2016 (3) TMI 666 - AT - Central Excise

Valuation of goods sold through dealers - inclusion of the expenditure incurred by the wholesale dealers in the assessable value of the goods sold by the appellant to such wholesale dealers - Held that - Emphasis is laid by the Revenue on the clause that in the event that the wholesale dealer is not able to lift the specified quantities mentioned in the agreement, the appellant may increase the price based on the volume of purchase by the dealers. It was sought to be argued that such condition will make the dealer to have an obligation of expenditure towards publicity and advertisement to increase the quantum of sale. We are not in agreement with such propositions. If the same accepted, it will lead to a position that only that much of advertisement and publicity required to surpass the minimum volume of purchase is required to be added in their transaction value. The legal position cannot be established by such presumptions. Further, it is a clearly admitted fact that any publicity and advertisement by the dealer will certainly benefit them by higher sales and higher profit. To say such publicity is only to be treated as a beneficial act for the appellant is not tenable. There is no obligatory, legally bound expenditure by the dealer for such publicity. Considering the legal position we find the impugned order is not sustainable. See COLLECTOR OF CENTRAL EXCISE, BARODA Versus BESTA COSMETICS LTD. 2005 (3) TMI 129 - SUPREME COURT OF INDIA - Accordingly, the same is set aside and the appeals are allowed in favour of assessee

Summary

Issues:
Valuation of goods sold through wholesale dealers and inclusion of their advertisement expenditure in the assessable value.

Analysis:
The case involved appeals related to the valuation of goods sold by the appellants through wholesale dealers and the inclusion of the dealers' advertisement expenditure in the assessable value. The main appellant, engaged in manufacturing power inverters and UPS systems, sold goods under various brand names through wholesale dealers, OEM customers, and for exports. The dispute arose when the Department issued a show-cause notice demanding duty payment based on the advertisement and publicity expenses incurred by the wholesale dealers. The Original Authority confirmed the duty demand, imposing penalties on the main appellant and individuals. The main appellant contended that they correctly discharged excise duty and were not required to include the dealers' advertisement expenses in the assessable value.

The appellants argued that the dealers' advertisement expenses were optional, not enforceable obligations, and should not be added to the assessable value. They highlighted the agreements with dealers, showing the sharing of advertisement expenses based on mutual benefits. The Revenue, however, claimed that the dealers' expenses were includable in the assessable value due to the agreements stipulating minimum sales volumes and potential price increases. The Tribunal examined the case, considering the legal position established by previous judgments.

The Tribunal referenced the Supreme Court's decision in TVS Motors Co. Ltd., emphasizing the significance of the buyer's liability to pay an additional amount to the manufacturer for inclusion in the transaction value. It also cited precedents like Honda Seils Power Products Ltd., Besta Cosmetics Ltd., Hero Honda Motors Ltd., and Alembic Glass Industries Ltd., which clarified the absence of enforceable legal rights for manufacturers to insist on dealer advertisement expenses. The Tribunal concluded that the dealers' advertisement expenses, not reimbursed by the appellants, should not be included in the assessable value. It rejected the Revenue's argument linking sales volume conditions to dealer expenses, emphasizing the lack of legal obligation for such expenditure. The impugned order was set aside, and the appeals were allowed, following established legal principles and precedents.

This detailed analysis of the judgment highlights the key legal arguments, precedents, and the Tribunal's reasoning in resolving the valuation issue concerning the inclusion of wholesale dealers' advertisement expenses in the assessable value of goods sold by the appellants.