TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 1283
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.... sale" of imported goods under section 14(1) of the Customs Act, 1962 [the Customs Act] read with rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [the 2007 Valuation Rules]. Accordingly, the impugned order directs for recovery of the differential customs duty with cess in terms of the provisions of section 28(4) of the Customs Act. The order also holds that the goods are liable to confiscation under section 111(m) of the Customs Act but as they had been cleared for home consumption, redemption fine has not been imposed under section 125(1) of the Customs Act. The order also directs for recovery of interest under section 28AA and penalty under section 114A of the Customs Act. 2. The appellant is engaged in the business of importing and trading in Motorcycles. These Motorcycles are imported either in completely built units [CBU] or completely knocked-down [CKD] condition. The appellant is also an Indian distributor of imported "Triumph" Motorcycles. It is also engaged in import and reselling of parts, accessories and clothing of "Triumph's" trademark from its affiliated companies Triumph Motorcycles Ltd., UK [Triumph UK] and Triumph Mo....
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....ributor Agreement; (vi) Entire APE cannot be treated as APE incurred for imported goods as it includes other expenses such as post-sale discounts to dealers, conferences with dealers, and dealer/distributor training expenses; (vii) Management Services Agreement and Distributor Agreement are independent of each other and are meant for different purposes; and (viii) The appellant has received services under MSA for undertaking efficient and smooth business operation in India. 6. The Additional Directorate General passed the order dated 24.09.2020 confirming the demand holding that: (a) The Agreements exclusively provide for mandatory undertaking of "management/administrative" and "advertisement and promotional" activities related to the imported goods pursuant to which the appellant remitted MSF to Triumph UK and APE to third parties; (b) It can be concluded that the payments of MSF and APE are a "condition of sale" of imported goods for such payments are made to satisfy the obligation of the seller towards the third parties and such payments have not been included in the price actually paid or payable for the imported goods; and ....
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....rt to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf: Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf: Provided further that the rules made in this behalf may provide for,- (i) the circumstances in which the buyer and the seller shall be deemed to be related; (ii) the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case; (iii) the man....
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....rocess, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods." (emphasis supplied) 15. Rule 13 of 2007 Valuation Rules deals with Interpretative Notes and provides that the Interpretative Notes specified in the Schedule to these Rules shall apply for the interpretation of these rules. 16. Note to rule 3 of the 2007 Valuation Rules is as follows: "Price actually paid or payable The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods. ***** Activities undertaken by the buyer on his own account, other than those for which an adjustment is provided in rule 10, are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller. The costs of such activities shall not, therefore, be added to the price actually paid or payable in determining the value of imported goods. *....
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....e agreement are reproduced below: "TRIUMPH NON-UK DISTRIBUTOR AGREEMENT This Agreement is made this 1st day of July 2013, between: Triumph Motorcycles Ltd., whose business address is Normandy Way, Off Dodwells Road, Hinckley, Leicestershire, LE10 3BZ, England ("Triumph") and Triumph Motorcycles (India) Private Limited Unit-CB24, Stylus Business Center, EGL 1st Floor, Pine Valley, Off. Intermediate Ring Road, Bangalore-560071 (the "Distributor") and governs (1) the sale by Triumph to the Distributor of Triumph products (homologated for use in the Sales Area), accessories and replacement parts for those products listed in Exhibit I as amended from time to time (those products, accessories and replacement parts together in this Agreement called the "Products"), (2) the provision by Triumph and the use by the Distributor of marketing materials and programmes and (3) the participation of the Distributor in promotional activities including Riders Association of Triumph and (4) the use of trade marks, and related matters. ***** 1. APPOINTMENT AND TERM a) Triumph hereby appoints the Distributor as its....
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....t notice both before and after acceptance of the Distributor's order. ***** 10. TITLE a) Products shall remain the property and in absolute ownership of Triumph until the Distributor has paid in full all amounts owned by the Distributor to Triumph (including without limitation applicable taxes including VAT) in respect of each relevant transaction. Until such payment is made the Distributor holds the Products as Triumph's fiduciary agent and bailee and Triumph may at any time request the return of any of the Products which have not been paid for and which are in the possession or control of the Distributor. ***** 17. RELATIONSHIP OF THE PARTIES a) The Distributor shall sell the Products as principal. It shall not otherwise dispose of the Products, and shall not sell the Products on behalf of, or in the name of, Triumph. ***** 19. TERMINATION OF AGREEMENT ***** 19.2 Triumph shall have the right to terminate this Agreement forthwith by written notice to the Distributor without affecting its accrued rights and without entitling the Distributor to receive any compensation: a) if the Distr....
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.... clause 12.2, shall continue in force unless and until terminated by either party giving to the other not less than one (1) Months' notice of termination. 12.2 Either party may terminate this agreement immediately upon notice to the other party if such other party: 12.2.1 is in material or persistent breach of this agreement and, in the event of a material breach (where such breach is capable of remedy), fails to remedy the breach within 30 days of receipt of notice of such breach; or 12.2.2 becomes insolvent or a receiver, examiner or administrator is appointed over the whole or any part of such other party's assets or such other party is struck off (without the ability to be reinstated) the Register of Companies (or similar register) in the jurisdiction where it was incorporated or an order is made or a resolution passed for winding up such other party (unless such order or resolution is part of a voluntary scheme for the reconstruction or amalgamation of the party as a solvent corporation and the resulting corporation, if a different legal person, undertakes to be bound); or 12.2.3 ceases to be its Affiliate. *****" 24. Th....
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....al Shopping Malls Pvt. Ltd. vs. Commissioner of Customs, Kochi [Customs Appeal No. 20383 of 2024 decided on 02.06.2025 (CESTAT-Bang.)]; (b) Page Industries vs. Commissioner of Customs, Bangalore [Customs Appeal No. 20132 of 2023 decided on 13.03.2024 (CESTAT-Bang.)]; (vi) The impugned order overlooks the key aspects of the Distributor Agreement, Management Services Agreement, MSF and APE; (vii) It is not open to the department to go behind the terms of the contract and rewrite the terms and conditions of the contract entered into between the parties. The Distributor Agreement does not stipulate that the supply of goods would be made subject to the appellant making payment of MSF with Triumph UK or the appellant incurring minimum level on APE spends; (viii) The department failed to discharge the burden cast upon it under rule 10(1)(e) of the 2007 Valuation Rules and findings have been recorded on surmises and conjunctures; (ix) The second condition contained in rule 10(1)(e) of the Valuation Rules that provides that payment should be made by the "buyer to the seller" or by the "buyer to the third party" so as to "satisfy an obligation of ....
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....The contention of the appellant that the relationship between the payments made under MSF and imported goods being valued must bear some mathematical relation is not correct; and (vi) The decisions, on which reliance has been placed by the appellant to contend that the pre-conditions of rule 10(1)(e) of the 2007 Valuation Rules have not been satisfied, are misplaced. FIRST ISSUE Whether APE can be added to the value of imported goods 27. As noted above, under the two Distributor Agreements dated 01.07.2013 and 01.07.2017, Triumph UK granted to the appellant the exclusive right to import, distribute and sell Triumph products in India and other specified territories. The Agreements envisage that the appellant, in its capacity as an independent distributor and owner of the goods post-import, would undertake advertising, marketing and promotional activities "at its own cost" in order to develop sales of the products in the specified territory. The appellant was subject to minimum sales and purchase targets, bearing full commercial risk and responsibility for distribution. While the appellant was required to promote/advertise products and could be asked to hold promoti....
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....the buyer. Unless the seller is legally entitled to compel the buyer, by way of an enforceable claim, to incur such expenditure, no addition can be made to the transaction value. This is precisely what has been held by the Tribunal in Reliance Brands, Giorgio Armani, Adidas India and Indo Rubber. 31. In this connection, it would be appropriate to reproduce the relevant observations made by the Tribunal in Reliance Brands and the same are: "36. In the present case, it clearly transpires from the Agreements entered into between the appellant and the foreign suppliers that the foreign suppliers had granted to the appellant the right to import the products for distribution and sale in India but the appellant had to incur, on its own account, the expenditure towards advertising, marketing and promotion of the products. In some of the Agreements the appellant was required to use its best efforts to promote and develop the distribution and sale of the products and the Agreement could be terminated at the discretion of the foreign supplier if the appellant did not spend the amount indicated in the Agreement. 37. In the decisions referred to above, it has been held that....
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....n Reliance Brands. 35. Learned special counsel appearing for the department has also placed reliance upon the judgment of the Supreme Court in TATA Iron & Steel Co. Ltd. vs. Commission of C. Ex. & Cus., Bhubaneswar [2000 (116) E.L.T. 422 (S.C.)] to contend that APE is a "condition of sale" incurred by the appellant to satisfy an obligation of the foreign entity and, therefore, would be includable in the value of imports. 36. Reliance placed by the learned special counsel appearing for the department on this judgment of the Supreme Court in TATA Iron is misplaced. In TATA Iron, the dispute related to import of machinery together with technology know-how, drawing, technical documentation supplied by the foreign vendor. The Supreme Court held that such technical documents were indispensable for installation and functioning of the imported machinery. As APE is not a condition of sale of the imported goods, the decision relied upon by the learned special counsel in TATA Iron will not be applicable. 37. The factual position in the present case is covered by the decisions of the Tribunal in Reliance Brands, Giorgio Armani, Adidas India and Indo Rubber. It has been held that unles....
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.... services:- May be provided by mutual agreement 42. The consideration for these services is paid as a "service fee" which for any period is equal to an allocation of the costs for such period, plus a mark-up on such allocation of 5%. The allocation of cost is calculated in the following manner: Function Allocation Key Accounts Time spent basis IT Devices supported Human Resources Number of employees Marketing Number of wholesales Warranty Number of wholesales Strategic Management Time spent basis PCA Freight Charges Entities supplied Product Liability Insurance Number of wholesales 43. These services were provided to the appellant on a continuing basis. There is no stipulation in the Agreement that the appellant has to request for such services from Triumph UK or prevent the appellant from undertaking similar services itself or entering into other service arrangements with either Triumph UK or other service providers. The recipient of service is liable to pay all indirect taxes on the amount paid under the Agreement. The appellant contends that it had paid service tax and subsequently goods and service tax on a reverse cha....
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.... cases including the case law cited by the appellant in the case of Expert Industries (Supra). In this case, Tribunal held that product consultancy charge which has got nothing to do with the imported goods and is covered by the separate contract cannot be included in the assessable value." (emphasis supplied) 48. The same view was expressed by the Tribunal in The Schwing Stetter and the relevant paragraphs are: "24. On perusal of the Service Agreement dated 3-3-2011 we find that the principal agreed to provide Management Services, Sales Services, General Administrative Services which includes, marketing legal and IT Support Services, etc. and the consideration is payable on actual on quarterly basis. The copy of Invoice No. 920028, dated 29-2-2012 raised by the Schwing GmbH, Germany clearly shows that the amount raised for the services rendered for the month of Feb., 2012. 25. It is evident from the above facts that these charges are related post-manufacturing activities and not connected to the import of goods and the payments made towards these services has no nexus to the import of pumps. ***** 27. Further, we find that the appell....