. Drawings
2. Specifications
3. Maintenance standard for facilities
Learned Commissioner (Appeals), however, has not been able to show that the “machines and equipments” referred to in the above provision of the Agreement covered the imported goods. He has recorded a finding that the technical assistance in the form of documents would cover not only the imports made from the related supplier but also the import of equipments from unrelated supplier. There is no basis for such a finding. He has, further, observed that without technical know-how one cannot think of the licensed product coming into existence from the imported components. Such observations, however, would not satisfy the requirement of Rule 9(1)(c) for including technical know-how fee (licence fee) in the assessable value of the imported components, under Rule 9(1)(c), which is extracted here under:
9. Goods,- COST and SERVICE–(1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods.
(c) Royalty 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 such royalties and fees are not included in the price actually paid or payable.
The above rule mentions “royalties and licence fees”. Both sides have agreed before us that the fee of USD 1.65 lakhs payable by the appellants for technical know-how is covered by the term “licence fee” mentioned in Rule 9(1)(c). The question now to be examined is whether this fee paid/payable by the appellants to their foreign collaborators was related to the imported components and whether it was payable directly or indirectly as a condition of sale of the said goods. A perusal of the relevant provisions of the Agreement has shown that the fee was paid/payable as consideration for technical know-how supplied by the foreign collaborators to enable the appellants to manufacture the licensed products. The payment had nothing to do with any particular components of any of the licensed products. What was imported by the appellants was a consignment of components/spares, capital goods, tools etc., which was to be used for the manufacture of the licensed products. Therefore, technical know-how fee paid by the appellants was not relatable to the components imported by them, for the purpose of Rule 9(1)(c). Further, we have not come across any covenant in any of the licence agreements, which indicates that the technical know-how fee was payable directly or indirectly as a condition of sale of the imported components, nor has Id. DR been able to cite any such provision in the agreements.
5. We find that the case law cited by earned Counsel is strongly supportive of the appellants’ case. In the case of S.D. Technical Service supra), the assessee’had made a lump sum payment as consideration for disclosure of technical know-how by their foreign collaborator. It was found that this payment was only related to the indigenous manufacture of licensed equipments and not related to the imported components and hence the amount was not to be added to the assessable value of the imported goods under Rule 9(1)(c). We are bound by the ratio of the decision of the Tribunal’s Larger Bench in S.D. Technical Services (supra). The decision of the Larger Bench in the case of Panalfa Dongwon India Ltd. (supra) is also to the same effect. In that case, capital goods and raw materials were imported by the assessee for the manufacture of exhaust systems under an agreement between them and their foreign collaborator. They paid a lump sum royalty of US $ 6.5 lakhs for training of personnel, furnishing of technical information and utilisation of intellectual property rights. This fee was found to be in connection with the manufacture of exhaust systems (licensed products) and not in connection with the import of the capital goods and raw materials required for such manufacture. Accordingly, the above amount was held not includible in the assessable value of the imported goods under Rule 9(1)(c).
6. In the light of our findings already noted and in view of the case law discussed, we hold that the sum of USD 1.65 lakhs is not includible in the assessable value of the components imported by the appellants. The provisional assessment shall be finalised accordingly.
7. The impugned order is set aside and this appeal is allowed. The stay application stands dismissed as infructuous.
(Operative portion of the order was pronounced in open Court on 10.3.2005).