2018 (4) TMI 360 - AT - Customs

Valuation of imported goods - fashion apparel - related person in terms of Rule 2(2) of the Customs Valuation Rules, 2007 - includibility - Annual franchisee fee - institutional advertising and promotional campaign charges - advertising expenditure. Payment of Franchisee fee equal to @ 5% of the value of net purchases - Held that - such franchisee fee is being paid by the appellant as a condition for the sale of goods by the foreign supplier. Such franchisee fee will be includible in the assessable value in terms of Rule 10 (1) (c) of the Customs Valuation Rules - demand upheld. Loading @ 2% towards share of institutional advertising and promotional campaign - Held that - the appellant is required to remit an amount @ 2% and unless such amounts are paid, they will not be entitled to import goods from the foreign principal - such payments come within 10(1) (e), since such payments are being made as a condition of sale of the of the imported goods - demand upheld. Loading @ 3% of the value of purchase - Held that - Such expenditure is incurred after import of the goods. Even though, the appellant is required to incur such expenditure as per the agreement with the foreign principal, it cannot be said that such expenditure has been incurred to satisfy the obligation of the foreign principal - the condition specified in Rule 10 (1) (e) is not satisfied - there is no justification to load the invoice value to this extent. Appeal allowed in part.

Summary

Issues: Valuation of imported goods for customs duty purposes

Comprehensive Analysis:

1. Background: The appellant, engaged in fashion retail, imported goods from related foreign suppliers during 2008-2011. The Special Valuation Branch (SVB) examined the valuation of imports due to the relationship between the appellant and the foreign suppliers.

2. Franchise Fee (5%): The appellant contested the loading of a 5% franchise fee, arguing it was akin to royalty and should not be included. However, the Tribunal upheld the loading as the fee was a condition for sale, falling within Rule 10(1)(c) of the Customs Valuation Rules.

3. Institutional Advertising (2%): The loading of 2% for institutional advertising was challenged as a global advertising cost, not directly related to the imported goods. Despite this, the Tribunal deemed it a condition of sale under Rule 10(1)(e) and upheld the loading.

4. Advertising Expenditure (3%): The appellant objected to the 3% loading for advertising expenditure in India, contending it was post-importation and not an obligation to the foreign principal. The Tribunal agreed, setting aside the loading as it did not meet the criteria under Rule 10(1)(e).

5. Legal Precedents: The appellant cited case laws to support their arguments, but the Tribunal found the facts distinguishable, rendering the cited precedents inapplicable to the present case.

6. Final Decision: The Tribunal partially allowed the appeal, upholding the 5% franchise fee and 2% institutional advertising loading while setting aside the 3% advertising expenditure loading. The decision was pronounced on 05.04.2018.

This detailed analysis highlights the Tribunal's examination of the various components of the invoice value, applying the Customs Valuation Rules to determine the appropriate loading for franchise fees, advertising costs, and promotional expenses incurred by the appellant in the context of their relationship with related foreign suppliers.