TKM wins case against Customs

CESTAT has ruled that TKM will not be liable to pay customs duty on the royalty it pays to its Japanese parent for technical expertise and imported spare parts.

In a relief to luxury carmaker Toyota Kirloskar Motors (TKM), the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that the company will not be liable to pay customs duty on the royalty it pays to its Japanese parent for technical expertise and imported spare parts.

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Hearing a petition from the company, in which the Japanese auto giant holds the majority stake, the tribunal overturned the order of the Commissioner of Customs, Chennai Circle, who in May 2002 had held that royalty paid by TKM should attract customs duty under Section 9 of the Custom Valuation Rules, 1998.

The Commissioner had said the company should pay duty on the royalty along with the goods and spare parts, on which it has already paid duty.

Overturning the order, CESTAT said, "Royalties and lump sum payment in the present case have no relation whatsoever to the sale of the capital goods and components. Nor are the sales of imported goods in any way conditional payment of royalties and licence fee."

The tribunal further observed, "It is clear that the payments are in no way related to the imported goods, but are for planning of layout of the plan, detailed planning of various process and line layout, adjustment of pilot production schedule, inspection and test of initial products, etc."

In its defence, TKM had argued that royalty paid by it to the Japanese parent was entirely different. It came under separate assistance and had no relation with the import of goods and spare parts, the company had said.