2024 (4) TMI 693 - AT - Customs

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

Major Brands (India) Pvt Ltd Versus Commissioner of Customs – IV (Export) and Commissioner of Customs (NS-III) )

CESTAT Mumbai allowed the appeal partially. The tribunal held that franchise fees and international marketing charges must be included in transaction ... Valuation of goods - addition of franchise fee and international marketing charges incurred and of services obtained, in transaction value under the authority of rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - Penalty under section 114AA of Customs Act, 1962 - extended period of limitation - HELD THAT:- In the extant version of section 14 of Customs Act, 1962, between ‘transaction value’ and the proviso therein, as set out in section 14, is the mandate for inclusions in the price, agreed upon for the particular shipment and which is not in doubt, to render the ‘transaction value’ compatible with ‘value’ intended for assessment in section 14 of Customs Act, 1962. It also empowers framing of rules to that end besides resort to rules for attending upon circumstances in which ‘transaction value’ is not available. The valuation provision itself thus distinguishes ‘transaction value’ and ‘transaction value not being determined’ which calls for recourse to the Rules framed under that empowerment. The Rules provide for substitution when ‘transaction value’ of imported goods are not available, for inclusion in ‘transaction value’ for adjustment to conform to ‘value’ and for empowering the deeming of ‘transaction value’ as not being available. Merely owing to the remedies for these contingencies being collated in one statutory instrument, every recourse is not to be attended by taint on ‘transaction value’ meriting rejection. The ‘franchise fee’ and ‘international marketing charges’ are to be included in the ‘transaction value’ for conformity with section 14 of Customs Act, 1962. To that extent, and in the context of not being pressed on behalf of the appellants, the includibility attains finality. On the issue of inclusion of third element in order of Commissioner of Customs, Air Cargo Complex (ACC), it has been submitted that the dispute for subsequent period has been remanded to the original authority. It is, however noted, that dropping of that element in the adjudication orders has not been appealed against by Revenue. It must be presumed to have attained finality in favour of appellant herein. Penalty under section 114AA of Customs Act, 1962 - HELD THAT:- The decision in SHRI. T.R. VENKATADARI, SHRI. SANJAY AGGARWAL, SHRI. A. RAGHUNATHAN, SHRI. VIJAY MALLYA VERSUS COMMISSIONER OF SERVICE TAX-I, MUMBAI [2017 (10) TMI 455 - CESTAT MUMBAI], combined with the lack of any evidence of roles played by any individual, suffices to set aside that detriment. The imposition of penalty under section 114A of Customs Act, 1962 in one of the orders of Commissioner of Customs, Nhava Sheva is contrary to law and must be set aside. Confiscation - penalty u/s 112 of Customs Act, 1962 - HELD THAT:- The confiscation ordered in all three orders and penalty ordered under section 112 of Customs Act, 1962 in two of the orders are without sufficient examination of law and fact. Likewise, the invoking of extended period in all the orders has been undertaken without proper examination of factual circumstances that enable such demand. These require re-ascertainment in accordance with our observations supra including quantification of demand legally recoverable. All the orders are set aside and restored to the original authority for fresh proceedings that shall be limited to justification, if any, for invoking extended period and consequent quantification of tenable demand and to evaluate the grounds on which liability to confiscation are supported by law and facts with penalty under section 112 to follow only in the event of validation of confiscation. Appeal disposed off. 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 ValueThe 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 LimitationThe 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 PenaltiesThe 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 GoodsThe 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.