2017 (5) TMI 1388 - AT - Central Excise

Valuation - includibility - related party transaction - whether the allegation of dealers sharing portion of the advertisement expenses, will constitute a extraneous consideration, in addition to the price charged and hence, whether such consideration will require to be included in the assessable value? Held that - there is no evidence available to suggest that the appellants had made any additional charges for advertisement inextricably tied to the price to be paid for the goods cleared to the dealers. No corroboration is forthcoming or has been unearthed by Revenue to establish that the portion of advertisement charges paid by dealers was a subterfuge with the intent of dampening the assessable value and thereby evade dull duty liability. The impugned advertisement expenses cannot be termed as extraneous consideration to the price charged by the appellants which would require inclusion in their assessable value for the purpose of Section 4 or after 1.7.2000 - these expenses are not in the nature of any amount that the dealer is liable to pay to, or on behalf of the manufacturer by reason or in connection with the sale of motor vehicles. Appeal allowed in toto - decided in favor of appellant.

Issues Involved:
1. Inclusion of advertisement expenses in the assessable value of cars under Section 4 of the Central Excise Act, 1944.
2. Legal enforceability of dealers' obligation to incur advertisement expenses.
3. Interpretation of the dealership agreement and its impact on the assessable value.
4. Compliance with the principles laid down in relevant case laws.

Detailed Analysis:

1. Inclusion of Advertisement Expenses in the Assessable Value:
The core issue was whether the advertisement expenses incurred by dealers should be included in the assessable value of cars manufactured by the appellant, M/s. Ford India Pvt. Ltd. (FIPL). The department argued that these expenses should be included as they were part of the transaction value under Section 4 of the Central Excise Act, 1944. The Tribunal had to determine if these expenses constituted an extraneous consideration in addition to the price charged for the cars.

2. Legal Enforceability of Dealers' Obligation:
The Tribunal examined whether the dealers were legally obligated to incur advertisement expenses. The Commissioner had concluded that FIPL had an enforceable legal right against the dealers to make them incur these expenses. However, the Tribunal found no evidence to support this claim. It was noted that the dealership agreement did not explicitly mandate dealers to incur advertisement expenses, nor was there any legal recourse for FIPL if dealers failed to do so. The Tribunal emphasized that the arrangement appeared to be a "gentleman's agreement," which is based on mutual trust rather than legal enforceability.

3. Interpretation of the Dealership Agreement:
The Tribunal scrutinized the dealership agreement, particularly Clause 8, which mentioned that dealers should pay for advertising charges. The Tribunal found that there was no evidence of additional charges for advertisement being tied to the price of the goods. The agreement did not indicate any legal obligation for dealers to incur advertisement expenses as a precondition for the sale of cars. The Tribunal also noted that the reimbursement of 75% of advertisement expenses by FIPL, which was included in the assessable value, was not in dispute. The contention was only about the remaining 25% incurred by the dealers.

4. Compliance with Relevant Case Laws:
The Tribunal referred to several case laws to support its decision:

- Philips India Ltd. Vs CCE Pune (1997): The Supreme Court held that advertisement expenses shared between the manufacturer and dealer benefited both parties and should not be included in the assessable value.
- CCE Mysore Vs TVS Motors Co. Ltd. (2016): The Supreme Court ruled that pre-Delivery Inspection (PDI) and After Sales Service (ASS) charges reimbursed by the manufacturer to the dealers were not includible in the assessable value.
- CCE Baroda Vs Besta Cosmetics Ltd. (2005): The Supreme Court dismissed the department's appeal, emphasizing that advertisement costs incurred by dealers were not includible in the assessable value unless there was a legally enforceable right.

The Tribunal concluded that the advertisement expenses incurred by the dealers were not an extraneous consideration to the price charged by FIPL and did not need to be included in the assessable value. The appeal was allowed with consequential relief as per law.

Conclusion:
The Tribunal set aside the impugned order and ruled in favor of the appellant, M/s. Ford India Pvt. Ltd., holding that the advertisement expenses incurred by the dealers were not includible in the assessable value of the cars. The decision was based on the lack of legal enforceability of the dealers' obligation to incur these expenses and the principles established in relevant case laws.

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