CESTAT Bangalore Quashes SVB Valuation and Royalty Loading on Imports

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Dated: 27.05.2025

CESTAT Bangalore Quashes SVB Valuation and Royalty Loading on Imports

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Bangalore Bench allowed the appeal filed by M/s Chem Rend Chemicals Co. Pvt. Ltd., quashing the 100% loading of invoice value and rejection of declared transaction value on imports from its parent company, Chem Trend, USA. The Tribunal also set aside the addition of royalty under Rule 10(1)(c) of the Customs Valuation Rules, 2007.

Background of the Case

Appellant: Chem Rend Chemicals Co. Pvt. Ltd., Bangalore
Imported Goods: Industrial mould release agents and dye lubricants
Supplier: Related party – Chem Trend, USA
DRI/Customs Allegation: Declared value not at arm’s length; addition of royalty payments to assessable value
SVB Order: 100% value loading and inclusion of royalty under Rule 10(1)(c)
Commissioner (Appeals) Decision: Set aside loading and royalty, but upheld rejection of declared value and remanded case for redetermination
CESTAT Appeal: Against partial rejection of declared value and remand for redetermination

Key Legal Issues Examined

Whether relationship with the foreign supplier influenced the price?
Whether transaction value could be rejected solely due to related-party status?
Whether royalty paid for domestic manufacture should be added to the value of traded goods?

Appellant’s Contentions

The price declared was not influenced by the relationship as the same goods were sold globally at uniform prices.
Submitted transfer pricing documentation, certificates from foreign supplier, comparative pricing, and cost structure to substantiate arm’s length pricing.
Royalty was only paid for manufacture of goods in India, not for trading of finished imported goods.
Cited numerous case laws, including:
- Steel Authority of India (SC)
- Prodelin India Pvt. Ltd. (SC)
- Toyota Kirloskar (SC)
- Procter & Gamble Home Products Ltd. (CESTAT Chennai)

Tribunal’s Key Observations and Findings

Transaction Value Rejection Unjustified

Tribunal found that 2% variation in pricing did not amount to abnormal discount or flowback.
Customs failed to prove that relationship influenced the price, nor was there any financial flowback.
The documents submitted clearly established uniform global pricing, confirming that the declared value reflected commercial reality.

Royalty Addition Not Applicable

Royalty was not linked to imported goods, but to manufacture in India under a license agreement.
Tribunal reiterated that royalty unrelated to the condition of sale of imported goods cannot be added under Rule 10(1)(c).
Cited Supreme Court rulings, including Ferodo India Pvt. Ltd., to emphasize that only royalty directly connected to imported goods can be added.

Remand Set Aside

Once the Commissioner (Appeals) rejected the valuation method adopted by SVB, the Tribunal held that remand for alternate valuation was not legally sustainable, especially in absence of any appeal on valuation method itself.

Final Verdict

“There is no justification to remand the matter for redetermination of the assessable value… The appeal is allowed with consequential relief, if any, in accordance with law.”
– CESTAT Bangalore Bench (P.A. Augustian, Judicial Member & R. Bhagya Devi, Technical Member)

Legal Significance

This ruling upholds key legal principles under customs valuation:

Relationship does not automatically invalidate transaction value unless there is proven influence on price.
Royalties for domestic manufacturing cannot be added to assessable value of imported goods.
Sequential application of valuation rules is mandatory, and arbitrary loading based on suspicion is impermissible.

The decision provides much-needed clarity for related-party importers and reinforces procedural safeguards in Special Valuation Branch (SVB) assessments.

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Source: CESTAT Bangalore

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