Royalty not to be added to value of goods imported

The Supreme Court has held that payments of royalty and know-how cannot be loaded to the value of the goods imported as components from a related supplier for assessing customs duty.

Dismissing the appeal of the Commissioner of Customs, Chennai, in the case of Toyota Kirloskar Motor Pvt Ltd, the Supreme Court upheld the order passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) granting relief to the Indian company.

Kirloskar Systems Ltd entered into an agreement with Toyota Motor Corporation, Japan, which is a major shareholder in Toyota Kirloskar Motor Pvt Ltd.

The dispute was over the valuation of the capital goods and parts imported by the company from the Japanese firm for manufacture of passenger utility vehicles. Under the agreement, the Indian firm had to pay royalty and know-how fees to the Japanese company for setting up a plant in Bangalore.

The revenue authorities added such payments to the invoice value of the goods so as to arrive at a proper transaction value in terms of Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules.

Payments of royalty, according them, have a direct relation to the imported goods as they go into the manufacture of the licensed vehicles and spare parts.

This was challenged by the company and CESTAT, after examining the terms of the agreement, ruled that there was no requirement in this case for adding royalty payment to the price payable for determining the transaction value of the imported parts.

"All payments are towards assistance rendered in India for setting up the plant. None of this is in relation to the goods under import," the court said.