Customs valuation excludes royalty and technical know-how fees unless linked to imported goods or sale conditions.

Royalty and lump sum technical know-how fees are includible in the assessable value of imported goods only where they have a sufficient nexus with the imports and are required, directly or indirectly, as a condition of sale. The relevant inquiry is whether the import price was adjusted by shifting value into royalty or licence payments, and the technical assistance agreement must be read with the pricing arrangement. Where the payments relate only to manufactured products sold in India, and no price adjustment or other link to the imported components is shown, inclusion under Rule 9(1)(c) of the Customs Valuation Rules, 1988 is not justified.

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Issues: Whether the lump sum technical know-how fee and royalty paid on domestic sales were includible in the assessable value of imported raw materials and components under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: The dispute turned on whether the royalty and know-how payments had a sufficient nexus with the imported goods or were merely attributable to the manufacture and sale of the licensed products in India. The relevant test was whether such payments were required, directly or indirectly, as a condition of sale of the imported goods. The later Supreme Court ruling in Ferodo India Pvt. Ltd. explained that the Department must examine not only the technical assistance agreement but also the pricing arrangement to see whether the import price had been adjusted by shifting value into royalty or licence fee. Where the royalty relates only to the manufactured products and not to the imported components, and no price adjustment or other nexus is shown, inclusion in the import value is not justified.

Conclusion: The royalty and technical know-how fee were not includible in the value of the imported goods; the issue was decided in favour of the assessee.

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