By TIOL News Service

MUMBAI, JAN 27, 2015: THE appellant imported 72 consignments of Digi beta tapes/beta tapes/video tapes by courier through CSI airport, Mumbai, during June to December, 2007, by declaring the value of the medium and paying duty accordingly. Investigations conducted revealed that the appellant had entered into an agreement with MSM Satellite Singapore Pvt. Ltd. called Programme Acquisition and Service Agreement. As per the said agreement, the Singapore entity is engaged in broadcasting of channels from Singapore and they regularly send foreign movies, programmes and other contents acquired by them to appellant for the purpose of distribution to channels. For the said services rendered, appellant remitted to the Singapore entity a sum of Rs.19.76 crores towards their share of distribution fees collected.

Revenue is of the view that the said distribution fee is a condition of sale of the digibeta/beta masters and, therefore, the same is includible in the AV under Rule 10(1)(c) of the CVR as royalties/licence fees for the goods supplied.

In adjudication proceedings, the Commissioner of Customs, CSI, Mumbai has ordered for re-assessment by including a value of Rs.19.76 crores in the value of the said beta tape masters under the provisions of Rule 10(1) (c) of the Customs Valuation Rules, 2007 and has demanded a differential customs duty of Rs.4.83 crores along with interest & penalty and also held that the said goods are liable to confiscation.

The appellant is before the CESTAT.

After hearing the submissions made by both sides, the Bench perused the agreement and inter alia observed -

++ The payment of distribution fees was for acquiring non-exclusive rights for satellite delivered, advertiser supported, television service. Thus the payment was made for the rights to distribute a service and has nothing to do with the goods imported by the appellant from the foreign entity. The letter dated 28-12-2007 addressed to the Standard Chartered Bank also make it clear that the amount of Rs. 19,76,02,857/- remitted was towards the distribution fees required to be remitted in terms of the Distribution Agreement. The Chartered Accountant's certificate dated 28-12-2007 for remittance under section 195 pf the Income Tax Act also confirms this factual position. Thus, there is no evidence, whatsoever, adduced by the Revenue to show that the said remittance was towards the royalty/licence fee paid for the contents of the digi-beta tape imported by the appellant so as to form a part of the taxable value of the goods imported.

++ From the Service Tax Returns filed by the appellant it is seen that the appellant is registered under the taxable category of “Broadcasting Services” and the distribution fees collected has been declared to the department for the purposes of payment of service tax thereon. This also makes the position clear that the distribution fees pertained to services rendered in India, part of which was remitted to the foreign television channel. Therefore, the question of including consideration for the service rendered in the value of the goods imported does not arise at all.

++ The adjudicating authority mis-directed himself in including the value of a taxable service rendered in India in the value of the goods imported. The television programmes have been aired from Singapore and the tapes were not required for broadcasting the programmes. The requirement of the tapes was for the limited purpose of obtaining certification from CBFC and technical quality checks and has nothing to do with the distribution activity. Therefore, from whatever angle one may look at the transaction, there is nothing on record to show that the remittance made to the foreign entity had anything to do with the goods supplied.

Holding that the order enhancing the value of the goods to the extent of remittance of distribution fees and demanding customs duty thereon under CVR, 2007 is clearly unsustainable in law, the same was set aside and the appeal was allowed.

(See 2015-TIOL-191-CESTAT-MUM)