2024 (3) TMI 870 - AT - Customs

Valuation of imported goods - inclusion of royalty and the cost of advertisement incurred by the Appellant in India in assessable value - related party - Rule 10(1)(c) and Rule 10 (1)(e) of the Customs Valuation Rules 2007 - demand of differential duty alongwith interest, redemption fine and penalty - extended period of limitation - HELD THAT - Rule 10(1)(e) 0f the Customs Valuation Rules 2007 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). It is found that there is total absence of the prescribed condition present as the appellant is not obliged to incur any particular amount or percentage of invoice value towards sales promotion/ advertisement. Further, we find that 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 - As per the stipulation in the agreement, the appellant is obliged to be 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 appellant and M/s. Speedo or M/s. Jockey International are no way related parties as their relationship is principal to principal basis and the fact they are sole distributor in no way makes them related parties as per the Customs Act or the Valuation Rules. Moreover, they have imported from unrelated suppliers who have nothing to do with Jockey International and the distributed products have nothing to do with the licensed products as far as royalty is concerned. The issue being one of interpretation of what should be the value there is nothing brought on record to prove any wilful suppression of facts and therefore invocation of extended period is not justified. The impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Valuation of imported goods.
2. Addition of royalty and advertisement costs to the transaction value.
3. Relationship between the Appellant and the supplier.
4. Invocation of penal provisions for alleged willful suppression.

Summary:

1. Valuation of Imported Goods:
The Appellant, a sole distributor for M/s Jockey International USA and Speedo International, U.K, contested the addition of royalty and advertisement costs to the transaction value of imported goods. The Adjudicating authority confirmed the demand for Rs. 37,40,81,065/- as differential duty, which the Appellant challenged.

2. Addition of Royalty to Transaction Value:
The Appellant argued that the royalty paid to M/s Jockey International and M/s Speedo International under the reverse charge mechanism for services should not be added to the transaction value of imported goods, as it would lead to double taxation. The Tribunal noted that royalty can only be included if it is directly related to the imported goods, paid to the seller, and a condition of sale. The Tribunal found no evidence that the royalty paid was related to the imported raw materials, concluding that it pertained to finished goods manufactured by the Appellant.

3. Relationship Between Appellant and Supplier:
The Tribunal examined whether the Appellant and the suppliers were related persons under Rule 2(2) of the Customs Valuation Rules, 2007. It found no cogent evidence to support the claim that the Appellant and M/s Jockey International were related persons. The Tribunal referenced the Supreme Court's decision in CC (Imports), Mumbai Vs Bayer Corp Science Ltd, emphasizing that mere sole distributorship does not establish a related relationship.

4. Advertisement Costs:
The Tribunal determined that advertisement costs incurred by the Appellant were post-import activities undertaken on their own account and not a condition of sale of the imported goods. It referenced the Tribunal's decision in M/s Indo Rubber & Plastics Works Vs CC, New Delhi, which established that such costs should not be added to the transaction value.

5. Invocation of Penal Provisions:
The Tribunal found no justification for invoking penal provisions for alleged willful suppression, as the Appellant was not required to declare the goods as imported from related parties. The relationship was deemed principal to principal, and the Appellant's sole distributorship did not constitute a related party status under the Customs Act or Valuation Rules.

Conclusion:
The Tribunal set aside the Adjudicating authority's order, allowing the appeals with consequential reliefs. The demand for differential duty and the addition of royalty and advertisement costs to the transaction value were found to be unsustainable. The invocation of extended period for penal provisions was also deemed unjustified.