Promotional Expenses incurred by Reebok India are includable in the Assessable Value while Importing Goods from its Parent Company: CESTAT [Read Order]

The Delhi bench of the CESTAT, on Friday held that the Reebok India should include advertising and promotion expenses in the assessable value while importing goods from its parent Company, Reebok International Ltd.

In the case, the assessee-Company is regularly importing various sports goods such as shoes, cloths, bags etc from their parent. The Revenue took a stand that appellants, in terms with the Distribution Agreement entered with their parent Company incurred the advertising and promotion expenses, not on their own account, but as a condition for sale of goods by their principal RIL England. According to the Revenue, such amount has been incurred on behalf of the exporter and in addition to the price of the goods invoiced, such expenses will be includible in the transaction value in terms of Rule 10 (1) (e) of the Customs Valuation Rules, 2007.

The bench noted that the appellant and Reebok International Ltd, England (RIL) are related, within the meaning of Rule 2(2) of the Customs Valuation Rules, 2007.

The bench noted that the amount is not already included in the price actually paid or payable. The appellant is allowed to import goods from the principal in terms of the above agreement only subject to the terms of the entire agreement. In terms of this agreement the appellant will have to necessarily spent 6 per cent of the invoice value on advertisement and promotion. It is an obligation of the appellant to its principal for import of goods.

The bench further noted that the appellant is not only required to spent on advertising, but is required to submit marketing and business plan, advertising budget, and even is required to get vetted by Principal draft of any endorsement or promotion contract exceeding the value of US dollar 25 per cent year.

“These stipulations lead us to conclude that RIL UK is controlling every aspect of such promotion. RIL UK is the owner of the brand name ‘Reebok’ and it is obvious that such promotion, and advertising is towards promotion of their brand as a whole and not only in respect of goods being imported by the appellant. Therefore, from these agreements it is evident that the appellant is carrying out such brand promotion on behalf of RIL England and such expenses were made on behalf of RIL UK. Hence we conclude that advertising and promotion expanses have been incurred as a condition of sale and on behalf of seller and may be considered as satisfying the obligation of the seller,” the bench said.