Royalty Can’t Be Added to Import Value Without Proven Nexus and Sale Condition: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that royalty payments cannot be added to the import value of goods unless there is a proven nexus between the royalty and the imported goods, and the payment is a condition of the sale. The tribunal emphasized that the burden of proof is on the customs department to establish this direct link. The case involved an importer who was paying royalty to a foreign entity, which the department sought to add to the value of the imported goods for calculating customs duty. However, the CESTAT found that the department failed to demonstrate that the royalty payment was directly related to the imported goods and was a prerequisite for their purchase. In the absence of such evidence, the tribunal held that the royalty payment should be treated as a separate transaction and not as part of the customs value.