Royalty on Final Products Under a Foreign Brand Cannot Be Included in the Transaction Value of Imported Raw Material

By Centax

February 27, 2025

• 2 min. read

Case Details: Commissioner of Customs Versus Page Industries Ltd. (2025) 27 Centax 262 (S.C.)

Judiciary and Counsel Details

Abhay S. Oka & Ujjal Bhuyan, JJ.
Ms B. Sunita Rao, Ms Rashmi Singhania, Advs. & Shri Gurmeet Singh Makker, AOR, for the Appellant.
S/Shri Gautam Narayan, Sr. Adv., Ms Rukmani Menon, Tushar Nair, Anirudh Anand, Punishk Handa, Advs. & Ms Asmita Singh, AOR, for the Respondent.

Facts of the Case

The assessee, a sole distributor of undergarments under a foreign brand, imported raw materials from unrelated suppliers and paid royalty to the foreign company for brand usage. The Customs Department contended that the assessee and the foreign company were related parties under Explanation II to Rule 2(2) of the Customs Valuation Rules, 1988, that the royalty payment was a condition of sale and should be added to the transaction value under Rule 10(1)(c) of the Customs Valuation Rules, 2007, and that the advertisement and promotional expenses incurred by the assessee should be included under Rule 10(1)(e) of the Customs Valuation Rules, 2007. The CESTAT ruled in favour of the assessee, leading the Revenue to appeal before the Supreme Court.

Supreme Court Held

The Hon’ble Supreme Court held that the assessee and the foreign company were not related parties under Explanation II to Rule 2(2) of the Customs Valuation Rules, 1988, that the royalty was paid for the brand name and had no direct nexus with the imported raw materials and thus could not be included in the transaction value under Rule 10(1)(c) of the Customs Valuation Rules, 2007, that the advertisement and promotional expenses were voluntarily incurred and not mandated as a condition of sale, making them ineligible for inclusion under Rule 10(1)(e) of the Customs Valuation Rules, 2007, and that the extended period of limitation under Section 28 of the Customs Act, 1962 was not applicable due to the absence of suppression of facts. Consequently, the appeal was dismissed.