SC upholds Appeal Court ruling against Customs in Nestlé case

By S.S.Selvanayagam

The Supreme Court upheld the judgment of the Court of Appeal which issued a Writ of Certiorari quashing the order of the Sri Lanka Customs seeking customs duty and other levies on royalty/licence fees from the Nestlés Lanka Plc.

The Bench comprising Chief Justice Shirani A. Bandaranayake, Justices K.Sripavan and P.A. Ratnayake dismissed without cost the application filed by the Director General of Customs for special leave to appeal against the judgment of the Court of Appeal.

The Bench held that there is no basis to grant special leave to proceed with the said application challenging the judgment of the Court of Appeal.

The President of the Court of Appeal Sathya Hettige with Justice Anil Goonaratne agreeing in his judgment observed there was no evidence of any evasion of payment of duty or concealment on the part of the petitioner Nestlés Lanka PLC.

Justice Hettige came to the conclusion that the customs had failed to follow the law in taking steps to ascertain the exact value and recover any additional duties.

However the Court of Appeal in its judgment stated its judgment will not affect the rights of the Sri Lanka Customs to recover any additional customs duties from it after due inquiry in accordance with the law.

Petitioner Nestlés Lanka contended that it is not obliged to pay custom duty on the royalties in terms of the Sri Lanka Customs Ordinance as the royalties or licence fees are not paid by the petitioner as a buyer either directly or indirectly as a condition of sale of goods to it.

Sanjeeva Jayawardena with Suren de Silva appeared for the petitioner-respondent Nestlés Lanka. Additional Deputy Solicitor General A.Gnanathasan appeared for the respondent-appellants Director General of Customs and Deputy Director General of Customs K.Ranjan.

Petitioner Nestlés Lanka in its Writ application before the Court of Appeal stated the Nestlé SA of Switzerland owns 90.82% of the capital of it and is the beneficial owner of Intellectual Property of the Nestlé Group and the Nestlé SA SPN and Nestec SA have entered into General Licence Agreements with its subsidies in various parts of the world to proceed with its business.

It had stated there is no licence fee or royalties paid to the seller whatsoever on any such sales and the licence fees and royalties if any, are paid only on subsequent sales to a third party if effected after the goods have arrived in Sri Lanka.

It had maintained that once the seller Nestlés companies abroad, sell the products to it, there is no further contractual relationship between it and seller abroad.