Imported plant and machinery pricing: whether licence and technical know-how fees can be added to customs value u/s14; excluded

Customs valuation under s. 14 of the Customs Act and the Valuation Rules turned on whether licence and technical know-how fees could be added to the transaction value of imported plant and machinery. The SC held that assessable value comprises only amounts payable as a condition of sale of the imported goods at the time of importation, requiring a direct nexus with the price of the goods. Consideration payable post-importation for transfer of licence/know-how, plant set-up, operation, or other post-importation services lacks such nexus and is not includible, particularly where the agreement allowed procurement of machinery from independent suppliers and the know-how fee was not for fabrication/design of the imported goods. The appeal was dismissed.

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Issues: Whether the value of licence, know-how and technical documentation payable under a collaboration agreement must be added to the transaction value of imported plant and machinery as "payments actually made as a condition of sale" for computation of assessable value under the Customs Valuation Rules.

Analysis: The legal framework comprises Sections 12, 14 and 14(1A) of the Customs Act, 1962 and the Valuation Rules which define transaction value and require specified additions under Rule 9. The Interpretative Note to Rule 4 and Rule 12 exclude charges for construction, erection, assembly, maintenance or technical assistance undertaken after importation, provided such charges are distinguishable from the price actually paid or payable for the imported goods. The relevant licence/know-how payment in the agreement was for transfer of process know-how and documentation and for use of patents, and related to post-importation technical assistance and rights distinct from the price of imported equipment. Prior decisions distinguishing pre-condition-of-sale licence fees from post-importation technical charges are considered; the interpretative note and requirement of a direct nexus with the value payable at the time and place of importation control inclusion in assessable value.

Conclusion: The licence and know-how payments held to be distinct post-importation charges are not includible in the transaction value of the imported plant and machinery under Rule 9(1)(e) and related provisions, and therefore are not chargeable to customs duty as part of the assessable value.

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