2024 (4) TMI 243 - AT - Customs

Valuation of imported goods - demand of differential customs duty due to reassessment of the value of goods - recovery of interest - Penalty - Whether the expenditure incurred by the appellant towards advertising, marketing and promotion of the goods imported by the appellant under the Agreements with the foreign suppliers is liable to be added to the transaction value of the imported goods - HELD THAT - In the present case, it clearly transpires from the Agreements entered into between the appellant and the foreign suppliers that the foreign suppliers had granted to the appellant the right to import the products for distribution and sale in India but the appellant had to incur, on its own account, the expenditure towards advertising, marketing and promotion of the products. In some of the Agreements the appellant was required to use its best efforts to promote and develop the distribution and sale of the products and the Agreement could be terminated at the discretion of the foreign supplier if the appellant did not spend the amount indicated in the Agreement. Note to rule 3(2)(b) of the Interpretation Notes also needs to be remembered. Though it provides that if the sale or price is subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued, the transaction value shall not be acceptable for customs purposes but it also provides that if the buyer undertakes on his own account, even though by agreement with the seller, activities relating to the marketing of the imported goods, the value of these activities is not part of the value of imported goods nor shall such activities result in rejection of the transaction value. It cannot, therefore, be urged that the appellant incurred expenditure to satisfy obligation of foreign sellers. Thus, the first requirement of rule 10(1)(e) of the 2007 Valuation Rules is not satisfied. The second requirement of rule 10(1)(e) is that payment should be made by the buyer to a third party to satisfy an obligation of the seller towards the third party. A Division Bench of the Tribunal in Adidas India 2020 (3) TMI 324 - CESTAT NEW DELHI examined almost similar terms of the Agreements and held that the requirements of rule 10(1)(e) of the 2007 Valuation Rules are not satisfied. Thus, the second criterion is also not satisfied. In this view of the matter, the reasoning of the Principal Commissioner in the impugned order that since the appellant was required and obliged to undertake marketing/ advertising in terms of the Agreements with the foreign suppliers, the price of the imported goods cannot be said to be the sole consideration within the meaning of section 14 of the Customs Act and, therefore, the transaction value is liable to be rejected under rule 12 of the 2007 Valuation Rules is clearly contrary to the categorical stipulation in the Interpretative Notes to rule 3 that activities relating to marketing of the imported goods undertaken by the buyer, even though under agreement with the seller, cannot be considered to be additional consideration and cannot form part of the value of the imported goods, nor shall such activities result in rejection of the transaction value. The impugned order dated 29.05.2020 passed by the Principal Commissioner, therefore, cannot be sustained and is set aside. The appeal is, accordingly, allowed with consequential relief(s).

Issues Involved:
1. Whether the expenditure incurred by the appellant towards advertising, marketing, and promotion of the imported goods should be included in the transaction value for the purpose of customs duty.
2. Whether the show cause notice is barred by time under section 28(1) of the Customs Act.
3. Whether the goods are liable to confiscation under section 111(m) of the Customs Act.
4. Whether interest under section 28AA and penalty under section 114A of the Customs Act are applicable.

Summary:

1. Inclusion of Advertising, Marketing, and Promotion Expenses in Transaction Value:
The appellant, engaged in the marketing and distribution of luxury fashion products, challenged the order of the Principal Commissioner, which included the expenditure incurred for advertisement and marketing/promotion of imported goods in the transaction value. The Principal Commissioner reassessed the value of imports and confirmed the demand for differential customs duty, interest, and penalty u/s 114A of the Customs Act. The appellant argued that such expenses are not liable to be added to the transaction value as per the Interpretative Notes to rule 3(2)(b) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (2007 Valuation Rules), which state that activities undertaken by the buyer on their own account should not be part of the value of imported goods. The Tribunal referenced several decisions, including *Commissioner of Customs, Parparganj vs. Adidas India Marketing Pvt. Ltd.* and *Giorgio Armani India (P) Ltd. vs. Commissioner of Customs, New Delhi*, which supported the appellant's claim that such expenses should not be included in the transaction value.

2. Barred by Time Under Section 28(1) of the Customs Act:
The appellant contended that the show cause notice dated 27.10.2017 was barred by time under section 28(1) of the Customs Act, and the larger period of limitation under section 28(4) would be inapplicable. However, this issue was not elaborated upon in the judgment as the primary issue was decided in favor of the appellant.

3. Liability of Goods to Confiscation Under Section 111(m) of the Customs Act:
The appellant argued that the goods were not liable to confiscation under section 111(m) of the Customs Act. This issue was also not elaborated upon as the primary issue regarding the inclusion of advertising expenses was resolved in favor of the appellant.

4. Interest Under Section 28AA and Penalty Under Section 114A of the Customs Act:
The appellant contended that interest under section 28AA and penalty under section 114A of the Customs Act should be set aside. Given the decision that the advertising and marketing expenses should not be included in the transaction value, the Tribunal found no basis for the imposition of interest and penalty.

Conclusion:
The Tribunal set aside the impugned order dated 29.05.2020, concluding that the expenditure on advertising, marketing, and promotion incurred by the appellant should not be included in the transaction value of the imported goods. The appeal was allowed with consequential reliefs.

← Previous Next →