Royalty in customs valuation is includible only when it is a pre-condition for supply and directly linked to imported goods pricing.

Royalty or technical know-how charges are includible in the assessable value of imported goods only where the payment is a condition precedent for supply and has a direct nexus with the pricing of the goods. On the facts noted, the record did not show how the royalty payments were connected with the imported goods, and the licence agreement did not establish royalty as a pre-condition for supply. The earlier precedent relied on involved a different factual setting, so it was not applicable. The royalty was therefore not includible in assessable value, and the demand for inclusion was unsustainable.

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Issues: Whether royalty paid under the licence agreement was includible in the assessable value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: Includibility of royalty or technical know-how charges depends on whether such payment is a condition precedent for the supply of the imported goods and has a nexus with their pricing. The impugned order did not disclose the essential facts showing how the royalty payments were connected with the imported goods, and the licence agreement did not establish that payment of royalty was a pre-condition for their supply. The reliance placed on the earlier decision concerning a different factual situation was therefore misplaced.

Conclusion: The royalty was not includible in the assessable value and the order demanding such inclusion could not be sustained.

Final Conclusion: The appeal was allowed and the impugned order was set aside on the ground that the royalty payment did not form part of the assessable value of the imported goods.

Ratio Decidendi: Royalty or technical know-how payments are includible in the assessable value only when they constitute a condition precedent for the supply of the imported goods and have a direct nexus with their pricing.

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