Technical know-how fees and royalty were excluded from imported goods valuation because they were not a condition of sale.

Technical know-how fees and royalty paid under a collaboration agreement were held not includible in the assessable value of imported goods under the Customs Valuation Rules, 1988. The declared transaction value had already been accepted, and the royalty was calculated on the net selling price of the finished product after excluding bought-out components, taxes and forwarding expenses, indicating it related to indigenous value addition rather than the imported components. The agreement did not show that payment of technical know-how fees was a condition of sale of the imports. The view that such amounts must be added merely because manufacturing would otherwise not be possible was rejected, and the original assessment was restored.

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Issues: Whether technical know-how fees or royalty paid under the collaboration agreement were includible in the assessable value of the imported goods under the Customs Valuation Rules, 1988.

Analysis: The transaction value declared by the appellant had been accepted by the original authority after examining the reply to the questionnaire and the know-how agreement. The royalty was computed on the net selling price of the final product after deducting the cost of bought-out components, both imported and indigenous, taxes and forwarding expenses, which showed that it related to indigenous value addition and not to the imported components. The agreement did not show that the technical know-how fee was a condition of sale of the imported components. The reasoning that know-how had to be added merely because manufacturing could not otherwise take place was rejected as unsustainable. The cited principle that royalty linked to the final product and not to the imported components is not a condition of sale was applied.

Conclusion: The technical know-how fee and royalty were not includible in the value of the imported goods, and the original assessment was restored.

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