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2020 (2) TMI 643

..... tional expenses/ payments made by the appellant to promote the ‘Li Ning’ brand was a condition of sale - Rule 10(1)(e) of the Customs (Determination of Value of Imported Goods) Rules, 2007 (hereinafter referred as CV Rules) - HELD THAT:- There is nothing in the agreement that a fixed amount or fixed percentage of the invoice value of the imported goods, is obliged to be spent by the appellant as a condition of sale/ import. As per the stipulation in the agreement, the appellant is obliged to or responsible for sales and distribution in its territory of distribution and further to make such expenditure in consultation with the seller, does not attract the provisions of Rule 10(1)(e) of CV Rules. The said Rule 10(1)(e) provides for addition of all other payments actually made or 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 and obligation of the seller, to the extent that such payments are not included in the price actually paid (transaction value). There is total absence of the prescribed condition precedent as the appellant is not obliged to incur any particular amount or percentage of inv .....

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..... ributor shall incur expenses on its behalf, the Distributor hereby expressly agrees that it shall not, at any time, spend more than the amount that the Company shall have agreed in writing shall be so spent. Any claims by the Distributor on the company in respect of such expenditure, shall be supported by vouchers evidencing the sums claimed . 3. Further, Sunlight Sports (represented by appellant) has entered into an agreement with Karnataka Badminton Association (KBA) dated 12.09.2012 for promotion of the Li Ning products. Under this agreement, Sunlight Sports have to provide various sports equipment to KBA. In turn, Sunlight Sports and the Li Ning brand becomes the title sponsor for State Championships and the sponsor for various other badminton events conducted by KBA. Further, KBA teams representing the State at State or National level tournaments are obliged to use Li Ning branded equipment, clothes, shoes etc. The territory assigned to the appellant for distribution is whole of India except the States of Tamilnadu, Andhra Pradesh and Kerala. 4. Another agreement dated 01.02.2014 has been entered into by Sunlight Sports, with Ms. P.V. Sindhu, a prominent badminton player, thro .....

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..... be inferred that price is not the sole consideration for import of goods. g. Since price is not the sole consideration, the proviso to Section 14 of the Customs Act applies. Any amount paid for costs and services is includible in the value of imported goods in terms of rule 10(1)(e) of the Customs Valuation Rules. Consequently, the amount of marketing expenses incurred by the appellant which is a condition of sale is liable to be included in the import value. These expenses are paid by the appellant on behalf of Sunlight Sports. h. The appellant has mis-declared the value to the extent of non-inclusion of marketing expenses. i. The appellant has not disclosed the sponsorship/ promotional agreements and hence, the extended period of limitation may be invoked. 8. The appellant contested the show cause notice mainly on the grounds that they are not paying any amount on behalf of M/s Sunlight Sports. Further, contended that on harmonious reading of the agreement makes it evident, that the responsibility of sales, promotion within India is entirely with the appellant. The appellant has incurred marketing cost in pursuant of this responsibility. Further, expenses incurred by appellant fo .....

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..... Learned Counsel appearing for the appellant urges that the impugned order is vitiated as the same is passed on incorrect understanding of the facts. Further, the impugned order is passed in a mechanical way without proper application of mind. He further urges that in para 16 of the impugned order, the learned Commissioner has observed that the appellant is the Authorised sole and exclusive agent and distributor of Li Ning products in India. It is submitted that appellant is not the sole and exclusive agent appointed for distribution of Li Ning brand in India. There are other agents who have been appointed for distribution of the said products in India, who have also been importing identical goods. 12. Further, in para 24.4 of the impugned order, it is observed that the appellant had not disclosed the agreement and the same tantamounts to mis-statement. It is submitted that the appellant is not related to M/s Sunlight Sports, Singapore. Further, on being requisitioned during investigation, the appellant did provide the copy of agreement. It is further urged that appellant have neither incurred nor is paying any amount towards sales promotion/ advertisement on behalf of M/s Sunlight .....

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..... isement. Thus, in the absence of the condition precedent - payment actually made or to be made as a condition of sale of the imported goods, being absent, no loading or enhancement of the assessable value is called for. Further, in the facts and circumstances, there is no payment from the buyer- appellant to seller or to third party to satisfy any obligation of the seller - M/s Sunlight Sports. Thus, in the facts and circumstances, the payment or expenditure not being contingent to import transaction, does not call for addition to the value of the goods. Further, reliance is placed on the ruling of the Hon ble Supreme Court in Toyota Kirloskar Motor Pvt. Limited -2007 (213) ELT 4 (SC) where it was held that fee paid for technical assistance having direct nexus with post importation activities and not to the import itself, are not to be included in the transaction value since such fee are not paid as condition of sale. Appellant also relied on the ruling of this Tribunal in Richemont India Pvt. Ltd., vs. Commissioner of Customs, New Delhi-2016 (343) ELT 209 (Tri. Del.) where the facts that Richemont was importing watches for distribution from foreign exporter located in Dubai. The a .....

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..... ng not related, both the contentions are misplaced because in the impugned order, addition of sponsorship / promotional expenses have been ordered to be added to the transaction value under Rule 10(1)(e) of the CV Rules, and there is no rejection/ acceptance of transaction value. Further, the contention of appellant that such expenses are in the nature of post importation activity does not hold good in view of Article 7 of the Distribution Agreement. Further, promotion contract dated 12.09.2012 and national players sponsorship agreement dated 01.02.2014, have been entered into between the supplier of goods and the sports association / player, and hence serve interest of the supplier. Further, the said agreement are signed by the representative of the appellant and also the expenses have been borne by the appellant. Further, in the promoters contract M/s Sunlight and Li Ning are referred as promoters in Agreement with Karnataka Badminton Association. Further, in the said agreement the appellant is obliged to supply free products to KBA, but such expenses for goods are admittedly incurred by the appellant. Similarly, in the national players sponsorship agreement is a tri-par-tite agr .....

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..... f the seller, to the extent that such payments are not included in the price actually paid (transaction value). We find that there is total absence of the prescribed condition precedent as the appellant is not obliged to incur any particular amount or percentage of invoice value towards sales promotion/ advertisement. Further, we find that the activity of advertisement and sales promotion is a post import activity incurred by the appellant on its own account and not for discharge for any obligation of the seller under the terms of sale. The ruling of this Tribunal in the case of Reebok India Company (supra) is not applicable, as the facts in the present case are totally different and unlike Reebok India Company, nowhere provides for any fixed expenditure towards sales and promotion as a pre-condition of sale. Further, in the instant case, the parties are not related to each other. Further, the appellant importer is not obliged to give any account of expenditure incurred by it to M/s Sunlight Sports, incurred by them, unless such expenditure is incurred at the instance of M/s Sunlight Sports under stipulation of reimbursement. Further, we find that the interpretative note to Rule 3( .....

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