Legal principle

An addition to assessable value under rule 10 of the Customs Valuation Rules, 2007 can stand only on a specific finding that the payment was a condition of sale of the imported goods, with the initial onus of establishing that link resting on the adjudicating authority, not the importer.

Court decision

The Tribunal set aside the order-in-original and remanded the matter to the original authority for fresh adjudication, allowing all appeals by way of remand with all issues kept open. It held the management-fee inclusion unacceptable absent a finding that the contract made payment to Puma Austria a condition for shipment under rule 10(1)(e), and held the buying-commission addition unsustainable unless the Department establishes beyond doubt that the remittances truly ended with Puma Austria as consideration for the goods.

Facts

Puma Sports India Pvt Ltd, the Indian distributor of PUMA-brand footwear, apparel and accessories, imported goods from its related foreign entity (M/s Puma Austria) and third-party manufacturers between 1 May 2011 and 13 February 2014. Following DRI investigation and a search on 25 October 2013 (goods worth $3,951,411 FOB seized and provisionally released under section 110A on a bond backed by a ₹2,25,00,000 bank guarantee), the Additional Director General (Adjudication), DRI Mumbai confirmed a duty demand of ₹6,73,74,023 under section 28, with interest under section 28A, a like-amount penalty under section 114A, a ₹2,00,00,000 penalty under section 114AA and a ₹5,00,00,000 fine. The demand rested on enhancing the assessable value from ₹176.12 crore to ₹220.23 crore by adding management fee, freight loading and buying commission under rules 9 and 10 of the Customs Valuation Rules, 2007, plus differential duty of ₹1,11,06,049 from reclassifying polo shirts and zip-front jackets. Three individuals, also penalised, appealed separately, and all appeals were disposed of by this common order.

Key provisions

• Rule 10, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Cost and services
• Section 14, Customs Act, 1962 — Valuation of goods
• Rule 9, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Residual method
• Rule 3(1), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Determination of the method of valuation
• Rule 4, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Transaction value of identical goods
• Section 110A, Customs Act, 1962 — Provisional release of goods, documents and things seized
• Section 46, Customs Act, 1962 — Entry of goods on importation
• Section 114A, Customs Act, 1962 — Penalty for short-levy or non-levy of duty in certain cases
• Section 28A, Customs Act, 1962 —  Power not to recover duties not levied or short-levied as a result of general practice
• Section 28, Customs Act, 1962 — Recovery of duties not levied or not paid or short-levied or short- paid or erroneously refunded
• Section 3(1), Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges
• Section 50, Customs Act, 1962 — Entry of goods for exportation