TaxTMI 
TaxTMI 
2026 (5) TMI 1610
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....etc.), Licensing Brands (e.g. Tommy Hilfiger, French Connection etc.) and Distribution Brands (e.g. Marchon Brands viz. CK, Nike, LaCoste, Salvatro Ferragamo). 2.1 The present proceeding is in relation to the Licensing Brands, viz. Tommy Hilfiger (TH) and French Connection (FC). These brands have been licensed to the Appellant for manufacturing, import, sale, distribution, marketing, promotion etc.in India. 2.2 In terms of the Licensing Agreements entered into between the Appellant and the Licensors/ Franchisors (viz. Tommy Hilfiger Arvind Fashion Pvt. Ltd., an Indian entity, for TH Brand and Prestige Brands Ltd., Mauritius for FC brand), the Appellant: * pays Franchise Fee to the licensors (which consists of Minimum Franchise Fee and also percentage Franchise Fee); * incurs substantial amounts on Advertisement, Marketing and Promotion activities in India (AMP Expenses); and * pays Corporate Marketing Fee (CMF) to the Franchisor as its share in Global marketing costs incurred by the Franchisor. 2.3 The Appellant entered into contract for supply of TH and FC brand goods with 3 Hong Kong based entities (hereinafter referred to as the "Overseas Supp....
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.... Director General, DRI, alleging as under: * Franchise Fee paid by the Appellant to the licensors of TH and FC brand is includible in the assessable value of goods imported from Hong Kong in terms of Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 since the same is 'condition of sale' of the imported goods. * AMP expenses incurred by the Appellant in India in terms of the Licensing Agreements for the TH and FC brands and the CMF paid to the Licensors of the TH brand, are includible in the assessable value of goods imported from Hong Kong in terms of Rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, since the same are also condition of sale of imported goods and fall under "all other payments" appearing in Rule 10(1)(e), * Extended period of limitation is invokable since the Appellant suppressed the facts of existence of Franchise Agreements from the department, which came to light only during the investigation by DRI in 2017. 2.11 Vide the Order-in-Original dated 30-09-2020, the entire demand proposed in the aforesaid SCN was confirmed. 2.12 Being aggrieved by....
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....ra 297 at 124 and 125. 3.4 He further submits that the payment of franchise fee for a particular quarter is made in the following quarter on the basis of net sales effect in the previous quarter, is itself a proof of the fact that the franchise fee is payable in respect of sale and distribution of goods by the Appellant and not in respect of the procurement of goods from the foreign seller. 3.5 It is further submitted that franchise fee is independent of import of goods because even in the absence of any imports from the third party, the Appellant is liable to pay Minimum Franchise Fee. 3.6 It is submitted that the Appellant is importing goods from Hong Kong instead of getting the same manufactured in India only for commercial reasons of getting the goods at cheap price. The negotiations for sale of goods are independently held between the Appellant and the Hong Kongese firms without interference by the Licensors. Even if the goods are sourced from India and then sold, still the royalty would be payable on re-sale of goods, which proves that there is no linkage of import with the payment of royalties. Payments are in the nature of running royalties based on percentage of s....
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.... post importation costs having no nexus with the import of goods. The Appellant neither makes payment to the overseas suppliers in Hong Kong nor to any third party under the directions of the suppliers. Thus, it is not a condition of sale of imported goods. 3.13 He further submits that the Appellant incurs this expenditure to promote the sale of its products. It is expedient for running of its business. The stipulation in the License/Franchise Agreement to incur this expenditure by the Appellant is to safeguard the brand value of the Licensor so that the product/ brand is marketed adequately and effectively. In this regard, he relies on the decision in Triumph Motorcycles India Private Limited vs. Additional Director General (Adjudication), DRI-New Delhi, Customs Appeal No. 50212 of 2021, Final Order No. 51625 of 2025 dated 29-10-2025. He also relies in the case of Volvo Auto India Private Limited vs. Commissioner of Customs (Import & General) - Customs Appeal No. 52017 of 2018, Final Order No. 51515 of 2021 dated 25-05-21. He also relies on the following decisions : * Commissioner of Customs, Patparganj vs. Adidas India Marketing Pvt. Ltd, 2020 (374) ELT 394 (Tri. ....
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....ue of imported goods. 3.19 The finding that the Appellant never filed the agreements of TH and FC brands with the SVB cell is mis-founded since these goods were being imported from unrelated overseas suppliers, thus, there was no requirement to refer the same to the SVB cell. Even after the aforesaid 6 bills of entry which were provisionally assessed in 2011, the department did not order any provisional assessment for the subsequent consignments. Thus, the demand in the present proceedings is to be restricted to the normal period of two years from the relevant date only. 3.20 It is submitted that redemption fine cannot be levied when goods have been cleared for home consumption and are not available for confiscation. Redemption fine can only be imposed for releasing of goods which have been confiscated by the department. 3.21 He further submitted that as goods have already been cleared in the instant case, such goods ceased to be "imported goods" and thus, cannot be confiscated. Consequently, as goods cannot be confiscated, redemption fine which is imposed for releasing of goods from the custody of the department cannot also be imposed. Reliance in this regard is placed on....
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....ent that such royalties and fees are not included in the price actually paid or payable;" (e) all other payments actually made to be made as a condition of sale of the imported goods, by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable." 8. We find in this case, the appellant has paid the Franchise Fee for TH and FC to sell, distribute and promote the imported goods and the brand in the domestic territory of India. As per the agreement entered by the appellant and the franchisors, the appellant is authorized by the agreement, they are having license to sell the goods under the brand name of the franchisors in India. In the absence of this right, the appellant can import the goods in India, but cannot sell the goods in India. Therefore, We have to see whether this Franchise Fee paid by the appellant is includible in terms of Rule 10(1)(c) of the Valuation Rules or not ? 9. In fact, the appellant has not procured the goods from the franchisor, but procured the goods in question from the distributors or other suppliers of the said goods ....
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....sub-distribution agreement between RBSOIL and the respondent. The respondent was appointed as exclusive distributor for eye-ware products, Indian and imported. For such appointment, the respondent should pay RBSOIL, a sum of Rs. 2.75% of the net sales of eye-ware products at the end of every financial year. In the year 2010, RBSOIL gave up its exclusive distributorship rights, which was with them, for the eyewear products bearing trade mark of Luxottica or its affiliates/subsidiaries. The said right was vested in the respondent for a consideration mentioned above. 4. The dispute now in the present appeal is with reference to payment of Rs. 5,75,22,576/- on account of trademark licence fee as a condition of sale of goods that the respondent got from RBSOIL, which RBSOIL got from Luxottica, Itlay. This amount was not being directly paid to Luxottica, Itlay, but being paid to RBSOIL. The Revenue alleged that this expense incurred by the respondent is includible in the transaction value in terms of Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Accordingly, proceedings were initiated against the respondent to demand differential ....
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....e royalty and licence fees should be related to the imported goods and the buyer should be required to pay the same; (ii) the payment could be direct or indirect; (iii) the requirement to pay must be a condition for sale; and (iv) such royalty or licence fees should not have been included in the price actually paid or payable. It is only when all these conditions are fulfilled that an amount paid or payable by the buyer as royalty or licence fees can be included in the assessable value of the imported goods." 9. The Original Authority proceeded to examine each one of the above conditions with reference to the facts of the present case. He held that the first and fourth conditions mentioned above are fulfilled in the present case. On the second condition regarding the payment could be direct or indirect, he relied on the decision of the Hon'ble Supreme Court in Ferodo India Pvt Ltd. (supra) to interpret the term "directly". We are in agreement with the analyses made by the Original Authority with reference to non-fulfilment of conditions No. 3 viz. payment being not direct or indirect. The payment would be considered "indirect" where the ....
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....dition of sale from the supplier to buyer then only it is to be added for the purpose of calculation of Customs duty in terms of Rule 10(1)(c ) of the Customs Valuation Rules read with Section 14 of the Customs Act. A perusal of the agreement along with side letter indicate that the franchise/royalty fee is paid for provisions of management, consultation, advice service and training provided to the appellant in connection with use of Body shop products and the proprietary Marks of M/s Body shop. The condition of payment of the royalty, which is contingent upon the volume of sale in the domestic market after importation of the goods has no connection with the import of goods. Once the goods have been cleared from the Customs area the same is not required to be treated as imported goods and all the activities of the management, consultation etc. is relatable to the goods which is ceased to be imported goods in terms of the Customs Act, 1962. We find that the learned Advocate, on behalf of the appellant has countered all the decisions relied upon by learned Authorised Representative in the facts and circumstances of the case which we also find that is appropriate and relevant to the c....
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....f the imported goods. In other words, in addition to the price for the imported goods the buyer incurs costs on account of royalty and licence fee which the buyer pays to the foreign supplier for using information, patent, trade mark and know-how in the manufacture of the licensed product in India. Therefore, there are two concepts which operate simultaneously, namely, price for the imported goods and the royalties/licence fees which are also paid to the foreign supplier. Rule 9(1)(c) stipulates that payments made towards technical know-how must be a condition prerequisite for the supply of imported goods by the foreign supplier and if such condition exists then such royalties and fees have to be included in the price of the imported goods. Under Rule 9(1)(c) the cost of technical know-how is included if the same is to be paid, directly or indirectly, as a condition of the sale of imported goods. At this stage, we would like to emphasis the word indirectly in Rule 9(1)(c). As stated above, the buyer/importer makes payment of the price of the imported goods. He also incurs the cost of technical know-how. Therefore, the Department in every case is not only required to look at TAA, it....
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.... which are as under : "The importer is required to pay a royalty to obtain the right to use the trademark. This obligation results from a separate agreement unrelated to the sale for export of the goods to the country of importation. Goods are purchased from a supplier under another contract and payment of royalty is not a condition of sale of these goods. Therefore, the royalty payment in this is not to be added to the price actually paid or payable." Therefore, the franchise fee paid by the appellant to the franchisor is not includible in the assessable value. Issue (ii) Whether the Advertisement & Promotional Expenses (AMP) incurred by the Franchisor in terms of the licensing agreement and TH and FC brands and Corporate Marketing Fees (CMF) paid to the licensing TH brand are includible in the assessable value of the goods from Hong Kong in terms of Rule 10(1)(c) or (e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, or not ? 14. For better appreciation of facts, Rule 10(1)(e) of the Valuation Rules, 2007, is as under : "(e) all other payments actually made to be made as a condition of sale of the imported goods, by t....
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....ani, Adidas India and Indo Rubber. 33. Thus, if the expenditure is undertaken by an importer on his "own account" in the interest of his own business, then rule 10(1)(e) of the 2007 Valuation Rules would not be applicable. An analysis of the Distributor Agreement leaves no manner of doubt that the appellant was not required to discharge any obligation to Triumph UK. In fact, the appellant had borne the expenses on its own account in order to develop its own market to increase its own sales of the products. Merely because Triumph UK may have some interest in seeing its brand promoted in India will not alter the character of the expenditure." 16. Further, in the case of Adidas India Marketing Pvt. Ltd. reported in 2020 (374) ELT 394 (Tri.-Del.), the Tribunal has observed as under : "38. In this connection, it would also be useful to refer to "Commentary on the GATT Customs Valuation Code" by the noted authors Saul L. Sherman and Hinrich Glashoff on Customs Valuation for analyzing the provisions of Rule 10(1)(e). Chapter III deals with Transaction Value of the Imported Goods (Article 1 and 8). Article 1 states that the customs value of the imported goods shall be ....
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....ies shall not, therefore, be added to the price actually paid or payable in determining the customs value'. The most important of such activities are advertising and warranty and other marketing and promotion efforts, which benefit both the exporter and the importer by increasing sales and by making the trademark, if there is one, more valuable. As to these expenditures, the Notes go on to say : '...if the buyer undertakes on his own account, even though by agreement with the seller, activities relating to the marketing of the imported goods, the value of these activities is not part of the customs value nor shall such activities result in rejection of the transaction value'. The treatment of advertising expenditures was highly controversial in the negotiation of the Code. The BDV had been widely interpreted as requiring many such expenditures to be included in the customs value even if the payment was made by the buyer, for the expenditures were often regarded as an indirect benefit to the exporter which, under the notional concept of the BDV, ought to be included in the 'normal price. Sometimes a sophisticated split of bundled activities into trademark ....
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....or the imported goods and in addition was incurring, say $10 to promote the sales of the foreign supplier to other customers, this $10 could have been said to be an additional consideration for sale. The appellant is a distributor and is in the business of selling the cars which necessarily requires them to deal with imports, pay taxes, promote sales, advertise, etc. These, in our considered view, cannot be termed as expenses incurred on behalf of the foreign supplier although the foreign supplier would also indirectly benefit if the appellant's business improves. The foreign supplier is also independently selling the goods (cars) to embassies, etc. and there is nothing on record to show that the appellant has incurred any expenses to promote such sales." 18. Therefore, relying on the above said decisions, we hold that the AMP incurred by the appellant, are not includible in the assessable value of the imported goods in terms of Rule 10(1)(e) of the Valuation Rules, 2007. 19. Likewise, the Corporate Marketing Fee is also not includible in the assessable value in terms of Rule 10(1)(e) of the Valuation Rules, 2007 as it is neither paid to the overseas suppliers nor to a third ....