1995 (12) TMI 337 - AT - Central Excise

Gift articles not part of assessable value for excise duty

The Tribunal held that the cost of gift articles distributed for advertising purposes should not be included in the assessable value for excise duty. It ... Valuation - Advertising expenses Issues Involved:1. Inclusion of 50% cost of publicity materials in the assessable value for excise duty.2. Suppression of facts in the pricelists.3. Adjudicating authority's conclusions and reasoning.4. Appellant's contention of separate trading activity.5. Application of relevant legal precedents.Detailed Analysis:1. Inclusion of 50% Cost of Publicity Materials in the Assessable Value for Excise Duty:The appellant supplied publicity materials (gift articles) to dealers at its own initial cost and later recovered 50% of the cost through separate debit notes. The adjudicating authority held that since these materials promoted the marketability of the appellant's products, the 50% cost recovered from dealers should be included in the assessable value for excise duty. The appellant argued that this was a separate trading activity and should not be included in the assessable value.2. Suppression of Facts in the Pricelists:The department claimed that the appellant suppressed the recovery of 50% cost of publicity materials in the pricelists, which amounted to a contravention of Rules 173C, 173F, 173G, and 9(1) of the Central Excise Rules, 1944. The appellant contended that there was no suppression as the department was aware of this practice from previous show cause notices.3. Adjudicating Authority's Conclusions and Reasoning:The adjudicating authority concluded that any cost that adds to the marketability of goods should be included in the assessable value. It rejected the appellant's reliance on previous decisions, such as M/s. Mahindra & Mahindra Ltd. v. Union of India and M/s. Standard Electric Appliances v. Superintendent of Central Excise, as those cases did not involve recovery of advertisement costs by the manufacturer. The authority also invoked the proviso to Section 11A(1) of the Central Excises and Salt Act, 1944, due to the suppression of facts in the pricelists.4. Appellant's Contention of Separate Trading Activity:The appellant argued that the sale of gift articles was a separate trading activity and not related to the manufacture of motorcycles. They asserted that there was no suppression of facts, as the department had knowledge of this practice from earlier show cause notices. The appellant also contended that sharing the advertising cost did not amount to additional consideration for the sale of motorcycles.5. Application of Relevant Legal Precedents:The judgment referenced several key legal precedents to establish the principles applicable to the case:- Bombay Tyre International Ltd. case: Expenses incurred for advertisement and publicity that promote marketability should be included in the assessable value.- Mahindra & Mahindra Ltd. v. Union of India: Shared advertisement expenses between manufacturer and wholesaler do not affect the transaction's nature if it is at arm's length.- Standard Electric Appliances v. Superintendent of Central Excise: Advertising by the wholesaler benefits both parties and does not imply additional consideration.- Collector of Central Excise v. R. Gac Electrodes (P) Ltd.: Only the money value of additional consideration should be added to the assessable value.- Hindustan Photo Films Mfg. Co. Ltd. v. Collector of Central Excise: Advertising expenses by a distributor can be considered additional consideration if they flow back to the manufacturer.Conclusion:The Tribunal concluded that the principles from the above cases apply to the cost of gift articles distributed for advertising purposes. The sale of gift articles by the manufacturer to the dealer cannot be regarded as a separate trading activity. The adjudicating authority failed to provide sufficient evidence of disproportionate costs or related persons. Therefore, the Tribunal held that there was no flow back of additional consideration for the sale of motorcycles and set aside the impugned orders, allowing the appeals.