Technical know-how fee and royalty excluded from customs assessable value absent any contractual restraint on third-party sourcing.

Technical know-how fee and royalty paid under a technical know-how agreement are not includible in the assessable value of imported second-hand capital goods under Section 14 of the Customs Act, 1962 read with Rule 9 of the Customs Valuation Rules, 1988, unless the agreement contains a restraining clause limiting the importer's freedom to source goods from third parties. As no such contractual restraint was found in the agreement, the additions were unjustified and the appeal succeeded.

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Issues: Whether technical know-how fee and royalty paid under the technical know-how agreement were includible in the assessable value of the imported second-hand capital goods.

Analysis: The issue was examined with reference to Section 14 of the Customs Act, 1962 read with Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The question was already settled by earlier larger bench decisions holding that such additions are not justified unless the import agreement contains a restraining clause affecting importation from third parties. On examination of the agreement, no such restraining clause was found. Accordingly, there was no basis to add the technical know-how fee and royalty to the assessable value of the imported goods.

Conclusion: The technical know-how fee and royalty were not includible in the assessable value, and the appeal succeeded.

Ratio Decidendi: Technical know-how fee and royalty are not to be added to the assessable value of imported goods in the absence of a contractual restraint affecting the importer's freedom to source capital goods from third parties.

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