CESTAT Delhi- Technical Assistance and License Fees Not Includible in Customs Valuation of Imported Machinery

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 16.05.2026

CESTAT Delhi- Technical Assistance and License Fees Not Includible in Customs Valuation of Imported Machinery

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in New Delhi recently decided a significant case involving Aglow Chemical Pvt. Ltd. and the Commissioner of Customs. The dispute centered on whether technical assistance charges, license fees, and engineering services should be included in the assessable value of imported plant and machinery under Indian customs law.

Background of the Case

1. Import Details:
   • Aglow Chemical Pvt. Ltd. imported plant and machinery from Cimprogetti Srl, Italy, declaring an assessable value of EUR 1,26,000 based on the invoice for equipment.
   • The total contract with the supplier was EUR 4,20,000, which included EUR 2,94,000 for license, engineering package, and technical assistance.
2. Customs Department’s Position:
   • The Department argued that the entire contract value (EUR 4,20,000) should be considered for customs duty, as the machinery was incomplete and commercially unusable without the associated technical know-how and assistance.
   • They claimed that splitting invoices did not alter the true transaction value and that all payments were inextricably linked to the imported goods.
3. Appellant’s Argument:
   • Aglow Chemical contended that the charges for technical assistance and license fees were independent of the imported equipment and not a condition of sale.
   • They relied on several Supreme Court decisions, asserting that only the value of the imported equipment should be considered for customs purposes.

Legal Analysis

Key Issues Examined

• Composite vs. Segregated Contracts:
  • The Tribunal examined whether the supply of technical know-how and engineering services was a condition precedent for the sale of equipment.
  • The contract had two distinct parts: one for technical assistance and license fees, and another for the supply of key components.
• Relevant Legal Precedents:
  • The Tribunal referenced Supreme Court judgments, including Tata Iron and Steel Co. Ltd., Essar Steel Ltd., and Steel Authority of India Ltd., which clarified that charges for post-importation activities or separately contracted services are not to be included in the assessable value unless they are a condition of sale.
• Customs Valuation Rules:
  • Rule 10(1)(c) of the Customs Valuation Rules states that royalties and license fees are only added to the transaction value if they are a condition of sale.
  • The Tribunal found no evidence in the contract that technical services were a prerequisite for purchasing the equipment.

Tribunal’s Findings

1. No Binding Obligation:
   • There was no contractual obligation requiring the buyer to purchase technical services as a precondition for buying the equipment.
   • The technical assistance and license fees were not directly related to the sale of the imported goods.
2. Segregation of Charges:
   • The contract and invoices clearly segregated the charges for equipment and technical services.
   • The Tribunal held that only the value of the imported equipment (EUR 1,26,000) should be considered for customs duty.
3. Setting Aside Department’s Order:
   • The Tribunal set aside the order of the customs authorities, allowing the appeal and ruling that the additional charges for technical assistance and license fees were not includible in the assessable value.

Implications for Importers

• Clarity in Contracts:
  • Importers should ensure contracts clearly distinguish between the value of goods and any associated services or technical assistance.
• Customs Valuation:
  • Only charges that are a condition of sale for the imported goods are includible in the assessable value for customs purposes.
• Legal Precedents:
  • The case reinforces established Supreme Court principles, providing guidance for similar disputes.

Conclusion

The CESTAT decision in favor of Aglow Chemical Pvt. Ltd. underscores the importance of contract clarity and the legal distinction between goods and services in customs valuation. Importers can rely on this precedent to exclude separately contracted technical assistance and license fees from the assessable value, provided they are not a condition of sale.

Source: CESTAT Delhi

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