The dispute

M/s Indo Rubber and Plastic Works (Indo Rubber) entered into a non-exclusive distribution agreement with Sunlight Sports, Singapore (Sunlight Sports) for import and sale of branded sports goods in India by the name 'Li Ning'. In terms of the Agreement, Indo Rubber had to bear all costs of marketing, advertising and promotion of the Li Ning products within India.

Indo Rubber also entered into a tri-partite agreement with Karnataka Badminton Association (KBA) and Sunlight Sports with respect to 'Li Ning' products where Sunlight Sports was responsible for quality of the products supplied to KBA. Indo Rubber further entered into sponsorship agreements with players (including PV Sindhu) for supply of free sporting gear, in the capacity of a distributor of Sunlight Sports products.

Various promotional expenses with respect to sponsorship and sports products distributed and sold by Indo Rubber were booked as marketing spends in the books of Indo Rubber. These expenses included those incurred towards sale of Sunlight Sports products imported by Indo Rubber as well as products sold under its own brand name (Vickey Sports).

A show-cause notice was issued by the Customs authorities, on the pretext that Indo Rubber had failed to disclose the marketing expenses incurred by them on behalf of Sunlight Sports. Subsequently the demand was confirmed by the Customs Department. Indo Rubber filed an appeal against the order of the Customs Department, before the Customs Excise and Service Tax Appellate Tribunal, Delhi (the CESTAT). The Customs Department reiterated its stand that the Agreements with Sunlight Sports cast a legal obligation on Indo Rubber to promote the goods sold by Sunlight Sports (as a condition for sale). Hence, the amount was liable to be included in in value of imported goods under Rule 10(1)(e) of Customs (Determination of value of Imported Goods) Rules, 2007 (the Valuation Rules).


Whether marketing expenses post import of goods would fall within the ambit of 'condition for sale' and hence added to the value of imported goods

Arguments before CESTAT

Indo Rubber contested the demand on the ground marketing expenses were post-import activity. Some of the marketing expenses were incurred to promote Indo Rubber's own brand. Contractually, there was no obligation on Indo Rubber to incur marketing spends on behalf of Sunlight Sports. There was no fixed amount allocation towards marketing expenses in the distribution agreement between the Appellants and Sunlight Sports. Sunlight Sports had entered into tri-partite agreements with sports associations purely to take responsibility for the quality of the products supplied. Agreements were indeed entered with sports personalities as a distributor of the Li Ning branded goods manufactured by Sunlight Sports but there was no corresponding obligation to do the same from the distribution agreement. Contemporaneous import of identical goods by other distributors were at lower value. The fact that Sunlight Sports do not own or control the distribution business conducted by Indo Rubber, distinguishes its case from the decision of CESTAT Delhi, in Reebok India Company v Commissioner of Customs, (Patparganj-2018-TIOL-561-CESTAT-DEL). Reebok India was importing goods from its holding company, Adidas under provisional assessment and the Special Valuation Branch (SVB) proceedings were going on.

CESTAT's decision

CESTAT read the distribution agreement as well as the promotional agreements with associations and players to conclude that there was no binding contract between Indo Rubber and Sunlight Sport to undertake marketing or business promotion activity on behalf of the foreign seller. Sales promotion activity was undertaken by Indo Rubber on its own accord and it was not obliged to incur any expense on behalf of Sunlight Sports. CESTAT noted that in the event Indo Rubber had to undertake any marketing at the behest of Sun Light Sports, a pre-sanctioned budget would be allocated for the such spends and Indo-Rubber was expected to maintain vouchers for such expenses. Accordingly, the impugned order is vitiated due to mistake of fact. Quashing the Impugned Order confirming customs demand, CESTAT allowed for consequential refund of the amount deposited during the investigation which had taken the character of pre-deposit ipso facto under Section 129E of the Customs Act.


Incorporation of marketing expenses in import value of goods by Customs Authorities has been a cause of concern for various domestic distributors. Application of Section 10(1)(e) of the Valuation Rules, even in the absence of a pre-condition for sale was successfully challenged in Appeal, in this case. This is a landmark decision on Section 10(1)(e) of the Valuation Rules and settles the valuation issue on marketing spends for importer distributors. The decision will add to existing jurisprudence in the nature of Toyota Kirloskar Motor Private Limited 2007 [(213) ELT 4 (SC)] and Richemont India Private Limited, v Commissioner of Customs, New Delhi-2016 [(343) ELT 209 (Tri. Del)] and will deeply benefit many importer distributors in the Country.

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