2026-VIL-1646-CESTAT-CHE-CU
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CUSTOMS CESTAT Cases

Customs - Includibility of royalty payments in assessable value of imported goods under Rule 10 of Customs Valuation Rules, 2007 - Appellant-EOU engaged in manufacture of power conversion and inverter systems, imported components from related foreign suppliers and paid royalty at 2% on net selling price of finished products manufactured and sold in India - Department held such royalty includible in assessable value under Rule 10(1)(c) on the ground that imported components constituted integral raw materials for manufacture of the branded finished products - Whether royalty paid by the appellant is includible in the assessable value of imported goods under Rule 10, and whether the impugned orders confirming such inclusion are legally sustainable - HELD - Rule 10(1)(c) requires two cumulative conditions, namely that the royalty be related to the imported goods and that its payment constitute a condition of sale of the imported goods, the burden of establishing both lying on Revenue. Neither Rule 10(1)(e) nor its Explanation creates an independent charging mechanism or enlarges the scope of clause (c) - None of the agreements stipulated that import of raw materials was conditional upon payment of royalty, nor was royalty computation linked to value or quantity of imported components, the obligation arising only upon manufacture and sale of finished products - Royalty paid for technical know-how, intellectual property rights, trademarks and post-import commercial exploitation cannot automatically be loaded into assessable value merely because imported components are used in manufacture, following the settled position that the relevant test is whether import would have taken place had the importer declined to pay royalty - Mere existence of some nexus between imported raw materials and royalty payment is insufficient absent proof that royalty was a condition of sale. De novo adjudication proceeded on inferential reasoning without any fresh material establishing the statutory requirements, and the impugned appellate order adopted the same reasoning without independent examination. Additions to transaction value being exceptions to acceptance of declared value cannot be sustained on generalized assumptions of relationship between parties - Royalty payments held not includible in assessable value - Impugned order set aside and appeal allowed
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GST & Customs updates: Sep'26
By CA Vivek Jalan

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