Customs Valuation of Imported Machine with Royalty and Exchange Rate Date
M/s Precision Tools Ltd imports a CNC machine from a German supplier. The invoice price is EUR 100,000 CIF Mumbai. The contract requires the importer to pay a royalty of EUR 10,000 to the foreign supplier as a condition of sale, which is not included in the invoice. The importer also pays EUR 5,000 directly to a German engineer for installation and commissioning of the machine in India after import; this is separately identified in the contract. The bill of entry is presented on 12 February 2025. CBIC notifies exchange rates: on 5 February 2025, EUR 1 = Rs 90; on 12 February 2025, EUR 1 = Rs 91. Basic customs duty is 7.5%, Social Welfare Surcharge is 10% of BCD, and IGST is 18%. The importer contends that royalty is a post-importation payment and not includible, that installation charges are includible because they are a condition of sale, and that the exchange rate on the invoice date should apply. The department disputes all three.
1. Are the royalty and installation charges includible in the assessable value?
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Royalty is includible. Under rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, royalties and licence fees related to the imported goods that the buyer must pay as a condition of sale are added to the transaction value, even if paid after importation. The EUR 10,000 royalty therefore forms part of the assessable value. Installation and commissioning charges are different. Post-importation charges for erection, installation, assembly, maintenance or technical assistance are not part of the value of the imported goods if they are separately identified and distinct from the price of the goods. The EUR 5,000 is therefore excluded, notwithstanding that it is mentioned in the contract.
2. Which exchange rate applies: the invoice date rate or the bill of entry date rate?
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The bill of entry date rate applies. Under section 14 of the Customs Act, 1962, the value of imported goods is determined at the rate of exchange notified by the CBIC on the date of presentation of the bill of entry. The invoice date is irrelevant for this purpose. The relevant rate is therefore EUR 1 = Rs 91 on 12 February 2025, not Rs 90 on 5 February 2025. This rule gives certainty and prevents importers from choosing a favourable invoice-date rate.
3. Compute the assessable value and total customs duty payable.
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Assessable value = (EUR 100,000 invoice + EUR 10,000 royalty) x Rs 91 = EUR 110,000 x 91 = Rs 1,00,10,000. BCD at 7.5% = Rs 7,50,750. Social Welfare Surcharge at 10% of BCD = Rs 75,075. IGST at 18% on (assessable value + BCD + SWS) = 18% of Rs 1,08,35,825 = Rs 19,50,448.50. Total customs duty = Rs 7,50,750 + Rs 75,075 + Rs 19,50,448.50 = Rs 27,76,273.50. The importer may claim IGST as input tax credit, but the duty is payable at the time of import before clearance.