Tribunal rules running royalty not part of invoice price

The Tribunal ruled in favor of the appellant, holding that the running royalty should not be added to the invoice price of the imported goods. The Tribunal found that the royalty payment was not related to the imported goods and was not a condition of sale, as it was for the know-how granted for manufacturing certain products. The Commissioner (Appeals) had incorrectly applied a Supreme Court decision, and the Tribunal cited precedents supporting the appellant's argument. As a result, the impugned order was set aside, and the appeal was allowed in favor of the appellant, granting all consequential relief.

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Issues involved:
The issue in this case is whether the running royalty of 5% payable by the importer to its foreign collaborator should be added to the invoice value of the imported goods.

Summary:
The appellant, a manufacturer of compressor valves, entered into a collaboration agreement with a foreign company for the manufacture of certain products. The agreement specified a royalty payment of 5% to 8% of the net selling price of the products manufactured and sold in India. The Customs department contended that this royalty was not related to the imported goods and was not a condition of sale. The Commissioner (Appeals) initially upheld the department's view based on a Supreme Court decision. However, the appellant challenged this decision.

The appellant argued that the royalty payment was not related to the imported goods and was not a condition of sale. The terms of the agreement indicated that the royalty was for the know-how granted for manufacturing certain products, and the payment was not a prerequisite for the sale of the imported goods. The Tribunal found that the Commissioner (Appeals) had incorrectly applied the Supreme Court decision and cited precedents where similar situations were dealt with differently. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellant, granting all consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the running royalty should not be added to the invoice price of the imported goods.

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