2005 (2) TMI 112 - SC - Central Excise

Whether reimbursement of advertisement expenses by the manufacturer from the dealers after initially incurring the same is includible in the assessable value? Held that - That there is conceptual difference between expenses and reimbursement . This difference has not been taken into account by the Tribunal. In the present case it appears from the decision of the Adjudicating Authority that the Company had initially incurred advertisement expenses which expenses were subsequently reimbursed by them from their dealers. It is not clear from the decision of the Adjudicating Authority as to at what stage the reimbursement took place. It is not clear from the decision of the Adjudicating Authority as to whether the reimbursement was at the end of the year by way of adjustment of accounts or whether the reimbursement had taken place within a short interval of time from the date of the advertisement. The fundamental point however in the present case is whether such reimbursements by the manufacturer are includible in the assessable value and whether such reimbursement would constitute advertisements by the dealers on their own account or whether they would fall in the category of advertisements solely made by the assessee on their own account for computing the assessable value. These questions were not the subject matter of the decisions in Philips India Ltd. ( 1997 (2) TMI 120 - SUPREME COURT OF INDIA ) and Mahindra Mahindra Ltd. ( 1998 (2) TMI 271 - CEGAT NEW DELHI ). The Tribunal was wrong in applying the aforestated two decisions to the facts of the present case. For the aforestated reasons the appeal is allowed;

Summary

Issues:
Determining whether reimbursement of advertisement expenses by the manufacturer from the dealers is includible in the assessable value under the Central Excise Act, 1944.

Analysis:
The case involved a dispute regarding the inclusion of advertisement expenses reimbursed by the manufacturer from the dealers in the assessable value under the Central Excise Act, 1944. The Department issued a show cause notice to the manufacturer, alleging non-disclosure of expenses incurred on publicity/advertisement, including recovery of advertisement expenses from dealers. The manufacturer contended that all expenses towards advertisement were already included in the assessable value and were not deductible since no claim was made. The Adjudicating Authority found that the manufacturer had initially incurred advertisement charges and later got reimbursed through debit notes from dealers, which were not disclosed during price-list approval. The Authority concluded that such expenses constituted additional consideration and were includible in the assessable value.

The manufacturer appealed to the Customs, Excise & Gold (Control) Appellate Tribunal, which allowed the appeal based on previous judgments without discussing the evidence. The Supreme Court noted a conceptual difference between "expenses" and "reimbursement," emphasizing the need to determine whether manufacturer reimbursements should be included in the assessable value. The Court highlighted the lack of clarity on when reimbursements occurred and whether they constituted dealer or manufacturer advertisements. The Court criticized the Tribunal for applying previous judgments without addressing these crucial questions, leading to the decision to set aside the Tribunal's order and remit the matter back to the Adjudicating Authority for a fresh decision on both merits and limitation.

In conclusion, the Supreme Court allowed the appeal, overturned the Tribunal's decision, and directed a fresh assessment by the Adjudicating Authority to determine the inclusion of manufacturer reimbursements in the assessable value, emphasizing the necessity to consider the nature of expenses and reimbursements in such cases.