2008 (4) TMI 194 - AT - Central Excise

Sales promotion expenses incurred by dealers of assessee - dealership agreement in the instant case does not require the dealers to compulsorily incur the impugned expenditure - expenditure incurred by the dealers is not a consideration received by the assessee from the buyers impugned expenditure are done by dealers on their free will therefore, expenditure so incurred by the dealers was not includible in the assessable value of the goods

Issues Involved:
1. Inclusion of dealer-incurred sales promotion expenses in the assessable value of motorcycles.
2. Legal enforceability of dealership agreements regarding sales promotion expenses.
3. Interpretation of relevant case law and statutory provisions.

Issue-wise Detailed Analysis:

1. Inclusion of dealer-incurred sales promotion expenses in the assessable value of motorcycles:
The Commissioner found that the dealers' expenditure on sales promotion activities such as exchange mela, road tax, gift scheme, scratch card scheme, free insurance scheme, discount, subvention scheme, and finance scheme should be included in the assessable value of motorcycles. This conclusion was based on the definition of 'transaction value' under the new Section 4 of the Central Excise Act, 1944, and the Central Excise Valuation Rules, 2000, which include any amount the buyer is liable to pay to, or on behalf of, the assessee in connection with the sale. The Commissioner relied on the Board's Circular No. 643/34/2002-CX., dated 1-7-2002, and the judgment in CCE v. Surat Textile Mills Ltd. [2004 (167) E.L.T. 379 (S.C.)] to support this view.

2. Legal enforceability of dealership agreements regarding sales promotion expenses:
The Commissioner concluded that the dealership agreement between the assessee and its dealers was legally enforceable, requiring dealers to carry out the company's instructions on sales and service, which included incurring sales promotion expenses. This conclusion was based on the dealership agreement's clauses and the jurisdiction of courts at Hosur over related matters. However, the appellant's counsel argued that the dealership agreement was similar to those used by other automobile manufacturers globally and did not mandate dealers to incur sales promotion expenses on behalf of the assessee.

3. Interpretation of relevant case law and statutory provisions:
The appellant's counsel cited several Supreme Court judgments, including A.K. Roy and Another v. Voltas Ltd. [1977 (1) E.L.T. (J177) (S.C.)], Atic Industries Ltd. v. HH Dave, AC [1978 (2) E.L.T. (J444) (S.C.)], and UOI v. Bombay Tyres International Ltd. [1983 (14) E.L.T. 1896], to argue that the new Section 4 did not alter the scope of the assessable value. The counsel contended that the expenditure on sales promotion shared between the assessee and the dealers benefited both parties and should not be included in the assessable value. The Tribunal's decisions in Mahindra & Mahindra [1998 (103) E.L.T 606 (Tri.)] and Phillips India [1997 (91) E.L.T.540] supported this view, holding that shared expenses on sales promotion were not includible in the assessable value.

Tribunal's Findings:
The Tribunal found that the dealers incurred sales promotion expenses on their own freewill without any agreement compelling them to do so. The Commissioner incorrectly concluded that the dealership agreement required dealers to incur such expenses on behalf of the assessee. The Tribunal referred to the Apex Court's judgment in Phillips India Ltd. [1997 (91) E.L.T. 540 (S.C.)], which held that when an activity benefited both the buyer and the assessee equally, the expenditure incurred by the buyer could not be considered as incurred on behalf of the assessee. The Tribunal also cited similar decisions in Toyota Kirloskar Motors Ltd. v. CCE, Bangalore [2007 (217) E.L.T.104 (Tri.-Chen.)], Ford India Pvt. Ltd. v. CCE, Chennai-III [2007 (216) E.L.T. 530 (Tri.-Chen.)], and Amco Batteries Ltd. v. CCE [2007 (207) E.L.T. 612 (Tri.-Bang.)].

Conclusion:
The Tribunal concluded that the impugned expenses incurred by the dealers were not includible in the assessable value of the motorcycles as they were not incurred on behalf of the assessee. The Tribunal set aside the impugned order and allowed the appeal filed by the assessee, TVS Motor Co. Ltd.

(Operative part of the Order pronounced in open Court on 21-4-2008)

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