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2015 (8) TMI 101 - CESTAT NEW DELHI

2015 (8) TMI 101 - CESTAT NEW DELHI - 2015 (324) E.L.T. 404 (Tri. - Del.) - Valuation of goods - Whether the advertisement expenses incurred by the appellant would be includible in the assessable value to the extent the same have been recovered from the dealers - Held that:- when it is not disputed that the advertisement of the appellant's products in the areas of the respective dealers also mention the dealers' name and address and those advertisements have also benefitted the dealers, the amou .....

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velop and maintain sales of the product and parts to the satisfaction of and in the manner required by the appellant cannot be treated as the clause which gives an enforceable legal right to the appellant to insist on incurring of certain quantum of expenses on advertisement by the dealers. For this reason also, the advertisement expenses recovered from the dealers would not be includible in the assessable value. - impugned order is not sustainable on merits. - Decision in the case of HERO HONDA .....

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urers of two-wheelers and their parts chargeable to Central Excise Duty under Chapter 87 of the Central Excise Tariff. The period of dispute in this case is from June, 2002 to March, 2005. During this period, the appellant were selling the two-wheelers and their spare parts to their dealers as per their all-India price lists subject to the local taxes. In terms of Article V of the appellant's agreement with their dealers, "the dealers shall vigorously promote, develop and maintain sales .....

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and refrain from repeating such publicity and in particular, the dealer shall not make any unaccounted or unauthorized representation regarding the specification, performance, selling price or availability of the product of parts. In terms of the termination clause (Article XXI) in the dealers' agreement, if the dealer fails to perform any obligation under this agreement, in the opinion of Hero Honda or does not rectify such defaults, if capable of remedy, within 30 days, following the day o .....

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t the appellant to organize the advertisement of the products in their area and in response to the dealers' request, the appellant organize the advertisement of the products in the area of those dealers. In such cases, about 40% of the expenses incurred by the appellant on advertisement are recovered by them from the dealers and the remaining expenses are borne by the appellant. The point of dispute is as to whether the advertisement expenses initially incurred by the appellant and which wer .....

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ty. 1.3 The above show cause notice was adjudicated by the Commissioner of Central Excise Delhi-III vide order-in-original dated 29/8/2008 by which the Commissioner holding that the advertisement expenses incurred by the appellant in areas of certain dealers would be includible in the assessable value to the extent, the same were recovered from the dealer, confirmed the above mentioned duty demand along with interest under proviso to section 11A (1) of Central Excise Act, 1944 along with interes .....

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appellant's dealership agreement with various dealers, there was no specific clause making it obligatory for the dealers to incur certain specified quantum of expenses on the advertisements of the appellant's products; that though there was a clause requiring the dealers to vigorously promote, develop and maintain sales of the products and parts of the appellant to their satisfaction and in the manner required by the appellant, and there was also a clause providing for termination of th .....

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ealers; that the Tribunal in the case of Honda Sales Power Products Limited Vs. CCE Meerut-III reported in 2015 (317) ELT 510 Tri Del has held that advertisement expenses incurred by the dealers would be includible in the assessable value only when there is an enforceable legal right of the manufacturer, against the dealers, to insist on incurring certain amount of expenses on the advertisement and publicity of the products and just a clause in the agreement requiring the dealers to make efforts .....

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e advertisement campaign is conducted by the manufacturer, that can certainly be regarded as contribution wholly or exclusively to the marketability of the product, but where there is a dealer in the picture and the advertisement helps the dealer also in promoting his sales apart from helping the product of the manufacturer, the matter has to be looked at from a different angle and in such cases, the advertisement expenses incurred by the manufacturer would not be includible in the assessable va .....

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ncing the marketability of the appellant's product; that in view of this, the amount recovered by the appellant from the dealers cannot be said to be for the reason of or in connection with sale and hence, in terms of the provisions of section 4(3) (d) regarding definition of transaction value, the amount recovered by the appellant's dealers would not be includible in the assessable value. 3.1. Shri Ganesh, also pleaded that the duty demand besides being not sustainable on merits, is als .....

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l issue had arisen in the matter decided by the Tribunal vide judgment dated 6/1/1997 reported in 1998 (100) ELT 46S (Tri-B) and the Tribunal's judgment was in the appellant's favour and besides this, in the course of audit of the records of the appellant, this very issue had been raised and the appellant had been asked to give details of the amount recovered by them from the dealers in the cases where the advertisement expenses in respect of the advertisement of the products in the area .....

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ement, every dealer is under obligation to vigorously promote, develop and maintain sales of the products and parts to the satisfaction of the appellant and in the manner required by him and in terms of another clause in the dealership agreements if a dealer fails to perform any obligation under this agreement, the agreement can be cancelled; and this shows that every dealer was under legal obligation to incur certain expenses on advertisement of the appellant's products and hence, to the ex .....

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ee has an enforceable legal right to insist on incurring of certain expenses by the dealers on advertisement of the assesse's products, the advertisement expenses incurred by the dealers would be includible in the assessable value. He pleaded that in the present case, the clause in the agreement requiring dealers to make vigorous efforts to promote the sales of the products coupled with the clause that on failure of the dealers to perform any obligation under this agreement, the dealership c .....

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a 6 of which states that even where the dealings between an assesse and the dealer are on principal to principal basis but there is an agreement either written or oral that that the buyer/dealer would incur certain expenses for advertisement of the goods of the assessee, the cost of such advertisement and publicity would be added to the price of the goods to determine the assessable value, as in such cases, the price would not be the sole consideration for the sale and Rule 6 of the Central Exci .....

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hall vigorously promote, develop and maintain sales of the products and parts to the satisfaction of and in the manner required by the appellant and the dealer shall place firm orders for such products and parts as per the sales targets and will give estimates for the forward requirements for such period and in such form as may be required by the appellant from time to time. Each dealership agreement also has clause that if a dealer fails to perform any obligation under this agreement, his agree .....

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they approach the appellant and the appellant in view of the dealers' request, organize the advertisement in the areas of those dealers by incurring certain expenses and since, the advertisements also mention that dealers' name and address and promote the dealers' sales also, a part of the expenses, up to about 40 per cent, are recovered from those dealers by the appellant. The point of dispute is as to whether in such cases, the advertisement expenses incurred by the appellant would .....

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e for the advertisement and publicity effort of the appellant which has benefitted the dealer. Moreover, an identical Issue was involved in the appellant's own case in the previous period declared vide judgment reported in 1998 (100) ELT 468 (Tribunal) , in the para 3 of the judgment of which the Tribunal has held that the advertisement expenses incurred by the appellant would not be includible in the assessable value to the extent, the same were recovered from the dealers, as when the deale .....

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ng advertisement campaign in newspapers for the Hero Honda Motor Cycles and by an arrangement with the wholesale dealers printing the names and addresses of wholesale dealers also and collecting proportionate charges form the wholesale dealers. The same position obtained in regard to posters, cinema slides and other media of advertisement. Appellant was receiving security deposits from the wholesale dealers and the contribution of the wholesale dealers for the advertisement campaign was being ad .....

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tainly be regarded as contribution wholly or exclusively to the marketability of the product but where there is a dealer in the picture and the advertisement helps the dealer apart from helping the product of the manufacturer the matter has to be looked at from a slightly different angle. Our attention has been inivited to a decision of the Tribunal in Racold Appliances v. COCE [1994 (69) E.L.T. 312]. Under an agreement between the manufacturer and the dealers, the dealers were to spend upto 2% .....

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o to enhance the goodwill of the dealers. It is not unknown for dealers to advertise their business activities so as to attract more customers and to enhance their business. When they do so and in the absence of anything else on record, it cannot be said that the cost of such advertisement which also in a way enhances the marketability of the product should be added to the assessable value. 6.1. The above judgment of the Tribunal has been affirmed by the Apex Court by dismissal of the civil appe .....

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overed by the appellant from the dealer would be for the advertisement effort of the Appellant, which has promoted the sales of the dealers and the same cannot be said to be the amount received by the Appellant for the reason of in connection with the sale of the goods. 7. Moreover, in terms of the judgments of the Apex Court in the case of CCE Baroda Vs. Besta Cosmetics Limited (Supra) CCE-Surat Vs. Surat Textiles Mills Ltd. (Supra) cited by the ld. DR, the advertisement expenses incurred by th .....

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