Advertisement, Promotional And Management Service Payments Excluded From Customs Valuation: CESTAT

The issue before the Tribunal was whether the advertisement and promotional expenses incurred by the assessee in India are required to be added to the value of the imported goods, treating the said amount as constituting “condition of sale” of imported goods under section 14(1) of the Customs Act read with rule 10(1)(e) of the 2007 Valuation Rules, 2007.

Justice Dilip Gupta (President) and Hemembika R. Priya (Technical Member) opined that if the expenditure is undertaken by an importer on his “own account” in the interest of his own business, then rule 10(1)(e) of the 2007 Valuation Rules would not be applicable.

In this case, the assessee/appellant is engaged in the business of importing and trading in Motorcycles. For the purposes of importing the goods from Triumph UK and Triumph Thailand, the assessee entered into a Distributor Agreement dated 01.07.2013.

The assessee also entered into a Management Services Agreement dated 28.06.2013 for the supply of services by Triumph UK to the assessee. On 01.07.2017, the Distributor Agreement and the Management Services Agreement were renewed.

A show cause notice was issued to the assessee alleging that MSF and APE incurred by the assessee were liable to be added to the value of the imported goods under rule 10(1)(e) of the 2007 Valuation Rules since these expenses were a “condition of sale”.

It was, therefore, alleged that the assessee evaded customs duty by undervaluation of the imported goods.

The Additional Directorate General passed the order concluding that the payments of MSF and APE are a “condition of sale” of imported goods, for such payments are made to satisfy the obligation of the seller towards the third parties, and such payments have not been included in the price actually paid or payable for the imported goods.

As per the revenue, the Additional Director General was justified in including the payments made for MSF and APE in the transaction value under rule 10(1)(e) of the 2007 Valuation Rules since the assessee paid the specific amount to the overseas sellers as a condition of sale.

The Tribunal noted that if the expenditure is undertaken by an importer on his “own account” in the interest of his own business, then rule 10(1)(e) of the 2007 Valuation Rules would not be applicable. An analysis of the Distributor Agreement leaves no manner of doubt that the assessee was not required to discharge any obligation to Triumph UK. In fact, the assessee had borne the expenses on its own account in order to develop its own market to increase its own sales of the products.

The bench noted that the Distributor Agreement and the Management Services Agreement are two independent commercial transactions between the assessee and Triumph UK for the import of the goods and for the supply of services.

The Tribunal agreed with the assessee that each Agreement operates in its own commercial field and, therefore, the provisions of rule 10(1)(e) of the 2007 Valuation Rules cannot be invoked to include the consideration paid towards service tax under the Management Services Agreement as part of the assessable value of the imported goods.

The Tribunal opined that neither the fees relating to APE nor relating to MSF can be added to the transaction value of the imported goods under rule 10(1)(e) of the 2007 Valuation Rules.

Neither interest could be charged from the assessee section 28AA of the Customs Act, nor a penalty can be imposed upon the assessee under section 114A of the Customs Act, added the bench.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s. Triumph Motorcycles (India) Pvt. Ltd. v. Addl. Director General (Adjudication), D.R.I., New Delhi

Case Number: CUSTOMS APPEAL NO. 50212 OF 2021

Counsel for Appellant/ Assessee: Shri Rohan Shah and Shri Mohammed Anajwalla

Counsel for Respondent/ Department: Shri Mihir Ranjan, Special Counsel and Shri M.K. Shukla, AR

Click Here To Read/Download The Order