Advertisement, Marketing & Promotional (AMP) expenses are not to be added to the value of imported Goods: Delhi CESTAT

Topics covered in this article are as follows:

1. Background
2. Relevant Legal Provision
3. Welcome Order of the Hon’ble Delhi CESTAT
4. Taxmann’s Comments

1. Background

Under the Import and Sell business model, a company situated outside India (the main brand owner) incorporates a subsidiary in India. The parent company sells the goods to the Indian Company who in turn sells such goods to the customers in India.

In order to create a market in India, the sales agreement between these two companies generally contains a clause for incurring AMP expenses in India

In the recent past few years, DRI has issued Show Cause Notices to the various companies in India demanding customs duty on such AMP expenses incurred in India by the Indian Company. It is alleged that the said expenses are incurred by the Indian Company as a condition of the sale of the imported goods. Therefore, Customs duty would be required to be paid on the same. The demand is made in view of Rule 10(1) (e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

2. Relevant Legal Provision

In this regard, Rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 provides that in determining the transaction value of the imported goods, any payments as a condition of sale of the imported goods, by the buyer to the seller/third party to satisfy an obligation of the seller is required to be added to the actual price for the imported goods.

3. Welcome Order of the Hon’ble Delhi CESTAT

In one such case [1], the Delhi CESTAT has recently quashed the above demand of the Department. It held that if the importer is responsible for certain activities such as sales promotions including advertising and marketing for its entire business in India, it cannot be called a payment to their foreign supplier but would be managing affairs related to its own business.

The CESTAT further held that, if the importer is 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, the expense incurred by the importer could be examined to see if it formed an additional consideration for the sale of the goods to the importer.

4. Taxmann’s Comments

Show Cause Notices on similar grounds are issued to various companies in India operating under the ‘Import and Sale Model’. The order would be beneficial for all such companies. The judgment can be used to make a strong case before the author

[1] Volvo Auto India Private Limited vs Commissioner of Customs (Import & General) – [2021] 127 taxmann.com 635 (New Delhi – CESTAT)[25-05-2021]