Holding

A technical service fee paid for post‑import functions is not a royalty or licence fee payable as a condition of sale and does not influence the price of the imported goods; consequently it cannot be added under Rule 9(1)(c) and the transaction value must be accepted.

Summary

M/s Prodelin India (P) Ltd., a joint‑venture Indian company 75% owned by a U.S. firm, assembled VSAT antennas using components supplied by the foreign partner and paid a monthly technical service fee for post‑import activities such as training and design assistance. The Deputy Commissioner of Customs added 10% of the invoice value to the assessable value under Rule 9(1)(c) of the Customs Valuation Rules, treating the fee as a royalty/licence fee that influenced the price. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the addition, holding that related‑person status alone does not justify a price increase and that the fee was unrelated to the imported goods. The Revenue appealed to the Supreme Court, which affirmed that the technical fee was not payable as a condition of sale, did not affect the price of the imported components, and therefore could not be added under Rule 9(1)(c). The Court dismissed the appeal.

Issues considered

The technical service fee paid to the foreign partner can be classified as a royalty or licence fee under Rule 9(1)(c) and added to the assessable value of the imported goods.
Whether the relationship of the parties as related persons under Rules 2(2)(i) and 2(2)(iv) influences the transaction value, invoking Rules 4(3)(a) and 4(3)(b).
The correctness of CESTAT's interpretation of the joint‑venture agreement and its conclusion that the fee does not affect the price of the imported goods.

Legislation cited

Customs Act, 1962s. Section 14(1), s. Section 14(1‑A)
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988s. Rule 2(2)(i), s. Rule 2(2)(iv), s. Rule 4(3)(a), s. Rule 4(3)(b), s. Rule 9(1)(c)

Subjects

customs valuationtransaction valuerelated personstechnical service feeroyaltyRule 9(1)(c)joint ventureimport dutyburden of proof

Judgment

A COMMISSIONER OF CUSTOMS, NEW DELHI
v.
M/S PROD ELIN INDIA (P) LTD.

AUGUST 31, 2006

B [DR. AR. LAKSHMANAN AND TARUN CHATTERJEE, JJ.]

Customs Valuation (Determination of Price of Imported Goods) Rules,
1988: Rules 2(2)(i), 2(2)(iv) and 9(/)(c)-Technica/ services fee-Impact of ...
C on valuation of imported goods-Foreign Company having 75% equity shares
in a joint venture Indian Company-Indian company assembling VSAT
antennas, accessories and other communication equipments, supplied by
foreign company, testing, installing and servicing them-Revenue adding
I 0% in invoice value of goods-Held, there is nothing on record to indicate
that foreign company has charged any technical fee for any imported goods
D or for pre-import function-II was paid for post-import operations-Revenue
not justified in loading of I 0% in invoice value

Precedent:

Decision of CESTAT-Based on its earlier decisions-Held, it is not
E open to Revenue lo seek reversal of order of CESTAT which is based on its
earlier decisions wherein correct view has been taken by it.

The respondent-Company was set up under an agreement between a
foreign company and an individual residing in Delhi for facilitating promotion
a1:d selling VSAT Antennas, accessories and other communication
F equipments. The foreign company owned 75% equity shares of this joint
venture in the respondent-company which would assemble and test feed the
components provided by the foreign company and would service, test and install
these products. A certain amount as technical service fee was to be paid by
the foreign company to the respondent company per month. The Deputy
G Commissioner of Customs passed an order for loading of 10% in the invoice
value of goods imported from the said foreign company. The Revenue was of
the opinion that the respondent-company and the foreign company were
related persons in terms of Rules 2(2)(i) and 2(2)(iv) of the Customs Valuation
(DeterJDination of Price of Imported Goods) Rules, 1988 and this relationship
influenced the price of the imported goods. The Commissioner of Customs
H 678
-
COMMISSIONER OF CUSTOMS, NEW DELHI 1·. PRODELIN INDIA (P) LTD. 679

• 4. (Appeal) dismissed the appeal of the respondent. However, the Customs, Excise A
and Service Tax Appellate Tribunal allowed respondent's appeal holding that
though the transaction was with related persons, but that by itself would be
no ground to make addition to sale price. The CESTAT held that the reference
to raw material was for assistance in servicing of supply and a sourcing
assistance could be required only when the servicing was from a third party B
and not when it was from one of the partners. Aggrieved, the Revenue filed
the appeal.

It was contended for the appellant that the CESTAT only half interpreted
the clause of control of foreign partners regarding source of raw material.
The other half of the clause, i.e., price in detail was not discussed at all and C
the CEST AT failed to appreciate that in the instant case the foreign company
had the controlling interest in the Indian company and that the respondent
was under obligation to procure components only from the foreign
collaborator or from the company with whom the foreign collaborator had an
agreement. 1t was submitted that in the circumstances; the technical fees paid·
definitely influenced the price of the goods imported. D
Dismissing the appeal, the Court

HELD: 1. The plea of the appellant that the CESTAT had only interpreted
half of the clause relate[!· to pricing detail is neither factually nor legally
.... correct. The CEST AT has in clear terms taken into consideration the various E
clauses of the joint venture agreement and came to the correct conclusion
that the service agreement was mainly manufacturing, design, know-how
specifications, drawings and all types of tooling equipment etc. The reference
to raw materials is for assistance in sourcing of supply. A sourcing assistance
can be required only when the sourcing is from a third party and not when it
is from one of the partners. It further held that it would be placing an artificial F
meaning to assistance for sourcing i.e. locating the best source or supply.
Therefore, the CEST AT held in clear terms that such an artificial meaning
was not justified. [688-B-E]

2. There is nothing on record, including the joint venture agreement
which may reveal that the foreign company has charged any technical fee for G
any imported goods or pre-import function of the antenna system. The
respondent have proved beyond doubt that what they had paid to the foreign
company was not in respect of the value of the imported goods but the technical
fee for post-import operation. [688-G-H; 690-G-H]

3.1. Besides, there is no denial of the fact that some of the parts/ H
c::

680 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A components of the antenna system were being supplied by the foreign company
at the price at which the said parts were supplied at full commercial value "•
without having been influenced by the joint venture agreement. This apart,
the Department has not brought any evidence on record to show that the
relationship between the respondent and the foreign company has influenced
the price or value of the imported goods/components.
B [688-G-H; 689-A; H; 690-A[

3.2. It is settled law that the onus to prove that the declared price did
not reflect the true transaction value is always on the Department. It is also
a settled law that the Department is bound to accept the transaction value
~

c entered between the two parties. It is not the case of the Department that the
foreign company was exporting the identical goods to other importers at
higher price. Therefore, in view of the clear position of law about the
acceptance of the transaction value, the Customs authorities could not add
the technical know-how fee in respect of the post-importation activities to the
assessable value of the imported goods. [690-8-CI
D
4.1. Even assuming that the respondent and the foreign company are
related persons, in that case their transaction value is to be accepted provided
that examination of the circumstances of sale of the imported goods indicate
that the relationship did not influence the price and the importer demonstrates
that the declared value of the goods being valued, closely approximates to the
E value for identical goods or similar goods. In the present case, a perusal of
the order-in-original would reveal that the loading was ordered in terms of
Rule 9(l)(c) of the Rules. There was no challenge to the value declared by the
respondent before the Customs Authorities. There was also no finding in the
Order-in-original that the value was not increased with Custom Valuation
F Rules, 1988 read with Rules 2(2)(i), 2(2)(iv), 4(3)(a) and 4(3)(b).
[691-F-H; 692-A)

4.2. However, in the grounds of appeal, it is not the ease of the
Department that the value requires to be loaded because of the provisions of '
Rule 9(l)(c). But the Department is treating the respondent and the foreign
G company as a related person and straightaway invoked Rule 4(3)(a) or 4(3)(b).
The Department cannot adopt such a course unless it is alleged that some
evidence is brought on record that the prices at which the foreign company
had supplied the imported goods to the respondent was not reflecting the
correct transaction value. Therefore, their appeal is contrary to the grounds
on which the original authority had ordered loading of the assessable value.
H (692-A-B)
-
COMMISSIONER OF CUSTOMS, NEW DELHI 1'. PRODELIN INDIA (P) LTD. 68 J

; ... 5.1. In the joint venture agreement there is nothing which would put A
the respondent under obligation to procure component from the foreign
collaborator or from another company with whom the foreign collaborator had
an agreement. The respondent was procuring only one component from the
foreign company. Even if respondent was procuring certain components from
the aforesaid another company that had no bearing on the price/value of the B
imported goods.1693-A-q

5.2. Further, the mere fact that the foreign company had any agreement
with another company had nothing to do with the price of the feed horn which
was being supplied by the foreign company to the respondent. Therefore, the
Department's case that the technical fees had influenced the price of the goods C
imported is factually incorrect and baseless. (693-B-CI

Daewoo Motors India Ltd. v. Commissioner of Customs, New Delhi,
(2000) 115 ELT 489 (T) NEG Micon (India) Pvt. Ltd v. Commissioner of
Customs, Chennai (2004) 170 ELT 29, referred to.
D
6. The Department has not advanced any argument as to how the Tribunal
erred in following its earlier judgments on the identical issue. When the law
has been laid down by the CEST AT itself in a number of earlier judgments, it
only followed the same in the facts and circumstances of the present case.
Therefore, now it is not open for the Department to persuade this Court to
reverse the order which is based on the earlier judgments of the CEST AT E
wherein correct view has been taken by it. (693-H; 694-Al

Eicher Tractors Ltd Haryana v. Commissioner of Customs, Mumbai,
(200111 SCC 315 and Commissioner ofCustoms, Mumbai v. Bureau Veritas
and Ors., 2005) 3 SCC 265, referred to.
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3813 of2005.

From the Final Order No. 1425/04-NB/A dated 20.12.2004 of the Customs,
Excise and Service Tax Appellate Tribunal, New Delhi (Bench) in Appeal No.
C/396/04-NB(A).
G
Harish Chandra, Rudreshwar Singh and B. Krishna Prasad for the
Appellant.

Shyam Divan, Poli Kataki annd Meenakshi Arora for the Respondent.

The Judgment of the Court was delivered by H
682 SUPREME COURT REPORTS (2006) SUPP. 5 S.C.R.

A DR. AR. LAKSHMANAN, J. This appeal is filed by the Commissioner ...
of Customs (ICDs), Tughlakabad against the final order No. 1425/04-NB-A
dated 20.12.2004 passed by the Customs, Excise and Service Tax Appellate
Tribunal, New Delhi in Appeal No. C-396104-NBIA by which the CESTAT has
allowed the appeal filed by the respondent.

B The brief facts leading to the filing of the present appeal are as under:

The respondent-Company i.e., Mis Prodelin India (P) Ltd. (for short
"Mis PIPL") was set up under an agreement between Mis Prodelin Corporation
U.S.A. (for short "Mis PC USA") and one Mr. Ashok Mago of New Delhi for
marketing facility for promotion and selling VSAT Antennas, accessories and
C other communication equipments, assembly of equipments, testing, servicing
etc.

As per the joint venture agreement Mis PC USA owns 75% of equity
shares in Mis PIPL which shall assemble and test feed components provided
D by Mis PC USA and will service, test and install these products. Technical
service fee was also to be paid by Mis Pl PL to Mis PC USA for the period
1.10.1997 to 30.9.1998@ US$ 25,000 per month in terms of technical service
agreement between the two companies. A copy of the joint venture agreement
dated 1.9.1997 has been filed and marked as annexure P-1.

E On the basis of the documents and information provided by the
respondent, the Dy. Commissioner of Customs, ICD, passed an order on
I 1.1.2001 for loading of 10% in the invoice value of the goods imported from
Mis PC, USA. As per the Department, Mis PIPL. India and Mis PC, USA are
related persons in terms.ofRules 2(2)(i) and 2(2)(iv) of the Customs Valuation
(Determination of Price of Imported Goods) Rules, 1988 (for short "the Rules")
F and this relationship had influenced the price of the imported goods.

Vide order dated 17.3.2004, the Commissioner of Customs (Appeal)
Delhi-II passed in Appeal No. CCA/CST/741D-II/2004 dismissed the appeal
preferred by the respondents upholding the order dated 11.1.200 I passed by
G the Dy. Commissioner, ICD. TKO. The Commissioner held that as regards the
relationship between the respondents and its foreign collaborator, it is
manifestly clear that they had a complex and interwoven relation in which the
latter did not only have 75% of the equity shares but also had their own three
of the four Directors in the Board of Directors of the respondent, therefore,
it is correctly held by the Adjudicating Authority that their foreign collaborator
H are related persons covered by Rules 2(2)(i) and 2(2)(iv) of the Rules. It also
COMMISSIONER OF CUSTOMS, NEW DELHI •·. PRODELIN INDIA (P) LTD. [LAKSHMANAN, J.j 683

held that the foreign company had a controlling interest in the activities of A
the company. It was further held that it is not a case which is covered by
Rules 4(3)(b) and 4(3)(a) of the Rules and it is clear that the relations between
the two companies would have a bearing on the value of the goods imported.

The respondent preferred an appeal against the said order of the
Commissioner of customs (Appeals), Delhi-II before the Customs, Excise and B
Service Tax Appellate Tribunal, R.K. Puram, New Delhi (for short 'CESTA T').
The CESTAT vide its impugned judgment and final order dated 20.12.2004 had
allowed the appeal and set aside the impugned order on the ground that
though the authorities were rigrt in holding that the transaction was between
related person inasmuch as the importer was a joint venture in which the C
foreign supplier was the partner, however, that by itself, was no ground to
make addition to sale price. The CESTAT has held that the reference to raw
material is for assistance in sourcing of supply. A sourcing assistance can be
required only when the sourcing is from a third party and not when it is from
one of the partners. It was submitted that the CESTAT has only half interpreted
the clause of control of foreign partner regarding source of raw material from D
where the raw material was to be procured. The other half of the clause i.e.
price in details has not been discussed at all and that the CESTAT has failed
to appreciate that in this case, the foreign company has the controlling
interest in the Indian Company and that the respondent was under obligation
to procure components only from the foreign collaborator or M/s Tata Advance E
Material Ltd. with whom the foreign collaborator has an agreement. Therefore,
the technical fees paid, have definitely influenced the price of the goods
imported. Aggrieved by the order dated 21.12.2004, the Commissioner of
Customs has come up t>efore this Court.

We have heard Mr. Harish Chandra, learned senior counsel, appearing p
for the appellant and Mr. Shyam Divan, learned senior counsel, appearing for
the respondent.

Mr. Harish Chandra, learned senior counsel appearing for the appellant
invited our attention to the orders passed by the Dy. Commissioner of Customs,
Commissioner of Appeals and by the CESTA T. He also invited our attention G
to the I988 Rules and submitted as under:

(a) The impugned final order is not sustainable since the CESTAT
has only interpreted half of the clause of control of foreign
partner regarding the source of raw material from where the raw
material was to be procured. The other half of the clause related H
684 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A to the pricing details i.e. the price of procurement has not been
discussed much less adjudicated upon.
(b) The Tribunal failed to appreciate that in this case the foreign
company i.e. M/s PC USA has the controlling interest in the
respondent-Company since 75% of the equity shares are controlled
B by the foreign company and that it has its three of the four
Directors in the Board of Directors of the respondent. Therefore,
the respondent and their foreign collaborators are related persons
in tenns of Rule 2(2)(i) and Rule 2(2)(iv) of the Rules. The Tribunal
completely failed to appreciate that this relationship had influenced
the price of the goods imported and the adjudicating authority
c was justified in loading 10% in the invoice value of the goods
imported.
(c) The Tribunal failed to consider that admittedly, during the period
from 1.10.1997 to 30.9.1998 an amount@ US$ 25000 was paid as
technical fee by the respondent to the foreign collaborator. In the
D whole, the total value of import during the period 1997-98 to 2000-
2001 (up to 25.9.2000) was US$ 25,78,837 and the total amount
of technical service paid by the respondents was US $ 2,58,000
thus the loading factor was 10% and adjudicating authority was
correct in directing the same to be added in the valuation of the
E goods imported.
(d) The Tribunal failed to appreciate that the technical fee as
mentioned above was paid not only for post operative function
but it was also for pre-operative function such as supply of
design, drawing, fabrication drawing, detailed drawing design for
manufacture of dyes, assembly testing and alignment of feed etc.
F
The Tribunal failed to consider that the imports made by the
respondent were of finished goods and component of different
sizes of VSA T Antennas do not require any post operative
function.
(e) The Tribunal failed to consider that the respondent had not
G submitted any documentary proof at any level to substantiate
their claim that the value of the imported goods is more than the ..
indigenously procured goods. The impugned final order is silent
on this crucial point while accepting the declared value as full
commercial value.
H
COMMISSIONER OF CUSTOMS, NEW DELHI 1·. PROD ELIN INDIA (P) LTD. [LAKSHMANAN, J) 685

(f) The Tribunal failed to consider that the respondent was under A
obligation to procure components from the foreign collaborator
or from Mis Tata Advance Material Ltd. with whom the foreign
collaborator Mis PC USA had an agreement. Therefore, the
technical fee, admittedly paid, has definitely influenced the price
of the goods imported.
B
Our attention was also drawn to the joint venture agreement entered
into between the parties and the salient features contained therein and in
particular, the purpose of agreement between the parties, financial participation,
Management, Obligations of the first party and of the second party, Marketing,
Competition, voti:lg and arbitration etc.
c
Per contra, Mr. Shyam Divan, learned senior counsel appearing for the
respondent drew our attention to the various clauses in the technical service
agreement and submitted that the Customs Department was of the view that
the respondent appeared to be a related person of the first party that is PC
USA in terms of Rules 2(2)(i) and 2(2)(iv) of the Rules and that as per Rule D
4(3)(a) of the Rules where the buyer and seller were related, the transaction
value shall be accepted provided that the circumstances of the sale of imported
goods indicate that the relationship did not influence the price. Hence,
according to them the declared price could not be accepted as transaction
value. Therefore, the appellant started enquiries in respect of the amount of
US $ 2,58,000 paid in two instalments by the respondent PC USA. It was E
submitted that as per Article I I para 2.1 of the Technical Service Agreement,
the respondent had to pay a sum of US $ 25000 per month to Mis PC USA.
The appellant sought clarification from the respondent on this aspect. It is
useful to refer to the letter of respondent dated I8.10.2000 that this fee was
paid to the first party for the following considerations: F
(a) free training, technical, mechanical and in the field of electronic
communication to PIPL, India staff;
(b) frequent visit of Mis PC USA's technical experts to India to guide
the PJPL staff and solve customer technical problems;
G
(c) supply of specialized fixtures free of cost for quality assurance
of the material fabricated in India;
(d) supply of electronic test gear free of cost for assembly, testing
and alignment of feeds in India;
t (e) design drawings, fabrication drawings, assistance to modify H
686 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A design and fabrication drawings to suit the material available in
India;
(f) approval of products manufactured in India in the initial stage;
(g) respond to day-to-day technical queries raised by Mis PIPL,
India and
B
(h) providing detail design drawings for manufacture of dyes in India
for on-going indigenisation program and future exports.

He further submitted that despite a categorical reply by the respondent,
which clearly shows that the technical fee of US$ 2,58,000 was paid towards
C the operation of different type to be performed in India and has nothing to
do with the price of the imported goods, the original authority took the view
that the technical assistance provided by PC, USA to the respondent is not
merely for marketing or management of imported goods but was essential for
assembly/production of the end product by using imported goods. It was
further held that the supply of electronic test gears and specialized fixtures
D has been stated to be free of cost whereas the technical service fee was paid
for these items also. Further M/s PC USA and Tata Advance Material Ltd.,
Bangalore were having collaboration agreement and M/s Tata Advance
Material Ltd. which further shows indirect control over Mis PIPL India by
M/s PC USA. It was held by the original authority that the amount paid as
E technical service fee, being the consideration for technical know-how and was
includible in the value of the imported goods in terms of Rule 9( 1)( c) of the
Rules. Since according to the adjudicating authority no separate break-up for
consultation or training had been given by the respondent, the appellant was
loaded to the import value worked out to 10% of the invoice value of the
goods imported by the respondent from Mis PC USA.
F
Aggrieved by the said order, the respondent filed appeal before the
Commissioner of Customs(Appeals), New Delhi and canvassed many
submissions. However, it was held that the respondent was under obligation
to procure components only from the foreign collaborator or from TAML with
whom the foreign collaborator had an agreement. Therefore, according to the
G appellate authority, the relation between the two would had definitely influenced
the price of the imported goods.

Learned senior counsel appearing for the respondent invited our
attention to the concluding portion of the order passed by the CESTA T which
H has held in clear terms as under:
COMMISSIONER OF CUSTOMS; NEW DELI II " PRODELIN INDIA (P) LTD. (LAKSHMANAN. J] 687

"We have perused the records and considered the submissions A
made by both sides. True, the authorities are right in holding that
transaction is between related persons inasmuch as the importer is a
joint venture in which the foreign supplier is a partner. However, that
by itself is no ground to make addition to sale price. A perusal of the
service agreement makes it clear that its area of coverage is mainly B
manufacturing, design, know-how specifications, drawings and all
types. of tooling equipment etc. The reference to raw materials is for
assistance in sourcing of supply. A sourcing assistance can be required
only when the sourcing is from a third party and not when it is from
one of the partners. It would be placing an artificial meaning to
assistance for sourcing, if sale to each other is also treated as requiring C
assistance in sourcing i.e. locating the best source or supply. We are
of the view that such an artificial meaning is not justified. There is no
other material on record to indicate that the sale price in the present
case is not a full commercial price. In these circumstances, we are of
the opinion that the transaction value between the parties cannot be D
treated as anything other than a commercial price. Such a price
commends itself as assessable value. The impugned order is not
sustainabl~. Accordingly, it is set aside and the appeal is allowed with
consequential relief, if any, to the appellant."

Elaborating his >ubmissions, learned senior counsel appearing for the E
respondent, submitted the following points:

(a) that the order of CESTAT has taken into consideration and correctly
interpreted the joint venture agreement;
(b) that the technical fee was only in respect of the assistance given F
by Mis PC USA i.e. the first party in design and assembly of
antenna system in India;
(c) that no evidence is brought on record to ·show that value of
imported finished goods does not reflect the full commercial
value; G
(d) that the department did not bring any evidence to controvert the
contents of their letter dated 18.10.2000;
(e) that the procurement of some parts from TATA Advance Material
Ltd. had no bearing on the price of the imported goods; and
H
(f) that the CESTAT has followed their earlier judgments.
688 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A Learned senior counsel appearing for the respondent has also invited
our attention to the various findings rendered by the Tribunal and of the
CESTAT with reference to the agreement and other documents.

We have given our careful consideration to the arguments advanced by
B the learned senior counsel appearing for the appellant and countered by the
learned senior counsel appearing for the respondent.

It was argued by the learned senior counsel appearing for the appellant
that the CESTAT has interpreted only half of the clause of control of foreign
partner regarding the source of raw material from where the raw material was
C to be produced. According to him, the other half of the clause related to the
pricing details i.e. the price of procurement has not been discussed much less
adjudicated upon.

The above submission, in our view, is factually as well as legally
untenable.
D
The CESTAT has in clear terms taken into consideration the various
clauses of the joint venture agreement and came to the correct conclusion
that the service agreement was mainly manufacturing, design, know-how
specifications, drawings and all types of tooling equipment etc. The reference
E to raw materials is for assistance in sourcing of supply. A sourcing assisrance
can be required only when the sourcing is from a third party and not when
it is from one of the partners. It further held that it would be placing an
artificial meaning to assistance for sourcing i.e. locating tht: best source or
supply. Therefore, the CESTAT teld in clear terms that such an artificial
meaning was not justified. Therefore, the contention of the appellant that the
F CESTAT had only interpreted half of the clause related to pricing detail is
neither factually nor legally correct.

Learned senior counsel appearing for the Department contended that
the technical fee was paid not only for post operative function but it was also
G for pre-operative function such as supply of design, drawing, fabrication
drawing, detailed drawing design for manufacture of dyes, assembly testing
and alignment of feed etc. This submission, in our view, has no force. There
is nothing in the joint venture agreement which may reveal that Mis PC USA
has charged any technical fee for any pre-operative function of the antenna
system. There is no denial of the fact that some of the parts/components of
H the antenna system were being supplied by Mis PC USA the price at which
the said parts were supplied at full commercial value without having been
COMMISSIONER OF CUSTOMS. NEW DELHI r l'RODELIN INDIA (P) LTD. [LAKSIIMANAN • .I.I 689

influenced by the joint venture agreement. A
(i) A perusal of the joint venture agreement would clearly reveal that
all the activities for which the technical fee was being paid by the
respondent was for various functions which were to be carried
out in India. It is wrong on the part of the appellant to link the
design, drawing, fabrication drawing, manufacture of dyes, B
assembly testing and alignment of feed etc. with the imported
parts being supplied by Mis PC USA. The appellant has totally
confused the issue and has wrongly linked the price of the parts
of antenna with that of the various functions which lead to the
assembly/manufacture of complete antenna for which Mis PC C
USA was to provide assistance to the respondent-Company.
There is nothing on record to show that any technical fee was
paid in respect of the godds being manufactured and supplied by
PC ·USA to the respondent.

A perusal of the details given in the letter dated 18.10.2000 and referred D
to in paras supra would clearly set the whole controversy at rest inasmuch
as there is nothing in this break up or the various consideration which could
lead to prove the department that the said technical fee related to the price
of the imported goods. In our view, the Department has wrongly interpreted
these clauses and wrongly attributed design, drawing, fabrication etc. to the
imported goods whereas a perusal of this break up clearly reveals that the E
technical fee is in respect of the various jobs/consideration which Mis .PC
USA was to perform in respect of the manufacture of the antennas system
in India. It would also be evident by the findings given by the lower authorities
and various grounds raised by the appellant before this Court that they are
drawing unwarranted inferences and trying to relate to the various activities F
I
' (
which Mis PC USA was to perform in terms of the joint venture agreement
and trying to relate the same to the imported good. Such a course on the part
of the appellant cannot be countenanced.

Further the appellant in their appeal itself have admitted at Para 2(c)
about the scope of the services which M/s PC USA was to provide to the G
respondent. A perusal of their own appeal would reveal that there is nothing
on record to show that any technical fee was being charged in respect of the
imported goods or pre-import function. Therefore, various contentions raised
by the Department, in the present appeal, are wholly devoid of any merit.

This apart, the Department has not brought any evidence on record to H
690 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A show that the relationship between the respondent and M/s PC USA has
influenced the price or value of the imported goods. There is no evidence
brought by the appellant that their relationship did influence the price of the
imported components.

It is settled law that the onus to prove that the declared price did not
B reflect the true transaction value is always on the Department. It is also a
settled law that the Department is bound to accept the transaction value
entered between the two parties. It is not the case of the Department that
M/s PC USA were exporting the identical goods to other importers at higher
price and that the Department has not made any effort to bring on record any
C evidence that identical or similar goods were imported by other importers at
higher price. Therefore, in view of the clear position of law about the acceptance
of the transaction value, the Customs authorities could not add the technical
know-how fee in respect of the post-irqiortation activities to the assessable
value of the imported goods.

D Our attention was also drawn to Rule 9(l)(c) of the Rules which reads
as under:

"9. Cost and Services- (I) In determining the transaction value, there
shall be added to the price actually paid or payable for the imported
goods, -
E
(a) ..................... .

(b) .................... ..

(c) royalities and licence fees related to the imported goods that the
buyer is required to pay, directly or indirectly, as a condition of the
F sale of the goods being valued, to the extent that such royalities and
fees are not included in the price actually paid or payable."

The original authority has ordered for loading of their value of the
imports by I0% in terms of the said Rules which provide that they shall be
G added to the price actually paid or payable for the imported goods royalities
and license 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 royalities and fees are not included in the price actually
paid or payable. However, the respondent have proved beyond doubt that
what they had· paid--to Mis PC USA was not in respect of the value of the
H imported goods but the technical fee for po~t-importation operation.
COMMISSIONER OF CUSTOMS. NEW DELHI 1·. PRODELIN INDIA (I') LTD. [LAKSHMANAN. J.J 69 J
•
The Department, in their grounds of appeal, before this Court relied A
upon the provisions of Rules 2(2)(i) and 2(2)(iv) and also Rules 4(3)(a) and
4(3)(b) of the Rules. For the sake of convenience, the Rules on which the
Department is relying upon are reproduced hereinbelow:

"Rule 2(2)(i): they are officers or directors of one another's businesses:
B
Rule 2(2)(ii) ..................... ..

Rule 2(2)(iii) ...................... .

Rule 2(2)(iv): any person directly or indirectly owns, controls or holds
5 per cent or more of the outstanding voting stock or shares of both C
of them;"

"Rule 4(3)(a) Where the buyer and seller are related, the transaction
value shall be accepted provided that the examination of the
circumstances of the sale of the imported goods indicate that the
relationship did not influence the price.
D
Rule 4(3)(b) In a sale between related persons, the transaction value
shall be accepted, whenever the importer demonstrates that the declared
value of the goods being valued, closely approximates to one of the
following values ascertained at or about the same time -

(i) the transaction value of identical goods, or of similar goods, in E
sales to unrelated buyers in India;

(ii) the deductive value for identical goods or similar goods;

(iii) the· computed value for identical goods or similar goods."
F
Even assuming for argument's sake that the respondent and Mis PC
USA are related persons even in that case their transaction value is to be
accepted provided that the examination of the circumstance~ of the sale cf
the imported goods indicate that the relationship did not influence the price
and the importer demonstrates that the declared value of the goods being
valued, closely approximates to the value for identical goods or similar goods. G
In the present case, a perusal of the order-in-original would reveal that the
loading was ordered in terms of Rule 9(1 )(c) of the Rules. There was no
challenge to the value declared by the respondent before the Customs
Authorities. There was also no finding in the Order-in-original that the value
was not increased with Custom Valuation Rules, 1988 read with Rules 2(2)(i), H
692 SUPREME COURT REPORTS (2006] SUPP. 5 S.C.R.

A 2(2)(iv), 4(3)(a) and 4(3)(b). •
However, in the grounds of appeal, it is not the case of the Department
that the value requires to be loaded because of the provisions of Rule 9( I)( c).
But the Department is treating the respondent and Mis PC USA as a related
person and straightaway invoked Rule 4(3)(a) or 4(3)(b). The Department, in
B our view, cannot adopt such a course unless it is alleged that some evidence
is brought on record that the prices at which Mis PC USA had supplied the
imported goods to the respondent was not reflecting the correct transaction
value. Therefore, their appeal is contrary to the grounds on which the original
authority had ordered loading of the assessable value. The appellate authority
C also held that the loading was required in view of rule 9(1 )(c) of the Rules.
The appellate authority, in fact went beyond the scope of the Order-in-
Original and gave findings which were contrary to the Order-in-original. He
entered into the issue of share holding and held that it was not a case which
was covered by Rule 4(3)(a) and (b). Some of the findings rendered by the
appellate authority is unwarranted and that the first appellate authority could
D not have given unsubstantiated findings and could not upheld the order of
the original authority on the ground different from the findings of the
adjudicating authority. Therefore, viewed from any angle, the appeal filed by
the Department is wholly misconceived.

In the instant case, the appellant had reproduced the contents of their
E letter dated 18.10.2000 wherein they had brought on record the considerations
for which they had paid fee to Mis PC USA and had nothing to do with the
imported goods and Mis PC USA was only supplying the parts of antenna
systems and not a complete antenna. This letter has been reproduced in the
order of the Deputy Commissioner. However, he did not controvert the
p contentions raised by the respondent before him but went on to load the
assessable value by I0% in terms of rule 9( I)( c). When the respondent had
taken a categorical stand ab(lut the nature of technical fee to be paid to
Mis PC USA and it was clearly contended that it was for post-importation
activity, it was obligatory on the part of the original authority to have
controverted the contents of the said letter. He simply ignored the same and
G went on to pass an adverse order. In the appeal also, the Department have
accepted the same. Therefore, in the absence of anything brought on record
contrary to the submissions of the respondent, the nature of technical fee,
it is not open for the appellant to justify the loading of 10% in the invoice
value ordered by the original authority.
H
COMMISSIONER OF CUSTOMS. NEW DELHI r. PRODELIN IND!A (!')LTD. [LAKSHMANAN •.I.} 693

We shall now consider the arguments advanced by learned counsel A
appearing for the respondent that the procurement of some parts from Mis
Tata Advance Material Ltd. had no bearing on the price of the imported
goods. In this connection, we have perused the joint venture agreement
which would reveal that there is nothing in that agreement which would put
the respondent under obligation to procure component from the foreign
collaborator or from Mis Tata Advance Material Ltd. with whom the foreign B
collaborator had an agreement. It has already been stated in paragraphs supra
that the respondent was procuring only one component from Mis PC USA.
Even if respondent was procuring certain components from Mis Tata Advance
Material Ltd. that had no bearing on the price/value of the imported goods.
Mis Tata Advance Material Ltd. were manufacturing the components C
indigenously and had nothing to do with the imported material. Further, the
mere fact that Mis PC USA had any agreement with Mis Tata Advance
Material Ltd. had nothing to do with the price of the feed horn which was
being supplied by Mis PC USA to the respondent. Mis Tata Advance Material
Ltd. were manufacturing some components indigenously, namely, retlector
and metal structure. Therefore, the Department's case that the technical fees D
had intluenced the price of the goods imported is factually incorrect and
baseless.

Mr. Shyam Divan, learned senior counsel, cited some decisions. He also
relied on two decisions cited by the respondent before the CESTAT which E
are:

1. Daewoo Motors India ltd. v. Commissioner of Cusloms.
New Delhi, (2000) 115 EL T 489 (T) and

2 NEG Micon (India) Pvt. ltd. v. Commissioner of Customs,
Chennai, (2004) 170 EL T 29 F

We have perused these two judgments. Jn these two judgments, it was
.. clearly held that the technical know-how fee and service fee if paid by the
importer if it related to manufacture of wind turbine generator in India and
service thereof and not in respect of parts/components imported by them - G
license fee not payable as a condition of sale of imported goods License fee
not satisfy the required conditions under Rule 9(1)(c) of the Rules for being
added to the assessable value of the imported goods.

This apart, the Department has not advanced any argument as to how
the Tribunal erred in following their earlier judgments on the identical issue. H
694 SUPREME COURT REPORTS [2006] SUPP. 5 S.C.R.

A When the law has been laid down by the CESTAT itself in a number of earlier •
judgments, it only followed the same in the facts and circumstances of the
present case. Therefore, now it is not open for the Department to persuade
this Court to reverse the order which is based on the earlier judgments of the
CEST AT wherein correct view has been taken by it.

B I-le also cited some judgments on Rule 9(1)(c) of 1988 Rules and on
Section 14 of the Customs Act. 1962.
... '
In Eicher Tractors ltd. Haryana v. Commissioner of Customs, Mumbai,
[200 I] 1 SCC 315, this Court, in paragraph 6, held as under:

c "6. Under the Act customs duty is chargeable on goods. According
to Section 14( 1) of the Act, the assessment of duty is to be made on
the value of the goods. The value may be fixed by the Central
Govemmnt under Section 14(2). Where the value is not so fixed, the
value has to be determined under section 14(1). The value, according,
to Section 14(1), shall be deemed to be the price at which such or like
D
goods are ordinari~v sold, or offered for sale. for delivery at the time
and place of importation-in the course of international trade. The
word "ordinarily" necessarily implies the exclusion of"extraordinary"
or "special" circumstances. This is clarified by the last phrase in
Section 14 which describes an "ordinary" sale as one "where the seller
E and the buyer have no interest in the business of each other and the
price is the sole consideration for the sale..... ". Subject to these three
conditions laid down in Section 14( 1) of time, place and absence of
special circumstances, the price of imported goods is to be determined
under Section 14(1-A) in accordance with the Rules framed in this
behalf."
F
In Commissioner of Customs, Mumbai v. Bureau Veritas and Ors.,
[2005] 3 SCC 265, this Court in paragraphs 17, 18, 20 and 21 held as under:

"17. It is true that the Rules are framed under Section 14(1-A) and
..
are subject to the conditions in Section 14(1). Rule 4 is in fact directly
G relatable to Section 14(1). Both Section 14(1) and Rule 4 provide that
the price paid by an importer to the vendor in the ordinary course of
commerce shall be taken to be the value in the absenct> of any of the
special circumstances indicated in Section 14( 1) and particularised in
Rule 4(2).
H
COMMISSIONER OF CUSTOMS, NEW DELHI r. PRODELIN INDIA (P) LTD. [LAKSHMANAN, J.] 695

18. Rule 4( I) speaks of the transaction value. Utilization of the A
definite article indicates that what should be accepted as the value for
the purpose of assessment to customs duty is the price actually paid
for the particular transaction, unless of course the price is unacceptable
for the reasons set out in Rule 4(2). "Payable'' in the context of the
language of Rule 4( 1) must, therefore, be read as referring to "the
particular transaction" and payability in respect of the transaction B
envisages a situation where payment of price may be deferred.

20. It is only when the transaction value under Rule 4 is rejected,
that under Rule 3(ii) the value shall be determined by proceeding
sequentially through Rules 5 to 8 of the Rules. Conversely, if the C
transaction value can be determined under Rule 4(1) and does not fall
under any of the exceptions in Rule 4(2), there is no question of
determining the value under the subsequent rules.

2 J. The scope for interference with findings recorded by the
Tribunal if it has kept in view the correct legal position, has been dealt D
with by this Court in many cases. The position was illumina .1gly
stated by this Court in Collector of Customs, Bombay v. Swastic
Woollens (P) ltd. and Ors, [1988] Supp SCC 796."

Learned counsel for the Department cited some decisions. However, the
judgments cited by learned counsel for the appel.lant are not applicable to the E
facts and circumstances of the case and are distinguishable on facts and on
law and those cases have been decided on the peculiar facts of those cases.

In the instant case, we have elaborately considered the entire facts and
circumstances of the case with reference to the agreement entered into between
the parties and also decided the case on the provisions of the Rules. F
In our opinion, the various contentions raised by the Department, in the
.. present case, are wholly devoid of any merit. In the result, the appeal stands
dismissed. However, there shall be no order as to costs.

RP. Appeal dismissed. G