Customs valuation and running royalty: separate technical know-how payments were excluded from imported component value.

Running royalty paid under a technical assistance agreement was held not to form part of the assessable value of imported components because the royalty was consideration for technical know-how, industrial property rights and trademark use, while the component price was separately fixed under an independent supply arrangement. No material showed that the invoice price was below ordinary international price, that the agreement was incomplete, or that any royalty element was embedded in the import price. The parties' relationship did not establish the controlling interest or nexus needed to reject transaction value, so the invoice price had to be accepted and best judgment valuation was unwarranted.

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Issues: Whether the running royalty payable under the technical assistance agreement was includible in the assessable value of the imported components, and whether the customs authorities were justified in treating the parties as interested in each other and resorting to best judgment valuation.

Analysis: The agreement showed that the lump sum and running royalty were consideration for technical information, know-how, industrial property rights and trade mark usage, while the price of components was separately agreed upon under a distinct supply arrangement. There was no material to show that the invoice price was lower than the ordinary international price, that the agreement was incomplete, or that any part of the royalty was intended to form part of the price of the imported components. The relationship between the parties did not establish a controlling interest or a nexus between royalty and the import price. The valuation could not therefore be rejected under Section 14(1)(a) of the Customs Act, and best judgment under the valuation rules was unwarranted.

Conclusion: The royalty was not includible in the assessable value of the imported components, and the invoice price had to be accepted as the assessable value. The finding is in favour of the assessee.

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