Advertisement Expenses Incurred By Dealers Not To Be Included In Assessable Value For Payment Of Excise Duty: CESTAT

The Chandigarh Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the advertisement expenses incurred by the dealers on their own accord are not to be included in the assessable value for the purpose of payment of excise duty.

The bench of S. S. Garg (Judicial Member) and Rajeev Tandon (Technical Member) has observed that expenses are purely optional at the end of the dealers, and they have to decide whether to incur such expenses or not because there are certain dealers who do not opt for incurring such expenses, and a list of those dealers has also been given by the appellant in their additional submissions.

The appellant/assessee is in the business of manufacturing "motorcycles, scooters, and parts thereof falling under Chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985, and is availing of the of the facility of Cenvat Credit under the Cenvat Credit Rules, 2004. The appellant sells their final product through a network of dealers appointed by them through a dealership agreement. The appellant undertakes advertisements in media, viz., television, newspapers, etc., for promoting their products.

The dealers also undertake publicity and advertisements by way of inserting ads in local newspapers, hoardings, magazines, bills, etc. Expenses in respect of such advertisement and publicity to the extent of 50–70% are reimbursed by the appellant, and the balance of advertisement expenses are incurred and borne by the dealers only.

The appellant was including the advertisement expenses borne by them in the value of the products and discharging excise duty on that, and there is no dispute.

An audit was conducted of the records of the appellant, in which the appellant was directed to deposit the excise duty by including the value of advertisement expenses borne by the dealers (not reimbursed by the appellant) in the assessable value of the goods. On these allegations, two show cause notices were issued to the appellant to demand excise duty paid short, along with interest and penalties. The appellant filed a detailed reply to the show cause notices. After following the due process, the learned Commissioner adjudicated both the show cause notices by the order and confirmed the demand of excise duty under Section 11A(4) along with interest and also imposed an equivalent penalty under Section 11AC. The appellant has preferred the appeal.

The appellant contended that the order is bad in law and is liable to be set aside as the same has been passed without properly appreciating the facts, the law, and also the terms and conditions of the dealership agreement. The only amount realized by the appellant from the dealers for the sale of vehicles is the sale price of the vehicles, and no other amount, directly or indirectly, has been received by the appellant from the dealers. The advertisement expenses incurred by the dealers are not in connection with the sale between the appellant and the dealers.

The department contended that the findings of the impugned order and submitted that perusal of various terms and conditions of the dealership agreement shows that the expenses incurred on behalf of the appellant have been incurred. Therefore, the same is included in the assessable value for determining the sale price of the vehicles.

The tribunal held that the advertisement expenses incurred by the dealers are not to be included in the assessable value unless there is an enforceable legal right of the appellant to insist on incurring a certain quantum of expenses on advertisement by the dealers.

Counsel For Appellant: Krati Singh

Counsel For Respondent: Narinder Singh

Case Title: Suzuki Motorcycle India Private Limited Versus Commissioner of Central Excise

Case No.: Excise Appeal No. 55842 of 2013

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