2015 (8) TMI 101 - AT - Central Excise

Valuation of goods - Whether the advertisement expenses incurred by the appellant would be includible in the assessable value to the extent the same have been recovered from the dealers - Held that - when it is not disputed that the advertisement of the appellant s products in the areas of the respective dealers also mention the dealers name and address and those advertisements have also benefitted the dealers, the amount being recovered by the appellant from the dealers cannot be said to be for the reason of or in connection with the sale of goods, as this amount would be for the advertisement and publicity effort of the appellant which has benefitted the dealer. - in the dealership agreements, there is no such clause requiring the dealers to incur certain specified quantum of expenses on the advertisement and publicity of the appellant s product. The clauses of requiring the dealers to vigorously promote, develop and maintain sales of the product and parts to the satisfaction of and in the manner required by the appellant cannot be treated as the clause which gives an enforceable legal right to the appellant to insist on incurring of certain quantum of expenses on advertisement by the dealers. For this reason also, the advertisement expenses recovered from the dealers would not be includible in the assessable value. - impugned order is not sustainable on merits. - Decision in the case of HERO HONDA MOTORS LTD. Versus COLLECTOR OF C. EX., NEW DELHI 1997 (1) TMI 304 - CEGAT, NEW DELHI followed - Decided in favour of assessee.

Summary

Issues Involved:
1. Inclusion of advertisement expenses in the assessable value of goods.
2. Legal obligation of dealers to incur advertisement expenses.
3. Time-barred nature of the duty demand.

Issue-wise Detailed Analysis:

1. Inclusion of Advertisement Expenses in the Assessable Value:
The appellants, manufacturers of two-wheelers, were selling their products to dealers at uniform prices. The dispute arose over whether advertisement expenses, initially incurred by the appellants and partially recovered from dealers, should be included in the assessable value. The Commissioner of Central Excise held that these expenses should be included, confirming a duty demand along with interest and penalty. The appellants argued that the advertisement expenses benefitted both the manufacturer and the dealers and should not be included in the assessable value. They cited previous Tribunal judgments, including their own case, where it was held that such expenses are not includible when they also benefit the dealers. The Tribunal agreed with the appellants, stating that the recovered expenses were for advertisement efforts that benefitted the dealers and should not be included in the assessable value.

2. Legal Obligation of Dealers to Incur Advertisement Expenses:
The department argued that clauses in the dealership agreements obligated dealers to promote sales, implying a legal obligation to incur advertisement expenses. The Tribunal, however, found no specific clause in the agreements requiring dealers to spend a specified amount on advertisements. The Tribunal referenced the Apex Court's judgments, which stated that advertisement expenses are includible in the assessable value only if the manufacturer has an enforceable legal right to insist on such expenses. Since no such enforceable right existed in this case, the Tribunal held that the advertisement expenses recovered from dealers were not includible in the assessable value.

3. Time-barred Nature of the Duty Demand:
The appellants contended that the duty demand was time-barred as the show cause notice was issued beyond the normal period, invoking the extended period under proviso to section 11A(1). The Tribunal noted that for the extended period to apply, there must be evidence of fraud, willful mis-statement, suppression of facts, or deliberate contravention of the law. Given that a similar issue had been previously adjudicated in favor of the appellants and was known to the department, the Tribunal found no grounds for invoking the extended period. Consequently, the duty demand was deemed time-barred.

Conclusion:
The Tribunal concluded that the advertisement expenses recovered from dealers were not includible in the assessable value since they benefitted the dealers and there was no legal obligation for dealers to incur such expenses. Additionally, the duty demand was time-barred as there was no evidence of fraud or suppression of facts. The impugned order was set aside, and the appeal was allowed.