Advertisement costs by dealers excluded from assessable value of excisable goods under Section 4

CESTAT Ahmedabad held that advertisement costs incurred by dealers/distributors should not be included in the assessable value of excisable goods manufactured by the appellant. The tribunal distinguished between dealer advertisements promoting their dealership versus product advertisements, finding that dealer-focused advertisements, even if partially reimbursed by the manufacturer, do not form part of the transaction value. Following precedent from Henkel Adhesives case, the tribunal ruled that such costs remain excluded from assessable value even post-2000 amendments to Section 4 and Valuation Rules. The impugned order was set aside and appeal allowed.

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Issues Involved:
1. Whether the advertisement cost incurred by the dealer/distributor is includible in the assessable value of the excisable goods manufactured and sold by the appellant.

Detailed Analysis:

1. Advertisement Cost and Assessable Value:
The primary issue in this case is whether the advertisement cost incurred by the dealer/distributor should be included in the assessable value of the excisable goods. The appellant argued that this issue is no longer res-integra, citing various judgments of the Supreme Court and Tribunal which have established that such costs should not be included in the assessable value.

2. Appellant’s Argument:
The appellant’s counsel, Shri S. J. Vyas, referenced several judgments to support their claim, including:
- Philips India Ltd. (1997): Established that advertisement costs incurred by dealers are not includible in the assessable value.
- Henkel Adhesives Technologies India P. Ltd. vs. Commissioner of Central Excise, Pune-III (2017): Emphasized that 50% of advertisement costs borne by dealers/distributors are not part of the assessable value.
- Ford India Pvt. Ltd. vs. Commissioner of Central Excise, Chennai-III (2017): Clarified that advertisement expenses incurred by dealers are not to be included in the assessable value, especially when there is no enforceable legal right for the manufacturer to insist on such expenses.
- Skoda Auto India Pvt. Ltd. (2020): Reinforced that advertisement costs incurred by dealers are not includible in the assessable value if there is no enforceable legal right.

3. Revenue’s Argument:
The Revenue, represented by Shri Rajesh R Kurup, contended that post-1.7.2000, as per the amended Section 4 and Valuation Rules, the advertisement costs incurred by dealers/distributors should be included in the assessable value. This was supported by a board circular dated 01.07.2002.

4. Tribunal’s Findings:
The Tribunal carefully considered the submissions and the records. It found that even after the 2000 amendment, the legal position established by the Supreme Court in Philips India Ltd. and other subsequent judgments remained applicable. The Tribunal noted that:
- The relationship between the appellant and the dealers/distributors is on a principal-to-principal basis.
- Only the consideration received by the appellant forms the transaction value.
- The advertisement costs borne by dealers/distributors do not flow to the appellant as additional consideration.

5. Specific Judgments Referenced:
- Henkel Adhesives Technologies India Pvt. Ltd. (2017): Confirmed that 50% advertisement expenses borne by dealers/distributors are not includible in the assessable value.
- Ford India Pvt. Ltd. (2017): Emphasized that dealers' advertisement expenses are not includible in the assessable value unless there is an enforceable legal right.
- Skoda Auto India Pvt. Ltd. (2020): Reiterated that advertisement costs incurred by dealers are not includible in the assessable value without an enforceable legal right.

6. Conclusion:
The Tribunal concluded that the advertisement expenses borne by the dealers/distributors are not includible in the assessable value of the excisable goods. The impugned order was set aside, and the appeal was allowed.

Pronouncement:
The judgment was pronounced in the open court on 16.07.2024.

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