Royalty inclusion in customs value turns on reading supply and technical agreements together for price adjustment analysis.

Royalty paid under a technical cooperation agreement was considered for inclusion in the assessable value of imported components under Rule 10(1)(c) of the Customs Valuation Rules, 2007. The analysis turned on whether the royalty, paid to a foreign collaborator under a separate licence arrangement, was an adjustment of the import price or merely consideration for know-how used in manufacture in India. It was noted that the technical assistance agreement and the supply contract had to be examined together, with competing Supreme Court authorities cited on royalty attribution. The impugned order was set aside and the matter remanded for fresh consideration and a de novo decision after hearing the appellants.

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Issues: Whether royalty paid under the technical cooperation agreement was includible in the assessable value of imported components under Rule 10(1)(c) of the Customs Valuation Rules, 2007.

Analysis: The royalty was paid to the foreign collaborator under a separate licence arrangement, while the components were imported under a separate supply contract. The competing authorities relied on different Supreme Court decisions on royalty attribution. The decisive consideration was that the technical assistance agreement and the pricing arrangement for the imported components had to be examined together to determine whether the royalty represented an adjustment of the import price or was merely consideration for know-how used in manufacture in India.

Conclusion: The impugned order was set aside and the matter was remanded to the adjudicating authority for fresh consideration of both agreements together and for a de novo decision after hearing the appellants.

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