Customs valuation of imported DVDs includes royalty and licence fee where licensing terms control sourcing and sale conditions.

Licence fee and continuing royalty paid under a DVD import arrangement were treated as includible in customs assessable value when the licensor controlled sourcing, pricing, ordering, minimum quantities and payment terms. The licence required imports only from approved replicators and linked payment to the sale of DVDs/VCDs, so the payments were part of the commercial bargain governing importation and operated as a condition of sale. Foreign decisions were distinguished on their facts, and the similar domestic precedent on imported audio media was applied. The customs valuation of the imported goods was therefore enhanced by adding the royalty and licence fee.

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Issues: Whether the licence fee and royalty paid to the licensor for DVDs imported from independent vendors were includible in the assessable value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: The licence agreement showed that the licensor controlled the source of supply, the prices, the purchase order process, minimum quantities and payment terms. The importer was required to obtain goods only from approved replicators and to pay a non-refundable licence fee and continuing royalty linked to the sale of DVDs/VCDs. On these facts, the licensor's control made the royalty and licence fee part of the commercial arrangement governing the import, and not a separate payment unconnected with importation. The cited foreign decisions were distinguished on facts, and the precedent on similar imported audio media was treated as controlling.

Conclusion: The royalty and licence fee were held to be a condition of sale and were includible in the value of the imported goods; the appeal of the Revenue succeeded.

Final Conclusion: The customs valuation of the imported DVDs was enhanced by including the royalty and licence fee paid to the licensor, and the lower appellate order was set aside.

Ratio Decidendi: Where the licence arrangement gives the licensor decisive control over sourcing, pricing, ordering and sales terms, royalty and licence fee paid to the licensor form part of the import transaction value as a condition of sale.

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