2024 (3) TMI 1135 - AT - Central Excise

Valuation - inclusion of advertisement and publicity expenses incurred by the dealers as per the terms and conditions of the dealership agreement mutually agreed between the appellant and their dealers in the assessable value of the vehicles sold by the appellant - Extended period of Limitation. The case of the Department is that the price at which the appellant sold the vehicles to the dealers is not the sole consideration and that is the reason that the learned Commissioner in the impugned order confirmed the demand of duty by treating the expenses borne by the dealers on advertisement and publicity as additional consideration liable to be included in the assessable value on which duty was not paid by taking resort to the provisions of Section 4(1)(b) of the Act read with Rule 6 of the Central Excise Valuation Rules 2000. HELD THAT - The perusal of various clauses of the dealership agreement shows that the expenses incurred by the dealers have been incurred by them on their own accord and not for or on behalf of the appellant because the dealership agreement does not provide for any such expenses to be incurred by the dealers on behalf of the appellant. The price of the vehicles remains the same and is not dependent upon whether the dealers are incurring expenses on advertisement or not. No doubt that the main reason for undertaking advertisement by the dealers is to promote their own business and incidentally the appellant is also benefitted by increase sale of the vehicles but it cannot be the only ground for inclusion of advertisement expenses incurred by the dealers to the assessable value for the purpose of determining the duty payable from the sale of the excisable goods - perusal of various terms and conditions shows that such expenses are purely optional at the end of the dealers and they have to decide whether to incur such expenses or not because it is found that there are certain dealers who do not opt for incurring such expenses and a list of those dealers has also been given by the appellant in their additional submissions. There is no dispute with regard to the advertisement expenses which stands reimbursed by the appellant to the dealer which already stands factored in the assessable value of the goods. This issue has been considered by various benches of the Tribunal and some of the judgments relied upon by the appellant specifically held that the advertisement expenses incurred by the dealers on their own accord is not to be included in the assessable value for the purpose of payment of excise duty. In this regard we may refer to the decision of this Tribunal in the case of M/S HONDA SEILS POWER PRODUCTS LTD OTHER VERSUS COMMISSIONER OF CENTRAL EXCISE MEERUT-III 2013 (10) TMI 450 - CESTAT NEW DELHI wherein the identical issue was involved and the Tribunal after considering the submissions of both the parties held 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 appellant s products. Just a Clause in the agreements requiring the dealers to make efforts for promoting sales of the appellant s products cannot be treated as a clause imposing legal obligation on the dealers to incur certain level of expenses on advertisement. In view of this we hold that the impugned orders are not sustainable. The advertisement expenses incurred by the dealers are not to be included in the assessable value unless there is a enforceable legal right of the appellant to insist on incurring of certain quantum of expenses on advertisement by the dealers which is not the facts in the present case. Extended period of Limitation - HELD THAT - The issue relates to interpretation of the complex provisions of law and the fact and further that various benches of the Tribunal have considered and decided the said issue clearly shows that there is no intention to evade payment of duty. Moreover for invoking the extended period of limitation the Department is required to establish fraud collusion wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or Rules with an intent to evade the payment of tax. There is nothing in the impugned order that any of these ingredients stand proved. Hence the substantial demand up to September 2010 is barred by limitation. The impugned order is not sustainable in law and therefore the same is set aside - appeal allowed.

Issues Involved: Inclusion of advertisement expenses incurred by dealers in the assessable value of goods, enforceable legal right, extended period of limitation, and penalties.

Summary:

1. Inclusion of Advertisement Expenses in Assessable Value:
The primary issue in this case is whether the advertisement and publicity expenses incurred by the dealers should be included in the assessable value of the vehicles sold by the appellant. The appellant argued that these expenses were incurred by the dealers on their own accord and not on behalf of the appellant, as the dealership agreement did not mandate such expenses. The Tribunal agreed, noting that the expenses were optional for the dealers and not enforceable by the appellant. The Tribunal referenced multiple precedents, including *Honda Seils Power Products Ltd.* and *Hero Honda Motors Ltd.*, which supported the view that such expenses should not be included in the assessable value unless there is an enforceable legal right requiring the dealers to incur these expenses.

2. Enforceable Legal Right:
The Tribunal examined the dealership agreement and found no clause that imposed a legal obligation on the dealers to incur advertisement expenses on behalf of the appellant. The agreement merely suggested that dealers should promote the products, but did not enforce this as a mandatory requirement. This lack of enforceable legal right was crucial in determining that the advertisement expenses should not be added to the assessable value.

3. Extended Period of Limitation:
The appellant contended that the extended period of limitation was wrongly invoked. The Tribunal agreed, stating that the issue involved interpretation of complex legal provisions and there was no evidence of fraud, collusion, or wilful misstatement by the appellant. Therefore, the demand for the period up to September 2010 was held to be barred by limitation.

4. Penalties and Interest:
Since the demand itself was not sustainable, the Tribunal concluded that the associated interest and penalties were also not applicable. The Tribunal set aside the impugned order, allowing the appeal with consequential relief.

Conclusion:
The Tribunal ruled in favor of the appellant, stating that the advertisement expenses incurred by the dealers should not be included in the assessable value of the vehicles. The extended period of limitation was also deemed inapplicable, and the penalties and interest were set aside. The appeal was allowed with consequential relief as per law.

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