Royalty and technical know-how fees excluded from import value where they lacked a direct nexus with the imported goods

Royalty and technical know-how fees paid under a collaboration agreement were not includible in the assessable value of imported goods because they related to manufacture and post-importation operations in India, not to a condition of sale of the imports. The agreement did not require sourcing raw materials or components from the licensor, and the royalty was calculated on net ex-factory sales after excluding imported components and customs duties, indicating linkage to value addition in India. In the absence of evidence of price adjustment or understatement of transaction value, the declared value was accepted and the appeals succeeded with consequential relief.

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Issues: Whether the royalty and technical know-how fee paid under the collaboration agreement was includible in the assessable value of the imported goods as a condition of sale.

Analysis: The technical know-how arrangement was directed to manufacture and post-importation operations in India, and the agreement did not require procurement of raw materials or components from the licensor. The royalty was computed on net ex-factory sales value after excluding imported components and customs duties, showing that it was linked to value addition in India rather than to the imported goods. The department did not produce evidence of any price adjustment or of the declared transaction value being understated, and the onus to displace the declared value remained on the department. The facts were distinguishable from the cited precedent where royalty had a direct connection with imported components.

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

Final Conclusion: The declared transaction value was accepted and the appeals succeeded with consequential relief.

Ratio Decidendi: Royalty or technical know-how fees are not includible in the assessable value of imported goods unless they are shown to be a condition of sale or to have a direct nexus with the imported goods, and the department bears the burden of proving otherwise.

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