COMMNR. OF CUSTOMS EXCISE, NEW DELHIversusMIS. LIVING MEDIA (INDIA) LTD.

                   [2011] 13 (ADDL.) S.C.R. 772


A        COMMNR. OF CUSTOMS EXCISE, NEW DELHI
                                  v.
                  MIS. LIVIN(3 MEDIA (INDIA) LTD.
               (Civil Appeal Nos.· 8627-8628 of 2002)
                         AUGUST 17, 2011
B
               [DR. MUKUNDAKAM SHARMA AND
                      ANIL R. DAVE, JJ.]

        Customs Valuation (Determination of Value of Imported
C Goods) Rules, 2007 - rr. 2(f),3,4 and 9(1)(c) - Determination
   of value of imported goods - Method of valuation - Valuation
   of recorded audio cassettes/CDs imported by respondents-
   assessees - Whether the value of the royalty required to be
   paid by the respondents-assessees for the imported goods
D was to be included in the transaction value of the imported
   goods for the purpose of customs duty assessment - Held:
   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
E that the buyer is required to pay, directly or indirectly, as a
   condition of sale of goods - In all the cases in consideration,
   there is no dispute that the cassettes under question were
  brought to India as pre-recorded cassettes which carried the
  music or song of an artist - There was an agreement existing
F in all the matters that royalty payment was towards money to
  be paid to artists and producers who had produced such
  cassettes - Such royalty became due and payable as soon
  as cassettes were distributed and sold and therefore, such
  royalty became payable on the entire records shipped less
G records returned - It could therefore, be concluded that the
  payment of royalty was a condition of sale - When pre-
  recorded 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, value
H                                772
  COMMNR. OF CUSTOMS EXCISE, NEW DELHI v. LIVING            773
                MEDIA(INDIA) LTD.

of the royalty paid is to be included in the transaction value -   A
Customs Act, 1962 - s.14.
    The valuation of the recorded audio cassettes/CDs
imported by respondents-assessees was the subject
matter of the instant appeals. The question which arose            6
for consideration was whether the value of the royalty
required to be paid by the respondents-assessees for the
imported goods was to be included in the transaction
value of the imported goods for the purpose of customs
duty assessment.
                                                                   c
     Disposing of the appeals, the Court

      HELD: 1. Section 14 of the Customs Act, 1962 deals
 with valuation of goods for the purpose of assessment.
 In exercise of the power vested under the Customs Act,            o
 the Central Government made Customs Valuation
 (Determination of Value of Imported Goods) Rules, 2007.
 Rule 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 whereas Rule 3 of the Rules deals        E
 with the determination of the method of valuation. [Paras
 24, 25 and 26] [781-B; 782-F-H]

      2. The issue for consideration herein appears to be
  answered by the decision in Associated Cements
  Companies Ltd.* In the said decision the Supreme Court F
  had stated clearly that if a pre-recorded 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 G
  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 pre-recorded
  music cassette is imported as against the blank cassette, H
    774   SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A 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. In
B all the cases in consideration, there is no dispute that the
  cassettes under question were brought to India as pre-
  recorded cassettes which carried the music or song of
  an artist. There was an agreement existing in all the
  matters that royalty payment was towards money to be
c paid to artists and producers who had produced such
  cassettes. Such royalty became due and payable as soon
  as cassettes were distributed and sold and therefore,
  such royalty became payable on the entire records
  shipped less records returned. It could therefore, be
D concluded that the payment of royalty was a condition
  of sale. [Paras 32, 33] [787-8-G]

        Associated Cement Companies Ltd. v. Commissioner of
    Customs (2001) 4 SCC 593: 2001 (1) SCR 608 - relied on.

E        Commissioner of Customs v. Ferodo India Pvt. Ltd. 2008
    (4) SCC 563: 2008 (3) SCR 147; Collector of Customs
    (Prev.), Ahmedabad v. Essar Gujarat Ltd., 1996 88 ELT 609
    (S.C.) - referred to.
                        Case Law Reference:
F
     2008 (3) SCR 147           referred to    Para 29
     1996 88 ELT 609 (S.C.)     referred to    Para 30
     2001 (1) SCR 608           relied on      Para 31, 32, 34
G
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    8627-8628 of 2002.

      From the Judgment & Order dated 23.01.2002 of the
  Customs Excise and Gold Control Appellate Tribunal, New
H Delhi in Appeal No. C/405 & C/414/2001-A.
 COMMNR. OF CUSTOMS EXCISE, NEW DELHI v. LIVING              775
               MEDIA(INDIA) LTD.
                               WITH                                  A
C.A. Nos. 2959 of 2008, 4751, 2832 of 2006 & 1 of 2009.

     Mukul Gupta, Shalini Kumar, Arun Krishnan, B.K. Prasad,
Anil Katiyar, Balbir Singh, Abhishek Singh Baghal, Rupender
Sinhmar, Rajesh Kumar, B.V. Bairam Das, Alok Yadav, Krishna          B
Mohan, V. Balachandran, E.C. Agrawala for the appearing
parties.

    The Judgment of the Court was delivered by

     DR. MUKUNDAKAM SHARMA, J. 1. The Civil Appeal C
Nos. 8627-8628 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 f'lo. 2959 of 2008, Civil
Appeal No. 4751 of 2006, Civil Appeal No. 2832 of 2006 and D
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 16.10.2008
respectively.                                                       E
CIVIL APPEAL NOS. 8627-8628 of 2002

     2. The 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            F
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/          G
duplication of various music titles on compact discs.

    3. The Respondent has entered into an agreement for
rendering services ~ith Mis. World Media India Ltd., New Delhi,
which provides m'asters· to the Respondent and Respondent in         H
    776    SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A turn sends these masters to Australia for replicating the musical
  work on compact discs (CDs)."

       4. The Respondent imported a consignment of Audio
  Compact Discs from Singapore vide Biil of Entry No. 659308
  dated 27.05.1998 for home consumption. Customs duty was
8
  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 Disc::s 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
C Australian Dollar. The dispute regarding the valuation of these
  consignments imported by the Respondent herein is the subject
  matter of these appeals.                                  ·

       5. The Assistant Commissioner vide order dated
D 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
E of those claimed towards expenses on royalty and
  advertisement and publicity and the assessable value was
  determined as Rs.199 per CD.

       6. Aggrieved by the aforesaid order of the Assistant
  Commissioner, the Respondent - assessee filed appeals
F 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
G of the Commissioner (Appeals) dated 12.06.2001.

   CIVIL APPEAL NO. 2959 of 2008

      7. The present appeal is filed against the judgment and
H order of CESTAT passed on 21.09.2007 whereby the appeal
 COMMNR. OF CUSTOMS EXCISE, NEW DELHI v. LIVING          777
  MEDIA (INDIA) LTD. [DR. MUKUNDAKAM SHARMA, J.]

filed by the Revenue was rejected and the order of the           A
Commissioner of Customs (Appeals) dated 18.09.2006, was
upheld.

      8. The facts leading to the filing of the present appeal are
that the case of import of goods by respondent M/s Sony BMG 8
Music Entertainment (I) Pvt. Ltd. from supplier Mis 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 C
 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 D
 Customs Duty assessment. Payment of royalty was held to be
 condition for sale at some subsequent stage in the commercial
 history of the CDs.

     9. Being aggrieved by the said order, the Respondent        E
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        F
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.

CIVIL APPEAL NO. 4751 of 2006                                    G

      10. The 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.           H
     778   SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.

A          11. The 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 Mis 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
s   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.
c      12. Aggrieved 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
D the copyright fees payable on the resale of records. Aggrieved
  by the aforesaid order of the r.ommissioner (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
E order of the assessing authority dated 17 .08.2000.

    CIVIL APPEAL NO. 2832 of 2006

        13. The present appeal is filed against the judgment and
  order of CESTAT passed on 02.09.2005 whereby the appeal
F filed by the Responder.! - assessee was allowed and the order
  of the Commissioner of Customs (Appeals) dated 20.11.2002,
  was set aside.
       14. The facts leading to the filing of the present appeal are
G 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
H
 COMMNR OF CUSTOMS EXCISE, NEW DELHI v. LIVING                779
  MEDIA (INDIA) LTD. [DR MUKUNDAKAM SHARMA, J]
agreements (licensing etc.) with their foreign collaborator and       A
associates.

      15. The 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
                                                                      8
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          C
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.
                                                                      D
     16. The 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          E
Corporation of America cannot be included in the price of the
imported goods. Hence, this civil appeal by the Department.

CIVIL APPEAL NO. 1 of 2009

      17. The present appeal is filed against the judgment and        F
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.
                                                                      G
      18. 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
                                                                      H
    780     SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A companies. Their company is a 100% subsidiary of Universal
  Music Holding, Netherlands.

       19. The 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
8
  transaction value of Audio Compact Disc imported from
  Universal Manufacturing and Logistics, Germany.

        20. As per the agreement entered into with the foreign
  collaborator the Indian company was required to pay royalty at
C the rate of 15% at the retail sale price of the goods to the foreign
  supplier. Since the importer was a 100% subsidiary con")Pany,
  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
D 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,
E 1988.
       21. Aggrieved 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
F 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.

G        22. Since all these appeals involve almost similar facts and
    the issues raised therein also being similar, we pro~se to
    dispose of all these appeals by this common judgment and
    order.
          23. The learned counsel appearing for the parties made
H
  COMMNR. OF CUSTOMS EXCISE, NEW DELHI v. LIVING            781
   MEDIA (INDIA) LTD. [DR. MUKUNDAKAM SHARMA, J.]

extensive arguments and drawn our attention to the relevant · A
materials on record also. On the basis of the same, we proceed
to answer the issue that arises for our consideration.

    24. In order to appreciate the contentions of the parties,
we propose to extract the provisions of Section 14 of the           8
Customs Act, 1962 which deals with valuation of goods for the
purpose of assessment. The said section reads as follows:-

    "14. Valuation 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    C
    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         D
    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;
                                                                    E
     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,         F
     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, -                                                 G
      (i)    the circumstances in which the buyer and the seller
             shall be deemed to be related;

      (ii)   the manner of determination of value in respect of
                                                                    H
     782    SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A                  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;

           (iii)   the manner of acceptance or rejection of value
                   declared by the importer or exporter, as the case
B
                   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:

c                  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.
D
                   (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,
E
                   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."

F       25. In 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").

G        26. Rule 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 as
    follows:-
H
 COMMNR. OF CUSTOMS EXCISE, NEW DELHI v. LIVING            783
  MEDIA(INDIA) LTD. [DR. MUKUNDAKAM SHARMA, J.]

    "Determination of the method of valuation.- For the           A
    purpose of these rules -

    (i) subject to rules 9 and 10-A the value of imported goods
    shall be the transaction value;

    (ii) if the value cannot be determined under the              B
    provisions of Cl. (i) above, the value shall be determined
    by proceeding sequentially through rule 5 to 8 of these
    rules."

     27. What is transaction value is stated in Rule 4 in the     c
following manner:-

          "4. Transaction value - (1) The transaction value
    of imported goods shall be the price actually paid or
    payable for the goods when sold for export to India,
    adjusted in accordance with the provisions of Rule 9 of       D
    these rules."

    28. Rule 9(1 )(c) of the Rules states as follows:-

    "9. Costs and services (1) In determining the transaction     E
    value, there shall be added to the price actually paid or
    payable for the imported goods -

    ***** ***** ***** *****

     ***** ***** ***** *****                                      F

     (c) - royalties 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 royalties and fees are not   G
     included in the price actually paid or payable."

     29. In 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           H
    784      SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A appeals. The relevant portion of which is extracted herebelow:


           "16. Under Rule 9(1)(c), the cost of technical know-how and
          payment of royalty is includible in the price of the imported
          goods if the said payment constitutes a condition
B
          prerequisite for the supply of the imported goods by the
          foreign supplier. If such a condition exists then the payment
          made towards technical know-how 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
c         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
D      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
E      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 know-how in the
F      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.

G             19. Rule 9(1 )(c) stipulates that payments made
       towards technical know-how 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
 COMMNR. OF CUSTOMS EXCISE, NEW DELHI v. LIVING            785
  MEDIA(INDIA) LTD. [DR. MUKUNDAKAM SHARMA, J.]

    know-how is included if the same is to be paid, directly or A
    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 know-how. Therefore, the Department B
    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 c
     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 D
     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 know-how which is
     paid to the foreign supplier. Therefore, such adjustments E
     would certainly attract Rule 9(1))(c)."

    30. While 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         F
hearing of the appeals.

     31. There 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 G
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:-
                                                                 - -H -
    786     SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R


A         "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
B         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 several times more than the value of
c         a blank cassette. However, if a pre-recorded 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.

D



                 44. It is a misconception to CO!ltend that what is being
          taxed is intellectual input. What is being taxed under the
E         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 encyclopaedia or the engineering drawings as the
F         case may be. There is no scope for splitting the
          engineering drawing or the encyclopaedia into intellectual
          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
G         portrait may be specially commissioned or an article may
          be tailor-made. 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
H
 COMMNR. OF CUSTOMS EXCISE, NEW DELHI v. LIVING               787
  MEDIA (INDIA) LTD. [DR. MUKUNDAKAM SHARMA, J]

    though the composite product, i.e., the painting, is worth        A
    millions."

     32. The 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
                                                                      B
decision this Court had stated clearly that if a pre-recorded
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 acfually paid or
payable for the imported goods, royalties and the license fees        C
related to the imported goods that the buyer is required to pay,
directly or indirectly, as a condition of sale of goods. Therefore,
when pre-recorded 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       D
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.

     33. In all these cases, there is no dispute that the cassettes   E
under question are brought to India as pre-recorded 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                 F
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            G
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
                                                                      H
    788     SUPREME COURT REPORTS [2011] 13 (ADDL.) S.C.R.


A only to give interpretation of the same and apply the same to
  the facts of the present case.

       34. Considering/Looking at the decision of this Court in
  the case of Associated Cement Companies Ltd. [supra] and
B 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. 8627-8628 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.
C We leave the parties to bear their own costs.

   B.B.B.                                  Appeals disposed of.