Whether the amount of "royalty" paid for the purpose of establishing an automobile manufacturing plant in includible in the value of Capital Goods and parts imported from the same party " 

Since beginning, It is a long battle between the department and the assessee on the issue of inclusion of Royalty paid for know-how or license fees is part of the assessable value of the goods imported from the same person to who the amount of royalty is being paid. 

In number of cases, honorable Supreme Court has said that where the transaction are of independent nature and entered into at arm's length, the value of one transaction can not be associated with the value of another transaction. 

In the present case, importer M/s KSL (India) entered into an agreement with M/s TMC (Japan) for the followings:

(a) all fees, and all costs and expenses incurred by the Licenser in developing and furnishing such know-how, information, documents and or assistance. 

(b) royalty on all of the licensed products manufactured by the Licensee while this agreement is effective 

Further, M/s KSL has imported capital goods from M/s TMC for manufacture of Passenger Utility Vehicles 

Proceeding on the basis that the supplier is related to the respondent, the matter relating to valuation of the said capital goods was referred to the Special Valuation Branch for verification in regard to acceptance or otherwise of the declared invoice value. 

The Special Valuation Branch by reason of a Circular has directed to continue to assess the value of imports from the related supplier provisionally.

In this matter honorable tribunal has held that amount of royalty paid is not includible in the value of goods imported. 

Honorable Supreme Court, after analyzing various facts and terms of the agreements, has confirmed the decision of CESTAT. 

Re.

COMMISSIONER OF CUS. (PORT), CHENNAI Versus TOYOTA KIRLOSKAR MOTOR P.LTD.   Reported in 2007 -TMI - 1513 - CESTAT, BANGALORE 

(For full text of judgment (Customs): - Click here)

Royalty inclusion in import valuation: know how and license fees not includible in value of related party imports. Whether amounts paid as royalty or fees for know how and licenses are includible in the assessable value of capital goods and parts imported from the same party is addressed. Where licensing/know how payments and import of machinery were separate arm's length transactions between related parties, the valuation authority and tribunal concluded those royalty payments are not includible in the customs value of the imported goods.