2007 (4) TMI 702 - AT - Central Excise

Valuation - includibility - cost of advertisement/publicity expenses borne by the dealers and franchisee shops of M/s Kinetic and M/s Raymond on account of advertisement through press and other means and supply of calendar etc. - amendment to section 4 of CEA - Held that - advertisement cost and pre-delivery inspection and after sales service charges which are sharable between the manufacturer and the dealer cannot be included in the assessable value even after 01.04.2000 as the advertisement promoted the sale of the dealers also and therefore his expenses cannot be included in the expenses of the manufacturer - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the cost of advertisement/publicity expenses borne by dealers and franchisee shops should be included in the assessable value under Section 4 of the Central Excise Act, 1944.

Analysis:
The judgment involved three appeals concerning the inclusion of advertisement expenses in the assessable value under the Central Excise Act, 1944. The issue revolved around whether the cost incurred by dealers and franchisee shops for advertisement through press and other means should be added to the assessable value post the amendment in 2000 to base valuation on transaction value. The demands were raised based on a CBEC Circular stating that such expenses should be included in the assessable value. The demands amounted to significant sums against the companies involved, along with penalties.

The appellants argued that the demands were confirmed only after the introduction of the new Section 4 in 2000, which widened the scope of assessable value to include all amounts recovered from customers. They referred to the new Section 4(1) and the definition of transaction value under Section 4(1)(d) to support their contention that advertisement costs should not be included in the assessable value.

The advocates for the appellants cited precedents such as the case of Philips India Ltd. and Maruti Udyog Ltd. to argue that shared advertisement expenses should not be added to the assessable value as they benefit both the manufacturer and the dealer. They highlighted that even under the new Section 4, such expenses should not be included, as ruled in previous Tribunal cases.

On the contrary, the Departmental Representative argued that under the new Section 4, transaction value now includes advertisement and publicity costs borne by dealers on behalf of the manufacturer. They contended that the Supreme Court decision in the Philips India case, which pertained to a period before 20071, was not relevant to the current case.

The Tribunal, considering precedents like Maruti Udyog and Mahindra and Mahindra, held that advertisement costs shared between manufacturers and dealers should not be included in the assessable value even after 20071. The Tribunal emphasized that such expenses benefit both parties and therefore should not be solely attributed to the manufacturer. Consequently, the orders of the Commissioner were set aside, and all three appeals were allowed.