CESTAT Delhi Holds Marketing & Sponsorship Expenses Not Includible in Assessable Value

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 13.04.2026

CESTAT Delhi Holds Marketing & Sponsorship Expenses Not Includible in Assessable Value

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The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in New Delhi recently delivered a significant judgment in the case of M/s Indo Rubber and Plastic Works versus the Commissioner of Customs, Inland Container Depot, Tughlakabad, New Delhi. This case revolved around the valuation of imported sports goods branded as ‘Li Ning’ and the inclusion of marketing and promotional expenses in the customs valuation.

Background of the Case

M/s Indo Rubber and Plastic Works, a proprietary concern, is engaged in manufacturing sports goods under its own brand name, ‘Vicky,’ and importing and distributing ‘Li Ning’ branded sports goods from M/s Sunlight Sports Pte. Ltd., Singapore. The appellant entered into a distribution agreement with Sunlight Sports on January 1, 2010, which included provisions for marketing, advertising, and promotion of ‘Li Ning’ products within India.

Under Article 7 of the agreement, the appellant was responsible for bearing all costs related to marketing, advertising, and promotions within the assigned territory. Additionally, Sunlight Sports entered into sponsorship agreements with entities such as the Karnataka Badminton Association (KBA) and prominent badminton player P.V. Sindhu, which involved providing sports equipment and sponsorships to promote the ‘Li Ning’ brand.

The Dispute

The Revenue authorities investigated the valuation of ‘Li Ning’ branded goods imported from Singapore between February 2012 and March 2015. A show-cause notice was issued in February 2017, alleging that the marketing, advertising, sponsorship, and promotional expenses incurred by the appellant were a condition of sale and should be included in the value of the imported goods under Rule 10(1)(e) of the Customs Valuation Rules, 2007.

The key allegations included:

• The appellant undertook promotional activities for ‘Li Ning’ branded products as per Article 7 of the distribution agreement.
• Sponsorship agreements signed by Sunlight Sports were represented in India through the appellant.
• Some sponsorship agreements were signed by the appellant’s manager on behalf of Sunlight Sports.
• The appellant failed to provide a clear bifurcation of marketing expenses between ‘Li Ning’ and ‘Vicky’ brands.
• The marketing expenses were deemed a condition of sale, making them includable in the customs valuation.

The Revenue authorities argued that the appellant’s marketing expenses were a condition of sale and invoked the extended period of limitation, alleging suppression of facts and intent to evade customs duty.

Appellant’s Defense

The appellant contested the allegations, arguing:

1. No Payments on Behalf of Sunlight Sports: The appellant claimed that they did not pay any amount on behalf of Sunlight Sports and that the marketing expenses were incurred independently as part of their responsibility for sales promotion within India.
2. Post-Import Activity: The appellant argued that the marketing and promotional expenses were post-import activities and not a condition of sale.
3. Arms-Length Transactions: The appellant emphasized that the transactions were conducted at arm’s length and that the parties were not related.
4. No Fixed Obligation: The appellant highlighted that the distribution agreement did not specify any fixed amount or percentage of the invoice value to be spent on marketing and promotion.
5. Precedents: The appellant cited rulings from the Supreme Court and CESTAT, including the Toyota Kirloskar Motor Pvt. Ltd. and Richemont India Pvt. Ltd. cases, to argue that post-import expenses are not includable in the transaction value.
6. Extended Limitation Period: The appellant contended that the extended period of limitation was not applicable as there was no suppression of facts or intent to evade duty.

CESTAT’s Final Decision

After considering the arguments, the Tribunal ruled in favor of the appellant, stating:

• The marketing and promotional expenses incurred by the appellant were post-import activities and not a condition of sale.
• The distribution agreement did not impose any fixed obligation on the appellant to incur specific marketing expenses as a precondition for the sale of goods.
• The appellant was not related to Sunlight Sports, and the transactions were conducted at arm’s length.
• The extended period of limitation was not applicable as there was no suppression of facts or intent to evade duty.

The Tribunal set aside the impugned order, allowing the appeal and granting consequential benefits, including a refund of the amount deposited during the investigation, along with applicable interest.

Key Takeaways

1. Customs Valuation Rules: Rule 10(1)(e) of the Customs Valuation Rules, 2007, applies only when marketing and promotional expenses are a condition of sale.
2. Post-Import Activities: Expenses incurred for marketing and promotion after the importation of goods are not includable in the customs valuation.
3. Extended Limitation Period: The extended period of limitation under the Customs Act requires evidence of suppression of facts or intent to evade duty.
4. Precedents Matter: Previous rulings, such as those in the Toyota Kirloskar and Richemont India cases, play a crucial role in determining the applicability of customs valuation rules.

Conclusion

The Indo Rubber CESTAT Delhi case highlights the importance of understanding the nuances of customs valuation rules and the distinction between pre-import and post-import activities. It serves as a precedent for importers and distributors, emphasizing the need for clear agreements and proper documentation to avoid disputes with Revenue authorities.

This judgment reinforces the principle that marketing and promotional expenses incurred independently by the importer are not necessarily includable in the customs valuation of imported goods.

Connected Matter

CESTAT Delhi – Import Valuation Cannot Include Advertising or Management Fees

Source: CESTAT Delhi

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