2001 (11) TMI 105 - AT - Central Excise

Issues Involved:
1. Whether the money value of additional consideration should be added to the assessable value or the price declared in the price list.
2. Whether total margins should be added to the assessable value or only the expenses actually incurred by wholesale dealers on account of advertisement and sale promotion.
3. Whether disallowed Post Manufacturing Expenses (PME) should be added to the assessable value or the price.

Detailed Analysis:

1. Money Value of Additional Consideration:
The primary issue was whether the additional consideration flowing back to ITC from the wholesale dealers should be added to the assessable value or the price declared in the price lists. According to Rule 5 of the Central Excise (Valuation) Rules, 1975, "the value of such goods shall be based on the aggregate of such price and the amount of the money value of any additional consideration flowing directly or indirectly from the buyer to the assessee." The Tribunal noted that the clear language of Rule 5 and authoritative decisions indicate that the additional consideration should be added to the price, not the assessable value. The order by the Director General (DG) dated 10-4-86, which was under scrutiny, did not explicitly state that the additional consideration should be added to the assessable value. Instead, it was inferred that the additional consideration should be added to the price. The Tribunal concluded that the money value of additional consideration is required to be added to the price declared in the price lists and assessable value determined by working backwards.

2. Total Margins vs. Actual Expenses:
The second issue was whether the total margins provided to wholesale dealers should be added to the assessable value or only the expenses actually incurred by them on account of advertisement and sale promotion. The DG's order had considered various elements of the margin separately and concluded that only specific expenses (advertisement and sales promotion expenses, and interest on security deposits) should be added. The Tribunal agreed with this approach, stating that only the expenses actually incurred by wholesale dealers on account of advertisement and sale promotion must be added to the price. This interpretation aligns with the legal position that not all elements of the margin are liable to be added.

3. Disallowed PME:
The third issue concerned the treatment of disallowed Post Manufacturing Expenses (PME). The Assistant Collector had added the disallowed PME to the assessable value, which the Tribunal found untenable. The correct procedure, as identified by the Tribunal, is to add disallowed PME back to the ex-factory price, not the assessable value. This ensures that the assessee is in the same position as if no deduction had been claimed initially. The Tribunal emphasized that under no provision of law is the assessing authority entitled to add disallowed deductions to the assessable value.

Conclusion:
1. The money value of additional consideration is required to be added to the price declared in the price lists and assessable value determined by working backwards.
2. Only the expenses actually incurred by wholesale dealers on account of advertisement and sale promotion must be added to the price.
3. Disallowed PME must be added back to the price and not to the assessable value.

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