Royalty on net sales excluded from import valuation where it was not a condition of sale of the imported goods.

Royalty payable on net sales in India was held not to form part of the assessable value of imported compact discs because the agreement did not make the royalty a condition of sale for the imported goods. The importer was free to source compact discs from other suppliers, and the fact that royalty was also paid on domestic sales supported the conclusion that the payment was linked to use and sales in India rather than to the import transaction itself. Under Rule 9(1)(c) of the Customs Valuation Rules, 1988, royalty is includible only when it relates to the imported goods and is payable as a condition of sale; on that basis, the royalty was excluded from valuation.

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Issues: Whether royalty payable on net sales in India was includible in the value of imported compact discs as royalty related to the imported goods and payable as a condition of sale.

Analysis: The agreement showed that royalty was payable on net sales in India, but it did not restrict the importer from sourcing compact discs from other suppliers. The record also showed that the importer had begun manufacturing compact discs in India and paid royalty on such domestic sales, supporting the view that the royalty was not a condition attached to the sale for export to India. Under Rule 9(1)(c) of the Customs Valuation Rules, 1988, royalty is added only when it relates to the imported goods and is payable as a condition of sale.

Conclusion: The royalty was not includible in the assessable value of the imported goods and the issue was decided in favour of the assessee.

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