CESTAT rules royalty payments not includible in assessable value under Customs Valuation Rules

The Appellate Tribunal CESTAT, Chennai dismissed the Revenue's appeal, affirming that royalty payments made by the assessee as a percentage of sale proceeds were not includible in the assessable value of imported materials under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The Tribunal held that the royalty payments were not linked to the imported goods and were not a prerequisite for importation. This decision was based on the interpretation of the Technology Transfer Agreement and aligned with a previous ruling in HSI Automotive Ltd. v. CC, Chennai.

---

---

Issues:
1. Whether royalty paid as a percentage of sale proceeds is includible in the assessable value of imported materials under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis:
The appeal before the Appellate Tribunal CESTAT, Chennai involved a dispute regarding the inclusion of royalty payments in the assessable value of imported materials. The case revolved around the appellant's contention that the royalty paid by the assessee, calculated as a percentage of their sale proceeds, should be considered as part of the assessable value under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The assessee had imported leather chemicals from a German company, related to them under a Technology Transfer Agreement, through which they obtained technical know-how for manufacturing products in India. The lower authorities, namely the Commissioner (Appeals) and the Deputy Commissioner (SVB), had ruled in favor of the assessee, holding that the royalty payments were not to be included in the assessable value of the imported materials.

Upon examining the Technology Transfer Agreement, the Tribunal noted that the assessee was obligated to pay running royalties based on their net sales of products in India and products exported from India. The agreement explicitly excluded the landed cost of imported materials for the manufacture of products from the calculation of "net sales" for royalty payment purposes. The Tribunal concurred with the lower authorities' interpretation, emphasizing that the royalty payments were not linked to the imported goods and were not a prerequisite for importation, thus not falling under the purview of Rule 9(1)(c). The Tribunal cited a precedent, HSI Automotive Ltd. v. CC, Chennai, where a similar issue was addressed, and it was ruled that a royalty paid as a fixed percentage of net sale proceeds to the supplier of technical know-how was not to be added to the invoice value of imported goods under Rule 9(1)(c).

In conclusion, the Appellate Tribunal CESTAT, Chennai dismissed the Revenue's appeal, affirming the decision of the lower authorities that the royalty payments made by the assessee were not includible in the assessable value of the imported materials under Rule 9(1)(c) of the Customs Valuation Rules, 1988. The operative part of the order was pronounced on 25-4-2008.

---