2014 (8) TMI 215 - AT - Central Excise

Valuation of goods - Addition of advertisement expenses incurred by Kitex to the assessable value of the goods cleared by the appellants on the ground that the price was not the sole consideration and advertisement expenses is to be considered as development cost - Commissioner dropped the demand beyond the normal period of limitation - Held that - As regards addition of advertisement expenses, we find that the demand is no longer res integra. In the case of Phillips India Ltd Vs Collector of Central Excise, Pune 1997 (2) TMI 120 - SUPREME COURT OF INDIA and in the case of Commissioner of Central Excise Surat Vs Besta Cosmetics Ltd. 2005 (3) TMI 130 - SUPREME COURT OF INDIA , Hon ble Supreme Court took a view that advertisement expenses cannot be included or added to the assessable value. We find that both these decisions are applicable to the facts of this case and Commissioner (appeals) has simply ignored the citation in the case of Philips India Ltd. referred to by the appellants in their appeal memorandum. As regards related persons, the proper course to adopt would have been to take the value at which the goods are sold by the related person to the customers for the purpose of levying central excise duty. In the absence of such a step being taken, we are required to examine the correctness of inclusion of advertisement expenses in the assessable value, which we have already done and held to be not applicable - Decided against Revenue.

Summary

Issues:
1. Whether advertisement expenses incurred by a related person can be added to the assessable value of goods cleared by the appellants under Central Excise Valuation Rules.
2. Whether the demand made by the Revenue is sustainable.
3. Whether the Commissioner's decision to drop the demand beyond the normal period of limitation is correct.

Analysis:
1. The case involved M/s Scoobee Day Products (P) Ltd., engaged in manufacturing school bags, with most goods sold to M/s Kitex Ltd. Two show-cause notices were issued regarding duty demand. The Revenue appealed against the dropping of demand beyond the limitation period, while the assessee appealed on the grounds of demand sustainability.

2. The show-cause notice sought to add advertisement expenses incurred by Kitex to the assessable value of goods cleared by the appellants. The Revenue argued that since both companies shared management, these expenses should be included. However, the appellants contended that the demand was not based on the actual sale value by the related person and that Rule 6 of Valuation Rules 2000 was incorrectly applied.

3. The Tribunal considered precedents where the Supreme Court ruled that advertisement expenses should not be added to the assessable value. It was noted that the Commissioner ignored these precedents. Regarding related persons, the Tribunal stated that the correct approach would have been to consider the value at which goods were sold by the related person. As the demand was found unsustainable due to the incorrect inclusion of advertisement expenses, the issue of extended limitation period did not arise.

4. Ultimately, the Tribunal allowed the appeals filed by the appellants, rejecting the Revenue's appeal. The decision was based on the inapplicability of adding advertisement expenses to the assessable value and the failure to consider the actual sale value by the related person. The Tribunal provided consequential relief to the appellants due to the unsustainable demand, thereby dismissing the Revenue's appeal.