Custom, Excise & Service Tax Tribunal
M/S Maruti Suzuki India Limited vs Cce, Delhi/ Bhopal on 10 November, 2008
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST BLOCK-II, R.K. PURAM, PRINCIPAL BENCH, NEW DELHI, COURT NO. II Excise Appeal No. 641 of 2007 & Excise Appeal No. 721 of 2008 [Arising out of Order-in-Original No. 15 & 16/PP/CE/2006 dated 30.11.2006 passed by the Commissioner of Central Excise, Delhi-III, Gurgaon] Excise Appeal No. 2146 of 2007 [Arising out of Order-in-Appeal No. 46/Appeal/Bhopal/2006 dated 14/20.3.2006 passed by the Commissioner of Central Excise [Appeals], Bhopal]. Excise Appeal No. 875 of 2008 [Arising out Order-in-Appeal No. 29/CE/Appl/Jal/2008 dated 31.01.2008 passed by the Commissioner [Appeals] Central Excise, Jalandhar] Date of hearings: 10-11.06.2008 Date of decision: _ /07. 2008 For approval and signature: Honble Mr. M. Veeraiyan, Member [Technical] Honble Mr. P.K. Das, Member [Judicial] 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether Their Lordships wish to see the fair copy of the Order? 4 Whether Order is to be circulated to the Departmental authorities? M/s Maruti Suzuki India Limited Appellants M/s Eicher Tractors Limited [Rep. by Mr. V. Laxmikumaran, Advocate] Vs. CCE, Delhi/ Bhopal Respondent [Rep. by Mr. Deepak Garg, SDR] CCE, Jallandhar Appellant [Rep. by Mr. Deepak Garg, SDR] Vs. M/s Swaraj Mazda Limited .Respondent [Rep. by Mr. V. Laxmikumaran, Advocate] O R D E R
Per: M. Veeraiyan:
1.1 The Excise Appeals Nos. 641 of 2007 and 721 of 2008 are by M/s Maruti Suzuki India Limited against the orders of the Commissioner dated 11.12.2006 and 28.12.2007 respectively.
1.2 Excise Appeal No. 2146 of 2007 is by M/s Eicher Tractors Limited against the order of the Commissioner (Appeals) dated 14/20.03.2006.
1.3 Excise Appeal No. 875 of 2008 is by the Department against the order of the Commissioner (Appeals) dated 31.01.2008.
2. Heard both sides.
3.1 The relevant facts, in brief, relating to Excise Appeal No. 641 and 721 of 2008 are as follows:-
a) The appellant, M/s Maruti Suzuki India Limited, is a manufacturer of motor vehicle and parts thereof. They market the goods through their network of dealers.
b) The appellant is carrying out main advertisements at the national level at their own expenses. The amount of expenses so incurred is included in the selling price of the finished goods and excise duty is paid on such price.
c) The appellant has written agreements with their dealers which envisage that the dealers shall at all times during the currency of the agreement make efforts to promote the product and its reputation within the allotted territory.
d) The appellant used to undertake advertisement of local importance and used to collect part of the expenses from their dealers. However, this was replaced by scheme known as Joint Advertisement and Sales Promotion Policy (JASP) by which the dealers were required/encouraged to undertake the advertisements and a part of expenses was reimbursed by the appellant company out of the budget allotted for JASP.
e) The appellant allocates a small portion of their overall advertisement budget for JASP.
f) The Department held that the incurring of expenses by the dealers under JASP is arising out of the dealers agreement and the JASP policy; the dealer incurs the expenses under the terms of the agreement; these activities are carried out by the buyers only on behalf of the manufacturer and the expenses as incurred on behalf of the manufacturer. Therefore, these expenses were treated as consideration for sale and accordingly differential duty was and penalties imposed .
3.2. The appellant also provides various promotional materials like product leaflet to the dealers for sales promotion activities of the dealers. The dealers agreement envisages that the dealers purchase the promotional materials on payment from the appellant, and distribute them to the buyers of the vehicle. Commissioner has held that cost of the publicity material paid by the dealers to the manufacturer should be treated as an additional consideration and has confirmed duties and imposed penalties.
4. In the case of M/s Eicher Motors Limited (Excise Appeal No. 2146 of 2006) the issue involved is supply of publicity material to the dealers and recovering cost of the same. The original authority held that the same should be treated as additional consideration and confirmed duty demand of Rs. 16,26,223/- relating to the period 1.7.2000 to 8.7.2004 and imposed equal penalty. Commissioner (Appeals) upheld the order on merits and upheld the demand but reduced the penalty to Rs. 8,00,000/-
5. In the case of M/s Swaraj Mazda Limited (Excise Appeal No. 875 of 2008) the respondent supplied publicity material to the dealers and recovered cost from them and original authority as well as the Commissioner (Appeals) held that the costs such material are not to be included the assessable value and accordingly dropped the demand of duty amounting to Rs. 1,94,798/- relating to the period October 2004 to March 2005.
6.1. Learned Advocate on the issue relating to joint advertisement made the following submissions:-
(a) The dealership agreement envisaging promotion of the product of the company and its reputation is of a general nature; such a provision can be seen in almost every agreement between a manufacturer and their dealers. The main advertisement is invariably done by the manufacturer at their own expenses. The dealers in their own interest are required to undertake advertisements/ sales promotion activities within the area. As a measure of encouraging such activities, part of the expenses are being reimbursed by the manufacturer. This joint advertisement has no nexus to the sale and it is not condition of sale.
(b) There is no compulsion on the part of the dealer to undertake the advertisements. He filed statistics to show that among the dealers who have done local advertisements, some dealers have incurred expenses as low as Rs. 16/- per vehicle and some as high as Rs. 575/- per vehicle. Some of the dealers have not incurred any expenses.
(c ) The extent of reimbursement depends upon the actual expenses incurred by them. At the same time, if any of the dealer, incurs beyond certain maximum limit the reimbursement is limited; the entire expenses are not shared.
(d) If the dealers do not undertake any advertisements, the agreements do not provide for or empower the manufacturer to undertake such advertisement directly and to recover any share of the cost of such advertisement from such defaulting dealer. In other words, there is no legally enforceable right for getting the advertisement done.
(e) The amount earmarked under JASP is a small percentage varying from 2% to 6% out of the total advertisement expenses undertaken by M/s Maruti Suzuki India Limited.
6.2 He also relied on the following decisions:-
i) Philips India Ltd., vs. CCE -1997 (91) ELT 540 (SC)
ii) CCE vs. Besta Cosmetics Ltd., -2005 (183) ELT 122 (SC)
iii) Alembic Glass Industries Ltd. Vs. CCE-2006 (201) ELT 161 (SC)
iv) Mahindra & Mahindra Ltd. Vs. CCE-1998 (103) ELT 606 [affirmed by Supreme Court and reported at 1999 (111) ELT A126]
v) TVS Motor Co. Ltd., vs. CCE- Final order No. 385/08 dt.21.4.2008.
vi) Ford India Pvt. Ltd.,vs CCE 2007 (216) ELT 530
vii) Fiat India Ltd. Vs. CCE-2008 (225) ELT 368
viii) CCE vs. Swaraj Mazda Ltd. Final Order dated 18.5.2005.
ix) Featherlite Products (P) Ltd., vs CCE-2005 (191) ELT 487
x) Featherlite Products (P) Ltd., vs CCE- Final order dt.18.5.2005.
xi) Amco Batteries Ltd. Vs. CCE-2007 (207) ELT 612
xii) Reliance Industries Ltd. Vs. CCE-2006 (209) ELT 227
xiii) Yamaha Motors India Pvt. Ltd. Vs. CCE- Final Order dt.3.4.2008.
xiv) Mahindra & Mahindra Ltd., vs. CCE Final order dt. 1.12.2005.
xv) Kinetic Engg. Ltd. Vs. CCE -2007 (82) RLT 167 6.3 Regarding the sale of promotion materials, he submitted that the activity of sales of promotion material is totally limited to the motor vehicle. These goods are not received by the appellant but sold at the appellant workshop at Naraina. No duty is payable on the sale value. He relies on the following decisions:-
i) Escorts Ltd., vs. CCE -1998 (98) ELT 206
ii) Kinetic Engineering Ltd. Vs. CCE -1999 (107) ELT 150
iii) Swaraj Mazda Ltd. Vs CCE Final order dated 10.9.2004.
iv) Kinetic Engineering Ltd. Vs. CCE -2007 (82) RLT 167
7.1. Learned DR takes us through the dealership agreement between M/s Maruti Suzuki India Limited and their dealers particularly clauses 28, 29, 30 and 31 and submits that the dealers are under clear obligation to promote the product. The JASP envisages punitive action on the dealer who does not confirm the stipulated condition.
7.2. Regarding the issue of reimbursement of cost of complimentaries, he submitted that in terms of dealership agreement, the dealers of M/s Maruti Suzuki Udyog Limited are under clear obligation to buy the company promotional materials and give them as gifts to the buyers. Therefore, he submits that they are liable to pay excise duty on the value of such gift articles. Similar is the position in respect of other appellants.
8. We have carefully considered the submissions and perused the records particularly the dealers agreement with M/s Maruti Suzuki India Limited and JASP for different years.
9. A perusal of the various judgements relied upon, on behalf of appellants, leads as to the following conclusion on the points of law. The advertisement for any product manufactured may fall under rule 3 broad categories. First category is the advertisement done by the manufacturer on their own and at their own expenses. Such advertisements make the product visible and known to the prospective buyers. Such advertisement not only benefits the manufacturer but also the dealers. As such advertisements make the job of selling relatively easier. There are also advertisements which may be done exclusively by the dealer in their area out of margins received by them. Even such advertisements benefit both the dealers and to some extent the manufacturer. The joint advertisements are, therefore, can be considered to benefit both the dealers and the manufacturer. Such joint advertisement arises out of legitimate business consideration; this arises out of the mutual interest in maximizing the sale of products. Sharing of expenses on the joint advertisement, campaign is normal. The issue to be considered is whether the dealers share of expenses can be considered as consideration/ additional consideration for sale and added to the assessable value. When the contract envisages such incurring of expenses by the dealer and failure to incur such expenses give a right to the manufacturer to get the advertisement done on their own and recover the expenses from the dealer, such an arrangement cannot be considered as an option. Such expenses by the dealers would be payment basically on behalf of the manufacturer and requires to be added to the assessable value.
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 can not enable recovery of dealers share of cost of advertisements. Therefore, this case is squarely covered by the decisions of the Honble Supreme Court in the cases of Philips India Ltd., vs. CCE, Pune reported in 1997 (91) ELT 540 (SC) and the decision of Surat Textile Mills 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.
11.1 Regarding the issue of reimbursement of cost of complimentaries in the case of M/s Maruti Suzuki India Limited, as per the Ld DR, the same are done in pursuance of clauses 28, 29, 30 and 31 of the dealership agreement which are re-produced below:-
28. PROMOTION:
The Dealer shall at all times during the currency of this Agreement use its best endeavours to promote sales of the Products within the Territory and to secure and maintain the confidence of Customers in the products and to enhance the reputation of the company and the products.
29. ADVERTISING:
The Dealer shall advertise and or promote products. Parts and Service facilities in detailed manner as to secure adequate and effective publicity to the satisfaction of the company at its own expense.
29.1 The dealer shall not engage in any form of sales promotion or publicity or release any advertisement without the prior, written approval of the company.
29.2 UNDESIRABLE ADVERTISING:
The dealer will not advertise or promote the Products or Services in such a way as may annoy cause injury to or detract from the company or the Products or Services or other Authorised Dealers. Should the Company consider that any advertisement announcement or other advertising or promotional material to be undesirable. The Dealer shall immediately withdraw the same at its expense and not repeat it.
30. DISPLAY AT OUTLETS The Dealer shall display signs at the outlets indicating its status as an Authorised Dealer as per the corporate identity of a type approved or issued by the Company and in such number as the Company may reasonably require. The Dealer shall maintain the outlet and all displays in and around the outlet keeping in view the image of the Company and as specified by the Company from time to time.
31. PROMOTIONAL LITERATURE:
The Dealer shall display and keep in sufficient quantities and in good order all current company promotional materials with such literature relating to the Products and the Services as the Company may specify for handing over to customers on demand.
11.2. We have not been shown that these sales of promotional materials are directly linked to sale of the vehicles. It has also not been shown that if the dealers do not buy such material for stocking and distributing them to the buyers any legal remedy is available to the manufacturer. The contention 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 can not lead to situation enforcing purchase of promotional materials for the past. The facts of the case mentioned in M/s Kinetic Engineering Ltd., vs. CCE, Aurangabad reported in 1999 (107) ELT 150 (T) and in the case of M/s Escorts Limited reported in 1998 (98) ELT 206 (T) are applicable to the present facts of the case and impugned orders against the appellants/ assessee are not sustainable.
11.3 In the case of M/s Swaraj Mazda Limited (Excise Appeal No. 875 of 2008), the appellant has claimed that there is no connection of sale of promotion material with the sale of finished goods; if the particular dealer was not interested in buying publicity material, the appellant never enforce the same on the respective dealer, the sale of publicity material is not linked to any activity relating to sale of their products. There is no evidence disclosed in the show cause notice that there was any obligation on the part of the dealer to compulsorily buy and distribute such materials. Both the original authority and the Commissioner (Appeals) decided the issue in favour of the assessee. Commissioner (Appeals) relied on the decision of the Tribunal, vide final order No. 926 to 928/04 NB(A) dated 10.09.2004 wherein the Tribunal upheld the submissions of the assessee and allowed the appeal of the assessee. Under these circumstances, the appeal filed by the Department is rejected and the appeals filed by the assessee are allowed with consequential relief.
[Pronounced in the Court on ___________].
[M. Veeraiyan] Member [Technical] [P.K. Das] Member [Judicial] [Pant]