2011 (7) TMI 876 - AT - Central Excise

Valuation - sale of promotion/POP materials by the appellant to their dealers - Department was of the view that the amount realized by the appellant from their dealers on account of sale of promotional and POP materials and the amount of Rs. 9,14,65,053/- incurred by the dealers on advertisement and publicity of the Appellant s products, in terms of the Agreement, was part of the transaction value, on which duty was required to be paid and which had not been paid - Since the cost of the promotional/POP materials supplied by the appellant to the dealers is realized from them and these materials are used by the dealers for advertisement and sales promotion of the appellant s products, this prima facie amounts to dealers bearing the cost of promotional/POP materials used in the advertisement & publicity of the Appellant s products - Decided against the assessee Regarding duty demand of Rs. 1,65,19,459 - dealers, during the period of dispute, have incurred an expenditure of Rs. 9,14,65,053/- on the advertisement and promotion of the appellant s products - As per Appellant s agreement with their dealers, it is clear that the dealers are under obligation to advertise and promote the Appellant s products within their area at their (dealers ) expenses - Decided against the assessee by way of direction to deposit the entire amount of duty

Summary

Issues:
Interpretation of clauses in the agreement with dealers regarding advertisement expenses.
Inclusion of dealers' advertisement expenses in assessable value for duty calculation.

Analysis:
1. The case involved a dispute regarding the inclusion of advertisement expenses incurred by dealers in the assessable value for Central Excise duty calculation. The appellant, a manufacturer of motor vehicles, had agreements with dealers specifying obligations related to promoting and advertising the products. The dealers incurred significant expenses on advertisements and promotional activities during a specific period.

2. The Department contended that the expenses incurred by dealers, along with the amount realized by the appellant from selling promotional materials to dealers, should be part of the transaction value for duty calculation. A show cause notice was issued, leading to a demand for duty payment, interest, and imposition of penalties by the Commissioner.

3. The appellant argued that the agreement clauses did not give them an enforceable right to make dealers incur advertisement expenses. They relied on legal precedents to support their claim that unless an enforceable right can be inferred from the agreement, the advertisement expenses should not be included in the assessable value.

4. The Department opposed the appellant's argument, emphasizing the clauses in the agreement that obligated dealers to advertise and promote the products. They argued that these clauses constituted enforceable rights, making the expenses incurred by dealers includible in the assessable value.

5. The Tribunal analyzed the case and found that the expenses related to promotional materials supplied by the appellant to dealers were used for advertising the products, indicating that dealers bore the cost of these materials. The Tribunal viewed this as a strong basis for demanding duty on the value of these materials.

6. Regarding the larger amount demanded based on dealers' advertisement expenses, the Tribunal considered the clauses in the agreement that obligated dealers to promote the products at their own expense with the appellant's approval. Referring to the definition of "Transaction Value" under the Central Excise Act, the Tribunal concluded that these expenses were incurred on behalf of the appellant and should be included in the transaction value for duty calculation.

7. The Tribunal ruled that the appellant failed to establish a prima facie case in their favor, directing them to deposit the entire duty demand amount. However, the requirement of pre-deposit of duty demand, interest, and penalty was waived, and recovery was stayed pending the appeal's disposal.