Legal principle

Franchise fees/royalties paid to a brand licensor for post-importation rights of sale and distribution, and AMP expenses or corporate marketing fees incurred for the importer's own Indian business, are not includible in assessable value under Rules 10(1)(c)/(e) of the Customs Valuation Rules, 2007 unless the payment is a condition of sale flowing from the seller of the imported goods, and the extended period of limitation cannot be invoked where imports were provisionally assessed with the Revenue's knowledge.

Court decision

The Tribunal allowed the appeal and set aside the Order-in-Original with consequential relief: the franchise fee was correctly paid to the brand owners and there was no under-valuation; AMP expenses and the CMF were not includible in assessable value under Rule 10(1)(e); the extended period of limitation was not invokable; the goods were not liable to confiscation and no redemption fine or penalty was imposable.

Facts

M/s Sterling Meta-Plast India Pvt Ltd imported fashion eyewear of licensed brands Tommy Hilfiger and French Connection from three Hong Kong suppliers, while paying a Franchise Fee (minimum plus percentage-based) to the licensors, incurring Advertisement/Marketing/Promotion (AMP) expenses in India, and paying a Corporate Marketing Fee (CMF) to the franchisors. After a DRI investigation in May 2017, the Additional Director General, DRI issued an SCN dated 22.05.2019 alleging the Franchise Fee was includible in assessable value under Rule 10(1)(c) and the AMP expenses and CMF under Rule 10(1)(e) of the Customs Valuation Rules, 2007 as conditions of sale, and invoking the extended period of limitation for alleged suppression. The Commissioner of Customs (Airport & ACC), Kolkata confirmed the entire differential duty demand on under-valuation under Section 14(1) of the Customs Act read with Rules 3(1) and 10(1)(c)/(e) vide Order-in-Original dated 30.09.2020. The importer appealed to the CESTAT, Kolkata.

Key provisions

• Rule 10(1)(c), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Cost and services
• Section 14, Customs Act, 1962 — Valuation of goods
• Rule 3, Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Determination of the method of valuation
• Rule 2(2), Customs Valuation (Determination of value of Imported goods) Rules, 2007 — Definitions