Customs valuation excludes royalty and technical know-how fees where they relate to manufacturing arrangements, not imported machinery.

Royalty and technical know-how fee paid under a licence agreement were examined for inclusion in the customs value of imported machinery. The governing question was whether the payments had a direct nexus with the imported goods, or instead related only to the manufacture and business arrangements for the Indian venture. On the agreement's terms, the payments were linked to the manufacturing arrangement and not to the imported machinery, and no clause established that they were made in relation to the imported goods. The royalty and technical know-how fee were therefore not includible in the declared price of the imported goods.

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Issues: Whether royalty of 3% and technical know-how fee of US$ 100,000 paid under the licence agreement were includible in the declared value of the imported machinery under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: The payment was examined in the context of the licence agreement and its commercial terms. The relevant consideration was whether the royalty and technical know-how fee had a direct connection with the imported goods or whether they related only to the manufacture of the final products in India. On the terms of the agreement, the payment was found to be linked to the business and manufacturing arrangements for the Indian venture, and not to the imported machinery. No clause was shown to establish that the payment was made in relation to the imported goods.

Conclusion: The royalty and technical know-how fee were not includible in the declared price of the imported goods, and the appeal was allowed.

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