Royalty may be included in assessable value of imports

In the context of valuation for customs purposes, the West Zonal Bench of the Customs, Excise and Service Tax Appellate Tribunal has, in a recent decision in Star Entertainment Pvt Ltd v Commissioner of Customs (Adjudication), Mumbai, considered the issue of whether royalties/licence fees paid in respect of films/serials, contained in imported beta/digibeta tapes, should be included in the assessable value of the tapes, in terms of erstwhile rule 9(1)(c)/present rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules 1988/2007 (CVR).

Erstwhile rule 9(1)(c)/present rule 10(1)(c) warrants addition of royalty payments to the assessable value of imported goods in situations where such payments: (i) are related to the goods being imported and valued; and (ii) constitute a “condition of sale” for such goods. The term “condition of sale” has not been defined under the Customs Act, 1962, or the CVR but has been judicially interpreted (in Commissioner of Customs, Ahmedabad v Essar Gujarat Ltd, 1996) to mean a pre-condition for the sale, non-fulfilment of which would cause the sale to fall through.

Factual background

In the Star Entertainment case, the appellant had imported pre-recorded master tapes containing feature films/serials and paid customs duty on the value of the tapes, as declared on the invoice issued by the foreign supplier. The tribunal was required to determine whether the royalty/licence fee paid for procuring cinematic, television, video and ancillary rights in respect of the films/serials was a condition for the sale of the imported media containing such films/serials and should form part of the latter’s transaction value, when the amounts towards royalty/licence fees were paid prior to importation of the tapes/media.

Karthik Sundaram is an associate partner and Anuradha Mohanty is an associate manager at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.