Advertisement and Promotional Expenses Incurred “On Own Account” Cannot be Added to Customs Value of Imports: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bench at New Delhi set aside the demand of over ₹21.85 crore in differential customs duty, holding that Advertisement and Promotional Expenses (APE) and Management Services Fees (MSF) paid to overseas affiliates cannot be added to the assessable value of imported motorcycles and parts.

The CESTAT bench delivered the ruling while allowing the appeal filed by the company against the order of the Additional Director General (Adjudication), DRI, New Delhi, dated 24.09.2020.

Triumph Motorcycles India, a wholly-owned subsidiary of Triumph Motorcycles (Singapore) Pte. Ltd., imports and distributes motorcycles, parts, and accessories from Triumph Motorcycles Ltd., UK and Triumph Motorcycles (Thailand) Ltd.

The DRI alleged that the Indian arm had under-valued imported goods by excluding Management Service Fees remitted to Triumph UK and Advertisement and Promotional Expenses incurred locally, claiming that these constituted a “condition of sale” under Rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

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The adjudicating authority, accordingly, demanded differential duty, interest under Section 28AA, and penalty under Section 114A of the Customs Act, 1962.

The Tribunal comprising Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) observed that the Distributor Agreement between Triumph UK and the Indian subsidiary only required the latter to promote and advertise the brand at its own cost. These were activities undertaken by the appellant “on its own account” to develop sales in India and not as a precondition for import of goods.

Citing the Interpretative Note to Rule 3(2)(b) of the Valuation Rules, the Bench held that marketing and promotional activities undertaken by a buyer on its own account, even under agreement with the seller, do not form part of the value of imported goods.

Regarding the Management Services Agreement, the Bench noted that the fees were paid on a cost plus 5% basis for distinct services like finance, HR, IT, marketing support, and warranty management, which bore no nexus to the import of motorcycles or parts. The Tribunal emphasized that such payments were independent of the sale of goods and had already been subjected to service tax/GST under reverse charge, further negating inclusion under Rule 10(1)(e).

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The Special Valuation Branch (SVB) had earlier held that the relationship between Triumph India and Triumph UK did not influence the declared transaction value. Further, the extended period of limitation and imposition of penalty were rendered irrelevant once the valuation addition failed on merits.

Setting aside the order of the DRI, the Tribunal held that “Neither the fees relating to advertisement and promotion nor those for management services can be added to the transaction value of the imported goods under Rule 10(1)(e) of the 2007 Valuation Rules. Consequently, the interest and penalty imposed are unsustainable.”

Accordingly, the appeal was allowed in full, providing complete relief to Triumph Motorcycles India.

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