Customs valuation: sale-linked franchise and advertising payments were includible, but post-import brand promotion spending was excluded.

CESTAT New Delhi held that amounts payable as a condition of sale of imported goods are includible in assessable value under the Customs Valuation Rules. The 5% franchise fee, linked to the right to sell the imported goods and payable to related foreign suppliers as a sale condition, was correctly included. The 2% contribution toward institutional advertising and promotional campaigns was also upheld because it was required as a precondition for import and sale. However, the 3% advertising expenditure incurred in India after importation was not includible, as it was not shown to be a payment to satisfy a seller's obligation or a condition of sale; that loading was set aside.

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Issues: (i) whether franchise fee at 5% of net purchases was includible in the assessable value; (ii) whether 2% share of institutional advertising and promotional campaign was includible in the assessable value; (iii) whether 3% advertising expenditure incurred in India after importation was includible in the assessable value.

Issue (i): whether franchise fee at 5% of net purchases was includible in the assessable value.

Analysis: The appellant and foreign suppliers were related persons, and the valuation had to be tested under the Customs Valuation Rules. The franchise fee was payable as a condition for sale of the imported goods and was in the nature of royalty linked to the right to sell the imported goods.

Conclusion: The 5% franchise fee was rightly includible in the assessable value.

Issue (ii): whether 2% share of institutional advertising and promotional campaign was includible in the assessable value.

Analysis: The 2% payment was required to be remitted as a precondition for import and sale of the goods. It was therefore a payment made as a condition of sale of the imported goods and fell within the permissible additions to transaction value.

Conclusion: The 2% loading was correctly sustained.

Issue (iii): whether 3% advertising expenditure incurred in India after importation was includible in the assessable value.

Analysis: The expenditure was to be incurred in India after import of the goods for brand promotion. Although the agreement required such spending, it was not shown to be a payment made to satisfy an obligation of the foreign seller or a condition of sale within the meaning of the valuation rule.

Conclusion: The 3% loading was not justified and was set aside.

Final Conclusion: The appeal succeeded only to the extent of deletion of the 3% loading, while the additions towards franchise fee and institutional advertising were upheld.

Ratio Decidendi: Amounts payable as a condition of sale of imported goods are includible in transaction value, but post-import expenditure incurred in India is not includible unless it is shown to satisfy an obligation of the seller within the valuation rules.

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