2009 (10) TMI 353 - AT - Central Excise

Valuation- the appellants, a manufacturer of Automobile parts such as Spring Leaves and U-Bolt were marketing through M/s. Springs & Spare Marketing (P) Ltd. The Department issued a Show Cause Notice alleging that the said Springs and Spare Marketing (P) Ltd. is a dummy concern; that M/s. Springs and Spare Marketing (P) Ltd. is related persons to the appellant; that the said M/s. Springs and Spare Marketing (P) Ltd. have incurred sales promotion and advertisement expenses and ex-gratia service charges as seen from the balance sheet and the said amounts should be included in the assessable value of the products sold by the appellant company. The Commissioner did not uphold the allegations that the marketing company is a dummy concern and that they are related to the appellant company. However, he held that the expenses towards sales promotion, advertisement and marketing and ex-gratia service charges incurred by the marketing company have to be included in the assessable value and accordingly confirmed demand of Rs. 11,63,501/- as against the proposed demand of Rs. 22,63,142/- and imposed penalty of Rs. 11,63,501/-. Held that- there is no evidence to show that the expenses incurred by the marketing company which is sought to be included in the assessable value of the goods cleared by the manufacturer is in pursuance of contractual obligation and that the sale price by the manufacturer has been depressed. Thus there is merit in the appeal by the party allow the same.

Summary

Issues:
Appeal against Commissioner's order on inclusion of marketing expenses in assessable value.

Analysis:
The case involved an appeal against the Commissioner's order regarding the inclusion of marketing expenses in the assessable value of products sold by the appellant company. The Department alleged that a marketing company, through which the appellant sold automobile parts, incurred expenses that should be included in the assessable value. The Commissioner confirmed a demand and imposed a penalty, although he did not uphold all the allegations against the marketing company. The appellant argued that the confirmation of the demand was beyond the scope of the Show Cause Notice and that there was no evidence linking the expenses to the appellant. The appellant relied on legal precedents to support their case.

The appellant's consultant contended that the expenses incurred by the marketing company should not be added to the assessable value as there was no contractual obligation for the appellant to bear those expenses. The consultant cited the decision of the Hon'ble Supreme Court and Tribunal cases to support their argument. On the other hand, the Senior Departmental Representative (SDR) supported the Commissioner's findings and highlighted specific paragraphs in the original order.

Upon reviewing the submissions and the agreement terms between the parties, the Tribunal found that there was no clause obligating the marketing company to bear the advertisement expenses or ex-gratia payments. Referring to the Hon'ble Supreme Court's decision, the Tribunal emphasized that unless expenses were incurred as per a contractual obligation resulting in a depression of the sale price, such expenses should not be included in the assessable value. The Tribunal concluded that there was no evidence to support the inclusion of the marketing company's expenses in the assessable value and ruled in favor of the appellant, allowing the appeal with consequential relief.

In summary, the Tribunal's decision was based on the absence of contractual obligations for the appellant to cover the marketing expenses incurred by the distributor. The judgment emphasized the importance of contractual terms and their impact on the assessable value of products. By referencing legal precedents, the Tribunal justified its decision to exclude the marketing expenses from the assessable value, ultimately ruling in favor of the appellant.