2004 (97) ECC 179 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(A)

Hon'ble Justice K.K. Usha, President and Shri C.N.B. Nair, Member (T)

L.M. Glasfibre (India) Pvt. Ltd.

Versus

CC, Chennai

Appeal No. C/332/2003-NB(A)

[Arising out of Order-in-Appeal No. C.Cus. 253/2003 dated 30.5.2003 passed by the Commissioner of Customs (Appeals), Chennai]

Final Order No. 426/04-NB(A) dt. 14.5.2004, Certified on 1.6.2004

Assessable Value (Customs)

Transfer of Production Know-how -- Lump sum fee of 7.5 million DKK for transfer of production know-how related to manufacture of rotor blades of wind mills cannot be added to the value of the imported goods under Rule 9(1)(c) of Customs Valuation Rules, 1988 as it was not royalties and licence fee related to the imported goods and that the buyer was not required to pay licence fee as a condition of the sale of the goods-- No clause in the agreement which would show that know-how licence fee or any part of it was being paid and the know-how transfer is made subject to the condition that the mould will be imported from the foreign collaborator.

[Paras 4 & 7]

Appeal allowed

PRESENT :

Shri R. Parthasarthy, Adv. for the appellant.

Shri S.M. Tata, SDR for the respondent.

Cases Cited :

1. Mando Brake Systems v. CC, Chennai, 2004 (91) ECC 633............................... [Para 4]

2. Panalfa Dongwon v. CC, Mumbai, 2003 (88) ECC 824 (Tri.-LB).......................... [Para 4]

3. Polar Marmo Agglomerates v. CC, Delhi, 2003 (88) ECC 493 (LB)...................... [Para 4]

4. S.D. Technical Service v. CC, New Delhi, 2003 (88) ECC 236............................ [Para 4]

Per : Justice K.K. Usha

In this appeal at the instance of the Importer the issue that has come up for consideration is whether total lump sum fee of 7.5 million DKK for transfer of production know-how related to manufacture of rotor blades of wind mills is to be added to the value of the imported goods under Rule 9(1)(c) of Customs Valuation Rules, 1988. Appellant is a joint venture company formed by three joint ventures, namely, M/s. L.M. Glasfibre A/S (LMG) Denmark, the Industrialization Fund for Developing Countries (IFU) Denmark and NEPC Micon Limited. Initially the shareholding was in the ratio of 45% : 39% : 16%. With effect from 19.6.2002 LMG acquired 100% of the shareholdings of the appellant company with the approval of FIPB Authorities.

2. Appellant company was formed with the objective of manufacturing blades for wind turbine generators. They entered into three separate agreements with LMG on the following terms:

S.No. | Date of Agreement | Purpose | Item | Consideration
1. | 22.4.1994 | Production know-how | 2 models of rotor blades viz., LM 12HHT & LM 13.4 | DKK 2.5 million
2. | 15.12.1997 | -do- | LM 14.4. Rotor Blade | DKK 1 million
3. | 17.1.2000 | -do- | LM 15.4 Rotor Blade | DKK 4 million
|  |  | Total | DKK 7.5 million

3. The appellant had imported raw materials (Glass Fibre, Polymers) Components (Tip Brake System) and capital goods (moulds for blades) from LMG. The assessing authority under order dated 23.1.2001 held that the supplier and appellants are related and know-how transfer fee of DKK 7.5 million is addable to transaction value as per Rule 9(1)(c) of the Customs Valuation Rules, 1988. On appeal by the assessee the Commissioner (Appeals) by order dated 14.8.2001 held that the know-how payment has nothing to do with the components imported as it related to manufacture of the final products and, therefore, the fee cannot be loaded in the transaction value under Rule 9(1)(c). Department took up the matter in appeal before the Tribunal and the Tribunal remanded the case to the Commissioner (Appeals) for de novo adjudication. On remand, the Commissioner (Appeals) by order dated 30.5.2003 confirmed the adjudication order. Aggrieved by the above the assessee has come up in appeal.

4. It is contended on behalf of the appellant that the technical know-how fee paid by the appellant to the foreign collaborator does not satisfy the two conditions required under Rule 9(1)(c) for being added to the transaction value. It was not royalties and licence fee related to the imported goods and that the buyer was not required to pay licence fee as a condition of the sale of the goods. The lump sum know-how fee is paid towards technical know-how, namely, suppliers' technical expertise in the manufacture of the products in India in the form of engineering drawings, material specification, work process sheets, lamination schedule, photos showing tools and moulds specification and quality assurance manual. Technical knowledge provided is for the manufacture of blades of wind turbines in India and for training which are all post importation activities. They are not related to the capital goods (moulds) or other raw material/components imported. It is also contended that no part of the agreement stipulates that the lump sum know-how fee is a condition of the sale of the goods which are imported. Learned Counsel for the assessee placed reliance on the decision of this Tribunal in --

(1) M/s. Mando Brake Systems India Ltd. v. CC, Chennai, 2004 (91) ECC 633 : 2004 (163) ELT 333.

(2) M/s. S.D. Technical Service v. CC, New Delhi, 2003 (88) ECC 236 : 2003 (155) ELT 274 (Tr.-L.B.).

(3) Panalfa Dongwon India Ltd. v. CC, Mumbai, 2003 (88) ECC 824 (Tri.-LB) :2003 (155) ELT 287 (Tr.-L.B.)

(4) M/s. Polar Marmo Agglomerates Ltd. v. CC, New Delhi, 2003 (88) ECC 493 (LB) : 2003 (155) ELT 283

5. We heard the learned Department Representative who made submissions in support of the view taken by the Commissioner (Appeals). Commissioner (Appeals) took the view that technical know-how transfer contained a complete package right from the stage of setting up of the rotor blades shop up to the stage of improvisation of design with various quality monitoring information which is essential to convert the said raw materials/components into the finished products. Apart from the above since the capital goods and components have been put into use based on the technical information provided by the foreign supplier the importer of such goods would be relatable to the technical know-how fee.

6. According to the Commissioner imported goods are used for the generation of licensed products (rotor blades) and, therefore, technical licence fee is liable to be added under Rule 9(1)(c).

7. We have gone through the terms of the agreement or know-how transfer. Appellant has the right to manufacture sell rotor blades covered by the agreement in India. The foreign collaborator agreed to transfer over the period of the contract its production know-how related to rotor blades. Know-how transfer of rotor blade comprises of (1) Engineering Drawings (2) Material Specifications (3) Work Process Sheets (Work Instructions) (4) Limitation Schedule (5) Tool & Mould Specifications (Photos) and (6) QA Manual. Licence fee is payable for the transfer of production know-how as above. We do not find any merit in view taken by the Commissioner that such licence fee paid in respect of transfer of know-how for production of rotor blade in India are to be added to the capital, raw materials and other components imported for the manufacture of rotor blade. The fee is not related to the imported goods. Learned Departmental Representative submitted that since Tool and Mould Specifications are part of the agreement for transfer of know-how it has to be taken that the importer of the Moulds would take in a conditional sale. We are not able to accept this contention also. No clause in the agreement is brought to our notice which would show that know-how licence fee or any part of it was being paid and the know-how transfer is made subject to the condition that the mould will be imported from the foreign collaborator. According to us both the conditions required under Rule 9(1)(c) are not satisfied in the present case. Reliance placed by the learned Counsel on certain decisions of this Tribunal is fully justified. The ratio of those decisions would support the appellants contention.

8. In view of the above we set aside the order impugned and allow the appeal.

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