2018 (11) TMI 345 - AT - Central Excise

Tribunal dismisses revenue's appeal, finding agreements did not confer enforceable legal rights

The Tribunal upheld the Commissioner (Appeals)' decision, rejecting the revenue's appeal. It was determined that the agreements between the respondent and ... Valuation - includibility - advertisement cost borne by distributors - Revenue is of the view that the distributors had borne a part of the advertisement cost which otherwise would have been incurred by the respondent - Rule 6 of the Central Excise Valuation Rules, 2000, read with Section 4 of the Central Excise Act, 1944. Held that:- The Clause 2.12 (c ) makes it clear that the distributor ‘shall’ advertise the product of the respondent. There is a further stipulation that the advertisements will have to be approved by the respondent. However, after going through the entire agreement, no clause is found which deals with the expenditure on such advertisement. On the basis of the agreement it cannot be stated that the respondent has obligated the distributors to incur the advertisement expenses. Tribunal had occasioned to consider a similar matter in the case of Maruti Suzuki India Ltd. vs. CCE [2008 (8) TMI 118 - CESTAT NEW DELHI]. In the above case the Tribunal examined whether the dealer’s share of expenses can be considered as additional consideration for sale to be added to the assessable value. The Tribunal was considering, in that case, joint advertisements whose expenses were shared between the manufacturer and the dealer - it was held by the Tribunal that since extent of expenses of dealers is not linked to number of vehicles sold by them & advertisement is not done by all dealers, dealers expenditure on advertisements is not includible. Appeal dismissed - decided against Revenue. Issues Involved:1. Whether the advertisement expenses incurred by distributors should be added to the assessable value of the goods for determining the differential duty.2. Whether the agreements between the respondent and distributors confer an enforceable legal right on the respondent to insist on incurring advertisement expenses by the distributors.Issue-wise Detailed Analysis:1. Advertisement Expenses and Assessable Value:The core issue revolves around whether the advertisement expenses incurred by the distributors should be included in the assessable value of the goods manufactured by the respondent. The department argued that these expenses, shared between the respondent and distributors, should be added to the assessable value under Rule 6 of the Central Excise Valuation Rules, 2000, read with Section 4 of the Central Excise Act, 1944. The original authority confirmed the demand for differential duty, but the Commissioner (Appeals) set aside this demand, leading to the present appeal by the revenue.2. Enforceable Legal Right:The revenue's case relied heavily on the argument that the agreements between the respondent and distributors created an enforceable legal right for the respondent to insist on the distributors incurring advertisement expenses. The revenue cited several Supreme Court decisions, including Commissioner of Central Excise, Surat vs. Surat Textile Mills Ltd., which held that advertisement expenses incurred by a customer can be added to the sale price if the manufacturer has an enforceable legal right against the customer.The revenue emphasized clauses in the agreements that required written approval from the respondent for advertisements and mandated distributors to carry out advertisements as per the respondent's requirements. However, the respondent countered that these agreements did not confer any enforceable legal right to insist on advertisement expenses and that the letter dated 05.05.2004 did not have the statutory effect of an agreement.Analysis of Agreements and Legal Precedents:The Tribunal examined the relevant clauses of the agreements and the letter dated 05.05.2004. Clause 2.12 of the agreements detailed the obligations of the distributors regarding advertising, but there was no specific clause obligating the distributors to incur advertisement expenses. The Tribunal found that the agreements did not create an enforceable legal right for the respondent against the distributors.The Tribunal referred to similar cases, such as Maruti Suzuki India Ltd. vs. CCE and Ford India Pvt. Ltd. vs. CCE, where it was held that joint advertisement expenses shared between the manufacturer and the dealer cannot be considered additional consideration for sale to be added to the assessable value unless there is an enforceable legal right.Conclusion:The Tribunal concluded that the yardstick stipulated by the Supreme Court in Commissioner of Central Excise, Surat vs. Surat Textile Mills Ltd. was not satisfied in this case. Consequently, the impugned order by the Commissioner (Appeals) was sustained, and the appeal filed by the revenue was rejected.Final Judgment:The appeal filed by the revenue was rejected, and the order of the Commissioner (Appeals) was sustained, as pronounced in the open court on 30.10.2018.