Royalty valuation nexus test: licence fee excluded from imported components' assessable value where the royalty base omitted their landed cost.

Royalty or licence fee is includible in assessable value only where it relates to the imported goods and is payable as a condition of sale, directly or indirectly, under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The agreement here computed royalty at 3% of the net invoice value of licensed products sold in India and expressly excluded the landed cost of imported components from that base. As the payment had no direct or indirect nexus with the imported components, it was not addable to their assessable value, and the department's appeal failed.

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Issues: Whether the royalty or licence fee payable by the importer to the foreign collaborator was includible in the assessable value of imported components under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: The royalty was calculated at 3% of the net invoice value of the licensed products sold in India, and the agreement specifically excluded the landed cost of imported components from that calculation. Rule 9(1)(c) permits addition only where royalty or licence fee is related to the imported goods and is payable as a condition of sale, directly or indirectly. Since the royalty computation did not take into account the value of imported components, the payment lacked the requisite direct or indirect nexus with the imported goods.

Conclusion: The royalty or licence fee was not addable to the value of the imported components, and the department's appeal failed.

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