Advertising and marketing costs cannot be added to transaction value under Rule 10(1)(e) when undertaken independently

CESTAT New Delhi ruled in favor of the appellant regarding valuation of imported goods and differential customs duty demand. The tribunal held that advertising, marketing and promotion expenditure incurred by the appellant under agreements with foreign suppliers cannot be added to transaction value of imported goods. The court found that rule 10(1)(e) requirements were not satisfied as the appellant undertook marketing activities on its own account, not to satisfy seller's obligations. Following precedent in Adidas India case, CESTAT set aside the Principal Commissioner's order dated 29.05.2020 and allowed the appeal with consequential relief.

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Issues Involved:
1. Whether the expenditure incurred by the appellant towards advertising, marketing, and promotion of the imported goods should be included in the transaction value for the purpose of customs duty.
2. Whether the show cause notice is barred by time under section 28(1) of the Customs Act.
3. Whether the goods are liable to confiscation under section 111(m) of the Customs Act.
4. Whether interest under section 28AA and penalty under section 114A of the Customs Act are applicable.

Summary:

1. Inclusion of Advertising, Marketing, and Promotion Expenses in Transaction Value:
The appellant, engaged in the marketing and distribution of luxury fashion products, challenged the order of the Principal Commissioner, which included the expenditure incurred for advertisement and marketing/promotion of imported goods in the transaction value. The Principal Commissioner reassessed the value of imports and confirmed the demand for differential customs duty, interest, and penalty u/s 114A of the Customs Act. The appellant argued that such expenses are not liable to be added to the transaction value as per the Interpretative Notes to rule 3(2)(b) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (2007 Valuation Rules), which state that activities undertaken by the buyer on their own account should not be part of the value of imported goods. The Tribunal referenced several decisions, including *Commissioner of Customs, Parparganj vs. Adidas India Marketing Pvt. Ltd.* and *Giorgio Armani India (P) Ltd. vs. Commissioner of Customs, New Delhi*, which supported the appellant's claim that such expenses should not be included in the transaction value.

2. Barred by Time Under Section 28(1) of the Customs Act:
The appellant contended that the show cause notice dated 27.10.2017 was barred by time under section 28(1) of the Customs Act, and the larger period of limitation under section 28(4) would be inapplicable. However, this issue was not elaborated upon in the judgment as the primary issue was decided in favor of the appellant.

3. Liability of Goods to Confiscation Under Section 111(m) of the Customs Act:
The appellant argued that the goods were not liable to confiscation under section 111(m) of the Customs Act. This issue was also not elaborated upon as the primary issue regarding the inclusion of advertising expenses was resolved in favor of the appellant.

4. Interest Under Section 28AA and Penalty Under Section 114A of the Customs Act:
The appellant contended that interest under section 28AA and penalty under section 114A of the Customs Act should be set aside. Given the decision that the advertising and marketing expenses should not be included in the transaction value, the Tribunal found no basis for the imposition of interest and penalty.

Conclusion:
The Tribunal set aside the impugned order dated 29.05.2020, concluding that the expenditure on advertising, marketing, and promotion incurred by the appellant should not be included in the transaction value of the imported goods. The appeal was allowed with consequential reliefs.

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