Assessable Value to include Advertising & Marketing Costs, if relatable to Imported Goods

Volvo Auto India Private Limited  Vs Commissioner of Customs (CESTAT Delhi)

Conclusion: Assessee was a distributor and was in the business of selling the cars which necessarily required them to deal with imports, pay taxes, promote sales, advertise, etc. These, could not be termed as expenses incurred on behalf of the foreign supplier although the foreign supplier would also indirectly benefit if assessee’s business improved. The foreign supplier was also independently selling the goods (cars) to embassies, etc. and there was nothing on record to show that assessee had incurred any expenses to promote such sales.

Held: Assessee-company was a subsidiary of M/s. Volvo, Sweden who own 99.99% of assessee’s shares. The parent company manufactured Completely Built Units (CBU) of motor vehicles which were imported and sold by assessee. Customs duty was chargeable on most goods including motor vehicles on ad valorem basis. The value of the goods for the purpose of calculation of Customs duty was the transaction value as per Section 14 of the Customs Act provided the buyer and seller were not related persons. The case of the Department was that it was mentioned that “no expenses were incurred by the importer on behalf of or by understanding or agreement with or under instructions from the suppliers of the goods, e.g., advertising, propaganda expense or any other expense for the sale of the imported goods”. On the other hand it was stated that the importer need to manage the customs taxability, inventory cost and simultaneous distribution of imported goods as well as sales promotions including advertising and marketing for its entire business in India. Whether such expenses had a bearing on the price was required to be analyzed. Department submitted that such payments were includable in the assessable value as per Rule 10 (1)(e). Assessee’s case was that these were expenses incurred by them on their own account to promote their own business. It was held that rule 10 (1) (e) required that any payment made as a condition for sale to either the seller or to a third party to satisfy the obligations of the seller was to be included in the value. If assessee was responsible for certain activities such as customs, taxability, inventory costs, distribution and sales promotions including advertising and marketing for its entire business in India, it could not be called a payment to their foreign supplier but would be managing affairs related to its own business. It would have been a different case, if assessee was required, as per the agreement to promote, at its cost, the sales by the foreign suppliers to other customers in India or make some payment on behalf of the seller to a third party. In such a case, some expense would have been incurred by assessee which could have been examined to see if it formed an additional consideration for the sale of the goods to assessee. Assessee was a distributor and was in the business of selling the cars which necessarily required them to deal with imports, pay taxes, promote sales, advertise, etc. These, could not be termed as expenses incurred on behalf of the foreign supplier although the foreign supplier would also indirectly benefit if assessee’s business improved. The foreign supplier was also independently selling the goods (cars) to embassies, etc. and there was nothing on record to show that assessee had incurred any expenses to promote such sales.

FULL TEXT OF THE CESTAT DELHI ORDER

This appeal seeks the quashing of the Order-in-Appeal1 No. CC(A) CUS/D-I/GEN/136/2018 dated 12.04.2018 passed by the Commissioner of Customs (Appeals) New Custom House, New Delhi. The Commissioner (Appeals) has allowed the appeal of the department and has set aside the order of Order-in-Original No. SVB/Cus/Review/YP/58/2014 dated 22.12.20142 passed by the Deputy Commissioner of Customs, Special Valuation Branch, New Custom House, New Delhi. The operative part of the impugned order is as follows:

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