Customs valuation excludes manufacturing know-how fees and royalty unless tied to imported goods or a sale condition.

Technical know-how fees and royalty payable under a collaboration agreement were not includible in the customs assessable value of imported goods because the charges were linked to manufacturing know-how and goods produced in India, not to the imported capital goods or components themselves. Rule 9(1)(b) did not apply because there was no evidence that the importer supplied goods or services, directly or indirectly, to the foreign supplier for use in producing the imported goods. The agreement also showed that purchases were to be made on competitive terms, so the lump-sum fee was not a condition of supply. The declared transaction value was therefore accepted.

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Issues: Whether technical know-how fees and royalty payable under the collaboration agreement were includible in the assessable value of the imported goods under the Customs Valuation Rules, 1988.

Analysis: Rule 9(1)(b) applies only where goods or services are supplied by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods. No evidence showed that the importer had supplied any goods or services directly or indirectly to the foreign supplier for use in producing the imported parts or components. The licence fee was payable for know-how relating to manufacture of the licensed products, not for the imported capital goods or components themselves. The agreement also indicated that purchases would be made only on competitive terms, showing that the lump-sum fee was not a condition of supply of the imported goods. The royalty was payable on goods manufactured in India from imported and indigenous inputs and therefore lacked the required nexus with the imported goods.

Conclusion: Technical know-how fee and royalty were not includible in the value of the imported goods under Rule 9(1)(b) or Rule 9(1)(c).

Final Conclusion: The declared transaction value was accepted and the department's challenge failed.

Ratio Decidendi: Amounts payable for manufacturing know-how or royalty are not includible in customs assessable value unless they are linked to the imported goods themselves or constitute a condition of sale for those goods.

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