Full Judgment
The appellants M/s WeP Peripherals, Mysore are the manufacturers of computer printers and parts and accessories which are all excisable commodities. They imported various parts of computer printers including the impugned goods namely shuttle assembly imported under Bill of Entry dated 21st January 2003. The Revenue conducted certain investigations and found that the shuttle assembly is not entitled for the benefit of concessional rate of duty under Notification No. 21/2002-Cus dated 1.3.2002 as the said assembly had many built in Populated Printed Circuit Boards (PPCB) and as per the explanation given in Sl. No. 276 of the said Notification, the exemption will not be available in the case of an assembly which includes PPCBs. It was further noticed that the appellants paid royalty on the printers manufactured by them in terms of the agreement entered with the foreign licensor. The Revenue felt that they were required to include the value of the royalty in the assessable value of shuttle assembly imported by them. Even before the issue of show cause notice, they paid an amount of Rs. 1,03,82,001/- on 4.3.2003.
Revenue issued show cause notice dated 7.7.2003 proposing demand of differential duty along with interest under Section 28AB and further penal action under Section 114A of the Customs Act 1962 in respect of the above mentioned violations. Apart from inclusion of royalty, the valuation of the impugned goods was under dispute. The Commissioner of Customs subsequently, passed the impugned order demanding a differential duty amounting to Rs. 99,66,131/- along with interest under Section 28AB of the Customs Act 1962. Equal penalty under Section 114A was also imposed. The appellants are aggrieved over the impugned order and have come before this Tribunal for relief.
3. Shri B.V. Kumar, the learned advocate appeared for the appellants and Shri K.S. Reddy learned JDR appeared for the Revenue.
i) The royalty is paid for granting the license to manufacture printers in India using the technical information owned by the foreign supplier and has no nexus with the shuttle assembly imported from the foreign supplier.
ii) There is nothing on record to show that royalty paid to the foreign supplier in terms of manufacturing agreement is a condition of sale of the impugned goods namely shuttle assembly.
iii) Relying on the Tribunal's decision in the case of Collector of Customs v. Maruti Udyog Ltd (T) upheld by the Apex Court, the learned advocate contended that any consideration paid under technical agreement for manufacturing goods in India and importing of critical components (shuttle assembly in this case) under the said agreement would not by itself lead to conclusion that the payment of such consideration is a condition for sale and therefore, is liable to be included in the transaction of such imported components unless it is clearly proved that the payment of such royalty has a nexus with the import of the said component.
iv) There is nothing in the manufacturing agreement to indicate that any part of royalty is intended to cover any part of the price of the component and the royalty has nothing to do with the supply of the component or the price of the component.
v) The Commissioner failed to appreciate that in the present case, they had an option to procure components from the sources other than Printronix (foreign supplier) and irrespective of such sourcing of components, they are liable to pay the royalty, which fact indicates that there is no nexus between the import of components and payment of royalty.
vi) The Commissioner ignored negotiated discounted values in respect of certain specific imported consignments cleared vide Bills of entry No. 361784 dated 13.11.2001 (US$ 588.74, 367627 dated 19.12.2001 (US$ 588.74) 426135 dated 17.9.2002 (US$ 452) 445578 dated 4.12.2002 (US$ 452) and 450331 dated 23.12.2002 (US$ 452) and adopted a value of US$ 612 as per the manufacturing agreement for demanding differential duty on the ground that the appellants have not furnished any revised agreement or amendment to the agreement on prices duly approved by both the parties.
vii) Even though a price existed for the impugned goods in terms of the manufacturing agreement dated 28.5.2001, due to various commercial reasons, the said prices were re-negotiated.
viii) It is not the case of the Department that the appellants have paid any other amount over and above the declared prices to the foreign supplier.
ix) It is not the case of the Department that the relationship between the parties had influenced the price in respect of the consignment under question.
x) The value of US$ 612 adopted by the Commissioner is not comparable in as much as there is a gap of more than a month in respect of the consignment under comparison and also the commercial levels.
xi) Since there is no element of fraud or suppression or mis-declaration imposition of penalty under Section 114A is not correct.
xii) The demand of differential duty arose only on account of the difference of opinion on the entitlement of exemption notification.
xiii) After realizing that they are not entitled for the benefit of concessional rate of duty under Notification No. 21/2002-Cus dated 1.3.2002. The Appellants calculated differential duty liability along with interest and voluntarily paid an amount of 85,13,222/- and further paid an amount of 18,68,779/- under protest being he differential duty arising out of non-inclusion of royalty amount.
xiv) The appellants were under bonafide belief that PCBs in the impugned goods namely shuttle assembly cannot be considered as populate PCBs. Hence there no malafide or any mis-declaration in availing the benefit of notification No. 21/2002-Cus dated 1.3.2002.
Therefore penalty under Section 114 is not justified.
xv) As regards inclusion of royalty is concerned, the appellants were under the belief and continue to be under the belief that the said royalty amount cannot be included in the value of the impugned goods.
xvi) Since differential duty has been paid before the issue of show cause notice, imposition of penalty equivalent to differential duty is not justified. The following case laws were relied:CCE Mangalore v. Shree Krishna Pipe Industries (2004 (61) RLT 17 (Kar) xvii) Relying on the following decisions it was submitted that Section 114A prescribed the maximum penalty to be imposed and the quantum of penalty depends upon the totality of facts and circumstances of the case.State of MP and Ors. v. Bharat Heavy Electricals (1998 (25) RLT 327 (SC)Bihar Ispat Udyog v. CCE Jamshedpur (T) xviii) In view of the bonafide impression on the question of includibility of royalty no mis-declaration can be attributed to the appellant so as to invoke Section 111(m) of the Customs Act 1962.
Hence, redemption fine of Rs. 66 lakhs is not sustainable.
5. The learned SDR took us through the OIO and impressed upon us that the adjudicating authority has examined all the issues in depth and has come to a correct finding. He requested us to uphold the OIO.6. We have gone through the records of the case carefully. The following decisions of the adjudicating authority are under challenge.
1) inclusion of royalty payable on the printer in the assessable value of the goods imported namely shuttle assembly.
3) Leviability of penalty under Section 114A of the Customs Act 1962.
After going through the records of the case, we find that the appellant has an exclusive license to manufacture printers, granted by the foreign supplier of shuttle assembly and other parts. In terms of the agreement of manufacture, the appellant is under an obligation to import the shuttle assembly from the foreign supplier only and use them in the printers to be manufactured in India. In other words, as per the agreement, the appellant cannot import the shuttle assembly from any other importer. No doubt, the royalty is paid on the printers manufactured in India. However, in view of the fact that the printers should necessarily have shuttle assembly as one of the components and since the shuttle assemblies have necessarily to be imported from the foreign supplier, we can clearly discern the nexus between the payment of royalty and the import of shuttle assembly. In other words, the shuttle assembly will not be supplied to the appellant unless he makes use of them in the manufacture of printers for which royalty has to be paid. Therefore, one can safely come to the conclusion that payment of royalty is a condition of sale of the imported goods namely shuttle assemblies. The Original Authority has come to this finding after going through the relevant provisions of the agreement between the foreign supplier and the appellant. In terms of Rule 9(1)(c) of the Customs Valuations Rules 1998 is includible in the assessable value of the impugned goods. The reliance placed on Apex Court's decision in CC (P) v. Essar Gujarat Ltd., as is in order.
7. As regards the valuation of the shuttle assemblies as US$ 612 per unit the adjudicating authority has gone by para-8 of the agreement entered between the appellant and the supplier. The appellants never brought to the notice of the department the existence of the agreement even though the prices adopted in many cases are not according to the prices mentioned in the agreement. The appellants stated that they negotiated for lesser price. But they have not shown any evidence before the adjudicating authority in the form of correspondence etc. In these circumstances, we cannot fault with the decision of the adjudicating authority to adopt the value as per the agreement and demand differential duty. Hence, his finding that the goods are liable to confiscation under Section 111(m) is correct.
8. In view of upholding the confiscability of the impugned goods under Section 111(m) of the Customs Act, the imposition of fine of Rs. 66 lakhs under Section 125 of the Customs Act is in order. The quantum of fine comes roughly to 10% which is not excessive.
9. It is on record that the appellants paid an amount of Rs. 1,03,82,001/- on 4.3.2003 before the issue of show cause notice. The above amount represents the differential duty on account of denial of exemption notification 21/2002 dated 1.3.2002 and also on a account of inclusion of royalty in the price of the imported goods namely shuttle assembly. However, the total duty confirmed was only Rs. 99,66,131/-.
Since the entire duty demand has been paid before the issue of show cause notice, in terms of the decided case laws, penalty under 114A of the Customs Act is not leviable.
10. Summing up, we hold that the royalty is includible in the assessable value of the impugned goods and uphold the valuation adopted by the Adjudicating authority. However we set aside the penalty under Section 114A. The redemption fine is upheld. The appeal is disposed of in the above terms.