Customs valuation of technical know-how fee and value loading must rest on nexus, sale condition, and valid comparables.

Royalty or technical know-how fee is includible in customs assessable value only when it relates to the imported goods and is payable as a condition of sale; where the fee relates to transfer of technology for manufacture of final products and not to the imported parts or components, inclusion is not warranted under the Customs Valuation Rules. Enhancement of declared value also cannot be sustained unless the show cause notice proposes that basis and the comparable import is factually reliable; a third-party import with different timing, delivery terms, duty incidence and commercial conditions was not a valid basis for a 20% loading.

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Issues: (i) Whether the lump sum technical know-how fee paid for transfer of technology was includible in the value of the imported parts/components under Rule 9(1)(c) of the Customs Valuation Rules, 1988. (ii) Whether enhancement of the declared transaction value by 20% on the basis of a third party import, in the absence of any such proposal in the show cause notice, was justified.

Issue (i): Whether the lump sum technical know-how fee paid for transfer of technology was includible in the value of the imported parts/components under Rule 9(1)(c) of the Customs Valuation Rules, 1988.

Analysis: The technical collaboration agreement related to transfer of technology, technical assistance and patent rights for manufacture of the final products in India. The imported goods were only parts and components, and the agreement did not relate to their manufacture. The fee was not shown to be paid as a condition of sale of the imported goods. The requirements for inclusion of royalty or licence fee in the assessable value were therefore not satisfied.

Conclusion: The technical know-how fee was not includible in the assessable value of the imported parts/components.

Issue (ii): Whether enhancement of the declared transaction value by 20% on the basis of a third party import, in the absence of any such proposal in the show cause notice, was justified.

Analysis: The show cause notice contained no proposal to enhance value on the basis of any third party import. The comparison relied upon was also not comparable on facts, including differences in time, delivery terms, duty incidence and commercial conditions. Enhancement on that basis could not be sustained.

Conclusion: The 20% loading of the declared transaction value was unjustified and unsustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed in full in favour of the assessee.

Ratio Decidendi: Royalty or technical know-how fee is includible in the customs assessable value only when it relates to the imported goods and is payable as a condition of sale of those goods; value enhancement must also rest on a valid proposal and a reliable comparable basis.

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