Royalty linked to domestic sales cannot be added to import value absent a contractual nexus with the goods.

Royalty paid under a trademark licence agreement was not required to be added to the assessable value of imported goods under Rule 10(1)(c) of the Customs Valuation Rules, 2007. The royalty was linked to domestic net sales of products manufactured in India, not to the import of raw materials, and the agreement did not require the importer to source inputs only from the foreign licensor. In the absence of any contractual nexus between the royalty payment and the imported goods, the royalty could not be treated as a condition of sale for customs valuation purposes. Accordingly, royalty addition to value was held impermissible and the valuation enhancement was set aside.

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Issues: Whether royalty paid under a trademark licence agreement was required to be added to the assessable value of imported goods under Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

Analysis: The royalty was payable on domestic net sales of products manufactured in India and not on the basis of import of raw materials from the foreign licensor. The agreement did not contain any express or implied condition requiring the importer to source raw materials only from the related foreign company. In the absence of a contractual nexus between the royalty payment and the imported goods, the royalty could not be treated as a condition of sale of the imported components for purposes of valuation.

Conclusion: Royalty addition to the assessable value was not permissible, and the valuation enhancement was rightly set aside.

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