- (1.) The appellant manufactures audio equipment at a factory at Pune. It was served with a show-cause-cum-demand notice on 3/12/1986, by the Collector of central Excise alleging that the assessable value of the goods manufactured by it during the period 1983 to 1986 had not been correctly determined inasmuch as the appellant had claimed inadmissible deductions from the price realised from its dealers on account of, amongst others, "normal trade discount although a substantial part thereof represented advertisement expenses and expenses on after-sales service which were includible in the assessable value. The demand in this behalf was upheld as representing 2% of the trade discount. The tribunal was moved in appeal. It noted the terms of agreements entered into between the appellant and its dealers and dismissed the appeal. In regard to the service rendered by the dealers during the guarantee period, the tribunal observed that there was nothing on record to show that the expenses incurred by the dealers on this account were reimbursed by the appellant and, upon this basis it said, "obviously, the dealer was to meet these expenses out of the discount offered by the manufacturer to him". In this behalf the tribunal also quoted senior officers of the appellant who had said that the costs of such service were to come out of the dealers' discount. Insofar as advertisement expenses were concerned, the tribunal laid emphasis on the fact that advertisement by the dealers was mandatory, and it had to becarried out at the dealers' own expense. It noted, however, that the advertisement cost was, in fact, shared between the appellant and the dealers half and half. The tribunal said that "the dealers, to the extent they were obligated to provide after-sales service to the products of Peico, free of charge, under agreement, were acting as agent of their suppliers. Further, insofar as they were incurring expenditure on advertising the products of their suppliers under agreement, and not out of their own free will for the purpose of their own business, they were not acting independently and that part of the discount which could be attributable to such activities was not a normal trade discount, for the purposes of Section 4 of the Act". The tribunal upheld the finding of the Collector that the appellant was not eligible "for the deduction on account of that portion of normal trade discount as described by them, to the extent of 2% of the discount attributable to after-sales service and advertisement incurred by the dealers on behalf of the assessee".
(2.) The learned counsel for the appellant drew attention to the judgment of a division bench of the High court at Madras in Standard Electric appliances v. Supdt. of central Excise. The court said that it was common knowledge that when a consumer purchased an article from a dealer, in the case of service facilities he looked to the dealer and not to the manufacturer. For replacement of defective parts also he looked to the dealer from whom he had purchased and, notwithstanding the fact that the wholesale dealer might ultimately have the parts replaced by it reimbursed from the manufacturer, the service facilities were provided by the wholesaler with a view to earn goodwill and attract customers. The advertising of a product by the wholesaler was one of the well-known methods by which the wholesaler attracted customers and if, as a result of increasing its business, the demand for the product of the manufacturer also increased, the advertising by the manufacturer could not be said to be for and on behalf of the manufacturer.
(3.) In Union of India v. Mahindra and Mahindra Ltd. the High court at bombay emphasised the relationship between the parties, being of buyer and seller on principal-to-principal basis. The court observed that the manufacturer and its distributor had a mutual interest in maximising the sale of the products. The provisions in the contract between them relating to advertising and the like were in furtherance of this desire on the part of both the manufacturer and its distributor and in no way affected the real nature of the transaction which appeared to be of sale on principal-to-principal basis.;