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Dated: 11.09.2023

“Exclusion of Royalty or Technical Know-How Fees from Customs Duty Calculation for Imported Goods When Rule 9(1)(c) of Customs Valuation Rules is Not Met: CESTAT Chennai Ruling”

Index:

1. Introduction
2. Background of the Case
3. Arguments Presented
4. CESTAT’s Examination and Decision
5. Precedents and Legal References
6. Conclusion

1. Introduction

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, has recently issued a significant ruling regarding the inclusion of royalty and technical knowhow fees in the assessable value for customs duty calculation.

2. Background of the Case

The dispute originated from an appeal filed by the Commissioner of Customs, Chennai, challenging a decision made by the Commissioner (Appeals) regarding the assessment of technical knowhow fees and royalty in the assessable value of imported goods for customs duty calculation.

3. Arguments Presented

The appellant, represented by Ms. Anandalakshmi Ganeshram, contended that these fees should be considered a condition of sale and thus should be included in the assessable value. Conversely, the respondent, represented by Shri M. Kanan, argued that these fees were not a condition of sale and should therefore be excluded from the assessable value.

4. CESTAT’s Examination and Decision

After a thorough examination of the agreement between the respondent-importer and their foreign collaborator, the CESTAT concluded that the royalty and technical knowhow fees were linked to the net sales price of domestically sold licensed articles. Furthermore, the absence of any agreement restrictions mandating the procurement of raw materials or capital goods solely from the foreign supplier led the CESTAT to determine that these fees were not a condition of sale for the imported goods.

5. Precedents and Legal References

The CESTAT’s decision drew support from previous tribunal rulings, such as those in the cases of M/s. HIS Automotive Ltd. and M/s. Daewoo Motors India Ltd., which similarly excluded royalty payments from the assessable value. Additionally, the bench referenced the Supreme Court’s decision in the case of CC(Port), Chennai vs. Toyota Kirloskar Motor P. Ltd. [2007 (213) E.L.T. 4(S.C.)], which affirmed that royalty payments to foreign collaborators did not satisfy the conditions outlined in Rule 9(1)(c) and should therefore not be included in the assessable value of imported goods.

6. Conclusion

In conclusion, the CESTAT Chennai Bench, comprising Mrs. Sulekha Beevi C.S (Judicial Member) and Mr. Vasa Seshagiri Rao (Technical Member), upheld that royalty and technical knowhow fees paid to foreign collaborators should not be considered a condition of the sale of imported goods. Consequently, these fees are to be excluded from the assessable value for customs duty calculation.

Source: CESTAT, Chennai

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