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FEE
Royalty is the sum of money paid to the proprietor ('the Licensor') of Intellectual Property (IP) Rights for the benefits derived, or sought to be derived, by the user ('the Licensee') through the exercise of such rights. Royalties may be paid for the use of copyright, patent, registered design, knowhow, trademark or a combination of them.
CALCULATION OF ROYALTY
The
1. 2.
One time fixed lump sum payment; Formula based, specified in the license agreement which defines the royalty rate and the unit base on which it is to be applied.
Transaction Value:
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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 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`
As per Rule 10(1)(c) of the Valuation Rules 07 Royalty is includible in the transaction value if it fulfills the following conditions:
1. 2.
Royalties and license fee is related to the imported goods; The payment of royalty forms condition of the sale of the goods being valued;
To the extent that such royalties and fees are not included in the price actually paid or payable is required to be added in the price of the goods.
It is immaterial as to whether the payment for royalty or license fee or technical know-how has been in lump-sum or on regular basis: Matsushita case
Generally, the IPR holder and the Licensor enter in to a multiple but separate agreements for various activities. it is always difficult to establish that royalty payment is one of the conditions of sale of capital
goods/components/raw material. it is all the more difficult for the Customs to load value in absence of an explicit condition in the agreement.
WHAT IS TAXABLE?
In India the test to determine whether a property is goods for the purpose of sales tax, is not whether the property is tangible or intangible or incorporeal. The test is whether the item concerned is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc.
It was held:
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goods may be tangible property or intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and
possessed. If the above attributes are satisfied, the same would be goods.
technical service charges and payments made for training cannot be included in the value on which customs is levied. A new Duty Free Import Authorisation Scheme has been introduced by the Government according to which, the inputs required for export production are exempt from basic customs duty, additional customs duty, education cess, etc.
Reading all these agreements together, it is not possible to uphold the contention of Mr. Salve that the pre-condition of obtaining a licence from Midrex was not a condition of sale, but a clause inserted to protect EGL. Without a licence from Midrex, the plant would be of no use to EGL. That is why this overriding clause was inserted. This overriding clause was clearly a condition of sale. It was essential for EGL to have this licence from Midrex to operate this plant and use Midrex technology for producing sponge iron in India. Therefore, in our view, obtaining a licence from Midrex was a pre-condition of sale.
The entire purpose of Section 14 is to find out the value of the goods which are being imported. The EGL in this case was purchasing a Midrex Reduction Plant in order to produce sponge iron. In order to produce sponge iron, it was essential to have technical know-how from Midrex. It was also essential to have an operating licence from them. Without these, the plant would be of no value. That is why the pre-condition of a process licence of Midrex was placed in the agreement with TIL.
Explanation.- Where the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods.
the Apex Court held that assessment of customs duty must have a direct nexus with the value of goods which was payable at the time of importation. If any amount is to be paid after the importation of the goods is complete, inter alia by way of transfer of license or technical know-how for the purpose of setting up of a plant from the machinery imported or running thereof, the same would not be computed for the said purpose CC vs. Toyota Kirloskar Motor Private Limited (2007-TIOL-94-SC-CUS) In absence of any direct nexus of the royalty with the imported capital goods, the same cannot be included in the transaction value.
The
above two landmark judgements had almost settled the legal position in so far as it relate to payment of royalty/license fee on imported goods. In the above rulings, the Apex Court laid down the basic principal that if the royalty is in relation to any activity done after importation, the same would not be included in the assessable value of imported goods.