2026-VIL-906-CESTAT-KOL-CU
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CUSTOMS CESTAT Cases

Customs – Valuation, Includability of Franchise Fee in assessable value - Appellant entered into licensing agreements with foreign franchisors whereby it paid franchise fees comprising minimum and percentage-based fees, while procuring goods from unrelated third-party suppliers - Department demanded differential duty contending that franchise fees must be included in the assessable value as they constitute a condition of sale under Rule 10(1)(c) of the Customs Valuation Rules, 2007 - Whether franchise fees paid by the buyer to foreign franchisors under separate licensing agreements constitute a condition of sale of imported goods and are therefore includible in the assessable value of goods imported from unrelated suppliers – HELD – The Rule 10(1)(c) of the Valuation Rules requires that the royalty or licence fee must be a condition of the sale of the imported goods itself. The franchise fee in the present case is paid for obtaining the right to sell, distribute and promote goods in India, which is a post-import activity distinct from the procurement of goods from overseas suppliers. The absence of these rights would prevent the importer from selling goods in India but would not prevent importation. Moreover, the non-payment of the franchise fee does not give the foreign supplier any right to repudiate the supply contract, establishing that the franchise fee is not a condition imposed by the seller for the sale of imported goods but rather relates to distribution rights thereafter - The franchise fee is independent of imports as the buyer is liable to pay minimum franchise fees even without any imports. The pricing arrangement between the buyer and overseas supplier is entirely separate from the licensing agreement with franchisors, with no nexus between the import transaction and franchise payment - The demand for franchise fee inclusion is set aside. The impugned order is set aside and the appeal is allowed - Includability of Advertisement, Marketing and Promotional Expenses (AMP) and Corporate Marketing Fee (CMF) - The appellant incurred advertisement, marketing and promotional expenses in India and paid corporate marketing fees to the franchisors as per the licensing agreements, all relating to licensed eyewear brands - Whether advertisement, marketing and promotional expenses incurred by the importer on its own account in India and corporate marketing fees paid to foreign franchisors constitute payments made as a condition of sale of imported goods includible under Rule 10(1)(e) – HELD - The Rule 10(1)(e) requires that payments be made as a condition of sale either to the seller or to a third party to satisfy an obligation of the seller. These expenses were incurred by the importer on its own account for its own business purposes and are post-importation costs bearing no nexus with the import transaction. The expenses are undertaken to promote the importer's own sales and safeguard brand value in the domestic market rather than to satisfy any obligation of the foreign supplier. There exists no enforceable legal right in the foreign supplier to compel these expenditures, which distinguishes them from genuine conditions of sale - The activities undertaken by the buyer on its own account, even if beneficial to the seller, are not indirect payments to the seller. Even if the importer chose not to import branded goods and instead sourced locally, these marketing expenses would still be necessary for business operations, establishing their independence from the import transaction - The demand for inclusion of advertisement, marketing and promotional expenses is set aside - Extended Period of Limitation - Whether the extended period of limitation under the Customs Act is invokable when the goods were provisionally assessed and their importation was already within the knowledge of revenue authorities – HELD - Since the goods were provisionally assessed in 2011 with execution of provisional duty bonds and extra duty deposits, the importation of goods was within the knowledge of the revenue authorities at that time. The provisional assessment itself demonstrates that the department had notice of these importations. The subsequent finalization of assessments accepting the declared values and cancellation of bonds in 2018 further establishes that the issue had been considered by the authorities. The extended period of limitation cannot be invoked merely on the ground that certain details or agreements relating to the imported goods came to light during investigation if the basic fact of importation was already on record with the authorities – The extended period of limitation cannot be invoked, restricting the demand to the normal period of two years from the relevant date.
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