Relief to Reliance Brands, Advertising and Marketing Expenses for Sale of Post Import Goods not Includable in Value of Goods: CESTAT [Read Order]

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that expenses related to advertising and marketing are expenses are not includable in value of imported goods since the activities were carried out in India for the sale of the goods in India which amounts to post-import.

The appellant/assessee, Reliance Brands Luxury Fashion Pvt. Ltd., has sought quashing of the order 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.

A show cause notice was issued to the appellant, 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.

It was also submitted 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 tribunal viewed that 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 two-member 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.

The CESTAT 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.

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