Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation
Date: 18.06.2026
CESTAT Delhi Clarifies Exclusion of Sponsorship and Endorsement Expenses from Customs Valuation
This Short Article has been prepared & written by Advocate Ravi Shekhar Jha-Delhi High Court, New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com .
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, recently delivered a significant judgment in the case involving Adidas India Marketing Pvt. Ltd. and the Commissioner of Customs, Parparganj. The case revolved around whether sponsorship and endorsement expenses paid by Adidas India to athletes and players should be included in the assessable value of imported goods for customs duty purposes.
Background
Adidas India imports and sells Adidas-branded products in India, sourcing goods from Adidas International Trading BV, Netherlands. Adidas AG, Germany, owns the intellectual property (IP) for the Adidas brand and licenses these rights to Adidas India through a detailed License Agreement. This agreement grants Adidas India the right to manufacture, market, and sell Adidas products in India, with all marketing and promotional expenses to be borne by Adidas India.
The Dispute
The Customs Department issued a show cause notice to Adidas India, alleging that the company failed to include sponsorship and endorsement expenses in the customs value of imported goods. The Department argued that these expenses, paid to athletes and associations for brand promotion, should be added to the transaction value under Rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The Department sought to recover differential customs duty, interest, and penalties for the period from April 2012 to March 2017.
Key Provisions and Agreements
- License Agreement: Adidas India was granted exclusive rights to market and sell Adidas products in India. All marketing and promotional expenses were to be borne by Adidas India, with no obligation on Adidas Germany to reimburse these costs.
- Sponsorship Agreements: Adidas India entered into contracts with athletes and associations, paying them to promote Adidas products. These agreements required athletes to exclusively use and promote Adidas products globally.
Legal Analysis
Customs Valuation Rules
- Rule 10(1)(e): Allows addition to the transaction value for payments made as a condition of sale of imported goods, either to the seller or a third party, to satisfy an obligation of the seller.
- Interpretative Notes: Clarify that activities undertaken by the buyer on their own account, even if they benefit the seller, are not considered indirect payments to the seller and should not be added to the customs value.
Tribunal’s Findings
- No Condition of Sale: The Tribunal found no clause in the License Agreement obligating Adidas India to incur sponsorship or endorsement expenses as a condition of sale for imported goods.
- No Obligation of Seller: Payments made by Adidas India for marketing and promotion were not to satisfy any pre-existing obligation of Adidas Germany. These were expenses incurred independently by Adidas India.
- Precedents: The Tribunal cited several cases, including Supreme Court and CESTAT decisions, establishing that only when a manufacturer has an enforceable legal right to insist on such expenses can they be added to the assessable value. In this case, no such enforceable right existed.
- Distinction from Other Cases: The Tribunal distinguished this case from the Reebok India case, where a fixed percentage of sales had to be spent on promotion as a pre-condition of sale. No such requirement existed in the Adidas India agreements.
Outcome
The Tribunal upheld the Commissioner’s order, ruling that:
- Sponsorship and endorsement expenses incurred by Adidas India could not be added to the customs value of imported goods under Rule 10(1)(e).
- The payments were made by Adidas India on its own account, not to satisfy any obligation of Adidas Germany.
- The Department’s appeal was dismissed, and no additional customs duty or penalties were imposed on Adidas India.
Implications for Businesses
- Clarity on Customs Valuation: The decision clarifies that marketing and promotional expenses incurred independently by an importer are not to be included in the customs value unless they are a condition of sale or satisfy a seller’s obligation.
- Importance of Agreement Terms: The specific language and obligations in licensing and distribution agreements are critical in determining customs valuation.
- Precedent for Future Cases: This ruling sets a precedent for similar disputes involving brand promotion expenses and customs valuation.
Conclusion
The CESTAT’s decision in the Adidas India case provides much-needed clarity on the treatment of marketing and promotional expenses in customs valuation. Importers should carefully review their agreements to ensure compliance and avoid unnecessary disputes with customs authorities.
Connected Matter
Source: CESTAT Delhi
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