Customs valuation excludes royalty and service fees absent a sale condition or nexus with imported goods.

Royalty, technical know-how fees and service charges are includible in the assessable value of imported goods only when they relate to the imported goods and are payable as a condition of sale. On the stated facts, the service agreement covered managerial and support services, and the technology licence enabled manufacture in India without requiring procurement of raw materials from the foreign collaborator. Comparable imports from unrelated suppliers at similar or lower prices also showed no price influence from the relationship or agreements. The valuation addition was therefore unsustainable, and such payments were not added to customs value.

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Issues: Whether royalty, technical know-how fee and service charges paid to foreign collaborators were includible in the assessable value of imported goods under Rule 10(1)(c) and Rule 10(1)(e) of the Customs Valuation Rules, 2007.

Analysis: Inclusion of royalty, licence fee, or other payments in the assessable value is permissible only when such payments relate to the imported goods and are a condition of sale of those goods. On the facts, the service agreement concerned managerial and support services and contained no stipulation requiring import of raw materials from the affiliated supplier. Likewise, the technology licence enabled manufacture in India and did not require procurement of raw materials from the foreign collaborator. The record also showed that similar goods were imported from unrelated suppliers at comparable or lower prices, indicating that the relationship and the agreements had not influenced the import price.

Conclusion: The royalty, technical know-how fee and service charges were not includible in the assessable value of the imported goods.

Final Conclusion: The valuation addition made by the department could not be sustained and the appeal succeeded.

Ratio Decidendi: Payments such as royalty, licence fee or service charges are includible in customs value only where they are sufficiently connected to the imported goods and are payable as a condition of sale; absent such nexus or price influence, they cannot be added to the assessable value.

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