The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi Principal Bench, has held that addition of notional profit margin is not justified where the transaction value between related parties already reflects cost plus reasonable profit. However, the Tribunal upheld profit loading for certain imports where no margin was included.
The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) while relationship alone does not justify rejection of transaction value, the pricing structure must reflect commercial reality. Where declared value includes cost and profit, no adjustment is required; but where profit is absent, reasonable loading is permissible.
The dispute arose from valuation of imports made by the appellant, a wholly owned subsidiary of Cadence USA and a Software Technology Park of India (STPI) unit. The imports included a “Palladium system” in 2006 and other goods between 2006–2016. The Customs Department had rejected the declared transaction value and imposed a loading of around 14.2% to arrive at an arm’s length price, citing the related party relationship.
At the outset, the Tribunal observed that the entire dispute was largely academic since the appellant, being an STPI unit, was exempt from customs duty unless goods were cleared into the domestic tariff area. Nonetheless, it proceeded to examine the valuation issue on merits.
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On the issue of relationship, the Tribunal held that Cadence India and its parent company in the USA were clearly “related persons” under the Customs Valuation Rules, both pre- and post-2007. It rejected the argument that absence of “mutuality of interest” negates the relationship, noting that a wholly owned subsidiary and its parent inherently have business interest in each other.
However, while dealing with the Palladium system imported in 2006, the Tribunal found that the transaction value was based on cost plus representative profit. Supporting certificates from the parent company confirmed that the pricing was at arm’s length and included all costs along with reasonable profit. In absence of any contrary evidence from the Department, the Tribunal held that the relationship did not influence the price, and therefore, addition of notional profit margin was unwarranted.
The Tribunal noted that invoices were raised only for customs purposes and did not include any profit margin, as admitted by the parent company. In such circumstances, it upheld the addition of approximately 14.2% profit margin by the authorities to arrive at the correct assessable value, observing that such margin would ordinarily exist in transactions between unrelated parties.
The appeal was partly allowed, with relief granted in respect of the Palladium system, while the valuation adjustment for other imports was sustained.
Case Details
Case Title: M/S Cadence Design Systems India Pvt Ltd Versus Commissioner, Customs-New Delhi
Citation: JURISHOUR-990-CES-2026(DEL)
Case No.: CUSTOMS APPEAL NO. 51592 OF 2022
Date: 28/04/2026
Counsel For Appellant: Deepak Thakur, Shri Rishab Mishra, Akansha Wadhwani, Advocates
Counsel For Respondent: Girijesh Kumar, Authorised Representative
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