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2005 (3) TMI 129 - SC - Central ExciseValuation (Central Excise) - Inclusion of advertisement expenses - The advertisement expenses incurred by the marketing agent of the respondent-assessee is sought to be included in the assessable value of the respondent-assessee's products on the ground that the respondent-assessee and its marketing agent were related persons - Held that - The appellant has sought to rely upon the decision of this Court in Commissioner of Central Excise, Surat v. Surat Textile Mills Ltd. - 2004 (4) TMI 81 - SUPREME COURT . In that decision the Court appears to have upheld the view that where the advertisement cost is incurred by the manufacturers/customers compulsorily or mandatorily, and where the manufacturer has an enforceable legal right against the customers to insist on incurring of such advertisement expenditure by the customers, the advertisement cost would be includible in the assessable value. Without in any fashion affirming the view taken therein it is clear even on the basis of the judgment that the clause in question gave the manufacturers/marketing agent, the discretion whether or not to advertise the assessee's products. There was no 'enforceable legal right' with the assessee to insist on the advertisement under the agreement - Decided against Revenue.
Issues:
1. Inclusion of advertisement expenses in the assessable value of products. 2. Interpretation of related persons under Section 4 of the Central Excises and Salt Act, 1944. 3. Analysis of the agreement between the assessee and its Marketing Agent regarding advertisements. 4. Comparison with a previous court decision regarding advertisement costs in assessable value determination. Issue 1: Inclusion of advertisement expenses in the assessable value of products The Supreme Court addressed the issue of whether the advertisement expenses incurred by the marketing agent of the respondent-assessee should be included in the assessable value of the respondent-assessee's products. The Revenue contended that the marketing agent and the assessee were related persons, justifying the inclusion of advertisement expenses. However, the Court upheld the Tribunal's decision that the marketing agent and the assessee were not related persons as per Section 4 of the Central Excises and Salt Act, 1944. Issue 2: Interpretation of related persons under Section 4 of the Central Excises and Salt Act, 1944 The Court examined the definition of related persons under Section 4 of the Act to determine whether the marketing agent and the assessee qualified as related persons. By dismissing the Revenue's appeal, the Court affirmed that the relationship between the marketing agent and the assessee did not meet the criteria set out in Section 4, thereby excluding the advertisement expenses from the assessable value. Issue 3: Analysis of the agreement between the assessee and its Marketing Agent regarding advertisements The Court scrutinized the agreement between the assessee and its Marketing Agent, focusing on the clause related to advertisements. The clause allowed the marketing agent to market the product under the trade name of the assessee and incur expenses on advertising and business promotion at its discretion. It was emphasized that the agreement did not provide the assessee with an enforceable legal right to compel the marketing agent to advertise the products, indicating the absence of mandatory advertisement costs. Issue 4: Comparison with a previous court decision regarding advertisement costs in assessable value determination The Court distinguished the present case from a previous decision where advertisement costs were deemed includible in the assessable value when incurred mandatorily by customers. By referencing the previous judgment, the Court clarified that the agreement in question granted the marketing agent the discretion to decide on advertising, negating the existence of an enforceable legal right for the assessee to demand advertisement expenses. Consequently, the Court dismissed the appeal, affirming the exclusion of advertisement expenses from the assessable value of the products.
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