Customs valuation excludes royalty and service charges paid under separate contracts unless they are conditions of sale of imported goods.

Royalty or licence fees are includible in customs assessable value only if they relate to the imported goods and are payable as a condition of sale; where the fee is tied instead to sales of manufactured products or services under a separate arrangement, it is excluded. Management fees or corporate service charges are likewise not includible when they arise from an independent service contract covering coordination, accounting, consultancy, marketing or sales support and are not a condition of the import sale. On that basis, the enhancement of declared import value for royalty and service charges was held unsustainable.

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Issues: (i) Whether royalty/licence fee paid under the agreement was includible in the assessable value of imported goods under Rule 10(1)(c) of the Customs Valuation Rules, 2007; (ii) Whether management fee or corporate service charges paid to the overseas principal were includible in the assessable value under Rule 10(1)(e) of the Customs Valuation Rules, 2007.

Issue (i): Whether royalty/licence fee paid under the agreement was includible in the assessable value of imported goods under Rule 10(1)(c) of the Customs Valuation Rules, 2007.

Analysis: Royalty is includible only when it is related to the imported goods and is payable as a condition of sale. The licence agreement showed that the fee was linked to the appellant's sales revenue from products manufactured or services rendered, and not to the imported goods themselves. The Court also noted that the later Supreme Court view in Ferodo India distinguished the earlier Matsushita ruling on the basis of the surrounding pricing arrangement and consideration clause.

Conclusion: The royalty/licence fee was not includible in the value of the imported goods.

Issue (ii): Whether management fee or corporate service charges paid to the overseas principal were includible in the assessable value under Rule 10(1)(e) of the Customs Valuation Rules, 2007.

Analysis: Amounts covered by Rule 10(1)(e) must be payments made as a condition of sale of the imported goods. The service agreement covered coordination, accounting, consultancy, marketing and sales support, which were separate from the import transaction and governed by an independent contract. Such charges were therefore not connected with the imported goods for valuation purposes.

Conclusion: The management fee or corporate service charges were not includible in the value of the imported goods.

Final Conclusion: The addition made to the declared import value on account of royalty and management/service charges was unsustainable, and the order enhancing the assessable value was set aside.

Ratio Decidendi: Under customs valuation law, only payments that are shown to be related to the imported goods and made as a condition of their sale can be added to the transaction value; payments arising from separate arrangements for the buyer's own business or services are not includible.

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