2018 (1) TMI 724 - AT - Customs

Valuation - import of goods - inclusion of expenditure on advertisement and promotion - Department took the view that such expenditure is being incurred as a condition for sale of goods by RIL England and hence loaded the amount incurred to the transaction value of goods already imported during the disputed period - Held that - The Interpretative Note of Rule 3 (2) (b) of the Customs Valuation Rules forbids loading the expenses incurred relating to marketing of the imported goods, if such expanses are incurred by the buyer on his own account even though by agreement with the seller - the appellant has incurred such expanses on the expression obligation of RIL England and as a clear condition of the sale of goods for disputing them in India. It cannot be concluded, in the facts of the present case, that the expenditure has been incurred by the appellant on their own account. Time limitation - Held that - In the declaration made by the appellant before SVB the Distribution Agreement with the clause relating to the expenditure on advertising has not been produced. The lower Authorities have held that this amounts to suppression of facts - extended period rightly invoked. Appeal dismissed - decided against the assessee.

Summary

Issues:
Allegations of undervaluation based on Distribution Agreement, application of Customs Valuation Rules, applicability of Rule 10(1)(e), reliance on statement of Finance Director, inclusion of advertisement expenses in assessable value, interpretation of relevant case laws, time bar for penalty and interest.

Analysis:
The appeal challenged an Order-in-Original that rejected the assessable value declared for imported goods, demanding differential duty, interest, and penalty. The dispute arose from the appellant's import of sports goods from a related party, RIL England, under Distribution and Buying Agency Agreements. The Department alleged undervaluation based on the Distribution Agreement's clause on advertising expenses. The appellant contended that the Department failed to meet Customs Valuation Rules requirements and burden of proof under Rule 3. They argued that advertisement expenses are post-importation and not a condition of sale. The appellant also cited interpretative notes and case laws supporting their defense.

The Department justified the order, stating that the appellant incurred advertising expenses as a condition for sale by RIL England, making such expenses includible in transaction value under Rule 10(1)(e) of Customs Valuation Rules. The Tribunal analyzed the Distribution Agreement's clauses, particularly 4.13.4 and 4.9, which mandated advertising expenditure and detailed control by RIL England over promotional activities. It concluded that the appellant's expenses were on behalf of RIL England, satisfying the seller's obligation and justifying inclusion in the assessable value.

Regarding the appellant's reliance on the interpretative note to Rule 3(2)(b), the Tribunal found that the expenses were not incurred on the buyer's account but as a condition of sale, contrary to the appellant's argument. The Tribunal distinguished the case laws cited by the appellant, emphasizing the specific circumstances of each case. It dismissed the appellant's time bar argument, agreeing with lower authorities that the appellant's failure to provide the Distribution Agreement clause constituted suppression of facts.

Ultimately, the Tribunal upheld the impugned order, rejecting the appeal and sustaining the demand for differential duty, interest, and penalty. The decision was based on the appellant's obligation to incur advertising expenses as a condition of sale, aligning with Rule 10(1)(e) of Customs Valuation Rules and the control exercised by RIL England over promotional activities.