Inclusion of Royalty & Licence Fees in assessable value in respect of imported goods

Royalty and Licence Fees to be included in assessable value only when its payment is a condition pre-requisite for supply of imported goods by foreign supplier

Emitec Emission Control Tech. (I) Pvt. Ltd. (the Appellant) imported certain goods from Emitec Gesellschaft Fur Emissions technologie GmBH (EGM Germany) which is the parent company of the Appellant. The Appellant also manufactured the same goods in India for which EGM Germany charged royalty for providing technical know-how and remuneration on account of training. The Adjudicating Authority while determining the assessable value of the imported goods, added the element of royalty as well as the remuneration on account of the training to the assessable value in terms of Rule 10(1)(c) of Customs Valuation (Determination of Price of imported Goods) Rules, 2007 (the Valuation Rules).

Being aggrieved, the Appellant preferred an appeal before the Commissioner (Appeals), who upheld the order passed by the Adjudicating Authority. Aggrieved by the order of the Commissioner (Appeals), the Appellant preferred an appeal before the Hon’ble CESTAT, Mumbai.

The Hon’ble CESTAT, Mumbai relying upon the decision of the Hon’ble Supreme Court in case of Commissioner of Customs Vs. Frodo India Pvt. Ltd.[2008 (224) E.L.T. 23 (S.C.)]allowed the Appeal and held that the provisions of Rule 10(1)(c) of the Valuation Rules is pari materialto erstwhile Rule 9(1)(c) of Customs (Valuation) Rules, 1988 as per which royalty and license fees can be included in the assessable value of the imported goods only if the payment constitutes a condition pre-requisite for the supply of the imported goods by the foreign supplier.