Royalty linked to manufacturing in India, not import sale, was excluded from customs valuation of imported goods.

Royalty under a technical collaboration agreement was held not includible in the invoice value of imported capital goods and raw materials under the Customs Valuation Rules, 1988, because the payments were for training, technical information, intellectual property use and manufacturing assistance, not for importation of the goods. The licence related to manufacture and sale of the product in India, and the facts did not show that royalty was a condition of sale or that the imported goods were directly linked to the royalty payment. The valuation based on inclusion of the royalty amounts was therefore unsustainable.

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Issues: Whether lump sum royalty and running royalty payable under a technical collaboration agreement were liable to be added to the invoice value of imported capital goods and raw materials under the Customs Valuation Rules, 1988.

Analysis: The agreement showed that the royalty was paid for training of personnel, furnishing of technical information, utilisation of intellectual property rights, and assistance in the manufacturing process. The licence related to manufacture and sale of the licensed product in India, not to the import of the goods. The facts did not establish that payment of royalty was a condition of sale of the imported goods or that the imported goods were directly linked to the royalty payment. The principle applied in the cited precedent concerning royalty connected with production in India, rather than importation, governed the dispute.

Conclusion: The royalty amounts were not includible in the invoice value of the imported goods, and the impugned valuation could not be sustained.

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