Licence Fee, Technical Assistance Charges Not Part Of Customs Value Unless Condition Of Sale: CESTAT Delhi

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has held that licence fees, engineering package charges, and technical assistance payments cannot be added to the assessable value of imported equipment where they are separately contracted and are not a condition of sale.

A bench of Judicial Member Binu Tamta and Technical Member P.V. Subba Rao observed, “Law has been settled that once separate prices are provided for the supply of technical assistance, royalty etc. on one part and supply of equipment or capital goods on other part, then the consideration for the supply of technical assistance cannot be added to the assessable value in respect of import of equipment.”

The ruling came in an appeal filed by Aglow Chemical Pvt. Ltd. against an order including licence fee, engineering package and technical assistance charges in the customs value of imported equipment.

The dispute arose after the appellant imported key equipment from an Italian supplier for setting up a lime kiln project. The appellant declared the assessable value of the imported goods at EUR 1,26,000.

During verification, the department noticed that the total contract value between the parties was EUR 4,20,000. Of this, EUR 2,94,000 was towards licence fee, engineering package, and technical assistance.

The department alleged that the importer had artificially split the invoices to suppress the assessable value. It sought inclusion of the entire contract amount for customs valuation purposes.

Aglow Chemical contended that the licence fee, engineering package and technical assistance were separate contractual obligations. It argued these were unrelated to the sale of the imported equipment.

The Tribunal examined the agreement and found that it clearly bifurcated the consideration payable for imported key equipment and that payable for engineering and technical services.

Relying on Supreme Court decisions including Tata Iron and Steel Co. Ltd., Essar Steel Ltd. and SAIL, the tribunal reiterated that charges relating to post-importation activities cannot be included in assessable value where such services are separately contracted and distinguishable from the imported goods.

The tribunal also noted that the contract expressly provided that several additional machinery and infrastructure components required for setting up the lime kiln were to be sourced indigenously by the buyer. This undermined the department's contention that the imported equipment and technical services formed an inseparable composite supply.

Rejecting the Revenue's case, the bench observed: “such Royalties and Fees will be added only when these are required to pay as a condition of sale of the goods under import.”

Holding that the Revenue failed to establish any binding obligation requiring purchase of technical services as a prerequisite for purchase of equipment, the tribunal allowed the appeal and set aside the impugned order.

For Appellant: Advocate Ajay K. Mishra

For Department: Girijesh Kumar, Authorised Representative