2006 (11) TMI 703 - AT - Central Excise

Appeal dismissed over exclusion of advertisement expenses from assessable value.

The department appealed against the exclusion of advertisement expenses from the assessable value of goods. The Tribunal upheld the lower authority's ... Inclusion of dealer-incurred advertisement expenses in assessable value - requirement of enforceable legal obligation/compulsion for inclusion - reimbursement arrangements and their effect on assessable value - followship of binding precedentsInclusion of dealer-incurred advertisement expenses in assessable value - requirement of enforceable legal obligation/compulsion for inclusion - reimbursement arrangements and their effect on assessable value - Cost of advertisement expenses incurred by dealers and reimbursed by the assessee was not to be included in the assessable value of goods supplied. - HELD THAT: - The Tribunal examined whether advertisement charges borne by dealers and subsequently reimbursed by the manufacturer/assessee could be treated as part of the assessable value. It followed the Supreme Court decisions in Philips India Ltd. and Alembic Glass Industries Ltd., which establish that advertisement expenses are includible in assessable value only where the manufacturer has an enforceable legal right or a compulsion to recover such expenditure - i.e., where the cost is in truth a mandatory or compelled component of the sale price. In the present case the factual arrangement was that dealers initially bore advertisement costs and the assessee reimbursed 50% on production of debit notes; there was no evidence of any enforceable obligation on dealers to incur such expenditure or of any compulsion by the manufacturer to make it a component of price. The Revenue failed to satisfy the criteria necessary to treat the reimbursement as part of the assessable value. Consequently the lower appellate authority correctly held that the reimbursed portion of advertisement expenses was not includible in the assessable value.The reimbursed dealer-incurred advertisement expenses are not includible in the assessable value; the lower authority's order was upheld.Final Conclusion: The departmental appeal is dismissed; the Tribunal upholds the finding that the reimbursed share of dealer-borne advertisement expenses is not part of the assessable value, following the binding principles laid down by the Supreme Court. Issues involved: Appeal against order excluding advertisement expenses from assessable value of goods.Summary:The department appealed against the Commissioner (Appeals) order excluding advertisement expenses from the assessable value of goods. The Tribunal found that the issue of including advertisement charges in assessable value was already settled by Supreme Court judgments in cases like Philips India Ltd. v. CCE Pune and Alembic Glass Industries Ltd. v. CCE. The Revenue sought to distinguish the present case from Philips India Ltd. by arguing there was no agreement for advertisement reimbursement, but the Tribunal noted there was an arrangement for cost sharing between the assessee and dealers. It was established that the dealers would bear the advertisement cost initially and then issue debit notes to the assessee for reimbursement of 50% of the cost. Similar understanding was found in Alembic Glass Industries Ltd. case, where it was held that advertisement cost should be mandatorily incurred to be included in assessable value. Since the Revenue failed to prove this compulsion, and it was mutually beneficial for both parties, the Tribunal upheld the lower authority's decision to exclude advertisement cost from assessable value.In conclusion, the appeal was dismissed, and the operative part of the order was pronounced on 13.11.06.