ORDER
P.K. Kapoor, Member (T)
1. On a prayer made by the appellants, the Final Order No. 253/93-C, dated 29-7-1993 in the above mentioned matter was recalled by the Tribunal by Misc. Order No. 103/94-C to decide the issue relating to valuation which had inadvertently remained undecided while passing the Final Order dated 29-7-1993.
2. On behalf of the appellants, Shri T.K. Ramasubramanyan, learned Advocate, with Shri S. Subramanyan, C.A. appeared before us. Shri Ramasubramanyan stated that the Collector (Appeals) had erred in not accepting the appellants’ contention that the assessable value of the drawings imported by the appellants in terms of the Memorandum of Understanding (MOU) between the appellants M/s. Tractors & Farm Equipment Ltd. (TAFE) and M/s. Massey Ferguson Manufacturing Ltd. (MF) was only £ 10,000 which was the intrinsic value of the goods. He submitted that on perusal of the MOU it follows that it was reached with the express intention to the formulation, provision and supply by MF to TAFE over a period of 3 years of technical assistance, documentation and training for the purpose of assisting TAFE to upgrade the specifications, performance and quality of its current range of tractors to internationally acceptable standards and to assist technically in installing, upgrading and continuously improving their manufacturing facilities. He stated that from Item 1, relating to the scope of the MOU it was evident that the consideration that was to flow to MF was to be for both technical assistance and documentation. He added that as a part of the technical assistance MF were required to send technical personnel to enable TAFE to assimilate and absorb the transfer of information and upgrade their manufacturing facilities. He contended that the consideration was, therefore, for transfer by MF to TAFE of a right to reproduce in India of the originals or copies of industrial models and designs with the information that MF had formulated for manufacturing tractors and further periodic information that was to be furnished during a period of three years in regard to improvements and updates to enable TAFE to manufacture tractors of international standard. He stated that on account of the provision in the MOU which required TAFE to make its own arrangements for collating, co-ordinating and transferring the technical documentation, MF had vide their letter dated 16th September, 1991 accepted M/s. Wallace Cartwright as the transmitting agency for the documentation and accordingly the invoice dated 5th February, 1992 was made out for £ 1,75,000. He added that in pursuance or” this arrangement M/s. Wallace Cartwright as the handling agency made their invoice dated 25th February, 1992 to cover the amount of £ 1,75,000 and billed separately in the same invoice a sum of £ 10,000 as their charges for segregting, sorting, reproducing where necessary, arranging and packing. He argued that the MOU for technical assistance between the appellants and the arrangement arrived at with M/s. Wallace Cartwright clearly imply that out of the total consideration of £ 1,75,000 except the amount of £ 10,000 which represented the cost of making photocopies of original drawings and related services, the balance amount relates to the production of goods which the appellants have the right to reproduce and distribute in India. He contended that under these circumstances, the assessable value of the goods was only £ 10,000 in terms of Rule 9(1)(c) of the Customs (Valuation) Rules, 1988 since the balance amount in the invoice represented the charges towards the right to reproduce the imported goods in India which endorses the GATT valuation provisions in so far as it includes from the assessable value the value relatable to the rights of reproduction. He contended that the imported goods were to be reproduced in India persuent to the manufacturing /collaboration agreement which has been in force for a long time. He argued that the “drawings” were the imports for such reproduction, and as such the value £ 1,75,000 as per the MOU would not form a part of the assessable value. He referred to the publication titled “The Brussels definition of value and the GATT Valuation Agreement” of the Valuation Directorate of the Customs Cooperation Council and stated that it had been clarified that on the lines of earlier agreement, the revised GATT agreement on Customs Valuation stipulates that the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price in determining the customs value. In support of his contention that except the amount of £ 10,000 paid to M/s. Wallace Cartwright, the other payments made in terms of the MOU will not form a part of the assessable value since they have to be deemed as payments towards the right for reproduction of the imported goods in the country of importation. He referred to the illustrative examples given in Paras 61.1 to 61.4 of the Annexure to the said publication under the heading “Application of the Agreement to the illustrative examples of the Brussels Definition of Value”.
3. On behalf of the respondents, Shri Sharad Bhansali, learned SDR submitted that question whether any part of the payment made by the appellants in terms of the MOU between them and M.F. could be treated as payment towards the rights to reproduce the imported goods not forming a part of the assessable value of the imported goods, will have to be decided strictly in terms of Rule 9(1)(c) of the Customs (Valuation) Rules, 1988. He contended that for this purpose any contents of the Customs Cooperation Council publication titled “The Brussels Definition of Value and the GATT Valuation Agreement” would not be relevant. He referred to the MOU between the appellants and M.F. and also the relevant invoice issued by M/s. Wallace Cartwright and contended that the Collector (Appeals) had correctly held that in these documents there was nothing to show that either the entire amount of £ 1,75,000 or any part thereof represented the charge for the right to reproduce the imported goods in the country of importation since the cost involved in the transfer of technical know-how through the medium of the imported drawings could not be treated as the cost towards acquisition of the right to reproduce the imported goods in the country of importation. He therefore pleaded for the rejection of the appeal.
4. We have examined the records of the case and considered the submissions on behalf of both sides . It is seen that the appellants case is that out of the total amount of £ 1,75,000 paid by them to M/s. M.F. in terms of the MOU reached between them and M.F. in relation to the provision and supply by M.F. of technical assistance, documentation and training for the purposes of assisting the appellants to upgrade the specifications, performance and quality of their range of tractors, except for a sum of £ 10,000 which represented the payment made to the shippers on account of the cost of making photocopies of relevant technical drawings and other related services, the balance amount being the payment on account of the right to reproduce the goods in respect of which the appellants already held the right to reproduce in India, would not form a part of the assessable value of the imported drawings and manuals in terms of Rule 9(1)(c) of the Customs Valuation Rules, 1988.
5. In support of their claim the appellants have relied upon a publication of the Valuation Directorate of the Customs Cooperation Council titled “The Brussels Definition of Value and GATT Valuation Agreement. They have contended that the GATT Agreement on Customs Valuation stipulates that the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price in determining the value for customs purposes. In support of their contention they have placed reliance on the examples given under the heading “Application of the Agreement to the Illustrative Examples of the Brussels Definition of Value” in Paras 61.1 to 61.4 of the Annex, to the said publication of the Customs Cooperation Council. In this regard we are inclined to agree with the learned Departmental Representative that the contents of the publication of Customs Cooperation Council referred to by the appellants being only a study prepared by the Secretariat of the Customs Cooperation Council in response to a request for a technical comparison of the systems of valuation commonly known as the Brussels Definition of Value and system of valuation evolved by the GATT Valuation Agreement cannot have any statutory force and therefore cannot be relied upon for the purposes of interpretation of the relevant provisions of the Customs Valuation Rules, 1988. Hence, the issue and arising for consideration in this case has to be decided purely in terms of the provisions of Rule 9(1 )(c) of the Customs (Valuation) Rules, 1988 and the relevant interpretative note, which are reproduced below :-
“9. Cost of services. – (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, –
(a) …
(b) …
(c) royalties 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.”
Interpretative Notes
Note to Rule 9(1)(c)
1. The royalties and licence fees referred to in Rule 9(1)(c) may include among other things, payments in respect to patents, trademarks and copyrights. However, the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value.
2. Payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for export to the country of importation of the imported goods.”
6. On a plain reading of Rule 9(1)(c) and the relevant Interpretative Note, it follows that royalty and licence fee including payment in respect to patents, trade marks and copyrights, if any, relating to the imported goods paid by the buyer, directly or indirectly, as a condition of the sale of the goods are required to be added to the extent they are not included in the price actually paid or payable while determining the transaction value of the imported goods under Rule 4. However, for this purpose the charges for the right to reproduce the imported goods in the country of importation are not required to be added to the price actually paid or payable for the imported goods in determining the value for customs purposes.
7. The relevant Memorandum of Understanding (MOU) arrived at between the appellant and M.F. relates to the provision and supply by M.F. to the appellant technical assistance, documentation on and training for the purposes of assisting the appellants to upgrade the specifications, performation and quality of their current range of tractors to internationally acceptable standards and to assist technially in installing, upgrading and continuously improving their manufacturing facilities which the appellants operate or would operate in Madras and Karnataka in India. The MOU also confirms that M.F. are willing to provide and supply to the appellants for consideration as mentioned therein the specified know-how, technical assistance/documentation as per the essentiality established during the joint study made by the technical personnel of MF and the appellants during the period of six months from 17-5-1991 for the upgradation of specifications, performance and quality standards of all models of tractors so that they could be offered for sale in the world market at internationally acceptable standards. In the said MOU portion ‘A’ covers five sets of drawings in relation to manufacture of MF 240 tractors with specific reference to:
1. Components/manufacturing processes etc. of Mark in Hydraulic pump assembly.
2. Four Wheel drive.
3. Oil immersed brake and straight drive near axle assembly.
4. Ergonomic pedals configuration and steering linkages.
5. General manufacturing lay outs, process lay outs, tool lay outs etc.
The MOU shows an amount of 1,55,000.00 Sterling Pounds as the consideration for the supply of these drawings. According to the MOU, the objective which both the parties seek to achieve is the transfer of technical know-how for manufacture of tractors of internationally acceptable standards. Out of the total consideration a sum of £ 1,55,000/- is also towards the cost of 5 sets of drawings enumerated above. According to the M.O.U. the full payment of £ 1,75,000/- includes the payment of £ 20,000 for the supply of different types of manuals by MF to the appellants. In terms of the Understanding MF are also required to provide certain services including technical upgradation upto a certain specified period.
8. On a plain reading of the Memorandum of Understanding between the appellants and MF, it follows that the consideration of £ 1,55,000 is entirely in respect of the disputed five sets of drawings which have been supplied by MF. In addition to the payment in respect of the imported drawings a sum of £ 10,000 has also been paid to Wallace Cartwright & Co. Ltd. on account of the photo copies made and other related services. There is nothing in the MOU to show that either the entire consideration of £ 1,75,000 or any part thereof is on account of the charges for the right to reproduce the imported goods which in this case happen to be the technical drawings and manuals.
9. We are therefore inclined to agree with the findings of the Collector (Appeals) that the transfer of technical know-how through the medium of the imported drawings cannot be treated as the cost that should be excluded while determining the transaction value of the imported goods.
10. In view of the above discussion, we do not find any merit in the appellants contention in regard to the valuation of the imported goods and confirm the findings of the Collector (Appeals) in the impugned order. This order shall be treated as a part of the Final Order No. 253/93-C, dated 29-7-1993.