The Customs, Excises, Service Taxes Appellate Tribunal (CESTAT), Delhi Bench in relief to the Volvo Auto India ruled that the assessable value includes advertising and marketing costs, if relatable to imported goods.
The appellant, Volvo Auto India is a subsidiary of M/s. Volvo, Sweden who own 99.99% of the appellant’s shares. The parent company manufactures Completely Built Units (CBU) of motor vehicles which are imported and sold by the appellant.
The case of the Department is that the Order in Original it is mentioned that “no expenses are incurred by the importer on behalf of or by understanding or agreement with or under instructions from the suppliers of the goods, e.g., advertising, propaganda expense or any other expense for the sale of the imported goods”. On the other hand it is stated that the importer “needs to manage the customs taxability, inventory cost and simultaneous distribution of imported goods as well as sales promotions including advertising and marketing for its entire business in India.” Whether such expenses had a bearing on the price was required to be analyzed.
The authorized representative of the Department submitted that such payments are includable in the assessable value as per Rule 10 (1)(e). The appellant‟s case is that these are expenses incurred by them on their own account to promote their own business.
The coram headed by President Justice Dilip Gupta clarified that Rule 10 (1) (e) requires that any payment made as a condition for sale to either the seller or to a third party to satisfy the obligations of the seller is to be included in the value. We find that if the appellant is responsible for certain activities such as customs, taxability, inventory costs, distribution, and sales promotions including advertising and marketing for its entire business in India, it cannot be called a payment to their foreign supplier but would be managing affairs related to its own business.
The CESTAT further added that it would have been a different case, if the appellant was required, as per the agreement to promote, at its cost, the sales by the foreign suppliers to other customers in India or make some payment on behalf of the seller to a third party. In such a case, some expense would have been incurred by the appellant which could have been examined to see if it formed an additional consideration for the sale of the goods to the appellant. For instance, if the appellant was paying $100 for the imported goods and in addition was incurring, say $10 to promote the sales of the foreign supplier to other customers, this $10 could have been said to be an additional consideration for sale.
“The appellant is a distributor and is in the business of selling the cars which necessarily requires them to deal with imports, pay taxes, promote sales, advertise, etc. These, in our considered view, cannot be termed as expenses incurred on behalf of the foreign supplier although the foreign supplier would also indirectly benefit if the appellant‟s business improves. The foreign supplier is also independently selling the goods (cars) to embassies, etc. and there is nothing on record to show that the appellant has incurred any expenses to promote such sales,” the CESTAT added.Subscribe Taxscan AdFree to view the Judgment
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