2026 (1) TMI 402 - AT - Customs

Importer's advertising and sales promotion costs in customs value u/r 10(1)(e); duty, interest and penalty set aside.

The dominant issue was whether the importer's expenditure on advertisement and sales promotion was includible in the assessable value under rule 10(1)(e) ... Valuation - Inclusion of expenses incurred towards advertisement and sales promotion - assessable value under rule 10(1)(e) - differential customs duty - interest and penalty - import of sports goods and fitness products from different countries - Non-compliance of the procedure contemplated u/s 138B - relevancy of statement of the Managing Director of the appellant made u/s 108 - HELD THAT:- As the procedure contemplated under section 138B of the Customs Act was not followed in the present case, the statements made by the Managing Director of the appellant under section 108 of the Customs Act could not have been relied upon in view of the decision of the Tribunal in Surya Wires[2025 (4) TMI 441 - CESTAT NEW DELHI]. This apart, instead of considering the submissions made by the appellant, the Commissioner (Appeals) noted that these submissions were considered by the adjudicating authority and the appellant could not make out any case in its favour. This issue relating to addition of the amount incurred by the appellant towards advertisement and sales promotion to the assessable value was examined at length by a Division Bench of the Tribunal in Adidas India [2020 (3) TMI 324 - CESTAT NEW DELHI]. After examining the provisions of rule 10(1)(e) of the 2007 Valuation Rules and Note to rule 3 contained in the Schedule. A bare perusal of the clause 5 of the agreement deals with ‘Marketing Support’ would indicate that the Major Sports SA helped the appellant in marketing the product and provided catalogues, posters and some POP material in English and a support of 5% discount on the products in the first year. It cannot be concluded from this clause, in view of the decision of the Tribunal in Adidas India, that the discount was given as a condition of sale of the imported goods by the buyer to the seller. Thus, for all the reasons stated above, the expenses incurred by the appellant on its own account for sales promotion and advertisement of the imported product cannot be included in the assessable value under rule 10(1)(e) of the 2007 Valuation Rules. It is, accordingly, set aside and the appeal is allowed with consequential relief, if any. Issues: (i) Whether statements recorded under section 108 of the Customs Act could be relied upon in adjudication without compliance with the procedure in section 138B; (ii) Whether expenses incurred by the buyer for sales promotion and advertisement of imported goods could be included in the assessable value under Rule 10(1)(e) of the 2007 Valuation Rules.Issue (i): Whether statements recorded under section 108 of the Customs Act are admissible in evidence before the adjudicating authority in the absence of compliance with section 138B.Analysis: The Tribunal examined statutory scheme requiring that statements recorded during inquiry become relevant for proving their contents only after the person is examined as a witness before the adjudicating authority and the authority forms an opinion to admit the statement in evidence, followed by an opportunity for cross-examination. The Tribunal relied on prior decisions interpreting the mandatory nature of section 138B and analogous provisions, noting the safeguards against statements obtained under coercion and the procedural steps that must precede reliance on such statements.Conclusion: Statements recorded under section 108 are not admissible for proving their contents unless the procedural requirements of section 138B have been complied with; therefore such statements could not be relied upon in the present adjudication.Issue (ii): Whether amounts spent by the buyer on sales promotion and advertisement of imported goods are includible in the transaction value under Rule 10(1)(e) of the 2007 Valuation Rules.Analysis: The Tribunal analysed Rule 10(1)(e) and related provisions (including Rule 3 and sub-rule (4) of Rule 10), explaining that additions under Rule 10(1)(e) require two cumulative conditions: (a) the payment must be made as a condition of sale of the imported goods, and (b) the payment must be made to satisfy a pre-existing obligation of the seller (either to the buyer or to a third party). The Tribunal emphasised that an enforceable right must exist enabling the seller to insist on the condition of sale, and that payments made by the buyer on his own account, even if pursuant to an agreement clause, do not qualify unless they discharge an obligation of the seller.Conclusion: Expenses incurred by the buyer on its own account for sales promotion and advertisement do not satisfy the twin requirements of Rule 10(1)(e) and therefore cannot be added to the assessable value under that provision.Final Conclusion: The impugned order confirming inclusion of the marketing and advertising expenses in the assessable value was unsustainable; the appeal is allowed and the order set aside, with consequential reliefs, because (i) statements under section 108 were inadmissible without compliance with section 138B and (ii) the promotional expenditures did not meet the statutory criteria for addition under Rule 10(1)(e).Ratio Decidendi: For additions under Rule 10(1)(e) to the transaction value, the payment must be (a) made as a condition of sale and (b) discharge a pre-existing enforceable obligation of the seller; and statements recorded under section 108 of the Customs Act cannot be used to prove facts in adjudication unless the procedure mandated by section 138B is followed, including examination and opportunity for cross-examination.