2013 (10) TMI 450 - AT - Central Excise

Valuation - inclusion of Expenses incurred by the dealers - Whether the expenses on advertisement and publicity expenses incurred by the dealers, which were borne by them, are to be added to the assessable value of the goods or not Held that - Following C.C.E., Surat Vs. Surat Textile Mills Ltd. 2004 (4) TMI 81 - SUPREME COURT OF INDIA - only when a manufacturer has enforceable legal right against his customers/dealers to insist on incurring of expenses on advertisement, the advertisement expense incurred by the dealers can be added to the assessable value - only when the contract between the manufacturer and dealer envisages incurring of certain expenses by the dealers on advertisement and failure to incur such expenses on advertisement gives a right to the manufacturer to get the advertisements done of his own and recover the expenses from the dealer, the advertisement expenses incurred by the dealer can be added to the assessable value. There is nothing in their agreements from which it can be concluded that appellants had enforceable legal right against the dealers to insist on incurring of certain amount of expenses on advertisement and publicity of the appellants products - Just a Clause in the agreements requiring the dealers to make efforts for promoting sales of the appellant s products cannot be treated as a clause imposing legal obligation on the dealers to incur certain level of expenses on advertisement orders set aside Decided in favour of Assessee.

Summary

Issues:
1. Whether advertisement and publicity expenses incurred by dealers should be included in the assessable value of goods cleared by manufacturers to dealers.
2. Whether manufacturers have an enforceable legal right to insist on dealers incurring advertisement expenses.

Analysis:
1. The case involved two separate appeals concerning duty demands on manufacturers of scooters and motorcycles due to advertisement and publicity expenses incurred by their dealers. The Department contended that such expenses should be included in the assessable value of goods cleared by the manufacturers to the dealers. Duty demands were confirmed against the manufacturers, and penalties were imposed. Appeals were filed challenging these orders.

2. The manufacturers argued that the expenses incurred by dealers were part of sales promotion activities and were not reimbursed by the manufacturers. They cited various judgments in their favor, emphasizing the need for an enforceable legal right for manufacturers to insist on dealers incurring advertisement expenses. The manufacturers highlighted clauses in their agreements with dealers that focused on promoting sales but did not impose a legal obligation on dealers to incur specific advertisement expenses.

3. The Department defended the duty demands by pointing out the clauses in the manufacturers' agreements with dealers, which required dealers to make efforts to promote sales. The Department argued that these clauses provided the manufacturers with an enforceable legal right to require dealers to incur advertisement expenses.

4. After hearing both sides and examining the records, the Tribunal found that the manufacturers' agreements with dealers only contained clauses related to promoting sales, without specifying mandatory advertisement expenses. The Tribunal referred to previous judgments, including those by the Apex Court, emphasizing the need for an enforceable legal right for manufacturers to add dealer-incurred advertisement expenses to the assessable value of goods.

5. Consequently, the Tribunal held that the manufacturers did not have an enforceable legal right against dealers to insist on specific advertisement expenses. As a result, the impugned orders confirming duty demands and penalties were deemed unsustainable and set aside. The appeals filed by the manufacturers were allowed, ruling in their favor.