License Fee, Technical Assistance Charges Not Includible In Customs Value Unless They Are a Condition of Sale: CESTAT

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has held that license fees, engineering packages and technical assistance charges cannot be included in the assessable value of imported machinery where such payments are not a condition precedent for the sale of the imported goods. The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) further observed that Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 permits addition of royalties and license fees only where such payments are required as a condition of sale of imported goods. In the present case, the Revenue failed to establish any contractual clause making the purchase of technical services a mandatory prerequisite for purchasing machinery. The dispute arose after Aglow Chemical Pvt. Ltd., Udaipur imported plant and machinery from an Italian supplier, M/s Cimprogetti Srl, under a Bill of Entry dated 21 April 2022. The company declared the assessable value of the imported machinery at EUR 1,26,000 and classified the goods under Customs Tariff Heading 84179000 while paying applicable customs duty. During scrutiny, customs authorities found that the importer had entered into a broader agreement with the foreign supplier involving a total contract value of EUR 4,20,000. Out of this amount, EUR 1,26,000 related to key equipment, while EUR 2,94,000 related to license fees, engineering packages and technical assistance services. The Department took the view that these additional charges formed an integral component of the imported machinery transaction and should therefore be added to the assessable value. The Department issued a pre-notice consultation and subsequently seized the imported goods under Section 110(1) of the Customs Act, alleging misdeclaration of value. A show cause notice was later issued proposing reassessment of the imported goods at EUR 4,20,000 instead of EUR 1,26,000. The notice also sought confiscation of goods under Section 111(m) and imposition of penalties under Section 112(a) of the Customs Act. The adjudicating authority agreed with the Department’s position and concluded that the license fees, engineering charges and technical assistance costs formed part of the transaction value of imported goods. The Commissioner (Appeals) upheld the decision, leading the importer to approach CESTAT. Before the Tribunal, the appellant argued that the authorities had incorrectly treated separate transactions as a composite supply arrangement. It contended that the technical assistance, engineering package and licensing arrangements were independent services unrelated to the sale of machinery itself. The company emphasized that separate invoices had been issued for equipment and services, indicating the parties’ intention to maintain distinct contractual obligations. The department maintained that the entire contract was a composite arrangement for setting up a lime kiln project and that the machinery could not function independently without proprietary designs, engineering drawings and technical know-how. According to the Department, merely splitting invoices did not alter the real nature of the transaction and the entire consideration was required to be included for customs valuation purposes. After examining the contract terms, the Tribunal found that the agreement clearly distinguished between two different categories of obligations. One part of the agreement related to technical assistance and licensing arrangements, while the other related to the supply of key components of machinery. Separate invoices were also issued corresponding to these contractual distinctions. The Tribunal observed that such bifurcation reflected the parties’ intention to separately value and separately supply technical services and equipment. The Bench relied upon several Supreme Court precedents, including SAIL, Essar Steel, and Tata Iron and Steel Co. Ltd., which had consistently held that charges relating to technical services, design documents and post-importation activities cannot automatically be clubbed with imported goods value merely because they arise from the same agreement. The Bench specifically held that no binding obligation existed under the contract compelling the importer to purchase technical services as a precondition for obtaining the machinery. Consequently, the payments made for engineering services and technical know-how could not be included in the transaction value of the imported equipment. Allowing the appeal, CESTAT set aside the impugned order and ruled in favour of Aglow Chemical Pvt. Ltd. Since the valuation issue itself was decided in favour of the importer, the Tribunal found it unnecessary to examine the questions relating to confiscation and penalties. Case Details Case Title: Aglow Chemical Pvt. Ltd. Versus Commissioner of Customs (Preventive) Citation: JURISHOUR-1282-CES-2026(DEL) Case No.: Customs Appeal No.51968 of 2024 Date: 15.05.2026 Counsel For Appellant: Ajay K. Mishra, Advocate Counsel For Respondent: Girijesh Kumar, Authorised Representative Click Here To Read Order Read More: Investment in Mutual Funds Not ‘Trading’, No CENVAT Credit Reversal Required for Redemption of Units: CESTAT

License Fee, Technical Assistance Charges Not Includible In Customs Value Unless They Are a Condition of Sale: CESTAT

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