Jindal Photo Films Ltd. Vs. Cc - Court Judgment

Excerpt:
1. the dispute in this case relates to valuation of photographic film processing machine imported by the appellant. the facts material to the present dispute are that the goods were imported under a contract with m/s fuji photo company limited. that contract related to import of photographic film machine as well as semi processed raw materials from m/s. fuji photo film. certain sub clauses of article 7 of the contract which we read below, have given room for the present dispute about the valuation of photographic film machine. 1. as per article 7.02 fuji shall not charge any licence fee related to the know how embodied in the machines as long as bhimtal continues to purchase semi processed products exclusively from fuji; 2. as per article 7.03 in the event that bhimtal starts to purchase semi processed raw materials from supplier other than fuji, the importer shall pay a flat annual licence fee of jy 1,00,000 in consideration of the know how embodied in the machines upon demand by fuji.2. the lower authority took the view that the declared value for the photo film machine was not its full and complete consideration and that the declared value was required to be increased so as to neutralize the effect of the obligation to purchase semi processed raw materials for seven years from the same supplier. accordingly, invoking provision of rule 9(1)(c) of valuation rules 1988, it has been ordered that licence fee which would be payable for failure to import of semi processed raw material be added to the declared value of the machine for assessing it to customs duty. the present appeal challenges that decision.3. the learned counsel for the appellant had stressed that the appellants were not liable to pay any amount over and above the amount mentioned in the invoice towards the cost of the photographic film processing machine. the obligation to pay @ 1 million yen per year arose only if they did not purchase the raw materials, this payment was a contingent liability for failure to abide by the contract and to purchase the raw materials. during the hearing of the case it was clarified that since the appellants imported the raw material as per the contract, the contingency for making any payment towards penalty did not arise. the learned counsel for the appellant emphasized that the authorities were in error in adding a contingent liability for the purpose of valuation of the machine.4. as against the aforesaid submission for the appellant, the learned sdr referred to article 7.1 and 7.2 and submitted that it is clear, in the present case, that the foreign supplier has not charged the appellant any licence fee related to the know how embodied in the machine and that this payment has been waived because of the obligation to import semi processed raw material and in the event of failure to import the raw material the amount payable towards licence fee would be one million yen per year the period for which payment is required to be made is seven years. he submitted that it was clear that indirect payment towards the licence fee was being made while importing the raw materials. further, the value of the obligation to import raw material towards the licence fee remained quantified at one million per year for seven years. therefore, he submitted that the customs authorities were entirely right in invoking rule 9(1)(c) of the customs valuation rules.he further submitted that even if it is held that the case was not covered by rule 9(1)(c), the value declared by the appellant would not be acceptable as assessable value in view of the provision in interpretative notes to rule 4(2)(b) which stated that if the sale or price is subject to some conditions or consideration for which a value could not be determined with respect to the goods being imported, transaction shall not be acceptable for customs authorities. the learned dr pointed out that one of the examples of conditions or consideration mentioned in the note was that the price of the imported goods was on condition that the buyer will also buy other goods in specified quantities. the learned sdr submitted that the effect of rejecting the invoice value as transaction value would be that the monetary value of the obligation to purchase other items would be liable to be added to the price paid. he submitted that either way, the valuation carried out by the customs authorities would be the result.5. a perusal of the records of the case makes it clear that the price charged for the photographic machine did not include "licence fee" related to the know how embodied in the machine. it, therefore, follows that the price paid is not the full value of the machine. it is also clear that continued purchase of raw material solely from the supplier of the machine for seven years was the additional condition and consideration for not charging the cost of licence fee related to know how. the value of this consideration also remains computed at one million yen per year for seven years. therefore, the appellants indirectly paid @ one million yen-per year for seven years towards licence fee of the know how embodied in the machine. the goods are to be assessed to customs duty at the price at which such goods are ordinarily sold and where the price is the sole consideration for sale.in the present case, price was not the sole consideration for the sale; but the purchase of raw materials exclusively for seven years too constituted consideration. it is, therefore, necessary in terms of customs valuation rules that the money value of the additional consideration is added to the declared sale price for the purpose of arriving at the assessable value of the goods under section 14 of the customs act, 1962. therefore, we are in agreement with the learned sdr that the valuation carried out in the present case was in accordance with the valuation provision.

Judgment:
1. The dispute in this case relates to valuation of photographic film processing machine imported by the appellant. The facts material to the present dispute are that the goods were imported under a contract with M/s Fuji Photo Company Limited. That contract related to import of photographic film machine as well as semi processed raw materials from M/s. Fuji Photo Film. Certain sub clauses of Article 7 of the contract which we read below, have given room for the present dispute about the valuation of photographic film machine.

1. As per Article 7.02 Fuji shall not charge any licence fee related to the know how embodied in the machines as long as Bhimtal continues to purchase semi processed products exclusively from Fuji; 2. As per Article 7.03 In the event that BHIMTAL starts to purchase semi processed raw materials from supplier other than Fuji, the importer shall pay a flat annual licence fee of JY 1,00,000 in consideration of the know how embodied in the machines upon demand by Fuji.

2. The lower authority took the view that the declared value for the photo film machine was not its full and complete consideration and that the declared value was required to be increased so as to neutralize the effect of the obligation to purchase semi processed raw materials for seven years from the same supplier. Accordingly, invoking provision of Rule 9(1)(c) of Valuation Rules 1988, it has been ordered that licence fee which would be payable for failure to import of semi processed raw material be added to the declared value of the machine for assessing it to customs duty. The present appeal challenges that decision.

3. The learned Counsel for the appellant had stressed that the appellants were not liable to pay any amount over and above the amount mentioned in the invoice towards the cost of the photographic film processing machine. The obligation to pay @ 1 million yen per year arose only if they did not purchase the raw materials, this payment was a contingent liability for failure to abide by the contract and to purchase the raw materials. During the hearing of the case it was clarified that since the appellants imported the raw material as per the contract, the contingency for making any payment towards penalty did not arise. The learned Counsel for the appellant emphasized that the authorities were in error in adding a contingent liability for the purpose of valuation of the machine.

4. As against the aforesaid submission for the appellant, the learned SDR referred to Article 7.1 and 7.2 and submitted that it is clear, in the present case, that the foreign supplier has not charged the appellant any licence fee related to the know how embodied in the machine and that this payment has been waived because of the obligation to import semi processed raw material and in the event of failure to import the raw material the amount payable towards licence fee would be one million yen per year the period for which payment is required to be made is seven years. He submitted that it was clear that indirect payment towards the licence fee was being made while importing the raw materials. Further, the value of the obligation to import raw material towards the licence fee remained quantified at one million per year for seven years. Therefore, he submitted that the Customs authorities were entirely right in invoking Rule 9(1)(c) of the Customs Valuation Rules.

He further submitted that even if it is held that the case was not covered by Rule 9(1)(c), the value declared by the appellant would not be acceptable as assessable value in view of the provision in interpretative Notes to Rule 4(2)(b) which stated that if the sale or price is subject to some conditions or consideration for which a value could not be determined with respect to the goods being imported, transaction shall not be acceptable for customs authorities. The learned DR pointed out that one of the examples of conditions or consideration mentioned in the Note was that the price of the imported goods was on condition that the buyer will also buy other goods in specified quantities. The learned SDR submitted that the effect of rejecting the invoice value as transaction value would be that the monetary value of the obligation to purchase other items would be liable to be added to the price paid. He submitted that either way, the valuation carried out by the Customs authorities would be the result.

5. A perusal of the records of the case makes it clear that the price charged for the photographic machine did not include "licence fee" related to the know how embodied in the machine. It, therefore, follows that the price paid is not the full value of the machine. It is also clear that continued purchase of raw material solely from the supplier of the machine for seven years was the additional condition and consideration for not charging the cost of licence fee related to know how. The value of this consideration also remains computed at one million yen per year for seven years. Therefore, the appellants indirectly paid @ one million yen-per year for seven years towards licence fee of the know how embodied in the machine. The goods are to be assessed to customs duty at the price at which such goods are ordinarily sold and where the price is the sole consideration for sale.

In the present case, price was not the sole consideration for the sale; but the purchase of raw materials exclusively for seven years too constituted consideration. It is, therefore, necessary in terms of Customs Valuation Rules that the money value of the additional consideration is added to the declared sale price for the purpose of arriving at the assessable value of the goods under Section 14 of the Customs Act, 1962. Therefore, we are in agreement with the learned SDR that the valuation carried out in the present case was in accordance with the valuation provision.