CESTAT Kolkata Clarifies Customs Valuation: Franchise and Marketing Fees Excluded from Assessable Value

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

Date: 28.05.2026

CESTAT Kolkata Clarifies Customs Valuation: Franchise and Marketing Fees Excluded from Assessable Value

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Kolkata recently adjudicated a significant dispute involving M/s Sterling Meta-Plast India Pvt. Ltd. and the Principal Commissioner of Customs, Kolkata. The core issue was whether franchise fees, advertisement and marketing expenses, and corporate marketing fees paid by Sterling Meta-Plast for licensing brands (Tommy Hilfiger and French Connection) should be included in the assessable value of imported goods under Indian customs law.

Background of the Case

Sterling Meta-Plast imports fashion eyewear and accessories under various brands, including licensing brands Tommy Hilfiger (TH) and French Connection (FC). The company pays:

• Franchise Fees (minimum and percentage-based) to licensors.
• Advertisement, Marketing, and Promotion (AMP) Expenses in India.
• Corporate Marketing Fee (CMF) as a share in global marketing costs.

Goods are imported from unrelated Hong Kong suppliers, and the prices are negotiated independently. The customs department questioned whether these additional payments should be included in the customs value of the imported goods.

Legal Framework

The dispute centers on Section 14(1) of the Customs Act, 1962 and Rules 3(1), 10(1)(c), and 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007:

• Rule 10(1)(c): Royalties and license fees related to imported goods, paid as a condition of sale, must be included in the assessable value.
• Rule 10(1)(e): All other payments made as a condition of sale to the seller or a third party to satisfy the seller’s obligation must be included, unless already in the price paid.

Key Issues and Tribunal Findings

1. Inclusion of Franchise Fees

• The Tribunal found that franchise fees paid to licensors were for the right to sell, distribute, and promote goods in India, not for the procurement of goods from overseas suppliers.
• There was no condition in the sale contract with Hong Kong suppliers requiring payment of franchise fees.
• Citing precedents (Luxottica India Eyewear, Quest Retail, Ferodo India), the Tribunal held that unless the payment is a condition of sale imposed by the supplier, it is not includible in the customs value.
• Advisory opinions and GATT Customs Valuation Code also support this interpretation.

2. Inclusion of AMP Expenses and Corporate Marketing Fees

• AMP expenses and CMF were incurred by Sterling Meta-Plast on its own account for business promotion, not as a condition of sale from the supplier.
• The Tribunal referenced several cases (Triumph Motorcycles, Adidas India, Volvo Auto India) and GATT commentary, confirming that such expenses are not includible unless the seller has an enforceable legal right to compel the buyer to incur them.
• The expenses benefit both buyer and seller but are not indirect payments to the seller.

3. Extended Period of Limitation

• The Tribunal ruled that the extended period for raising customs demands was not applicable, as the customs authorities were already aware of the franchise agreements and provisional assessments had been finalized.

4. Redemption Fine and Penalty

• Since the goods had already been cleared and were not available for confiscation, no redemption fine could be imposed.
• Penalties and interest were also not sustainable as the demand was based on interpretational issues, not malafide intent.

Implications for Importers

1. Franchise Fees: Payments for post-import rights (distribution, marketing) are not includible in customs value unless they are a condition of sale imposed by the supplier.
2. AMP and CMF: Expenses incurred for business promotion by the importer, not mandated by the supplier, are excluded from customs value.
3. Documentation: Importers should maintain clear agreements and evidence of independent negotiations with suppliers to avoid disputes.
4. Legal Precedents: The Tribunal’s reliance on prior judgments and international customs valuation standards strengthens the position of importers in similar cases.

Conclusion

The CESTAT Kolkata’s order in the Sterling Meta-Plast case clarifies that franchise fees, AMP expenses, and corporate marketing fees paid for licensing brands are not includible in the assessable value of imported goods unless they are a condition of sale imposed by the supplier. This decision provides important guidance for importers dealing with brand licensing and marketing arrangements under Indian customs law.

Connected Matter

CESTAT Delhi Clarifies Exclusion of Sponsorship and Endorsement Expenses from Customs Valuation

Source: CESTAT Kolkata

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