Royalty and technical know-how fees excluded from customs value absent nexus with imported goods or condition of sale.

Royalty and technical know-how fees payable under a collaboration agreement were not includible in the assessable value of imported capital goods, spares and raw materials because no legal nexus with the imported goods was established. The agreement linked the payments to manufacture in India of licensed products and use of technical information, brand name, patent and trademark rights, while the sourcing clause did not make the fees part of the import price. As the imports represented their own full value and the payments were not a condition of sale for the imported goods, the Customs Valuation Rules, 1988 did not apply to add those amounts to assessable value.

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Issues: Whether royalty and technical know-how fees paid under the collaboration agreement were related to the imported capital goods, spares and raw materials and, therefore, includible in the assessable value under the Customs Valuation Rules, 1988.

Analysis: The agreement showed that the royalty and licence fee obligations were connected with manufacture in India of the licensed products and with use of technical information, brand name, patent and trademark rights. Clause 4.1 dealt with sourcing of raw materials and did not establish a nexus between the royalty payments and the imported goods. The imports of capital goods and raw materials represented their own full value, and the foreign collaborator's assistance in procurement did not convert the royalty or technical know-how payments into part of the import price. The requisite legal nexus with the imported goods or a condition of sale for those goods was not established, so the cited valuation provisions did not apply.

Conclusion: The royalty and technical know-how fees were not includible in the assessable value of the imported goods, and the addition made by the customs authorities was unsustainable.

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