Assessable value inclusion of royalty and software fees upheld where payments were linked to imported components and finished-goods sales.

Royalty calculated on the gross sale value of finished goods was held includible in the assessable value of imported components because the imported goods were used to manufacture the licensed products and the payment had a sufficient nexus with the imports as a condition of sale. Patent and software usage fees were also held includible because they related to rights and software essential for integrating the imported components and making them functional, and were obligations connected with the imported goods. The order confirming inclusion of both royalty and patent/software fees was sustained, and the appeal failed.

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Issues: (i) Whether royalty paid under the licence agreement was includible in the assessable value of the imported goods; (ii) Whether patent and software usage fee was includible in the assessable value of the imported goods.

Issue (i): Whether royalty paid under the licence agreement was includible in the assessable value of the imported goods.

Analysis: The royalty was payable on the gross sale value of the manufactured goods, and that value included the cost of the imported components. The agreement showed that the imported goods were used in the manufacture of the licensed products, and the royalty was linked to the sale of the finished goods. On that basis, the payment had a sufficient nexus with the imports and satisfied the requirement of being a condition of sale for valuation purposes.

Conclusion: The royalty was correctly included in the assessable value, against the assessee.

Issue (ii): Whether patent and software usage fee was includible in the assessable value of the imported goods.

Analysis: The patent and software payments were made for rights and software essential for integrating the imported components and making them functional in the final product. The payments were treated as amounts the buyer was obliged to make in connection with the imported goods and were not shown to be outside the scope of the valuation rule governing additional payments made as a condition of sale.

Conclusion: The patent and software usage fee was correctly included in the assessable value, against the assessee.

Final Conclusion: The impugned order confirming inclusion of royalty and patent/software fees in the assessable value was sustained, and the appeal failed.

Ratio Decidendi: Where royalty or related licence fees are calculated by reference to turnover of the finished goods and the cost of imported components is embedded in that turnover, such payments are includible in assessable value if they arise as a condition of sale or an obligation connected with the imported goods.

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