2015 (12) TMI 1043 - AT - Customs

Valuation - Rule 4 - includibility/ non includibility of the expenses on advertising and sales promotion etc. - Related person - transaction value of identical goods - Held that - It is pertinent to note that the appellant has conceded that the appellant and the supplier being related persons and Revenue was justified in having reason to doubt the truth or accuracy of the value declared. In terms of Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rule, 2007, this is sufficient to allow determination of value as per Rules 4 (onwards) of the said Valuation Rules. Distribution agreement does not specify any amounts which are required to be so spent and the approval to be obtained for incurring expenses cannot be read to mean that the exporter had the right to dictate as to how much amount the appellant was required to spend in these areas. Further, such sales promotion / advertisement cannot be said to be for the benefit of exporter alone inasmuch as the appellant also would get the benefit thereof and therefore to treat this entire amount as additional consideration for import of goods in order to arrive at the loading factor is not sustainable. But as stated earlier, we are only concerned with Rule 4 of CVR, 2007 (which the adjudicating authority has used for loading the value) and not with Rule 10 thereof while the contention of ld. DR falls within the ambit of Rule 10 (which has not been used by the adjudicating authority to arrive at loading) and for this reason it is not necessary to discuss this contention of ld. DR or for that matter the contention of the appellant that expenses incurred were not incurred as condition of sale of goods and so the judgments cited by both sides regarding inclusion (or otherwise) of the expenses incurred by the appellant in the assessable value in terms of Rule 10 do not remain germane to the issue - loading of 12.5% is not sustainable in terms of Rule 4 of the CVR, 2007 - Decided in favour of assessee.

Issues Involved:
1. Validity of the transaction value declared by the importer.
2. Justification for loading the transaction value by 12.5%.
3. Includibility of post-import expenses on marketing, distribution, and advertising in the assessable value.
4. Application of Rule 4 of the Customs Valuation Rules, 2007.

Detailed Analysis:

1. Validity of the Transaction Value Declared by the Importer:
The appeal challenges the Order-in-original which rejected the transaction value declared by the importer for imports from M/s Richemont Dubai (FZE). The appellant conceded that the supplier was a related person, which justified the Revenue's reasonable doubt about the declared value. This concession allowed the determination of value as per Rules 4 onwards of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

2. Justification for Loading the Transaction Value by 12.5%:
The primary adjudicating authority ordered a 12.5% loading on the transaction value, citing that the price charged by the supplier from independent parties was higher than that charged from the appellant. However, the appellant argued that the comparison did not account for differences in commercial levels and quantities imported. The imports made by the appellant were significantly larger than those made by individual retailers, making the comparison invalid. The appellant cited judgments supporting the need for adjustments based on commercial level and quantity differences, which were not made in this case.

3. Includibility of Post-Import Expenses:
The appellant contended that expenses on marketing, distribution, and advertising were post-import expenses and should not be included in the assessable value. These expenses amounted to 12.5%, indicating that the transaction value was not influenced by the relationship. The appellant also argued that these expenses were not incurred as a condition of sale, citing various judgments to support this proposition. On the other hand, the Revenue argued that these expenses were a condition of sale and should be included in the assessable value as per Rule 10(1)(c) of the Customs Valuation Rules, 2007. However, the adjudicating authority did not invoke Rule 10 for loading the value, making this argument irrelevant to the case.

4. Application of Rule 4 of the Customs Valuation Rules, 2007:
The adjudicating authority determined the loading based on Rule 4, which requires the transaction value of identical goods sold at the same commercial level and in substantially the same quantity. The Commissioner noted that no data for similar/identical goods of any other brand or company was available. The appellant demonstrated that its imports were at a different commercial level and in larger quantities compared to those made by individual retailers. The comparison used for loading did not account for these differences, making the 12.5% loading invalid under Rule 4. The Tribunal found that the comparison of prices for only two models of watches and extrapolation to all models lacked legal basis and disregarded the requirements of Rule 4.

Conclusion:
The Tribunal concluded that the 12.5% loading was not sustainable under Rule 4 of the Customs Valuation Rules, 2007. The appeal was allowed, and the order for loading the transaction value was set aside. The Tribunal emphasized that adjustments for differences in commercial levels and quantities are essential for a valid comparison under Rule 4. The judgments cited by both sides regarding the inclusion of post-import expenses in the assessable value under Rule 10 were deemed irrelevant as the adjudicating authority did not invoke Rule 10 for loading the value.

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