INDIA BUSINESS WORLD - FEBRUARY 16^th - FEBRUARY 29^th - 2008

ROYALTY PART OF IMPORT PRICE, SAYS SUPREME COURT

The Supreme Court in a ruling has said that pricing arrangement between a foreign collaborator and an importer is a clue to decide the contentious issue of technical know-how fees and royalty. For such levy, examination of technical assistance and trademark agreement (TAA) between the licensor and licensee is not enough, said the apex court. A bench comprising Justice SH Kapadia and Justice BS Reddy said: “In addition to the price for the imported goods, the buyer incurs royalty and licence fee costs. These are paid to the foreign supplier for using information, patent, trademark and know-how in the manufacture of the licensed product in India.”

“Rule 9(1)(c)of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 stipulates that payments made towards technical know-how must be a pre-requisite condition for the supply of imported goods by the foreign supplier and if such condition exists, then such royalties and fees have to be included in the price of the imported goods,” the court said. M/s Ferodo India, the buyer which was the manufacturer of brake liners and brake pads in India had entered into TAA with UK-based M/s T & N International. Customs officials held that the technical know-how fees and royalty were related to the imported goods and were a condition of sale for the import. Therefore, the know-how fees and royalty was added to the CIF value of the imported goods.