Customs valuation of imported goods: design specifications are includible in principle, but mixed royalty requires apportionment.

Technical specifications and design supplied through a collaboration arrangement can fall within assessable value under the customs valuation rules where the foreign collaborator approves samples, controls product specifications, and the imported goods are manufactured to a copied specimen. On that basis, the design cost is includible in principle. However, where the royalty covers multiple collaboration elements, including matters beyond design such as marketing assistance, only the portion referable to the imported goods or their design can be added. The value addition was therefore upheld in principle, but quantification had to be determined separately by apportionment.

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Issues: (i) Whether the cost attributable to the design and technical specifications of the imported shoes was includible in the assessable value under Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988; (ii) whether the entire lump sum royalty under the collaboration agreement could be added, or only such portion as related to the imported goods.

Issue (i): Whether the cost attributable to the design and technical specifications of the imported shoes was includible in the assessable value under Rule 9(1)(b)(iv) of the Customs Valuation Rules, 1988.

Analysis: The collaboration arrangement showed that the foreign collaborator supplied technical information, approved samples, and controlled the specifications of the products to be manufactured abroad. The footwear model was selected from the collaborator's catalogue, a sample shoe was sent to the foreign vendor, and the vendor copied that specimen for manufacture. In these circumstances, the specifications were treated as having been supplied in the form of a three-dimensional design and material specification, bringing the case within the scope of the valuation rule.

Conclusion: The cost of design was correctly held includible in the assessable value.

Issue (ii): Whether the entire lump sum royalty under the collaboration agreement could be added, or only such portion as related to the imported goods.

Analysis: The lump sum payment covered several elements of the collaboration, including matters beyond product design, such as marketing and related assistance. Since design was only one component of the agreement, the whole lump sum could not be charged to the imported goods without apportionment.

Conclusion: Only the portion referable to design could be added, and the quantum required fresh determination.

Final Conclusion: The valuation addition was sustained in principle, but the matter was remanded for quantification of the amount attributable to design in the assessable value.

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