2017 (12) TMI 163 - AT - Central Excise

Valuation - includibility - advertisement expenses - case of the department is that the 50% advertisement expenses incurred by the dealers/distributors should be included in the assessable value of the appellant goods on the ground that the 50% sharing borne by the dealers/distributor is nothing but sales promotion expenses - Held that - there is no compulsion on dealers/distributors to perform the advertisement. It is on the discretion of the dealers/distributors that whatever advertisement in respect of the appellants goods is done, 50% of the actual cost will be borne by the appellant and remaining 50% will be borne by the dealers/distributor. In this fact, the 50% is borne by the dealers/distributors which is the expenses of the dealers/distributors and the appellant is nothing to do with that portion of the 50% - Amount of such advertisement is not flowing to the appellant as an additional consideration. Therefore it cannot be said that the dealers/distributors bearing the advertisement cost to the extent of 50% is part of the assessable value. The relationship between the appellant and the dealers/distributors is on principal to principal basis, therefore only consideration received by the appellant alone will form the transaction value, no further addition should be made. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Assessable value determination based on advertisement expenses borne by dealers/distributors.

Analysis:
The case involved the appellants engaged in manufacturing excisable goods, with agreements assigning rights to dealers/distributors for selling goods in Mumbai area. A clause in the agreement required sharing 50% of advertisement expenses. The department contended that the 50% expenses borne by dealers/distributors should be included in the assessable value of the appellant's goods under Section 4(3)(d) of the Central Excise Act, 1944. The Commissioner confirmed the differential duty demand, leading to the present appeals.

The appellant argued that the advertisement expenses were not additional consideration but expenses of dealers/distributors themselves, not affecting the transaction value. The relationship between appellants and dealers/distributors being principal to principal, only consideration received by appellants should be part of the transaction value. Various judgments, including Philips India Ltd. and Besta Cosmetics Ltd., were cited to support this argument.

The Revenue reiterated that the advertisement cost, though borne by dealers/distributors, was for sales promotion of appellant's goods and should be included in the assessable value. However, the Tribunal observed that the agreement did not compel dealers/distributors to perform advertisements, and the 50% borne by them was their own expenses. The Tribunal referenced judgments like Hercules Hoists Ltd. and Amco Batteries Ltd. to support its decision.

The Tribunal concluded that the 50% advertisement expenses borne by dealers/distributors should not be included in the assessable value, as it was not flowing to the appellants as additional consideration. Citing precedents, the Tribunal held that the demand confirmed by the lower authority was not sustainable, setting aside the impugned orders and allowing the appeals. The judgment was pronounced on 30/11/2017.