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CASE NO.: Appeal (civil)  3840 of 1999

PETITIONER: Collector of Central Excise, Pune                

RESPONDENT: M/s Bajaj Tempo Ltd.                     

DATE OF JUDGMENT: 07/02/2005

BENCH: S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA  

JUDGMENT: J U D G M E N T

KAPADIA, J.

       The short question which arises for determination in this  civil appeal filed by the Department under section 35L(b) of the  Central Excise Act, 1944 is \026 whether reimbursement of  advertisement expenses by the manufacturer from the dealers,  after initially incurring the same, is includible in the assessable  value.   

       M/s Bajaj Tempo Ltd., the respondent herein is engaged  in the manufacture of motor vehicles falling under Chapter 87  of Central Excise Tariff Act, 1985.  On 18.10.1989, show-cause  notice was issued to M/s Bajaj Tempo Ltd. (hereinafter referred  to for the sake of brevity as "the assessee") by the department  demanding Rs.4,73,690.76 for the period 1984-85 to 1988-89  by invoking extended period of limitation.  In the show-cause  notice, it was alleged by the department that the assessee had  failed to disclose and had failed to pay appropriate duty on the  expenses incurred on its publicity/advertisement which in turn  promoted the marketability of the goods.  In the said notice, it  was further alleged that the dealers’ commission included the  cost of selling the product, the cost of meeting the service  obligations to the customers, the cost of advertisement and cost  of sales promotions.  In the said show-cause notice, it was  further alleged that the assessee had recovered from its dealers  part of the advertisement expenses, initially incurred by the  assessee which was not disclosed to the department and,  therefore, the department was entitled to invoke the extended  period of limitation under the proviso to section 11A(1) of the  Central Excise Act, 1944 (hereinafter referred to for the sake of  brevity as "the 1944 Act"), as it stood at the material time.   

       Vide reply dated 20.12.1989, the assessee denied the  aforestated charges levelled against it in the show-cause notice.   The assessee contended that its price-list was approved and  consequently, the department was not entitled to invoke the  extended period of limitation; that the assessee had recovered  advertisement expenses from its dealers only in cases where the  assessee had initially incurred such expenses on behalf of the  dealers and at the request of the dealers.  It was further  submitted that all the expenses incurred by the assessee towards  advertisement were already included in the assessable value.  It  was further submitted that the question of including such  expenses on account of advertisement would only arise if the  assessee had claimed deduction and since the assessee had not  claimed deduction for such expenses, the department was not

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entitled to include such expenses in the assessable value.   According to the assessee, the said advertisement charges were  incurred by the dealers on their own account and, therefore,  such charges were not includible in the assessable value.  It was  further submitted that in any event, the goods in question have  been sold to all the dealers at the same price and all the dealers  were treated equally and, therefore, such charges were not  includible in the assessable value.  It was further submitted that  the correct manner to assess excisable goods was to ascertain  whether there was any allied activity or whether there was any  implicated activity.  It was contended that any profit accruing to  the manufacturer in any allied activity cannot be subjected to  levy of excise duty.  It was urged that in the present case the  assessee had given video cassettes to the dealers which was the  allied activity and, therefore, recovery made on this account by  the assessee from the dealer cannot be subjected to duty of  excise.  On the question of limitation, it was submitted that  there was no suppression of facts and, therefore, the department  was not entitled to invoke the proviso to section 11A(1) of the  1944 Act.

       By order dated 29.4.1991, the Additional Collector  (hereinafter referred to for the sake of brevity as the  "Adjudicating Authority") found that the assessee had incurred  advertising charges initially and had got themselves reimbursed  through debit notes which were not disclosed by the assessee to  the department at the time of approval of the price-list.  The  Adjudicating Authority further found that the assessee was  undertaking advertisement in national and regional papers on  behalf of the dealers for which the assessee used to charge the  dealers for such expenses over and above the wholesale margin  allowed to the dealers.  According to the Adjudicating  Authority, these facts were evident from the debit notes.   According to the Adjudicating Authority, such expenses  incurred by the assessee constituted additional consideration.   According to the Adjudicating Authority, such additional  consideration was incurred by the assessee and charged to the  dealers in addition to expenses incurred by the dealer on their  own and, therefore, such charges were includible in the  assessable value.  Accordingly, the Adjudicating Authority  confirmed the show-cause notice.

       Aggrieved by the order passed by the Adjudicating  Authority, the assessee preferred appeal No.E/1125/94-A to the  Customs, Excise & Gold (Control) Appellate Tribunal, New  Delhi (hereinafter referred to for the sake of brevity as "the  Tribunal").  By the impugned judgment and order dated  09.3.1999, which is a cryptic order, the Tribunal without  discussing the evidence on record allowed the appeal on the  ground that the matter was covered by the judgments of this  Court in Philips India Ltd. v. Collector of Central Excise,  Pune reported in [1997 (91) ELT 540] and Mahindra &  Mahindra Ltd. v. Collector of Central Excise, Bombay  reported in [1998 (103) ELT 606].  Hence, this civil appeal by  the department.

       At the outset, we may point out that there is conceptual  difference between "expenses" and "reimbursement".  This  difference has not been taken into account by the Tribunal.  In  the present case, it appears from the decision of the  Adjudicating Authority that the Company had initially incurred  advertisement expenses which expenses were subsequently  reimbursed by them from their dealers.  It is not clear from the  decision of the Adjudicating Authority as to at what stage the  reimbursement took place.  It is not clear from the decision of

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the Adjudicating Authority as to whether the reimbursement  was at the end of the year by way of adjustment of accounts or  whether the reimbursement had taken place within a short  interval of time from the date of the advertisement.  The  fundamental point however in the present case is whether such  reimbursements by the manufacturer are includible in the  assessable value and whether such reimbursement would  constitute "advertisements by the dealers on their own account"  or whether they would fall in the category of "advertisements  solely made by the assessee on their own account" for  computing the assessable value.  These questions were not the  subject matter of the decisions in Philips India Ltd. (supra) and  Mahindra & Mahindra Ltd. (supra).  The Tribunal was wrong  in applying the aforestated two decisions to the facts of the  present case.

       For the aforestated reasons, the appeal is allowed; the  impugned judgments and orders of the Tribunal as well as of  the Adjudicating Authority are set aside and the matter is  remitted to the concerned Adjudicating Authority for fresh  decision in accordance with law, both on merits as well as on  the point of limitation.        However, in the facts and  circumstances of this case, there will be no order as to costs.