Royalty not includible in customs assessable value absent nexus with imported goods and condition of sale

Royalty payable under a licence and technical assistance agreement was held not includible in the assessable value of imported raw materials and components because inclusion under the Customs Valuation Rules, 2007 requires a nexus with the imported goods and proof that the payment is a condition of sale under Rule 10(1)(c) or Rule 10(1)(e). The department failed to establish either requirement, so the transaction value could not be disturbed under Section 14(1)(a) of the Customs Act, 1962 and the value enhancement was unsustainable.

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Issues: Whether royalty payable under a licence and technical assistance agreement was includible in the assessable value of imported raw materials and components under the Customs Valuation Rules, 2007.

Analysis: Inclusion of royalty or other payments in the assessable value is permissible only when the payment is related to the imported goods and is required as a condition of sale under Rule 10(1)(c) or Rule 10(1)(e) of the Customs Valuation Rules, 2007. The department was unable to show that the royalty was a pre-condition for the sale of the imported goods or that it had the necessary nexus with those goods. In the absence of such a condition of sale, the transaction value could not be disturbed under Section 14(1)(a) of the Customs Act, 1962.

Conclusion: The royalty was not includible in the assessable value of the imported goods, and the order enhancing value was unsustainable.

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