Advertising And Marketing Expenses For Sale Of Post-Import Goods Can't Be Included In Value Of Goods: CESTAT

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that expenses related to advertising and marketing are expenses in respect of activities carried out in India for sale of the goods in India which is post-import and, therefore, expenses cannot be part of the value of the imported good.

The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that the reasoning of the Principal Commissioner in the order that since the appellant was required and obliged to undertake marketing and advertising in terms of the agreements with the foreign suppliers, the price of the imported goods cannot be said to be the sole consideration within the meaning of Section 14 of the Customs Act. Therefore, the transaction value is liable to be rejected under rule 12 of the 2007 Valuation Rules is clearly contrary to the categorical stipulation in the Interpretative Notes to rule 3 that activities relating to marketing of the imported goods undertaken by the buyer, even though under agreement with the seller, cannot be considered to be additional consideration and cannot form part of the value of the imported goods, nor shall activities result in rejection of the transaction value.

The appellant/assessee, Reliance Brands Luxury Fashion Pvt. Ltd., has sought quashing of the order dated May 29, 2020, passed by the Principal Commissioner of Customs, ACC Import. The Commissioner held that the value of the imports made by the appellant has been reassessed by including the expenditure incurred for advertising and marketing/promotion of the imported goods during the period from September 1, 2012, to August 31, 2017. The demand for differential customs duty due to the reassessment of the value of goods has been confirmed. The Principal Commissioner has also directed recovery of interest and imposed penalties under Section 114A of the Customs Act, 1962.

The appellant is engaged in the marketing and distribution of products such as shoes, bags, clothing, clothing-related accessories, eyewear, perfumery, and cosmetics.

A show cause notice was then issued to the appellant, calling upon the appellant to show cause as to why the assessable value declared by the appellant for the import of goods made during the period from 01.09.2012 to 31.08.2017 should not be rejected and reassessed in terms of Section 17(4) of the Customs Act. A show cause was also issued, asking why the expenditure incurred for advertising and marketing/promotion of the imported products should not be included in the assessable value for the determination of customs duty.

The appellant filed a reply to the show cause notice contending that the advertisement and marketing expenses incurred by the appellant in terms of the agreements with the foreign suppliers are not liable to be added to the transaction value of the imported products. The Interpretative Notes to Rule 3(2)(b) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 categorically provide that if the buyer undertakes on his own account, even though by agreement with the seller, activities relating to the marketing of the imported goods, the value of such activities would not be part of the value of the imported goods, nor shall such activities result in rejection of the transaction value.

The appellant contended that the marketing activities and costs of advertisement are borne by the appellant and are to his account.

The Principal Commissioner passed the order confirming the differential duty demand with interest and also appropriated the amount deposited by the appellant under protest during the investigation towards the duty amount. The Principal Commissioner also imposed a penalty on the appellant under Section 114A of the Customs Act.

The appellant contended that the advertising and marketing activities are for sales in India. Therefore, the expenses related to such advertising and marketing are expenses in respect of activities carried out in India for the sale of goods in India, which is post-import, and, therefore, such expenses cannot be part of the value of the imported goods.

The department contended that the expenses incurred by the appellant for promotion, marketing, and advertising have to be included in the transaction value for the reason that the appellant incurred expenses in compliance with the conditions of sale mentioned in the agreements.

The issue raised was whether the expenditure incurred by the appellant towards advertising, marketing, and promotion of the goods imported by the appellant under the agreements with the foreign suppliers is liable to be added to the transaction value of the imported goods.

Section 14(1) of the Customs Act provides that the value of the imported goods and export goods shall be the transaction value of such goods, which would be the price actually paid or payable for the said goods, where the buyer and the seller of the goods are not related and the price is the sole consideration for the sale, subject to such other conditions as may be specified in the rules made on this behalf. The 2007 Valuation Rules have been framed in exercise of the powers conferred by Section 14(1) of the Customs Act. They provide for, amongst others, the determination of the method of valuation as well as the cost and services.

The tribunal held that advertising and marketing activities are for the sale of the imported goods in India and, therefore, expenses related to such advertising and marketing are expenses in respect of activities carried out in India for the sale of the goods in India post-import. The expenses cannot, therefore, be said to be related to the conditions of sale of the imported goods and cannot form part of the value of the imported goods.

Counsel For Appellant: Vipin Jain

Counsel For Respondent: Nagendra Yadav

Case Title: Reliance Brands Luxury Fashion Private Ltd. Versus The Principal Commissioner of Customs

Case No.: Customs Appeal No. 51079 of 2020

Click Here To Read The Order