Customs, Excise and Gold Tribunal - Tamil Nadu
Toyota Kirloskar Motors Ltd. vs Cce on 25 June, 2007
Equivalent citations: 2007(122)ECC295, 2007(148)ECR295(TRI.-CHENNAI), 2007(217)ELT104(TRI-CHENNAI)
ORDER P. Karthikeyan, Member (T)
1. No. E/517/2005
2. No. E/518/2005
3. No. E/519/2005
4. No. E/520/2005
1. Captioned appeals are directed against orders in appeal upholding the orders of the original authority. Original authority had passed orders demanding duty on sales promotion expenditure incurred by the dealers of multi utility passenger vehicles (MUPVs) manufactured by M/s. Toyota Kirloskar Motors Ltd (the appellants) and the cost of transportation and transit insurance incurred by the appellants for transporting their product from their factory to the dealers' premises during the period 1.7.2000 to 31.12.2002. The total adjudication levies involved in the orders impugned is Rs. 3,80,56,927/-. As all the appeals deal with the same issues, one of the appeals No. E/517/05 is taken up for detailed examination.
2. In the order impugned in appeal No. E/517/2005, the Commissioner has affirmed the demand of duty to the tune of Rs. 83,68,355/- and penalty of Rs. 50,000/- on the appellants. The demand comprises the duty on freight and insurance incurred by the appellants and sales promotion expenses such as advertisement expenses incurred by the dealers. Demand on the freight and insurance collected by the appellant in the invoices for the sale of MUPVs is raised on the ground that the abatement of these elements could be allowed only if the same was the actual expenditure incurred for the particular consignments and shown separately in the invoices, in terms of Rule 5 of the Central Excise Valuation Rules, 2000 (CEVR).
3. The Ld. Counsel for the appellants argued that the vehicles were sold for delivery at the factory gate in arms length transactions and the transaction value as contemplated in the Section 4(1)(a) was available for assessment in each transaction. The goods were exigible to duty only on the said value. In the Indian Oxygen Ltd. 1988 (36) ELT 723/730 (SC) case, the apex Court had decided that when the value for sale at the factory gate was available, that value would be the value relevant for assessment of excise duty. In the instant case, in all cases of sale, Section 4(1)(a) of the Central Excise Act was applicable and invocation of Rule 5 of Central Excise Valuation Rules was uncalled for. In the Indian Oxygen Ltd (supra) case it was decided that excise was a duty on manufacture and cost of transportation from the place of removal was not part of value The basic character of central excise levy had not undergone any change with the introduction of the concept of the transaction value with effect from 1.7.2000 for assessment. Therefore, the ratio of Indian Oxygen Ltd (supra), case applied and the value realized by the appellants excluding freight and insurance collected was the value relevant for assessment. Moreover, the appellants had submitted certificates obtained from Chartered Accountants which showed that the appellants had incurred a higher amount towards freight and insurance and had collected from the dealers a flat 2% of the invoice value when the goods were transported by road and 15% of the invoice value when the goods were transported by air. The authorities had denied the admissible deduction only on the ground that Rule 5 of CEVR provided for abatement only if the invoice reflected actual amount incurred towards freight and insurance. It was not disputed that the assessee had incurred a higher amount towards freight and insurance compared to the amount shown in the related invoices.
4. As regards the sales promotion expenditure incurred by the dealers, it was explained that sales promotion measures involved activities such as dealers gifting gold coins, watches etc to customers and advertising the vehicles manufactured by the assessee. The appellants as well as the dealers benefited equally by these sales promotion measures. The expenditure incurred by the dealers was reimbursed to the extent of 50% by the appellants. The demand was for duty on the remaining 50% incurred by the dealers. The Ld. Counsel for the appellants submitted that in an identical situation considered in Philips India 1997 (91) ELT 540 (SC) case, the Apex Court had held that the expenditure incurred by the dealers was not includible in the assessable value as both the manufacturer and the dealer equally benefited from the sale promotion activity. There was no agreement between the manufacturer and the dealer in terms of which the assessee had a legally enforceable right to require the dealers to incur the expenditure in question for promoting sale of MUPVs. The Ld. Counsel took us through the relevant clauses of the agreement which laid down the condition that the dealers shall undertake the sales promotion activities in accordance with the assessee's policy framed with a view to safeguard its reputation. The Ld. Counsel claimed that in view of the various case law he cited, the demand was not sustainable.
5. The Ld. SDR defends the impugned order and justifies the demand and penalty.
6. We have carefully considered the rival contentions. We find that, the assessable value of the manufactured goods is the total consideration the manufacturer receives from the buyer in an arms length transaction, for delivery of the goods at the factory gate. This basic concept of central excise levy has remained unchanged even after the measure of levy has shifted from a deemed normal price to the transaction value. In the Indian Oxygen Ltd. case (supra), the apex Court observed that excise is a duty on manufacture and not on profit on transportation. The charging Section 3 of the Act has not undergone any change in the wake of transaction value. We find that even when the manufacturer charges a lower amount of freight from the buyer for transporting the goods from the place of removal to the point of delivery than the actual amount incurred, the same is not includible in the transaction value. The transaction value does not include cost of transportation of excisable goods from the place of removal to the dealer's premises, i.e. the place of delivery. The demand on this account is therefore not sustainable.
7. As regards the issue regarding expenditure incurred by dealers, we find the sales promotion activities benefited both the manufacturer and the dealers. Hence the dealers' expenditure on such activities cannot be held to have been incurred on behalf of the assessee as the dealers were not under any such contractual obligation. Therefore, the expenditure incurred by the dealers is not a consideration received by the assessee from the buyers includible in the assessable value of the vehicles. In a case of similar facts, in CCE v. Gangadharam Appliances Ltd. reported in 2007-TIOL-372-CESTAT-MAD, this Bench had held that for including advertisement costs in the assessable value, it should be shown that such cost was incurred by the customers compulsorily. In the judgment in Philips India Ltd. v. CCE, Pune , the apex Court in a case of similar facts made the following observations:
It seems to us clear that the advertisement which the dealer was required to make at its own cost benefited in equal degree, the appellant and the dealer and that for these reasons the cost of such advertisement wad borne half and half by the appellant and the dealer, making a deduction out of the trade discount was, therefore, uncalled for.
In the instant case, there is no dispute that the transactions are at arms length. In view of our finding that the dealers had incurred expenditure on sales promotion on their own freewill to promote their interest without an agreement with the manufacturer compelling them to undertake sales promotion measures, the said expenditure is not includible in the assessable value. Accordingly, we find that the order demanding duty and imposing penalty is not sustainable.
8. In view of our findings and decision in the above appeal we also allow the remaining appeals of M/s Toyota Kirloskar Motors Ltd. dealing with the same issues for different periods.
(Operative portion pronounced in the open Court on 25.06.07)