TaxTMI 
TaxTMI 
2017 (5) TMI 1388
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....on specific covering the territory of several dealers in which case, a portion of the advertisement expenses is paid by each of the dealers; (b) in the second type of arrangement, appellants co-opt with their dealers for territory specific advertisements; decide about appropriate message and approve the lay out of the advertisements. Department took the view that these advertisements are admittedly jointly promoted by the dealer and FIPL, and require to be added to the assessable value. Show cause notice dt. 03.05.2005 was issued to appellant inter alia proposing, for the period 2000-01 to 2004-05, demand of differential duty of Rs. 1,41,39,607/- on impugned advertisement expenses, along with interest liability thereon and imposition of penalties under Section 11AC of the Act, under Rule 25 of Central Excise Rules, 2001/2002 and penalty under Rule 173Q of the Central Excise Rules, 1944 for the period prior to 1.9.2001. In adjudication, the Commissioner vide impugned order dt. 31.01.2006, confirmed the proposals in the SCN except extending cum duty benefit and thereby confirming a reduced duty liability of Rs. 1,08,83,726/-. Penalty equal to the duty so determined was also imposed u....
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....0. He reiterated the grounds of appeal and took us through the various case laws. 4. On behalf of the department, the Ld.AR Shri Veerabhadra Reddy made submissions similar to the grounds of appeal stated in the SLP filed before the Hon'ble Supreme Court. He stressed on the law laid in Surat Textile Mills Ltd. - 2004 (107) ELT 379 (S.C.) and argued that the advertisement expenses incurred by the manufacturer has to be necessarily added to the assessable value. He adverted to Clause 8 of the Agreement and submitted that it is clearly stipulated in the agreement that dealer has to pay to the appellant (FIPL) advertising charges in addition to the dealer price. Thus this clause makes the dealer incur the expenses for advertising. It gives rise to a legally enforceable right and therefore is to be included in the assessable value. 5. Heard the submissions made by both sides. 5.1 Section 4 of the Central Excise Act, prior to 01.07.2000, lays down that valuation of excisable goods for purposes of charging duty of excise would be the normal price thereof, i.e the price charged on which such goods are ordinarily sold by the assessee to the buyer, in the case of wholesale trade, for....
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.... the price is the sole consideration for the sale. In the new Section 4, w.e.f. 1.7.2000, the transaction value has been defined in sub-section (2) (d) as follows : SECTION 4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall - ... ... ... (d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. From the above definition, the prov....
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....lation in any manner. However, I find that the expenses incurred by the dealer are part of sale which is their main activity. Though it has been argued that both the manufacturer and dealer equally benefit from the advertisement, the fact that the advertisement & publicity expenses are incurred by the dealer only to enhance the sale of the products of the manufacturer is not under dispute. The goods in question are not freely marketable consumer goods to be sold by the dealers at their own will and effort but are standard branded products for which so much is spent on advertisement. 23.... ...... ...... 24. It has been contended by the noticee that para 5(i) of the Standard provisions of the dealership agreement relates to dealer's responsibility and does not in any manner insist on any advertisement, sales promotion or publicity and no inference could be drawn from para 8 of the Standard Provisions. A plain reading of Para 8 of the Standard Provisions under the caption TERMS AND CONDITIONS reveals that the dealer shall pay to Ford the Dealer Price plus any additional charges made by the Ford including a) distribution and delivery b) advertising, c) taxes etc.....
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....mpany for Company Products purchased from the Company the Dealer Price as from time to time is established by the Company, less any applicable cash or other discounts, plus any additional charges made by the Company including but not limited to : (1) distribution and delivery, (2) advertising, .... 5.7. From the facts of the matter, there is no evidence available to suggest that the appellants had made any additional charges for advertisement inextricably tied to the price to be paid for the goods cleared to the dealers. No corroboration is forthcoming or has been unearthed by Revenue to establish that the portion of advertisement charges paid by dealers was a subterfuge with the intent of dampening the assessable value and thereby evade dull duty liability. 5.8 Revenue has also adverted to condition 5 (i) of the agreement, namely "Business Practices and Advertising", wherein it has been provided "the dealer shall become a member of the advertising or similar dealer cooperative association, when initiated, as described in the Company's products and Dealers Standard Manual or otherwise by the Company and pay all applicable charges associated with....
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....ncur the advertisement expenses to show that it is purely optional/voluntary on the dealer's part and no dealer has independently undertaken advertising without the instructions of the appellant. This proposition would have made sense if Revenue had been able to corroborate it with evidence or for that matter, with any terms in the dealer agreement or Company's circulars issued to dealers to prove that such sharing was a compulsory one. This is certainly not the case. Motor vehicles being such high cost consumer durables and that too in a highly competitive market would doubtless require joint marketing efforts of both manufacturer and dealers for mutual benefit. It is very much possible that dealers themselves would have realized the need for such joint advertisements for which reason there would have been no refusal from any of them for such exercise. It cannot be denied that such joint advertisement campaigns are examples of synergy with both manufacturer and the dealers stand to benefit. 5.11. Lower authority has also justified inclusion of the impugned advertisement expenses in the transaction value on his observation that activity of advertisement was and excluded ....
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.... an unwritten agreement or transaction backed only by integrity of the counterparty to actually abide by the terms of the agreement. There is no legal recourse in case of default. 7. In consequence, we have no hesitation in holding that impugned advertisement expenses cannot be termed as "extraneous consideration" to the price charged by the appellants which would require inclusion in their assessable value for the purpose of Section 4 or after 1.7.2000. So also, we hold that these expenses are not in the nature of any amount that the dealer is "liable to pay to, or on behalf" of the manufacturer by reason or in connection with the sale of motor vehicles. 8. In arriving at this conclusion, we draw sustenance from the ratio of the following decisions / judgments : (i) Philips India Ltd. Vs CCE Pune - 1997 (91) ELT 540 (SC) The issue that came up before the Hon'ble Supreme Court concerned advertisement and free After Sales Service (ASS) during warranty period provided by dealers to the products of Philips. The Hon'ble Apex Court observed that such agreement was at arm's length; Manufacturer was sharing half and half advertisement expenses since advertiseme....
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....ue" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. " 11. The expression 'any amount that the buyer is liable to pay to' is of significance. This expression shows that, apart from the price of the goods, the buyer should also be liable to pay an additional amount to the manufacturer/seller. In other words, the sale of the goods would not be made unless the buyer is also to pay an additional amount to the manufacturer, apart from the price of the goods. This is also supported by use of expression by reason or or in connection with the sale of the go....