1997 (2) TMI 311 - AT - Central Excise

Summary

Issues:
Challenge to order passed by Collector of Central Excise, Pune regarding assessable value and duty calculation based on expenses incurred by a third party, free warranty service, and notional interest on deposit.

Analysis:
The appeal challenges an order passed by the Collector of Central Excise, Pune, concerning the assessable value and duty calculation for cleaning systems manufactured by the Appellant. The dispute arises from the expenses incurred by M/s. Essanjay Marketing Pvt. Ltd. (EMPL), a third party, in activities such as sale promotion, advertisement, and free warranty service, which the Collector sought to add to the assessable value. The Appellant contended that EMPL conducted these activities independently and not on behalf of the Appellant, thus should not be included in the assessable value. The Collector's order included the cost of service extended by EMPL and notional interest on a deposit of Rs. two lakhs in the assessable value, leading to the appeal.

The Tribunal analyzed the statements of the Managing Director of EMPL and a Director of the Appellant, finding no direct link between the Appellant and the sale promotion activities conducted by EMPL. It was noted that there was no agreement, written or oral, requiring EMPL to act on behalf of the Appellant. The Tribunal referenced a previous case to establish that advertising by a wholesaler does not necessarily benefit the manufacturer. Therefore, the expenses related to sale promotion and advertisement by EMPL were deemed not attributable to the Appellant and should not be added to the assessable value.

Regarding the expenses incurred by EMPL for free warranty service, the Tribunal found a clear connection between the Appellant and the service provided. It was acknowledged that while a manufacturer may choose not to offer free service, in this case, EMPL was providing free warranty service on behalf of the Appellant. Consequently, the expenses related to free warranty service were deemed relevant and should be included in the assessable value.

The Tribunal also addressed the issue of notional interest on a deposit of Rs. two lakhs. It was established that there was no impact on the price structure, as the prices charged to EMPL were the same as those charged to other dealers. Therefore, the notional interest on the deposit was deemed irrelevant to the assessable value. The Tribunal set aside the impugned order and remanded the case to the adjudicating authority for recalculating the assessable value, including only the expenses related to free warranty service. The authority was also tasked with determining the differential duty and reassessing any penalties. The appeal was allowed in favor of the Appellant.