Custom, Excise & Service Tax Tribunal
Coms,C.Ex - Jsr vs Tata Steel Ltd on 22 October, 2018
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL,
EAST REGIONAL BENCH : KOLKATA
Appeal No.E/14/2009
(Arising out of Order-in-Appeal No.184-185/JSR/2008 dated 24.10.2008
passed by the Commissioner (Appeals) of Central Excise & Service Tax,
Ranchi)
Commissioner of Central Excise, JSR ...APPELLANT(S)
VERSUS
M/s Tata Steel Ltd.
...RESPONDENT (S)
APPEARANCE Shri K.Choudhary, Suptd.(AR) for the Appellant Dr. Samir Chakraborty, Sr.Advocate and Shri Abhijit Biswas, Advocate for the respondent.
CORAM:
HON'BLE SHRI P. K. CHOUDHARY, JUDICIAL MEMBER Hon'ble SHRI V.Padmanabhan, Member (Technical) Date of Hearing : 22.10.2018 Date of Pronouncement: 30.10.2018 ORDER NO.FO/76829/2018 Per Shri V.Padmanabhan :
This appeal has been filed by revenue against the Order-in-Appeal No.184-185/JSR/2008 dated 24.10.2008. The respondent is engaged in the manufacture of various iron and steel products in their factory at Jamshedpur. The goods manufactured by them are sold through distributor/dealers situated at different parts of the country. The respondent comes up with advertisements for their products in various press/electronic media. The department noticed that the respondent had entered into certain agreements with their distributors, by which the latter was required to advertise the products of the respondent by means such as wall painting, 2 Appeal No.E/14/2009 audiovisual campaign, newspapers etc. The expenses incurred by the distributors for such advertisements were being shared proportionately between the respondent and the distributors. Investigations were undertaken by the department, during the course of which the details of costs of such advertisements shared with distributors for the financial year 2000-2001 to 2004-2005 was collected from the respondent. Copies of the agreement with the distributors were procured as also a letter dated 05.05.2004 issued by the respondent by way of internal communication to one of the distributors of the respondent situated at Siliguri. In this connection the statement of Shri S.N.Banerjee who worked for the respondent was also recorded; in which he admitted that the advertisement cost was being shared by the respondent with the dealers/distributors. He stated that the distributors, after making payments to the advertising agency, submit the bill for reimbursement as per the agreed formula. The formula as per the letter dated 05.05.2004 was that the distributor's share was 50% of the advertisement expenditure.
2. On the basis of the investigation the department came to the conclusion that the distributors had borne a part of the advertisement cost which otherwise would have been incurred by the respondent. In terms of Rule 6 of the Central Excise Valuation Rules, 2000, read with Section 4 of the Central Excise Act, 1944, the department proceeded to add the total cost of the advertisement borne by the distributors to the assessable value of the goods cleared by the respondent during the period 2000-2001 to 2004-2005. The differential duty was demanded in the show cause notice. The original authority, vide his order dated 17.11.2006, confirmed the demand for differential duty alongwith penalty and interest. However, when the issue was carried by the respondent before the Commissioner (Appeals), he set 3 Appeal No.E/14/2009 aside the demand for differential duty and allowed the appeal. This order is being challenged by the revenue in the present appeal.
2. Revenue's case was argued by Shri K.Choudhary, Suptd.(AR) and the respondent's case by Dr. Samir Chakraborty, Sr.Advocate.
3. While reiterating the grounds of the present appeal the ld.DR emphasized the following points:
i) He referred to the decision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Surat vs. Surat Textitle Mills Ltd.
[2004(167) ELT 379 (S.C.)] in which it has been held that the advertisement expenditure incurred by the manufacturer's customer can be added to the sale price for determining the assessable value, only if the manufacturer has an enforceable legal right against the customer to insist on incurring of such advertisement expenses. This view has been reiterated by the Apex Court in the case of Commr. Of Central Excise, Pune vs. Poona Bottling Co. Ltd. [2005(182) ELT 23 (S.C.)], Alembic Glass Industries Ltd. vs. Commissioner of Central Excise [2006(201) ELT 161 (S.C.)] and Collector of Central Excise, Baroda vs. Besta Cosmetics Ltd. [2005(183) ELT 122 (S.C.)].
ii) He submitted that the Commissioner (Appeals) ignored the above decisions in setting aside the demand. He submitted that the agreements entered into by the respondent with their distributors, makes it clear in Clause 2.12 (b) that all the advertisements in any media will be issued only after written approval of the company. Clause 2.12(d) makes it clear by the use of word 'shall' and binds the distributors to carry out advertisements as per the requirement of the respondent. The letter dated 05.05.2004 makes this position clear and is to be considered as forming part of the agreement with the 4 Appeal No.E/14/2009 distributors. He further submitted that the agreement as well as the letter (supra) satisfied the condition prescribed by the Apex Court in the case of Commissioner of Central Excise, Surat vs. Surat Textitle Mills Ltd. (supra) to the effect that the respondent has an enforceable legal right against the customers to insist on incurring such advertisement expenditure.
Finally he submitted that the impugned order may be set aside and the order of the original authority may be restored.
4. Ld. Senior Advocate, on behalf of the respondent, justified the impugned order passed by the Commissioner (Appeals). His main arguments are summarized below:
i) He submitted that agreements executed by the respondent with the distributors does not confer any enforceable legal right on respondent against the customers to insist on incurring such advertisement expenses.
The letter dated 05.05.2004, relied upon by the revenue, does not have the statutory effect of an agreement.
ii) He relied among many cases, on the following case laws:
a) Maruti Suzuki India Ltd. vs. CCE [2008(232) ELT 566(T)]
b) Ford India Pvt. Ltd. vs. CCE [2017 (6) GSTL 273 (T)]
c) Luminous Electronics Pvt. Ltd. vs. CCE [2016(338) ELT 154(T)] In the case of Maruti Suzuki India Ltd. (supra), the Delhi Bench of the Tribunal had occasion to consider a similar agreement executed by M/s.
Maruti Suzuki India Ltd. with its distributors for joint advertisements. After examining the agreement, the Tribunal observed that joint advertisements can be considered to benefit both the manufacturer as well as dealer. The Tribunal finally concluded that the dealer's share of the expenses cannot be considered as additional consideration for sale to be added to the assessable 5 Appeal No.E/14/2009 value. Similar views have been taken in the other case laws. Finally he submitted that the impugned order needs no interference and may be sustained.
5. Heard both sides and carefully considered the appeal records and case laws.
6. This valuation dispute has at its centre, the agreements executed by the respondent with their distributors/dealers. The clause relating to Advertising/Brand Support in a sample agreement executed by the respondent with a distributor is reproduced below for ready reference:
"2.12 Advertising / Brand Support:
2.12(a) the Company proposes substantial advertising and publicity for its products in DISTRIBUTOR's districts 2.12(b) All the advertisements in any media (including public notices) will be issued only after written approval of the Company. 2.12(c ) The DISTRIBUTOR shall advertise the said products in his districts to such extent and in such manner as may be considered necessary by the Company, the layouts of which shall be subject to the Company's approval and supervision.
2.12(d) The DISTRIBUTOR shall display conspicuously at, in or in his premises only such types of sign or signs as may be authorized by the Company and upon termination of this Agreement shall discontinue representing himself to be an authorized DISTRIBUTOR in the said products and shall forthwith remove all the said signs and return to the Company without compensation all such signs which may have been given to the DISTRIBUTOR by it. The DISTRIBUTOR will not be permitted to display any advertising matter objectionable to the Company nor advertise or trade in the said products or any of them in such a way as in the opinion of the Company may cause annoyance or injury to the Company or any of its duly authorized DISTRIBUTOR'S and Purchasers."
7. During the course of investigation the revenue has also brought on record a letter dated 05.05.2004 which is an internal communication to one of the respondent's distributors situated at Siliguri. In the statement recorded from Shri S.N.Banerjee, he has admitted to the fact that the advertisement cost is being shared @50% with the distributors and the 6 Appeal No.E/14/2009 share of the distributor is reimbursed to them by the respondent. On the basis of the above overall documentary and oral evidence, the original authority took the view that the respondent enjoyed enforceable legal right against the distributors to insist on the incurring of such advertising expenditure.
8. Revenue has relied on the decision of the Larger Bench of the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Surat vs. Surat Textitle Mills Ltd. (supra), in which the Hon'ble Supreme Court has laid down the following yardstick subject to the satisfaction of which the advertisement expenditure incurred by the customer can be added to the manufacturer's sale price for determining the assessable value. The observations of the Hon'ble Supreme Court in this case are as under:
"21.We have carefully perused the judgments and orders passed by the CEGAT which are impugned in these appeals. As rightly contended by the counsel appearing on either side, the CEGAT failed to appreciate the arguments advanced before it by the counsel appearing on either party in its proper perspective. In fact, in Civil Appeal Nos. 13400/1996, 4672/1997 and 4762/1997, the CEGAT failed to appreciate that in several earlier judgments, the CEGAT consistently held that the advertisement expenditure incurred by a manufacturers' customer can be added to the sale price for determining the assessable value, only if the manufacturer has an enforceable legal right against the customer to insist on the incurring of such advertisement expenses by the customer."
9. It is seen from the various case laws cited by both sides that the decision in the present case is to be arrived at on the basis of whether, in the given circumstances of the case, the yardstick stated by the Supreme Court is satisfied or not?
10. We have carefully considered the relevant clauses of the agreements which deals with the obligation cause on the distributors for coming out with advertisement and publicity. The Clause 2.12 (c ) makes it clear that the distributor 'shall' advertise the product of the respondent. There is a further stipulation that the advertisements will have to be approved by the 7 Appeal No.E/14/2009 respondent. However, after going through the entire agreement, we do not see any clause which deals with the expenditure on such advertisement. On the basis of the agreement it cannot be stated that the respondent has obligated the distributors to incur the advertisement expenses. Even the letter dated 05.05.2004 cannot be said to create such an enforceable legal right for the respondent against the distributor.
11. We note that the Tribunal had occasioned to consider a similar matter in the case of Maruti Suzuki India Ltd. vs. CCE (supra). In the above case the Tribunal examined whether the dealer's share of expenses can be considered as additional consideration for sale to be added to the assessable value. The Tribunal was considering, in that case, joint advertisements whose expenses were shared between the manufacturer and the dealer. Observation of the Tribunal in that case is reproduced below:
"10. In the present case, relating to M/s. Maruti Suzuki India Limited, we find it has been claimed that the advertisements are not done by all the dealers; and even in respect of dealers undertaking such advertisements, the extent of expenses does not get linked to or proportionate to number of vehicles sold by them; it was claimed that the dealers have incurred expenses varying from 0.0070% to 0.2333% of total sale value. In view of the above, it appears that these advertisements cannot be held to have been carried out by the buyers on behalf of the manufacturer; that the assessee has no enforceable legal right to insist on incurring such advertisement expenditure. The contention of the Department that there is no option available to the dealers does not stand proved. The stand of the department that the failure on the part of the dealer may lead to the cancellation of dealership and therefore there is a enforceable legal right is acceptable. Such cancellation cannot enable recovery of dealer's share of cost of advertisements. Therefore, this case is squarely covered by the decisions of the Hon'ble Supreme Court in the cases of Philips India Ltd. v. CCE, Pune reported in 1997 (91) E.L.T. 540 (S.C.) and the decision of Surat Textile Mills [2004 (167) E.L.T. 379 (S.C)] cited supra wherein it has been held that "the advertisement expenditure incurred by a manufacturers' customer can be added to the sale price for determining the assessable value, only if the manufacturer has an enforceable legal right against the customer to insist of the incurring of such advertisement expenses by the customer".8
Appeal No.E/14/2009
13. Similar view has been taken by the Chennai Bench Tribunal in the case of Ford India Pvt. Ltd. (supra). The observations are reproduced below:
"6. On behalf of appellant, the ld. Counsel explained that out of the total expenses for advertisement incurred by the dealer, FIPL reimburses 75%. The same is added in the assessable value and that there is no dispute on this. The dispute is only on the balance 25% incurred by the dealer which is not reimbursed and not added to the assessable value. Section 2(h) of the Indian Contract Act, 1872, defines a contract as "an agreement enforceable by law". The question is whether there is any legal obligation on the part of the dealer to incur the 25% expenses on advertisements. There is absolutely no evidence placed before us to establish that in case there is default on the part of the dealer to incur the 25% expenses on advertisement, the appellant, FIPL, has a legal right to recover the same. The learned AR has made a vain effort to contend that clause 8(a) of the agreement as reproduced above, as well as the terms and conditions regarding dispute resolution in the agreement, would imply a legally enforceable right existing on the part of FIPL. We have to say that the agreement does not make any whisper of the arrangement of buyer/dealer incurring the whole expenses and FIPL later reimbursing 75% only. This is an internal understanding. Clause 8(a) of the agreement states that the price to be paid by dealer include the advertisement charges. Here it is to be said at the cost of repetition, that 75% is reimbursed by FIPL and FIPL has included this amount in the assessable value; there is no dispute on this part. As to the remaining 25%, there is neither any obligation cast upon the dealer nor is there a right or remedy given to FIPL. At the most, the agreement to meet 100% advertisement charges and limit reimbursement only to 75%, thereby the dealer put to shoulder 25% of the advertisement charges can be considered only as an 'gentleman's agreement. In Oxford dictionary a 'Gentleman's agreement' is defined as an arrangement or understanding, which is based upon the trust of both or all parties, rather than being legally binding. It is 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."9
Appeal No.E/14/2009
14. In light of the above discussions, we are of the considered view that the yardstick stipulated by the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Surat vs. Surat Textitle Mills Ltd. (supra) has not been satisfied in the present case. Consequently the impugned order needs no interference and the same is sustained and the appeal filed by the revenue is rejected.
(Pronounced in the open court on 30.10.2018)
S/d. S/d.
(P. K. CHOWDHARY) (V.Padmanabhan)
MEMBER (JUDICIAL) MEMBER (TECHNICAL)
ss