Franchise fees and international marketing charges must be included in transaction value under section 14

CESTAT Mumbai allowed the appeal partially. The tribunal held that franchise fees and international marketing charges must be included in transaction value under section 14 of Customs Act, 1962 for valuation purposes. However, penalties under sections 114AA and 114A were set aside due to lack of evidence regarding individual roles and legal deficiencies. Confiscation orders and penalties under section 112 were quashed for insufficient examination of law and facts. The matter was remanded to original authority for fresh proceedings limited to justifying extended period invocation, quantifying recoverable demand, and evaluating confiscation grounds with proper legal and factual basis.

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Issues Involved:
1. Inclusion of franchise fee, international marketing contribution, and advertising and sales promotion material in the transaction value.
2. Invocation of the extended period of limitation for recovery of duty.
3. Imposition of penalties under sections 112, 114A, and 114AA of the Customs Act, 1962.
4. Confiscation of goods under sections 111(d) and 111(m) of the Customs Act, 1962.

Summary:

Issue 1: Inclusion of Costs in Transaction Value
The appeals concerned the inclusion of franchise fee, international marketing contribution, and advertising and sales promotion material in the transaction value u/s 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The Tribunal noted that the includibility of franchise fee and international marketing contribution had attained finality in previous judgments (Giorgio Armani India (P) Ltd v. Commissioner of Customs, New Delhi). The Tribunal emphasized that the inclusion of these elements in the transaction value is no longer in doubt.

Issue 2: Extended Period of Limitation
The Tribunal scrutinized the invocation of the extended period of limitation u/s 28 of the Customs Act, 1962. The Tribunal highlighted that the extended period could only be invoked in the presence of suppression of facts, misdeclaration, or willful misstatement. The Tribunal found that the orders lacked sufficient justification for invoking the extended period and remanded the matter back to the original authority for re-ascertainment.

Issue 3: Imposition of Penalties
The Tribunal addressed the imposition of penalties under sections 112, 114A, and 114AA of the Customs Act, 1962. It was noted that the penalty u/s 114AA was not intended for artificial persons, as held in TR Venkatadari v. Commissioner of Service Tax -I, Mumbai. Consequently, penalties under section 114AA were set aside. The imposition of penalties under sections 112 and 114A was also found to be without sufficient examination of law and fact, necessitating a re-evaluation by the original authority.

Issue 4: Confiscation of Goods
The Tribunal examined the confiscation of goods u/s 111(d) and 111(m) of the Customs Act, 1962. It was observed that the orders failed to demonstrate the prohibition operating on the goods and the justification for confiscation. The Tribunal remanded the matter for a fresh evaluation of the grounds for confiscation and the subsequent imposition of penalties under section 112.

Conclusion:
All impugned orders were set aside and restored to the original authority for fresh proceedings limited to the justification for invoking the extended period, quantification of tenable demand, and evaluation of grounds for confiscation and penalties. Appeals were disposed of on these terms.

Order Pronounced in the Open Court on 08/04/2024.

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