Commissioner of Customs v Indo Rubber Plastic Works Clarifying Customs Valuation: Supreme Court’s Ruling on Marketing Expenses for Imported Goods
In a recent case that reached the Indian Supreme Court, the question of whether certain expenses related to marketing, advertising, sponsorship, and promotion should be included in the assessment of imported goods was put to rest. The Court’s decision holds significant implications for businesses engaged in importing goods and sheds light on the treatment of such expenses in the customs valuation process.
The Case at a Glance:
The case centered around M/s Indo Rubber and Plastic Works, an importer of ‘Li Ning’ brand sports goods, which included badminton racquets, shuttles, shoes, clothes, and bags. These goods were imported from M/s Sunlight Sports Private Ltd. in Singapore. The dispute arose when the Commissioner of Customs argued that expenses incurred by the importer for marketing, advertising, sponsorship, and promotion of the ‘Li Ning’ brand should be added to the value of the imported goods.
Importer-Exporter Agreement: Indo Rubber entered into an agreement with the exporter to import and sell ‘Li Ning’ branded sports goods in India.
Revenue’s Stand: The Revenue contended that the promotional expenses made by the importer were a condition for sale and should be factored into the value of the imported goods.
CESTAT’s Decision: The Customs Excise and Service Tax Appellate Tribunal (CESTAT) overturned the Revenue’s order, granting benefits to the importer, including a refund of the deposited amount during the investigation, with interest.
Supreme Court’s Involvement: The Revenue challenged the CESTAT’s decision in the Supreme Court, seeking to include the promotional expenses in the value of the imported goods.
The Core Issue: The central question revolved around whether expenses related to marketing and promotion should be considered part of the cost of the imported goods.
Indo Rubber argued that there was no contractual obligation to spend a fixed amount or percentage of the invoice value on promotional activities. They emphasized that these promotional efforts were undertaken voluntarily, independent of the exporter’s influence. The importer’s stance was that these post-import promotional expenses shouldn’t be linked to the value of the imported goods.
Observation and Verdict:
The Supreme Court upheld the CESTAT’s decision and dismissed the Revenue’s Special Leave Petition. The Court concurred that expenses incurred by the importer for marketing, advertising, sponsorship, and promotion of the brand should not be included in the assessment of the imported goods. The Court’s judgment reinforced that these promotional expenses were distinct from the value of the imported goods and had no direct bearing on the customs valuation.
This case highlights the significance of distinguishing between the cost of imported goods and post-import promotional expenses. The Supreme Court’s verdict reinforces the principle that promotional activities undertaken by the importer, separate from the exporter’s mandate, should not be factored into the value of imported goods for customs assessment. This decision provides clarity to businesses engaged in importing and underscores the importance of a fair and accurate customs valuation process.