Customs valuation: royalty for technology transfer is not added to import value unless tied to imported goods as sale condition.

Royalty or licence fee is includible in customs transaction value only where it is related to the imported goods and payable as a condition of their sale. A royalty paid for transfer of technology, technical know-how, assistance, training, and trade mark use for manufacture and sale of finished products is not includible merely because the formula refers to imported inputs. Where the technology agreement was disclosed to customs and the department had earlier accepted the declared value, suppression or wilful misstatement was not established; in that situation, the extended period cannot be invoked to demand differential customs duty.

---

---

Issues: (i) Whether royalty payments made under the technology licence agreement were includible in the transaction value of the imported raw materials under the Customs Valuation Rules, 2007; (ii) Whether the demand of differential customs duty by invoking the extended period was sustainable.

Issue (i): Whether royalty payments made under the technology licence agreement were includible in the transaction value of the imported raw materials under the Customs Valuation Rules, 2007.

Analysis: The agreement showed that the royalty was payable for transfer of technology, technical know-how, technical assistance, training and use of the trade mark for manufacture and sale of finished products. The royalty was computed on net sales value of products sold and not as a payment intrinsically attached to the import of raw materials. The Court held that royalty can be added only when it is related to the imported goods and is required to be paid as a condition of sale. On a reading of the agreement, no such condition of sale for the imported raw materials was established, and the mere inclusion of raw material cost in the royalty formula did not make the royalty attributable to the imports.

Conclusion: Royalty was not includible in the transaction value of the imported raw materials.

Issue (ii): Whether the demand of differential customs duty by invoking the extended period was sustainable.

Analysis: The same technology agreement had been disclosed before the special valuation branch and the department had repeatedly accepted the transaction value in earlier orders. The material facts were available to the department, and the dispute was only on interpretation of the agreement. In these circumstances, suppression of facts or wilful misstatement was not established, and the extended period could not be used to raise duty demand for the earlier years.

Conclusion: Invocation of the extended period and the consequent differential duty demand were unsustainable.

Final Conclusion: The impugned order could not be sustained, and the appeal succeeded with consequential relief.

Ratio Decidendi: Royalty or licence fee is includible in customs value only when it is linked to the imported goods and payable as a condition of their sale; royalty payable for post-import manufacture and sale of finished products is not includible merely because its computation formula refers to imported inputs.

---