Engineering and design costs not added to customs value where the work was not undertaken outside India.

Technology transfer fee paid for a basic engineering package was held not includible in the assessable value of imported machinery under Rule 9(1)(b)(iv) of the Customs Valuation Rules. The provision applies only to engineering, development, design, plans and sketches necessary for production of the imported goods and undertaken outside India; here, the package contained only general process diagrams, layout and size specifications, while the detailed engineering drawings used for procurement were prepared in India by a separate firm. The link to the imported machinery was therefore too remote, so the addition was disallowed and the order was unsustainable.

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Issues: Whether the technology transfer fee paid for the basic engineering package was includible in the assessable value of the imported machinery under Rule 9(1)(b)(iv) of the Customs Valuation Rules.

Analysis: The rule permits addition only of engineering, development, design, plans and sketches that are necessary for production of the imported goods and that are undertaken elsewhere than in India. The basic engineering package consisted only of process diagrams, layout, size specifications and similar inputs, which did not themselves enable manufacture of the imported equipment. The detailed engineering drawings actually used for procurement were prepared in India by a separate Indian engineering firm, so the relevant work was not undertaken outside India. The connection between the package and the imported machinery was therefore too remote to fall within the rule.

Conclusion: The technology transfer fee was not liable to be added to the assessable value of the imported machinery, and the impugned order was unsustainable.

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