Royalty in customs valuation not includible unless linked to imported goods and payable as a condition of sale.

Royalty or technical know-how/licence fee is includible in customs value only where it has a nexus with the imported goods and is payable as a condition of their sale. Here, the collaboration agreement related to use of know-how, patents and trade mark rights for manufacture in India, not to the import of the goods themselves; the importer was not required to buy the goods from the collaborators, and the royalty was calculated on sales of finished products manufactured in India. Those requirements under Rule 9(1)(c) were not met, so the fee was not includible in the assessable value.

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Issues: Whether royalty or technical know-how/licence fee payable under the collaboration agreement was includible in the assessable value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: The royalty arrangement was connected with the use of know-how, patents and trade mark rights for manufacture in India of the specified products, and not with the import of the goods themselves. The agreement did not obligate the importer to purchase the goods from the collaborators as a condition of sale, and the imported components were not shown to be supplied pursuant to any such condition. The royalty was computed on sales of finished products manufactured in India and not on the imported goods as such. On these facts, the essential requirements for inclusion under Rule 9(1)(c), namely a nexus with the imported goods and payment as a condition of sale, were not satisfied.

Conclusion: The royalty or technical know-how/licence fee was not includible in the assessable value of the imported goods; the Revenue's appeal was rejected.

Final Conclusion: The valuation adopted by the lower authority was sustained and the demand to add royalty to the imported goods' value failed.

Ratio Decidendi: Royalty or licence fee is includible in customs value only when it is related to the imported goods and payable as a condition of their sale; where it pertains solely to post-import manufacture in India, it cannot be added.

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