Customs valuation and trademark royalty: post-import domestic royalty on repacked goods not addable to assessable value.

Royalty is includible in customs valuation only where it relates to the imported goods and is payable, directly or indirectly, as a condition of sale; royalty paid for post-import domestic use of a trademark on repacked goods, without proof of such nexus or condition, is not addable to assessable value. Additional grounds and the relevant trademark licence agreement were allowed on record because they directly bore on the dispute and raised a point of law capable of being urged at the appellate stage. The demand adding royalty to import value was therefore not sustainable, with consequential relief available in accordance with law.

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Issues: (i) Whether additional grounds and the correct trademark licence agreement could be taken on record. (ii) Whether royalty paid on net domestic sales of repacked goods was includible in the customs assessable value of the imported MSG.

Issue (i): Whether additional grounds and the correct trademark licence agreement could be taken on record.

Analysis: The additional material had a direct bearing on the dispute and was necessary to remove doubt regarding the agreement governing the relevant period. The issue raised by the appellant on a point of law was also capable of being urged at the appellate stage without fresh evidence. The request was therefore treated as permissible in the interest of justice.

Conclusion: The additional grounds and the correct agreement were allowed to be taken on record.

Issue (ii): Whether royalty paid on net domestic sales of repacked goods was includible in the customs assessable value of the imported MSG.

Analysis: Under Rule 10(1)(c) and Rule 10(1)(e) of the Customs Valuation Rules, 2007, only royalty or other payments that relate to the imported goods and are payable as a condition of sale are addable to the price actually paid or payable. The royalty in question was payable for use of the trademark on repacked goods sold domestically, after importation and after the goods had undergone a process treated as manufacture. The transaction value had been accepted, no flow back or price adjustment was established, and the payment was not shown to be a condition of sale by the foreign supplier from whom the goods were imported.

Conclusion: The royalty was not includible in the assessable value of the imported goods.

Final Conclusion: The demand sustaining addition of royalty to the import value could not be upheld, and the importer was entitled to consequential relief in accordance with law.

Ratio Decidendi: Royalty is includible in customs valuation only where it is related to the imported goods and is payable, directly or indirectly, as a condition of sale of those goods; royalty paid for post-import domestic use of a trademark on repacked goods, without proof of such nexus or condition, is not addable to the assessable value.

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