CESTAT Overturns Customs Valuation Order Against Triumph Motorcycles India

Tribunal rules advertising and management fees are not conditions of sale under Customs Valuation Rules

In a significant decision, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in New Delhi has overturned a previous order by the Additional Director General (Adjudication), Directorate of Revenue Intelligence (DRI), which sought to include advertising and promotional expenses (APE) and management services fees (MSF) in the transaction value of imported goods by M/s. Triumph Motorcycles (India) Pvt. Ltd. 

The Tribunal, presided over by Mr. Justice Dilip Gupta and Ms. Hemambika R. Priya, determined that these fees are not enforceable conditions of sale under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and therefore cannot be added to the transaction value of imported goods. The ruling followed an appeal by Triumph Motorcycles against an earlier adjudication that resulted in a demand for differential customs duty amounting to over Rs.21.85 crore, alongside interest and penalties under sections 28AA and 114A of the Customs Act, 1962.

Triumph Motorcycles India is engaged in importing motorcycles and related accessories from its parent entities in the UK and Thailand. The dispute arose from a Distributor Agreement and a Management Services Agreement with Triumph UK, which outlined the company's obligations for promoting and distributing its products. The DRI had argued that expenses incurred under these agreements should be considered as part of the transaction value. 

However, the Tribunal found that these expenses were undertaken by Triumph on its own account to stimulate sales and were not legally enforceable obligations imposed by the seller, Triumph UK. The Tribunal emphasized the importance of distinguishing between expenses incurred voluntarily by the buyer and those that constitute a condition of sale, as per rule 10(1)(e) of the 2007 Valuation Rules.

The Tribunal cited previous judgments that reinforce the principle that marketing and promotional activities undertaken by the buyer independently do not qualify as conditions of sale. Furthermore, the Tribunal clarified that the MSF relates to independent services provided by Triumph UK, such as finance, IT, and HR support, which are unrelated to the import of goods.

The ruling underscores the necessity for a clear legal obligation to exist for expenses to be included in the transaction value, and it sets a precedent for similar cases involving the valuation of imported goods. This decision is expected to impact how import duties are calculated on goods brought into India by subsidiaries of foreign entities.

Bottom Line:

Payments made towards Advertising and Promotional Expenses (APE) and Management Services Fees (MSF) incurred by the importer cannot be included in the transaction value of the imported goods under Rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, as these are not conditions of sale and are undertaken on the importer's own account.

Statutory provision(s): Customs Act, 1962 Sections 14, 28A, 114A, Customs Valuation Rules, 2007 Rule 10(1)(e).

M/s. Triumph Motorcycles (India) Pvt. Ltd. v. Addl. Director General (Adjudication) D.R.I., New Delhi, (CESTAT)(New Delhi)(Principal Bench) : Law Finder Doc Id # 2800382