2020 (2) TMI 643 - AT - Customs

Valuation of imported goods - import of Li Ning brand goods from Singapore for the period February, 2012 to March, 2015 - inclusion of marketing, advertising, sponsorship and promotional expenses/ payments made by the appellant to promote the Li Ning brand was a condition of sale - Rule 10(1)(e) of the Customs (Determination of Value of Imported Goods) Rules, 2007 (hereinafter referred as CV Rules) - HELD THAT - There is nothing in the agreement that a fixed amount or fixed percentage of the invoice value of the imported goods, is obliged to be spent by the appellant as a condition of sale/ import. As per the stipulation in the agreement, the appellant is obliged to or responsible for sales and distribution in its territory of distribution and further to make such expenditure in consultation with the seller, does not attract the provisions of Rule 10(1)(e) of CV Rules. The said Rule 10(1)(e) provides for addition of all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller or by the buyer to a third party to satisfy and obligation of the seller, to the extent that such payments are not included in the price actually paid (transaction value). There is total absence of the prescribed condition precedent as the appellant is not obliged to incur any particular amount or percentage of invoice value towards sales promotion/ advertisement. Further, the activity of advertisement and sales promotion is a post import activity incurred by the appellant on its own account and not for discharge for any obligation of the seller under the terms of sale. The interpretative note to Rule 3(b) provides, that activity undertaken by the buyer on its own account, even though by agreement, are not considered as direct payment, even though they might be regarded as benefit to the seller also. Further, in the facts of the present case, appellant has not paid any amount on behalf of M/s Sunlight Sports seller. Further, the impugned order is also vitiated due to mistake of fact. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Valuation of imported goods.
2. Inclusion of marketing, advertising, sponsorship, and promotional expenses in the value of imported goods.
3. Invocation of the extended period of limitation.
4. Penalty under Section 114A of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Valuation of Imported Goods:
The appellant, a proprietary concern engaged in the manufacture and distribution of sports goods, entered into a distribution agreement with Sunlight Sports for importing and selling 'Li Ning' branded sports goods in India. Revenue investigated the valuation of these goods for the period February 2012 to March 2015, alleging that marketing, advertising, sponsorship, and promotional expenses incurred by the appellant should be included in the value of the imported goods under Rule 10(1)(e) of the Customs (Determination of Value of Imported Goods) Rules, 2007 (CV Rules). The adjudicating authority confirmed the differential demand of duty, holding that these expenses were a condition of sale of the imported goods and thus includible in their value.

2. Inclusion of Marketing, Advertising, Sponsorship, and Promotional Expenses:
The show cause notice alleged that the appellant's marketing expenses for promoting 'Li Ning' products were a condition of sale, thus includible in the value of the imported goods. The appellant contested this, arguing that these expenses were incurred independently and not as a condition of sale. The Tribunal found that the agreement did not specify any fixed amount or percentage of the invoice value to be spent on marketing and that these activities were post-importation and undertaken on the appellant's own account. The Tribunal concluded that Rule 10(1)(e) of the CV Rules was not attracted as the appellant was not obliged to incur any particular amount towards sales promotion as a condition of sale.

3. Invocation of the Extended Period of Limitation:
The Revenue invoked the extended period of limitation, alleging suppression of facts and wilful misstatement by the appellant. The appellant argued that there was no concealment or contumacious conduct, as the agreement with Sunlight Sports was disclosed to the Department, and the transactions were properly recorded in the books of accounts. The Tribunal found that there was no suppression of facts or wilful misstatement, as the appellant had provided the necessary information during the investigation. Therefore, the invocation of the extended period of limitation was not justified.

4. Penalty under Section 114A of the Customs Act, 1962:
The adjudicating authority imposed an equal penalty under Section 114A of the Customs Act, 1962, for mis-declaration of the value of the imported goods. The Tribunal, however, found that the impugned order was based on an incorrect understanding of the facts and that the appellant had not incurred any expenses on behalf of Sunlight Sports. Consequently, the Tribunal set aside the penalty imposed under Section 114A.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order and confirming that the marketing, advertising, sponsorship, and promotional expenses were not includible in the value of the imported goods under Rule 10(1)(e) of the CV Rules. The appellant was entitled to consequential benefits, including a refund of the amount deposited during the investigation, with interest as per rules. The Tribunal made it clear that the deposited amount had taken the character of pre-deposit under Section 129E of the Customs Act.

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