Case: Collector of Central Excise, Pune Vs. Philips India Ltd

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 [ (Mad)]. 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. [(Cal)] 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 4. It is not in dispute that the agreements between the appellant and their dealers are genuine agreements entered into at an arms length, that they are as between principal and principal and that the payments contemplated therein are made. The relevant clauses of the agreement are "(6) All Companys products to be supplied under this Agreement shall be paid for in cash upon delivery. All taxes (Central or State), levies, imposition, octroi and duties which may be assessed on the Company in respect of the sale of the Companys products or levied on the said sales shall be borne by the Dealer and the Dealer shall indemnify and keep indemnified the Company against any claim, demands, proceedings, costs, charges and expenses in respect of such imposition, taxes and duties" * (16) The Dealer will be informed from time to time of the Companys products which are available and of their current list prices together with the terms of supply and prices applicable to the Dealer. The Company shall be at liberty to intimate to the Dealer the maximum prices at which the Dealer shall sell the products. The Dealer shall, however, be free to charge prices lower than those (18) The Dealer undertakes strictly to comply with the terms of guarantee of free service for the Companys products laid down by the Company from time to time regardless of where the purchase has been made and further undertakes that it shall not charge the customer for any repairs to any Philips receivers during the prescribed guaranteed service period (19) The Dealer undertakes to maintain an efficient service station duly equipped in every respect to the satisfaction of the Company at all times and will assume full responsibility for the servicing or repairs in respect of the sets and the Companys products. The Dealer shall comply in this respect with whatever instructions may be given from time to time by the Company (24) The Company reserves the right to exercise control and supervision at any time over all repairs of Philips receivers and in case repairs are considered by the Company to be of an unsatisfactory nature, the Company will be free to correct such repairs at the cost and expense of the Dealer(26) The dealers shall carry out at their own expense advertisement campaign to promote sales of the Companys products (34) Nothing in this Agreement shall constitute or be deemed to constitute the Dealer as agent of the Company for any purpose whatsoever and the relationship between the parties hereto is that of vendor and purchaser 5. 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 this reason the cost of such advertisement was borne half and half by the appellant and the dealer. Making a deduction out of the trade discount on this account was, therefore, uncalled for6. As to the after-sales service that the dealer was required under the agreement to provide, it did of course enhance in the eyes of intending purchasers the value of the appellants product, but such enhancement of value enured not only for the benefit of the appellant; it also enured for the benefit of the dealer for, by reason thereof, the dealer got to sell more and earn a larger profit. The guarantee attached to the appellants products specified that they could be repaired during the guarantee period by the appellants dealers anywhere in the country. Thus, though one dealer might have to repair goods sold by another dealer and incur costs in that regard, he also had the benefit of having the goods he sold reparable throughout the country. The provision as to after-sales service, therefore, benefited not only the appellant; it was a provision of mutual benefit to the appellant and the dealer 7. We think that in adjudicating matters such as this, the Excise authorities would do well to keep in mind legitimate business considerations 8. We cannot help but observe that the reduction of the trade discount by two percentage points would not have occurred to the adjudicating authorities, being an unlikely estimate, but for the fact that the 2% here realised Rs. 50 lakhs and odd

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]5. 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 this reason the cost of such advertisement was borne half and half by the appellant and the dealer. Making a deduction out of the trade discount on this account was, therefore, uncalled for6. As to theservice that the dealer was required under the agreement to provide, it did of course enhance in the eyes of intending purchasers the value of the appellants product, but such enhancement of value enured not only for the benefit of the appellant; it also enured for the benefit of the dealer for, by reason thereof, the dealer got to sell more and earn a larger profit. The guarantee attached to the appellants products specified that they could be repaired during the guarantee period by the appellants dealers anywhere in the country. Thus, though one dealer might have to repair goods sold by another dealer and incur costs in that regard, he also had the benefit of having the goods he sold reparable throughout the country. The provision as toservice, therefore, benefited not only the appellant; it was a provision of mutual benefit to the appellant and the dealer