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13 March 2020

Sponsorship and endorsement expenses borne by importer when not includible in value of imports

CESTAT New Delhi has recently held that the sponsorship and endorsement expenses paid by the Indian importer to various athletes and players in India is not liable to be included in the assessable value of the goods (sports goods) imported by the importer. The Revenue department’s appeal which invoked Rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 for inclusion of said expenses was hence dismissed.

Earlier, the Commissioner had found that the payments made by the importer (Adidas India) to sports personalities / associations were not made as a condition of sale to satisfy any obligation of the exporter.

Condition of sale

Absence of an enforceable legal right under the License Agreement (between Adidas Germany and Adidas India) that would compel the buyer to incur such expenditure, was noted by the Tribunal in the case Commissioner v. Adidas India Marketing Pvt. Ltd. to hold that requirement set out in Rule 10(1)(e) was not satisfied. It noted that there was no stipulation in any of the articles of the Licence Agreement as to what would happen if the importer does not make any effort for maximising sale and distribution of the products by causing advertisement or promotion.

Satisfaction of obligation of the seller

Dismissing the departmental appeal, the CESTAT noted that any payment made by a buyer to a third party on his own account, even as a condition of sale of the imported goods in terms of any clause of the agreement between the buyer and the seller, cannot be added to the value of the imported goods since such payment was not made to satisfy an obligation of the seller. It was observed that unless and until it is established that the seller has a pre-existing obligation to pay the said amount to the buyer or a third party and the buyer is only discharging the said obligation of the seller, such payment cannot be added to the price.

It was also observed that according to Note to Rule 3 of Customs Valuation Rules, the activities undertaken by the buyer on his own account, other than those for which an adjustment is provided in Rule 10, are not to be considered as an indirect payment to the seller even though they may be regarded as of benefit to the seller.

The Tribunal in its Order dated 5th March, 2020 stated,

“It may be that the promotion and advertisement of the products by adidas India benefit adidas Germany also, but this would not in any manner mean that the payments made for promotion and advertisement satisfy any pre-existing obligation of adidas Germany towards the parties to whom payment is made for such promotion or advertisement.”

The Commentary on GATT Customs Valuation Code by Saul L. Sherman and Hinrich Glashoff, was also relied upon by the Tribunal in this regard.

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