Legal principle

Royalty paid under a technology agreement is includible in the value of imported goods under Rule 9(1)(c)/Rule 10(1)(c) of the Valuation Rules where, on the agreement's terms and the parties' course of dealing, it is a condition of sale of the imported goods — and such a condition may be implied rather than expressly stipulated.

Court decision

The Tribunal found no merit in the appellants' submissions against the addition of royalty under Rule 9(1)(c) of the 1988 Rules / Rule 10(1)(c) of the 2007 Rules, sustaining the royalty addition in favour of Revenue, while recording the adjudicating authority's scheme of loading royalty proportionately consignment-wise (certified by an independent Chartered Accountant) with recovery under Section 28(1) up to April 2011 and Section 28(4) thereafter. The appeal was nonetheless 'partially allowed by way of remand as indicated in para 5.4', which is not reproduced in the extract, so the scope of the remand (including the final outcome on the 10% loading under Rule 7A/Rule 8) cannot be stated from the extract.

Facts

Aquatech Systems (Asia) Pvt. Ltd., engaged in consultancy/technology-based erection of water-treatment plants rather than manufacture, imported parts, components and equipment through its USA principals Aquatech International Corporation at the procurement price plus a 10% handling margin, with its case registered before the Special Valuation Branch by order dated 29.03.2006. Under a Royalty Agreement effective 01.11.2004 it paid royalty on project value for projects using the 'HERO' (High Efficiency Reverse Osmosis) technology. The Deputy Commissioner, GATT Valuation Cell, held the importer and supplier 'related' under Rule 2(2) of the Valuation Rules, ordered the declared invoice value enhanced by 10% under Rule 7A of the 1988 Rules (imports up to 09.10.2007)/Rule 8 of the 2007 Rules (imports from 10.10.2007) plus Table A additions, and provided for demands under Section 28(1) of the Customs Act up to April 2011 and under Section 28(4) thereafter. The Commissioner (Appeals), on remand after the Tribunal set aside his earlier dismissal for a 26-day limitation delay (order dated 11.03.2015), upheld this, holding the royalty dutiable under Rule 10(1)(c) with year-wise loadings of 357.71%, 150.13% and 1534.86% and finding suppression of the Royalty Agreement.

Key provisions

• Rule 9(1)(c), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Residual method
• Rule 10(1)(c), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Cost and services
• Rule 8, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Computed value
• Section 28(1), Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 14, Customs Act, 1962 — Valuation of goods
• Rule 2(2), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Definitions