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Issues: Valuation of imported raw materials and components, inclusion of royalty amount in the value of imported goods.
Valuation of imported raw materials and components: The case involved a License and Technical Assistance Agreement between two related parties for the manufacture of Solid Phase Extraction (SPE) by the appellant. The issue was whether the royalty amount of US $ 2,00,000 over 20 years should be included in the value of the imported raw materials and components. The Additional Commissioner held that the royalty was not includible, but the Commissioner (Appeals) overturned this decision. The appellant argued that the royalty was not a condition for the sale of imported materials, and it was paid independent of the sourcing of goods. They contended that the royalty was for technology and knowhow related to the finished goods, not for the imported materials specifically. Inclusion of royalty amount: The Customs Valuation Rules, 2007, specifically Rule 10(1)(c) and (e), allow for the inclusion of royalties and license fees related to imported goods if they are a condition of sale and not already included in the price paid. The tribunal noted that the department failed to show that the royalty was a condition precedent for sale. Referring to the Oxford Dictionary definition of "condition," the tribunal emphasized that the royalty must be a stipulation on which something else depends for it to be included in the assessable value. Citing the decision in Ferodo India Pvt. Ltd., the tribunal held that if the payment of royalty does not have a nexus with the working of the imported goods, it should not be included in the price. Consequently, the tribunal set aside the order and allowed the appeal, stating that the assessable value should reflect the true transaction value as per Section 14(1)(a) of the Customs Act, 1962.
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