1. The question for consideration in this appeal is the liability to duty to the amount paid by the appellant to ABB Electrocondutture, Italy for the technical know-how that it proposed to acquire from it.
The appellant entered into an agreement with the Italian company for manufacture of earth leakage circuit breakers. The agreement provided that the appellant would manufacture DS-910 and DS-710 "ELECTROSTOP" earth leakage miniature circuit breakers as furnished by the Italian company. Clause 7 of the agreement provided that in consideration for know-how and technical, devices and data that the foreign company was to supply, the appellant was to pay to it a lump sum amount of DM 1 lakh and royalty at the rate of 3% of the invoiced selling price of the goods that it was to manufacture. It is this amount that has been ordered to be included in the parts of the circuit that the appellant imported.
2. The contention of the counsel for the appellant is that unless the royalty and licence fees which the buyer is required to pay are not directly or indirectly, as a condition of the sale of the imported goods there seems would not form part of their value. This requirement contained in Rule 9(1)(c), he says, would clearly not apply to the facts before us. The fees for payment of know-how either as lump sum or royalty are clearly not conditional upon the sale of the goods and are completely independent of it, even if contained in the same agreement.
He relies upon the decision of the Tribunal's decision in CC v. Maruti Udyog Ltd. - 1987 (28) E.L.T. 390.
3. The departmental representative contends that there is a single agreement and the amounts described as royalty in fact represents the price payable for the goods.
4. We do not agree with this contention of the departmental representative. Clause 1.2 of the agreement defines "know-how" to mean and include "all inventions processes, patents, engineering and manufacturing skills and other technical information, whether patented or unpatented and whether or not patentable which are freely owned by EC (Italian company) on the date hereof and which is necessary in the reasonable opinion of EC to enable MDS (the appellant) to manufacture the product and which relates to the matters described in Appendix II hereto." Clause 7 specifically says that the payment of lump sum and royalty are in consideration of the Italian company having disclosed the know-how and technical devices and data. Ninety five per cent of this lump sum shall be towards transfer to current knowhow and the balance 5% is for transfer of knowhow, relating to improvement made by the Italian company for the product during the pendency of the agreement. The royalty is at 3% of the invoiced selling price of the goods. It is clear from the terms of this agreement, particularly these clauses, that payment of either of these amounts was not a condition for sale of the goods under consideration but was relatable to the manufacture of the goods subsequent to the importation. The ratio of the decision of the Tribunal in CC v. Maruti Udyog Ltd. cited by the appellant that royalty paid for indegenuously manufactured goods is not relevant for determination of the assessable value of the goods imported from the foreign collaborators when such payment is not a condition of sale would apply.