2017 (6) TMI 372 - AT - Central Excise

Valuation - advertisement and publicity expenses - includibility - whether expenses incurred by the dealers of the appellant on advertisement and publicity activities undertaken by them is includible in the assessable value of finished goods manufactured by appellant or not? - Held that - the above issue is no longer res-integra and has been settled in favour of the appellant in appellants own case in the case of the Honda Seils Power Products Ltd. Vs. CCE 2013 (10) TMI 450 - CESTAT NEW DELHI , where it was held that 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, and hence amount not included - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether expenses incurred by dealers on advertisement and publicity activities should be included in the assessable value of finished goods manufactured by the appellant.

Analysis:
The appellant, a manufacturer of Scooters and Motorcycles, sells products through appointed dealers. The dealers incurred expenses on advertisement and publicity, partially reimbursed by the appellant. The Revenue argued these expenses should be included in the assessable value under Central Excise Valuation Rules, 2000. Two show cause notices were issued, resulting in confirmed demands and penalties. The appellant contended the expenses were not related to sales, citing Tribunal judgments. They emphasized lack of enforceable rights in dealership agreements for incurring expenses. The Revenue pointed to contractual provisions giving enforceable rights to the appellant.

The central issue was whether dealer expenses on advertisement and publicity should impact the assessable value of goods. The Tribunal referred to precedents where enforceable legal rights were necessary for such inclusion. In the Honda Seils Power Products Ltd. case, the Tribunal held that agreements requiring dealers to promote sales did not establish enforceable rights for incurring expenses. Similarly, in the Maruti Suzuki India Ltd. case, clauses in agreements did not mandate expenses linked to the sale of vehicles. The Tribunal found no evidence of legal obligations on dealers to purchase promotional materials, leading to the dismissal of the Revenue's appeal and allowing the appellant's appeals.

In conclusion, the Tribunal relied on established legal principles from prior cases to decide in favor of the appellant. The lack of enforceable legal rights for manufacturers to insist on dealer expenses for advertisement and publicity led to setting aside the impugned orders. Both appeals were allowed, emphasizing the importance of enforceable legal obligations in determining the assessable value of goods.

(Order pronounced in the Court on 06.06.2017)