Cost of Advertising Cannot be added to the Assessable Value Unless It Is Recovered from the Dealers Mandatorily as a Condition of Dealership – Cestat, Mumbai


 A.      Brief Facts of the Case:

1.1       The appellants are manufacturer of excisable goods and were selling the products to various distributors and dealers. The appellants had agreement with some of the dealers and distributors in which they were sharing the cost of advertisement on optional basis.

1.2       A demand show-cause notice was issued to the appellant seeking to add the amount recovered from the dealers in respect of advertisement cost to the assessable value. The demand was confirmed by the lower authorities on the ground that the transaction value as defined under Section 4(3)(d) includes cost of advertisements or publicity.

1.3       Aggrieved by the order of the lower authority, the Appellant preferred this appeal before the Hon’ble Tribunal.

B.       Discussions and Findings:

2.1       Learned Counsel for the Appellant relied on the clauses of the agreement to assert that the advertising and publicity material taken by the dealers is purely on their own option. The appellants are in fact giving the said material to the dealers at 50% of the cost. It was argued that sharing of cost is only subject to the requirement of the advertising material by the dealers and it happens only in respect of few of the dealers. That the learned Counsel relied on the decision of the Tribunal in case of Ford India Pvt. Ltd. – 2007 (216) ELT 530 (Tri-Chennai) and Maruti Suzuki India Ltd. – 2008 (232) ELT 566 (Tri-Del).

2.2       It was asserted that in all these decisions, it has been held that unless cost of advertising is recovered from the dealers mandatorily as a condition of dealership, the same cannot be added to the assessable value. On the other hand, learned AR (on behalf of the Revenue) relies on the impugned order.

C.      Judgment of the Hon’ble Tribunal:

3.1       After going through the rival contentions, Hon’ble Tribunal observed that the terms of agreement are very clear that it is an option to the dealer to obtain advertising materials from the appellant at 50% of the cost. It is not disputed that only some of the dealers are availing these option. Hence, it can safely be concluded that it is not mandatory for the dealers to take the advertising materials from the appellants and to share the cost of such materials. In these circumstances, the Tribunal’s decision in case of Maruti Suzuki India Ltd. (supra) becomes squarely applicable.

3.2       Following the ratio of the decision in case of Maruti Suzuki India Ltd. (supra), Hon’ble Tribunal allowed the Appeal and impugned order was set aside accordingly. 

[M/s Rathi Transpower Pvt. Ltd. v. Commissioner of Central Excise, Pune-III in Appeal No. E/1658/05]

Date of the Judgment: February 10, 2016

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