Royalty and technical know-how fees are excluded from customs value when linked to manufacture and sale, not import conditions.

Technical know-how fees and running royalty under a licence agreement were held not to form part of the customs assessable value because the payments were linked to manufacture, marketing and sale of the licensed products, not to the import of the components themselves. The condition under Rule 9(1)(c) that such payments be made, directly or indirectly, as a condition of sale of the imported goods was not satisfied. Applying the Supreme Court principle in Ferodo India, royalty or licence fee is includible only when it forms part of the price of the imported goods as a condition of sale.

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Issues: Whether technical know-how fees and running royalty paid under the licence agreement were includible in the assessable value of the imported goods under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: The agreement showed that the payments were linked to the manufacture, marketing and sale of licensed products, and not to the import of the auto components themselves. The required condition under Rule 9(1)(c) that such payment must be made, directly or indirectly, as a condition of sale of the imported goods was not satisfied. There was no condition precedent tying import of the goods to payment of the technical know-how fee or royalty, and the net ex-factory price in the agreement excluded the cost of the imported components. The principle applied by the Supreme Court in Ferodo India was that royalty or licence fee is includible only when it forms part of the price of the imported goods as a condition of sale.

Conclusion: The technical know-how fee and royalty were not includible in the assessable value; the Commissioner (Appeals) was in setting aside their addition.

Final Conclusion: The customs appeal failed and the exclusion of the impugned payments from the assessable value was sustained.

Ratio Decidendi: Royalty or technical know-how fee is includible in customs assessable value only if it is paid, directly or indirectly, as a condition of sale of the imported goods; payments linked solely to manufacture and sale of the licensed product are not includible.

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