Royalty and technical know-how fees not added to import value where they were linked to manufacture, not sale of goods.

Royalty and lump sum technical know-how fees are includible in the assessable value of imported goods only when they relate to the imported goods and form a condition of sale. Here, the collaboration agreement did not require the importer to source components exclusively from the collaborator, and no evidence showed that the payments were consideration for the imported components. The technical know-how and royalty were connected to manufacture of finished products in India, not to the import of the components. The valuation addition was therefore not sustainable.

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Issues: Whether royalty and lump sum technical know-how fee payable under the collaboration agreement were includible in the assessable value of the imported components as a condition of sale.

Analysis: The addition of royalty or licence fee to the invoice value is justified only where such payment is related to the imported goods and is a condition of sale. The agreement showed that the collaborator was to provide technical information, including the best source of supplies, but it did not oblige the importer to procure raw materials or components only from the collaborators. No evidence established that the imported components could not be procured from other sources or that the royalty was paid as consideration for the import of those components. The technical know-how and royalty were linked to manufacture of the finished products in India, not to the import of the components themselves.

Conclusion: The royalty and lump sum fee were not liable to be added to the assessable value of the imported goods, and the revenue's valuation addition was set aside in favour of the assessee.

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